By Robin Sidel
A federal judge rejected a proposed class-action settlement
between American Express Co. and a group of merchants, citing a
recent discovery that a lawyer who represented retailers in the
case shared confidential documents with a rival attorney who was
working for MasterCard Inc. in a similar matter.
In a 44-page decision released Tuesday morning, U.S. District
Judge Nicholas Garaufis also removed the retailers' lawyer, Gary
Friedman, from the case, citing his "improper and disappointing
conduct" that "fatally tainted the settlement process."
The move by Judge Garaufis, sitting in the eastern district of
New York in Brooklyn, was particularly significant because he had
granted preliminary approval to the $79 million settlement last
year.
The exchange of documents between Mr. Friedman and Keila Ravelo,
a former lawyer at Willkie Farr & Gallagher LLP who represented
MasterCard, is also muddling a $6 billion settlement between Visa
Inc., MasterCard and many of the same merchants. That settlement
has already been finalized, but lawyers representing retailers last
week started the process of trying to unravel it, citing the raft
of emails between Ms. Ravelo and Mr. Friedman.
The two lawyers were close friends who had previously worked
together.
It isn't clear if Judge Garaufis' decision in the AmEx case will
have any implications for the Visa and MasterCard settlement, which
has been handled by a different judge in the same Brooklyn court.
Mr. Friedman, who led a group of plaintiff lawyers in the AmEx
case, held a lesser role in the case involving Visa and
MasterCard.
Mr. Friedman, who runs a firm called Friedman Law Group LLP,
couldn't be reached for comment. Judge Garaufis also removed the
entire firm from the case. Lawyers representing Mr. Friedman also
couldn't be reached.
AmEx inked 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 card or charge
card.
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.
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."
He also described Mr. Friedman's conduct as "egregious," saying
the lawyer sent emails containing "confidential and highly
confidential information of American Express" to Ms. Ravelo. The
judge also noted that the exchange of emails wasn't accidental
because Mr. Friedman wrote "burn after reading" in at least two of
them.
The rejection of the settlement represents Judge Garaufis'
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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