Evan Schuman's StorefrontBacktalk

As the interchange fee proposed settlement winds its way to a federal judge’s decision—which is not expected before early next year, followed by the inevitable appeals—retailers are re-attacking the deal, with most of the named plaintiffs abandoning the settlement. But it’s not clear how much of a difference it will make.

On October 19, as expected, the settlement was formally submitted to U.S. District Court Judge John Gleeson. But many of the retailers behind the settlement have now changed their mind and are actively opposing it. Those reversals, though, won’t necessarily have a direct impact on the settlement’s status, because Gleeson now has to decide for himself whether the settlement advances the interests of consumers, retailers and the industry.

From the beginning, the settlement was never heralded as a great step forward by anyone involved. At best, it was painted as an incremental step forward, one that would be slightly better than existing conditions. That’s hardly a powerful rallying cry.

On Tuesday (Oct. 23), an attorney representing D’Agostino Supermarkets, the National Community Pharmacists Association, National Cooperative Grocers Association and the National Restaurant Association was one of several attorneys arguing to the judge that his clients “believe that the proposed settlement does not qualify for preliminary approval because of its obvious and facial defects.”

The day before, a lawyer for A & D Wine Corp. asked the court for permission to group retailers who oppose the settlement, so that they can jointly study the settlement and make an argument why it’s evil.

“Nine of the 19 named class members have informed Co-Lead Class Counsel that they have decided to reject, oppose and remove their names from the proposed settlement agreement, confirming that there is much work to be done,” Jay Breakstone wrote. “We fully recognize that though the period to object is short, there are some 400 depositions and 50 million pages of discovery which led to the proposed settlement agreement. On some level, the objectors have to parse and understand this material.”

The National Retail Federation (NRF) has been arguably the most vocal opponent of the settlement and its statement from Friday was aggressive. “The proposal put on the table this summer was beyond tweaking, and the update presented today proves that fact. It remains manifestly unfair,” NRF Senior Vice President and General Counsel Mallory Duncan said. “The settlement still does virtually nothing to protect retailers or their customers from the abuses of the card industry, and it attempts to silence any objections for years to come. Retailers would rather take their chances in court than accept this one-sided swindle written by the card industry for the card industry. It should prove very significant to the court that the majority of the plaintiffs in this case have repudiated the settlement, and that includes half a dozen national trade associations representing thousands of merchants. The lawyers and handful of retailers who support the settlement do not represent the retail industry.”

True, but—legally, at least—now that the proposal has been submitted, the retail industry’s interests are now represented by the judge, along with the interests of consumers and others. Gleeson will consider their arguments—to the extent he finds them persuasive—but not necessarily their actions.

The

chief advocate for the settlement proposal is K. Craig Wildfang, co-lead counsel for the merchants and partner at Robins, Kaplan, Miller & Ciresi L.L.P. Legally, he argues, the removal of those named plaintiffs “doesn’t matter one whit,” adding “If there was a reason to, we could add many more names to the pleadings.”

Wildfang intends to argue to the court that many of those retailers were tricked into abandoning the case by organizations that incorrectly said what the settlement involved. “I am sure it will not escape Judge Gleeson’s attention” that some retailers have changed their minds, but that was because “a lot of misinformation has been given to some of those merchants by people with their own agendas. These are statements of misstatement of fact.”

The problem with retailers opposing the settlement is that there is no current better alternative. The settlement provides short-term interchange relief at the cost of keeping in place a system that retailers do not like. If the settlement is rejected, the bad situation remains, except that financial relief goes away. Negotiations would continue, but there’s no reason to believe a better settlement would be offered. It could be allowed to ultimately go to court. That will take a very long time, though, and the outcome is uncertain. Ultimately, retailers could easily find themselves in a less favorable position.