Does lawyer misconduct taint Amex, MasterCard antitrust settlements?

July 30, 2015

(Reuters) – We may never really understand why plaintiffs’ lawyer Gary Friedman of the Friedman Law Group sabotaged his own promising career by secretly disclosing a trove of privileged and confidential documents from his antitrust class action against American Express to Keila Ravelo, MasterCard’s counsel in a parallel class action against Visa and MasterCard. But thanks to filings Wednesday in the Amex case, we now know the breathtaking scope of Friedman’s improper disclosures, which Hofstra law professor Roy Simon described in an expert witness report as the most “repeated and serious violations” of professional duties that he can recall in 20 years of advising class counsel.

Perhaps more importantly, Wednesday’s filings show how merchants that have objected to settlements of both the MasterCard and Amex class actions intend to use Friedman’s ethical breaches to upend the deals. They have different strategies to overturn a final judgment in the $6.6 billion class action settlement with Visa and MasterCard and to block final approval of an injunction-only settlement with Amex. In both cases, however, they contend Friedman seemed to be more dedicated to his friend Ravelo than to his own clients, merchants suing the credit card companies over swipe fees.

As I’ve been reporting since March, Friedman and Ravelo were old friends who once worked together at Sidley Austin, including on the pro bono defense of Melvin Feliz, whom Ravelo later married. She and Friedman remained so close that their families vacationed together and Friedman extended three personal loans to Ravelo and Feliz. (All were repaid, according to a declaration filed Wednesday by a lawyer for Friedman.) Ravelo turned to Friedman for counsel when she left Hunton & Williams to join Willkie Farr & Gallagher, when her husband was arrested on federal drug charges in March 2014, and again when she and her husband were charged in December with defrauding Hunton, Willkie and Ravelo’s longtime client MasterCard.

After Willkie learned the government was investigating Ravelo, it conducted its own review of her files. The firm’s investigation uncovered problematic communications from Friedman. Willkie alerted lawyers in the Visa/MasterCard case and the American Express case. Eventually, Willkie, Hunton and Friedman himself agreed to make some 18,000 pages of emails and other correspondence between Friedman and Ravelo available to the lawyers.

Those communications are still not public. But according to briefs from two separate groups of objectors in the Amex case, Friedman treated Ravelo as if she were also class counsel, said an objector group led by Target in its brief. The group led by 7-Eleven said in its filing that Friedman turned over essentially the entire case record from the American Express case to Ravelo, “from draft complaints to damages analyses to appellate strategy.” According to 7-Eleven’s lawyers at Constantine Cannon, Friedman “freely shared the settlement positions of the class and American Express” with Ravelo while she was defending MasterCard against parallel claims by the same merchants who were suing American Express.

The Target objectors, represented by Clarick Gueron Reisbaum and Vorys Sater Seymour & Pease, make a persuasive argument that the Amex settlement cannot be approved because Friedman betrayed his duties as class counsel. “Mr. Friedman’s improper conduct means that he could not provide, and did not provide, adequate representation to the class,” the Target brief said. “Class members should not be saddled with lead counsel whose conduct is so reckless, so inappropriate, and so unmoored from prevailing standards of professional conduct.”

Friedman’s own lawyers, New York University law professor Samuel Issacharoff and Theresa Trzaskoma of Brune & Richard, have suggested Friedman was just engaged in “backdoor” talks with Ravelo, feeling out negotiating positions for the benefit of the class. The Target and 7-Eleven briefs said that is preposterous. “The notion that counsel for MasterCard served as a de facto member of the class counsel team in this case, representing the same merchant class that was adverse to MasterCard in another pending case, can be charitably viewed only as a fanciful, after-the-fact contrivance,” the Target brief said. “It is difficult to understand how class counsel could even suggest that such an arrangement might exist consistent with the adequacy of representation requirement and ethical standards.”

So that’s the objectors’ strategy to block final approval of the Amex settlement, in which Friedman and two other law firms that served as co-lead class counsel are due to receive $75 million in fees: assert that U.S. District Judge Nicholas Garaufis of Brooklyn cannot approve the deal because the class did not have adequate counsel.

Friedman was not class counsel in the MasterCard/Visa case, which was led by Robins Kaplan and Robbins Geller Rudman & Dowd. But he was involved in negotiations on the issue of whether the credit card companies would permit merchants to tack on different surcharges depending on which card customers wanted to use. And according to 7-Eleven’s brief in the Amex case, Friedman fed information about the merchants’ (and Amex’s) positions on these surcharges to Ravelo so she could look good with her client MasterCard. (Paul Weiss Rifkind Wharton & Garrison was MasterCard’s lead counsel in the case.)

“Even though he knew what he was doing was wrong, Friedman shared work product and confidential American Express materials with his close friend to help her counsel MasterCard,” the 7-Eleven objectors said in their filing Wednesday. According to the 7-Eleven group’s ethics expert, Hofstra prof Simon, Friedman effectively acted as a “double agent” in the MasterCard case, purportedly working on behalf of the retailers suing Visa and MasterCard but secretly improving MasterCard’s negotiating posture. “He was a turncoat,” Simon said in his report.

Presumably, that’s the argument objectors will assert in the MasterCard case, in which U.S. District Judge John Gleeson entered final judgment in 2013: The judgment must be vacated because the settlement was tainted by Friedman and Ravelo’s deception. I’m drawing an inference because objectors haven’t filed public briefs in that case, but the expert report submitted in the Amex litigation broadly hints what Constantine Cannon will argue in the parallel MasterCard/Visa case.

Friedman and his co-lead class counsel in the Amex case, Read McCaffrey and Reinhardt Wendorf & Blanchfield, also submitted a brief Wednesday, arguing that nothing in Friedman’s communications with Ravelo “suggests Mr. Friedman ever had any purpose other than furthering the interests of the merchant class members. And nothing in the Communications indicates that he ever took any action detrimental to the members of the class” in either the Amex or MasterCard cases. The Amex class was represented by two well-qualified lawyers aside from Friedman, their brief said, and neither Friedman nor Ravelo had any authority to settle the MasterCard case.

Amex, MasterCard and class counsel in the MasterCard case have all said at different points in the saga over the Friedman disclosures that his mistakes did not ultimately impact the hard-fought settlements they reached with merchants. Amex, which is represented by Boies Schiller & Flexner, has until next week to respond to Wednesday’s briefs. The MasterCard filings will hit the docket on Sept. 1.

As I said above, we may never know why Friedman did what he did. But we are getting closer to finding out the consequences of his actions.

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