Walmart: Settlement 'Worse Than Losing'

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In a last-minute interchange settlement objection filed on Tuesday (May 28), Walmart (NYSE:WMT) and more than 60 other retailers described the proposed settlement as worse than actually losing the case. The settlement will block future lawsuits over any Visa (NYSE:V) or MasterCard (NYSE:MA) rules, practices or actions—and that includes PCI and breach penalties.

That goes far beyond the original lawsuit, which only covered default interchange rules, honor-all-cards rules and anti-steering rules. If the case went to trial and lost every claim, that would still just lock in the card brands' control of interchange and card-acceptance rules. But the proposed settlement would go far beyond that, which makes the settlement illegal, Walmart's brief argues.

"This proposed settlement is worse for the class than losing," the filing says. "They are being compelled to accept a release that purports to forever limit their ability to challenge any Visa or MasterCard rule in effect as of preliminary approval, as well as substantially similar future rules and future conduct, including ongoing and future damages claims. Had defendants prevailed at summary judgment or trial, the res judicata effect of such a ruling never could have covered the entirety of Visa's and MasterCard's rulebooks, or claims concerning future rules and conduct. Nor would it have covered ongoing or future damages claims of class members."

The biggest area that would hit most retail IT operations is PCI and breach penalties. Under the settlement, all existing Visa and MasterCard rules get an exemption from future legal challenges—and "rules" are defined as "any rule, by-law, policy, standard, guideline, operating regulation, practice, procedure, activity, or course of conduct." Merchants aren't allowed to even see all the rules that are written down. The ones that are just practices or "courses of conduct"—documented or not—get a free pass from the settlement.

That means Visa's and MasterCard's already questionable (and sometimes questioned in court) practices for deciding how much to penalize a chain for a breach could no longer be challenged in court, even if a card brand clearly puts blame in the wrong place or hits different retailers with wildly inconsistent breach fines.

It also would put the card brands in the position of being able to change the interpretation of PCI requirements at will and overrule QSAs' determinations about compensating controls. And it would cement the de facto Visa and MasterCard policy of retroactively declaring breach victims non-compliant with PCI, even if the retailer followed PCI requirements to the letter.

And those card-brand policies, bad habits and ethical lapses would apply to anyone who accepts Visa or MasterCard—right down to Square users.And those card-brand policies, bad habits and ethical lapses would apply to any "merchant" that accepts Visa or MasterCard—not just the 8 million conventional retailers that were accepting the cards when the lawsuit was filed eight years ago, but also the roughly 26 million (and counting) small businesses and individuals using Square and similar card-swipe devices. For all of them, it comes to the same thing: Whatever Visa and MasterCard say, goes.

How did things come to this? Remember, this lawsuit wasn't about PCI, transaction security or breach penalties. It was about interchange and card-acceptance rules. It wasn't expanded to cover such a wide range of Visa and MasterCard rules until all the fact-finding was over. Somehow, once settlement talks began, it morphed into a huge giveaway for the card brands.

That, of course, is part of the objection from Walmart and the dozens of other retailers that signed this 74-page objection. The filing argues that the expansion to cover all those other card-brand rules was illegal and that most of the "relief" retailers are supposed to get consists of rights merchants already had or "rights" they can't actually exercise. It also argues that the class is improperly formed, that notice was faulty, that the remaining non-objecting named class plaintiffs have conflicts of interest and that the settlement actually doesn't address the original issues in the case. (Remember those interchange and card-acceptance rules? Post-settlement, they'll be exactly the same.)

Officially, Tuesday's deadline was the last chance to object to the settlement until the "fairness" hearing on September 12. That actually may not hold true, because card processor First Data (which is also a "merchant" under another expansive settlement definition) has asked for a hearing about its own objection. In theory, the shouting was supposed to be over by now. In practice, this is looking like a very long, hot summer.

And for the record, here are the other retailers and trade groups (plus one railroad) that joined Walmart in the objection: original plaintiffs Coborn's, D'Agostino's, Jetro, Affiliated Foods Midwest Cooperative, National Association of Convenience Stores, National Community Pharmacists Association, National Cooperative Grocers Association, National Grocers Association, National Restaurant Association and NATSO, along with 7-Eleven, Academy Sports + Outdoors, Aldo and Call It Spring, Alon Brands, Amtrak, Amazon.com, American Eagle Outfitters, Barnes & Noble, Best Buy, BJ's, Carter's, Costco, Crate & Barrel, Darden Restaurants, David's Bridal, Dick's Sporting Goods, Dillard's, Family Dollar, Drury Hotels, Foot Locker, Gap, GNC, Genesco, Gymboree, HMSHost, IKEA, J. Crew, Kwik Trip, Lowe's, Marathon Petroleum, Martin's Super Markets, Michaels Stores, Nike, Panda Restaurant Group, Panera Bread, P.C. Richard & Son, Petco, PetSmart, RaceTrac Petroleum, REI, Retail Industry Leaders Association, Roundy's, Sears, Speedway, Starbucks, Stein Mart, Thermo Fisher Scientific, Wendy's, Wet Seal, Whole Foods and Zappos.com.