By Robin Sidel
When lawyer Gary Friedman shared confidential documents about
his biggest case with a rival attorney, he instructed her in an
email to "burn after reading."
But the correspondence survived, leading a federal judge on
Tuesday to reject a proposed $79 million class-action settlement
between American Express Co. and millions of merchants. Another
much larger settlement could be in jeopardy as well.
In a 44-page decision, U.S. District Judge Nicholas Garaufis
blocked the AmEx settlement and removed Mr. Friedman from the case,
citing his "improper and disappointing conduct" that "fatally
tainted the settlement process."
The judge's ruling was the latest twist in two long-running
lawsuits that have been rocked by the discovery that Mr. Friedman
shared thousands of pages of documents and strategy with Keila
Ravelo, a lawyer who worked at Willkie Farr & Gallagher LLP and
represented MasterCard Inc.
Mr. Friedman represented merchants in the AmEx case and a
similar but separate lawsuit that pits many of the same retailers
against MasterCard and Visa Inc. Ms. Ravelo wasn't part of the AmEx
case but sat across the table from Mr. Friedman in the
Visa-MasterCard suit, which is in the same court but in front of a
different judge.
Ms. Ravelo and Mr. Friedman were close friends who had
previously worked together, according to court documents.
The Visa-MasterCard case resulted in a $6 billion settlement
that already has received final approval, though lawyers
representing some of the merchants are trying to unravel that pact
based on the discovery of the emails between Mr. Friedman and Ms.
Ravelo.
Tuesday's move by Judge Garaufis, who sits in the federal
court's Eastern District of New York in Brooklyn, was particularly
significant because he had granted preliminary approval to the AmEx
settlement last year.
In a statement, AmEx said it was disappointed by the rejection
and "we continue to believe the agreement was fair to merchants and
would provide them with additional flexibility while ensuring our
card members are treated fairly at the point of sale." The company
also said it would continue to fight the case in court.
AmEx signed the $79 million settlement with the merchants in
2013. In addition to the payout, the pact would give merchants the
right to surcharge customers who use an AmEx credit or charge
card.
Mr. Friedman, who runs a firm called Friedman Law Group LLP,
couldn't be reached for comment.
Ms. Ravelo, who no longer works at Willkie Farr, separately has
been charged by the U.S. attorney's office in New Jersey with
conspiracy to commit wire fraud to fraudulently obtain more than $5
million from Willkie Farr, another law firm and MasterCard,
according to authorities and court records.
Her lawyer, Steve Sadow, said in a statement Tuesday that "we
will not be in a position to comment publicly until there is a
ruling on the Visa/MasterCard settlement."
It isn't clear if Judge Garaufis' decision in the AmEx case will
have any implications for the Visa and MasterCard settlement. The
merchants officially notified the card networks last week of their
plans to challenge the settlement. The papers should be filed in
the court next month.
MasterCard said the judge's ruling shouldn't affect its
settlement, which is "the result of an extensive negotiation among
many lawyers on both sides, with the close involvement of the
court."
K. Craig Wildfang, a lawyer at Robins Kaplan LLP in Minneapolis,
who played a key role in representing merchants in the Visa and
MasterCard case, also said that he believes the $6 billion
settlement will stay in place.
Mr. Friedman, who led a group of plaintiff lawyers in the AmEx
case, held a lesser role in the case involving Visa and MasterCard.
Some of his clients in the Visa and MasterCard case have filed a
motion to vacate any fees he might earn in that matter, an amount
they estimate at $32 million.
In his rejection of the AmEx settlement on Tuesday, Judge
Garaufis disclosed details about the correspondence that previously
hadn't been revealed publicly. Among them, Mr. Friedman sent many
of the communications to Ms. Ravelo's personal email address,
"suggesting an intention to keep the communications from being
discovered," the judge wrote.
Mr. Friedman wrote "burn after reading" in at least two of the
messages, according to the judge.
Judge Garaufis described Mr. Friedman's conduct as
"egregious."
In his decision, Judge Garaufis said that he didn't need to
consider other objections to the proposed settlement that were
raised by some merchants because "the procedural unfairness and
failure of adequate representation revealed by the Friedman/Ravelo
communications requires disapproval of the settlement."
Jeffrey Shinder, a lawyer at Constantine Cannon LLP who
represents merchants opposing the Visa-MasterCard settlement, said
the details in the judge's order show why that one should be tossed
as well.
"This lawyer was conflicted and he acted on those conflicts in
ways that were clearly antithetical to the interests of merchants
and competition overall," he said.
The rejection of the settlement represents Judge Garaufis's
second recent blow against AmEx. Earlier this year, he ruled that
AmEx's rules that prevented merchants from steering customers to
cheaper cards were anticompetitive. AmEx is appealing that
decision, but merchants are now permitted to encourage customers to
use other cards from Visa and MasterCard.
Write to Robin Sidel at robin.sidel@wsj.com
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