Analysis: Lawyers eye payday in record credit card settlement
(Reuters) - The proposed $7.25 billion settlement in a private lawsuit brought by retailers against Visa Inc and Mastercard Inc could spell one of the most generous paydays in U.S. history for lawyers.
The proposed deal, filed jointly by the plaintiffs and defendants in Brooklyn federal court on Friday, would settle charges that the credit card companies charged retailers excessive fees. It includes a $6.05 billion cash payment to retailers, as well as a temporary card-fee reduction valued by plaintiffs' lawyers at $1.2 billion.
If approved, the deal would be the largest antitrust settlement in U.S. history, and also among the largest class-action lawsuit payouts ever.
The lawyers who brought the case on behalf of dozens of major merchants and trade associations have yet to submit their bill to the court. But using past mega-settlements as a guide, the lawyers could be awarded roughly 10 percent of the cash settlement -- translating to $600 million, said Theodore Eisenberg, a professor at Cornell Law School who has studied class action settlements.
"This is comparable to Enron, WorldCom or Tyco," said Cardozo Law School professor Lester Brickman, referring to investor litigation against three now-defunct companies: Enron, the energy giant, WorldCom, which was in telecommunications and Tyco, a wide-ranging conglomerate. They represent the small handful of class action settlements that topped $3 billion and netted plaintiffs' attorneys hundreds of millions of dollars.
The three major plaintiffs' firms which served as co-lead counsel in the credit card case -- Robbins Geller Rudman & Dowd, Robins Kaplan Miller & Ciresi and Berger & Montague -- could stand to earn the most, based on hours and time invested in the case. Those same firms will solicit input from other law firms involved in the case to determine the size of the fee request. They will also suggest how to divvy up the reward among all the firms and submit the request to U.S. District Judge John Gleeson, who has overseen the 7-year-old case and will make the final determination on any fees awarded.
Gleeson also oversaw a similar antitrust suit against Visa and Mastercard that was settled in 2003. In that case, retailers challenged issuers' "Honor all Cards" policy, which forced retailers that accepted one type of card from Visa or Mastercard to then accept additional cards issued by the companies. Though the plaintiffs' attorneys requested $609 million from a settlement valued at more than $3 billion, Gleeson granted less than half of that amount--$220.3 million--and criticized class counsel for their "excessive" request.
There is some overlap in plaintiffs' firms in both the 2003 and the current case, but the lead firms are different.
Patrick Coughlin, of counsel at co-lead firm Robbins Geller Rudman & Dowd, said he and his co-counsel have not yet agreed on a specific fee request in the current case.
"This is a judge who really knows what's going on in this case," said Coughlin, referring to Gleeson's role in both litigations. "You don't want to appear greedy."
Another lawyer representing the retailers said the judge, in considering the request, would take into account the large sum the credit card companies have agreed to pay in the settlement, as well as promised reforms to Visa and Mastercard's card fee policies.
"With this, we've accomplished everything that can be accomplished in a courtroom," said Craig Wildfang, who also helped spearhead the litigation. "One has to balance the alternative to a settlement—no payment at all and at least another three years of litigation."
Many plaintiffs' lawyers operate under contingency fee arrangements in which their pay is taken as a cut of what they win for their clients. While that sum can range into the millions of dollars depending on the size of the recovery, a potential payday of $600 million or more is a rarity.
The settlement does not spell out how the plaintiffs' lawyers will be paid but does specify that the fees and up to $30 million in legal expenses will be drawn from the $6.05 billion cash portion of the settlement.
Often in smaller class actions settlements, lawyers can take about a third of the final figure. But the larger the settlement, the smaller the percentage, according to Eisenberg. A 2010 study Eisenberg co-authored with Geoffrey Miller, a professor at New York University Law School, showed that where the recovery was more than $175.5 million, the average for fees fell to 12 percent, and decreased further as the recovery figure rose.
Such fees have been the subject of criticism by the U.S. Chamber of Commerce and other business organizations, which say that plaintiffs' lawyers covertly structure settlements to reap the maximum benefit, even if it comes at clients' expense.
Matthew Webb, senior vice-president for legal reform policy at the U.S. Chamber Institute for Legal Reform, would not comment directly on the Visa/Mastercard settlement, but said that "In the typical class action, plaintiffs really have no control. That's where the largest amount of abuse occurs, because there's nobody there watching."
While individual plaintiffs can voice their criticism to Gleeson during a court hearing, defendants may not have a chance to object, since the attorney fees will be taken out of the plaintiffs' portion, said Brickman, the Cardozo professor.
In the pantheon of mega-paydays for lawyers, the deal proposed by the retailers and Visa and Mastercard could rank among the biggest. The largest single attorneys' fee award to date was $688 million, doled out in 2008 in the Enron case, according to statistics from the National Association of Legal Fee Analysis. In second and third place, the group identified the $492 million fee resulting from Tyco litigation and about $336 million in fees in the WorldCom case.
The BP oil spill settlement could also make it into the plaintiffs' fee hall of fame. In June, the federal judge overseeing the case capped fees at 25 percent of the estimated $7.8 billion settlement. Plaintiffs' lawyers in that case have asked for about $600 million.
All of those fees are dwarfed by the billions of dollars paid to various attorneys around the country who took part in the $206 billion tobacco settlement. But that settlement, which involved multiple lawsuits brought by attorneys general in dozens of states, is in a league all by itself, said Cardozo's Brickman.
Visa and Mastercard declined to comment.
(Reporting by Jessica Dye; editing by M.D. Golan)
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