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CSNews Exclusive: C-stores Face Legal Crossroads in Interchange Lawsuit

NEW YORK -- The proposed class-action lawsuit over interchange rates brought by merchants against Visa and MasterCard and their member banks is entering a critical juncture, and convenience stores of all sizes have some important decisions to make, attorneys Jeffrey I. Shinder and Matthew L. Cantor told CSNews Online.

Shinder and Cantor, partners in the law firm of Constantine Cannon LLP, are well-versed in the interchange battle. They were the lead counsel, representing a class of 5 million merchants, in the 2003 class-action suit against Visa and MasterCard over their signature debit cards. That case delivered more than $2.5 billion in settlement payments.

The current interchange case -- now in federal court in Brooklyn, N.Y. -- involves 20 merchant plaintiffs, including NACS and CHS Inc., who allege that the transaction fees they pay for accepting Visa and Mastercard debit and credit cards amount to illegal price-fixing. The merchants have requested that their case proceed as a class-action, which would translate into millions of plaintiffs -- potentially every merchant in the nation.

If their motion is granted, then each class member -- which would be every merchant that has accepted a Visa or MasterCard payment in the U.S. in recent years -- will have to decide whether to become part of the class-action, or opt out and file their own lawsuit.

Based on their experiences in such cases, Shinder and Cantor believe there's a strong chance the presiding judge will certify the class-action. Subscribing to an 80/20 rule where the best-case scenario would be 80-percent likelihood and the worst case 20-percent likelihood, the counselors said they would put the current case at 60-percent to 65-percent likelihood.

"We think the plaintiffs did very well in their arguments," Cantor said, although he noted the plaintiffs in the current interchange case have to withstand tougher scrutiny than they had to go through when they got their class-action suit certified several years ago.

If the class-action is certified, the lawyers said the parties would either try the case (assuming it is not summarily dismissed before trial) or settle, which they consider a far-more likely outcome since the financial ramifications of a class-action certification for Visa and Mastercard would be the difference between several million or several billion dollars.

In either case, though, they said convenience store retailers and all other merchants who accept Visa and Mastercard payments would have to choose one of three strategies:

-- Wait and hope to collect;
-- Wait and object to the likely settlement; or
-- Opt out completely.

Each approach has its pros and cons, according to Shinder and Cantor.

Under the first choice, a merchant would do nothing now, and wait to collect his or her share of any recovery from a settlement or jury verdict. This approach would entail only minimal legal fees and completely skip the costs and burdens of discovery. However, this leaves the merchant just one option: to take the jury's verdict or the deal that the parties negotiate in settlement, even if the merchant believes its claims are worth substantially more than those results, they explained. The merchant also could not pursue its own legal theories, hire its own counsel or join the settlement talks and influence their outcome.

The second option is to do nothing now, and object to the proposed settlement later if it does not fairly address the damages incurred by the merchant and the other class members. The attorneys noted, however, that class settlements negotiated at arms' length are presumed fair, and judges often favor settlement over continued litigation. So, objecting will not necessarily affect the terms of a proposed class settlement.

Lastly, merchants could opt out of the class-action altogether (within 60 days of the class certification) and bring their own lawsuits. This allows the merchant to seize control of its own case rather than rely on others -- in some cases, its competitors -- to protect its interests. Under this approach, a merchant also has the potential to achieve a larger financial recovery than he or she would as a member of the class-action.

The attorneys told CSNews Online there isn't one alternative that's better than the others. It really depends on each retailer, and what they believe is best for them.

"Do you want a seat at the table? Do you think you're going to be adequately represented by the people already at the table? Do you have the resources to hire your own counsel? These are the questions [convenience store retailers] should ask themselves," Shinder explained. "And with NACS in this case, the question for c-stores also comes down to what extent they think their interests will be protected by their association."

The class certification process will almost certainly bleed into next year, the counselors said, and they foresee this case being litigated for a long time after that, since both the credit card companies and merchants are taking a hard line on interchange fees.

But given this issue's importance to their bottom line, convenience stores should start carefully considering their options now, so they're prepared, the attorneys advised.

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