Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (29 page)

I believe that the redesign of the cards was more important than the money relief because the discovery had shown that, in addition to deceiving stores, the design of Visa/MasterCard debit cards to look like credit cards had caused massive harm to consumers. Shoppers frequently drained their checking accounts and bounced checks because they thought they were using a credit card. These incidents were little nightmares with collateral consequences that reverberated for weeks, months, and sometimes for years. The jury would have heard the testimony of some of the victimized consumers, but it was better that the underlying cause of their problems was corrected. All of the cards were also electronically redesigned so that merchants can identify debit cards using codes embedded in the magnetic stripe on the cards.

The basic idea of American antitrust is that consumers, businesses, and the economy all do better with competitive markets than where there is little or no competition. Antitrust is not a regulatory scheme. Neo-conservatives who refer to government antitrust enforcers as “regulators” do so either ignorantly or maliciously. Being antiregulatory, antitrust does not predict outcomes other than the broad prediction that more competition produces better results than less competition. Some critics of antitrust point to this imprecision to support their charge that antitrust is sort of a creed, if not a religion. That criticism has some but little merit. Those who heard or read what I said about antitrust and the results of the
Merchants’
case at the May 1, 2003, press conference may discern a little of the preacher in me.

J
UDGE GLEESON ISSUED his fee decision on December 19, 2003, along with his approval of the settlement. These are the facts about the fee award. We applied to Judge Gleeson for an attorneys’ fee amounting to 18 percent of the present value of the monetary relief to the merchants, which Judge Gleeson determined was $3.383 billion. In fact, we underestimated the amount of the immediate negotiated price decrease, which actually added some $400 million to this $3.4 billion figure. Our request was also calculated as a percentage of the value of monetary relief and the injunctive relief, including the elimination of the tying arrangements, which is projected to range from $25 billion to $87 billion during just the first decade after the settlement. So as a percentage of the whole package of relief, quantified by Judge Gleeson in his decision, our request was as high as 2.14 percent to as low as 0.67 percent, or roughly two-thirds of one percent. The amount requested was identical in each of these three percentage calculations: $608,940,000.

In his decision, Judge Gleeson called our fee request “excessive” and “absurd” and “wholly out of character for a group of counsel whose commitment to the corner store merchants they represent has, until now, been admirable and unflagging.” Judge Gleeson then awarded an attorneys’ fee of $220,290,160.44. He said that the six factors that govern the award of attorneys’ fees “compels the award of an extraordinary fee.” The fee he awarded was the highest ever awarded in a federal antitrust case. Those are the facts, but not the truth, about the fee and the process that led up to Judge Gleeson’s decision.

The truth is that Judge Gleeson, who otherwise did his job throughout the case skillfully and with great integrity, was disingenuous about his method in making this decision. It is silly and truly absurd to try to gain sympathy when you have been awarded a nine-figure attorneys’ fee, the highest ever in this area of law. That’s not my purpose. I simply want to go beyond the publicly known facts to the truth.

During the brutal settlement process, I got to know, like, and respect John Gleeson. After we settled, I knew that Judge Gleeson would have a problem with the attorneys’ fee. No matter how small a fee he awarded when measured as a percentage of the relief, it was inevitably going to be the largest fee in federal antitrust history, because the recovery was so much larger than any previous antitrust recovery. The previous record was $1.027 billion in the 1998 NASDAQ antitrust settlement. The merchants’ compensatory relief, at $3.383 billion, was more than three times this previous record. Moreover, the injunctive relief, valued at $25 to $87 billion, which Judge Gleeson said “should inform my decision on awarding fees and it has,” rendered comparison with any previous result almost impossible.

Knowing that the fee would likely be the largest, and that judges don’t build their reputations and improve their chances for elevation to a higher court by making huge fee awards, I tried to give Judge Gleeson
maximum flexibility to make this determination and soften any harm to his reputation. I dispatched Eric Green, our mediator, to tell Judge Gleeson that I wanted to file a fee petition that would set out the facts and the applicable legal principles but not request any particular fee. I proposed simply to tell Judge Gleeson, “Here are the facts, here is the law—give us whatever you deem appropriate.” Green delivered the message and came back with Judge Gleeson’s response. The judge rejected my proposal and directed us to ask for a specific amount.

Faced with Judge Gleeson’s directive, we not only gave him all the facts and law to make his decision, but we did things for him that had never been done before to ease a judge’s burden and make easier the unpleasant task of awarding a massive attorneys’ fee. We spent more than a thousand hours reducing the fees requested by each of the thirty law firms on the merchants’ side, including our own. We reviewed every time and expense entry from the thirty firms for the seven years, involving the review of more than 225,000 hours of attorney and paralegal work descriptions and more than $19 million in expenses.

We established criteria for reducing the fee and expense requests. We did this based upon instinct, experience, and what we thought was fair. We applied these criteria uniformly to C&P and the other twenty-nine firms. We rejected all requests that appeared duplicative. We reduced compensable travel time between various cities to what we considered an appropriate level. We rejected requests that we could not understand, knowing that if we couldn’t, Judge Gleeson and his clerks certainly couldn’t. We reduced the rates requested for attorney and paralegal work to rates we considered reasonable.

We cut attorney hours in a formula designed to reduce what we considered excessively long days, especially those involving coast-to-coast travel. In this exercise, my hours were cut for numerous days when I traveled to San Francisco and worked through the night; that is, after
my drink in the Redwood Room of the Clift Hotel. We also rejected requests to reimburse certain hotel stays, laundry expenses, movies at hotels, office supplies, and alcohol. I paid for my own drinks at the Redwood Room. We rejected the charges for many meals, such as charges for meals on days when a lawyer worked fewer than a minimum number of hours.

After we did all this, C&P hired an independent accounting firm, Cornick, Garber &Sandler, to reaudit the bill. They worked for roughly 500 hours, completely rechecking C&P’s work and making further reductions consistent with the methodology and rules we had established. The result of all this work was the reduction of the so- called “lodestar” by more than $3 million dollars. The lodestar is simply all the attorney and paralegal hours worked on the case, multiplied by the applicable hourly billing rates. Given Judge Gleeson’s decision, this reduction in the lodestar of $3 million-plus saved the class more than $10 million. We also rejected over $700,000 in reimbursement expense requests submitted by the lawyers working for the plaintiffs in the
Merchants’
case.

After reviewing the precedents, I am unaware of any firm ever doing what C&P did with this bill. I am also unaware of any outside court-retained auditor doing such an extensive scrub. The importance of our review was not so much in saving $11 million, but in protecting the integrity of the process and making Judge Gleeson’s tough job easier. For this work, Judge Gleeson neither complimented us nor even noted the extraordinary effort. If he had recognized it in his decision, other judges would likely have come to expect or require this type of review in the future.

On top of the audits, we presented Judge Gleeson with every conceivable case arguably relevant to our record result, whether the fees awarded in these cases were high or low. We also submitted the reports of the two preeminent experts in the area of attorneys’ fees,
Professor John Coffee of Columbia and Professor Arthur Miller of Harvard. These guys had written the book on fees. Arthur Miller was the principal author of the definitive and influential report on attorneys’ fees issued several years earlier by United States Court of Appeals for the Third Circuit.

Professor Miller’s report in the
Merchants’
case said:

Because there never has been an antitrust class action as complex, as risky, and as hard-fought that has led to similar beneficial results for the class and the public at large, no reported decision concerning a mega-fund case actually can serve as a “benchmark” for appraising this fee and expense application.

Professor Coffee told Judge Gleeson:

[T]his case presents the clearest ex-ample that I have ever seen of a “you-bet-your-firm” case in which the principal law firm that carried this case forward for plaintiffs for over six and one half years of uncompensated litigation was forced to risk its survival; as a firm on the outcome of a single, very high-risk case. Although I have testified in several dozen large class actions regarding fee awards, I have encountered no other case in which the principal law firm devoted the majority of its attorneys’ hours over several years to the prosecution of a single action on a contingent fee basis. Indeed, I would have doubted that any firm could have accepted such a level of risk. Here, however, one firm did, persisting over six years and finally achieving not simply an exemplary recovery, but a record one.

Professor Harry First, who is a professor of Antitrust Law at NYU
and was Chief of Antitrust Enforcement for New York State, also supported
the fee request, stating:

I conclude that plaintiffs’ counsel did an extraordinary job representing the class in this extremely difficult and highly risky case. The settlements they have achieved are historic. It is beyond anything that I might have predicted when this litigation was commenced and it is hard for me now to imagine any better result.

The experts who filed these reports all opined that the specific request, which we had reluctantly made, was justified. They organized their analyses around the six factors that Judge Gleeson said governed his determination and “compels the award of an extraordinary fee.”

These six factors are:

(1) The time and labor expended by counsel to litigate the case;

(2) The magnitude and complexities of the litigation;

(3) The risk taken by the lawyers who litigated the case on a contingent basis;

(4) The quality of the representation of the plaintiffs;

(5) The relationship of the fee to the settlement; and

(6) The so-called public policy factor, where a court considers whether the fee award will persuade or dissuade lawyers from bringing similar cases in the future.

Judge Gleeson agreed with the experts that on each of these factors, the
Merchants’
case and the performance of their lawyers was unprecedented. For example, on the first factor, “time and labor,” Judge Gleeson said that counsel had

litigated this case—which did not culminate in settlement until the eve of trial—for seven years. During that time, there were almost 400 depositions of witnesses, including 21 experts who issued 54 expert reports; four rounds of class certification
briefing (through the Supreme Court); 16 summary judgment motions, 31 motions inlimine and three
Daubert
motions; and a pretrial order identifying 230,000 pages of trial exhibits, 730 trial witnesses, and more than 17,000 pages of deposition designations.

On the second factor, “case magnitude and complexity,” Judge Gleeson said the case had been “enormous,” involving “almost every U.S. bank and more than five million U.S. merchants.”

On the third factor, “risk,” Judge Gleeson agreed with Professor Coffee that the case forced plaintiffs’ counsel, and especially C&P, to accept an unprecedented level of risk, noting that “Constantine &Partners devoted 52 percent of its attorney and paralegal resources to this case. . . . [s]uch a hardship weighs in favor of higher compensation, particularly where, as here, Lead Counsel did not benefit from any previous or simultaneous government litigation.” Judge Gleeson noted that, unlike many private antitrust cases, “the government piggybacked on Class Counsel’s efforts.”

On the fourth factor, “quality of representation,” Judge Gleeson said:

The excellence of the representation of plaintiffs, especially in light of the very high quality of opposing counsel, cannot be seriously debated. Constantine &Partners is a premiere plaintiffs’ litigation firm, specializing in antitrust litigation particularly, and complex commercial litigation generally. . . . Its work is uniformly excellent, and thus it is no surprise that it has led the effort that produced the largest antitrust settlement ever.