Disgraced plaintiffs’ lawyer Gary Friedman on why his leaks shouldn’t topple the largest antitrust settlement in U.S. history

September 29, 2015

(Reuters) – At last, Gary Friedman has decided to explain himself.

Friedman, in case you don’t remember his name, is the antitrust plaintiffs lawyer whose life was pitched into chaos in December, when his old friend Keila Ravelo was arrested for allegedly defrauding her client MasterCard and two law firms where she had been a partner, Willkie Farr & Gallagher and Hunton & Williams.

Willkie’s internal investigation of Ravelo’s files turned up thousands of emails from Friedman – who, as it happened, wasn’t just a friend of Ravelo’s but also her opponent in one of the biggest antitrust cases in history. Friedman represented retailers in two parallel suits against credit card companies, one against Visa and MasterCard, the other against Amex. Ravelo was part of MasterCard’s defense team. Friedman told her seemingly everything about retailers’ strategy on his piece of the Visa and MasterCard case, which involved changes to the credit card companies’ long-standing rules barring merchants from imposing extra fees on customers who use credit cards. He even sent Ravelo confidential documents from the Amex case, in which he was lead plaintiffs counsel.

Friedman’s conduct has been a mystery since this scandal broke. He hired lawyers, who said in court at a hearing in the Visa and MasterCard case that Friedman’s emails to Ravelo were ordinary back-channel talks between opposing counsel, the sort that take place in every giant litigation. Friedman and his co-lead counsel in the Amex case said in a brief in July that none of his disclosures had hurt his clients, more than 3 million retailers who wanted to force Amex to permit surcharges.

Those legalistic arguments weren’t much of a defense against accusations by objectors to Friedman’s proposed $79 million Amex settlement. They commissioned an expert witness report from Hofstra law professor Roy Simon, who called Friedman’s disclosures to Ravelo the most “repeated and serious violations” of professional duties that he could recall in 20 years of advising class action lawyers. Without permitting a response from Friedman and his co-counsel, U.S. District Judge Nicholas Garaufis of Brooklyn rejected the Amex settlement in August.

“Whether Friedman exchanged confidential and/or privileged materials with Ravelo and consulted with her regarding these actions for financial reasons, out of personal loyalty, due to a misplaced sense that her advice would in fact benefit the merchant class and was not improper, and/or for some other reason(s), is something this court cannot currently, and need not, determine,” Judge Garaufis wrote. “Whatever his reason for doing so, Friedman’s bringing MasterCard’s counsel into the negotiating process created a conflict between class members and class counsel, and specifically a risk that Friedman, with Ravelo in his ear, negotiated settlement terms that are worse for class members than the terms he might have negotiated absent that conflict.”

Now U.S. District Judge Margo Brodie and U.S. Magistrate Judge James Orenstein of Brooklyn are weighing motions by opponents of the much bigger $5.7 billion settlement between retailers and Visa and MasterCard to overturn the final judgment in that case because, they claim, collusion between Friedman and Ravelo tainted that deal as well. For opponents of the controversial credit card settlements – which have been roundly criticized by large retailers, in particular – Friedman’s transgressions provided unexpected ammunition to attack the agreements.

In September, Friedman submitted a lengthy declaration in the Visa and MasterCard case, attempting to explain and justify his conduct. Parties in the case greeted the filing with scorn, describing it as “self-serving,” an example of his “ethically compromised view of the world,” and proof of his “unethical conduct.” Judge Orenstein decided not to accept the declaration into the record. It remains under seal and inaccessible to the public.

So Friedman and his wife, Cardozo law professor Myriam Gilles, decided to tell their story to me. In a two-hour interview last week, Friedman and Gilles described their long friendship with Ravelo and explained why Friedman believed he was helping his clients by giving her confidential documents and strategy memos. They said they’re speaking out because they believe Friedman’s conduct has been mischaracterized and misunderstood – not least by Judge Garaufis, to whom Friedman has written an open letter accusing the judge of misrepresenting the record to reach an unwarranted conclusion. “Every material factual assumption or conclusion that underlies the opinion is false,” the letter said.

Friedman was by turns abashed and defiant. He admitted he had made mistakes – especially by disclosing to Ravelo portions of an expert witness report prepared for some retailers in the Amex class – but insisted they were essentially well-intended and harmless. His conduct, he said, should not be an excuse to upend industrywide changes that, in his view, benefit millions of retailers, especially small businesses.

“Did I do something wrong? Yes,” Friedman said. “But our settlement represented tremendous value to merchants. Now it’s lost.”

RAVELO GIVES FRIEDMAN AN IDEA

According to Friedman, he would never have been involved in the credit card antitrust litigation if it hadn’t been for Keila Ravelo. Friedman said he met Ravelo more than 20 years ago when he joined the law firm Sidley Austin and spoke to a group of new associates about a pro bono case he was handling for several young men from the Dominican Republic who claimed they had been roughed up by the police. Ravelo volunteered to work on the case with him and they became good friends.

Friedman and Ravelo lost the case but Ravelo ended up marrying one of their clients, Melvin Feliz, when he was released from prison after serving time on drug charges. “We loved Mel,” said Friedman. “He made a huge mistake in his teenage years but never in a million years did I think he would screw up again.”

Ravelo introduced Friedman to his wife, Gilles, when Gilles worked as a summer associate under Ravelo. The two couples were close, even though Friedman and Gilles said Ravelo and Feliz had a much flashier style and, after Ravelo became a law firm partner, seemed to have much more money.

Ravelo moved from firm to firm, but her big client at all of them was MasterCard. In the late 1990s, MasterCard was sued, alongside Visa, for requiring merchants to accept both branded credit and debit cards. Before MasterCard settled that case in 2003, Ravelo and her husband met Friedman and Gilles for dinner near her law firm’s pre-trial “war room” in downtown Manhattan. Friedman, who was by then practicing on his own, handling mostly civil rights suits, said he became fascinated with the credit card industry and spent hours questioning Ravelo about it.

Friedman developed a theory that credit card companies were violating antitrust laws by barring retailers from steering customers to particular cards. A merchant could not, for example, encourage customers to use Visa cards by charging customers a higher fee to use a MasterCard or Amex cards. He eventually joined forces with other plaintiffs’ lawyers suing the credit card companies for supposedly conspiring to overcharge merchants on “swipe” fees.

Friedman ended up as the lead lawyer in the consolidated litigation against American Express. His firm was not one of the three in charge of the consolidated case against Visa and MasterCard but Friedman worked closely with the leadership group. He was particularly involved in negotiations over the fees retailers would be able charge customers for using credit cards.

Throughout those negotiations, Friedman kept up a steady email correspondence with Ravelo, who was one of MasterCard’s defense lawyers in the swipe fee case. By his own admission, Friedman routinely told Ravelo what he and other lawyers for the retailers were thinking and planning. He even sent her his side’s strategy memos and draft settlement language.

AMEX AND THE ‘FANTASY RESOLUTION’

Friedman’s critics claim he was secretly feeding information to Ravelo and MasterCard in an elaborate scheme to reap big fees from a settlement in the parallel litigation he was leading against American Express. Retailers in the case against Visa and MasterCard bargained for the right to impose extra charges on customers using their cards – but agreed to condition that right, through a “level playing field” clause, on American Express also loosening its no-surcharge rule.

According to Friedman’s detractors, he pushed for that level playing field clause, with Ravelo’s secret help, to achieve what Friedman once fatefully called a “fantasy resolution” for American Express. In the “fantasy resolution,” Amex would be assured that merchants could not charge customers higher fees to use Amex cards than to use Visa and MasterCard.

That is what Friedman’s now-rejected Amex settlement would have provided. The deal included a provision permitting retailers to charge fees for customers using Amex cards – but only if merchants charge the same fees for Visa and MasterCard. In combination, the settlements effectively require businesses to charge the same fees regardless of which card their customers use, depriving retailers of the ability to encourage shoppers to use a particular card.

According to Judge Garaufis, who tossed the Amex settlement in August, the terms of the two deals raised the question of whether Friedman had his clients’ interests in mind when he agreed to that provision.

But Friedman and Gilles said the chronology of the intertwined cases shows Friedman had no overarching plan to sell out his clients to American Express. As Friedman said in his open letter to Judge Garaufis, at the time the Visa and MasterCard settlement was being negotiated, the Amex case was caught up in the side issue of whether Amex could force small businesses to arbitrate their claims instead of suing as a class. The merchants ultimately lost at the U.S. Supreme Court in 2013, when the justices ruled Amex’s mandatory arbitration clause was enforceable.

Before that decision, Friedman said, he refused to entertain Amex settlement offers that would have required merchants to impose the same surcharges on all cards. He said the battle over the Amex arbitration clause proves he was not scheming to give Amex its “fantasy resolution.” In fact, Friedman said in his open letter to the judge, the very 2011 email to Ravelo in which he used that phrase went on to say he would not grant Amex those terms.

Friedman said that under his settlement, merchants could still have steered customers to Visa and MasterCard by offering discounts to offset surcharges. He also took umbrage at Judge Garaufis’ implication that he was driven by the $75 million fee in the proposed Amex deal. His open letter to the judge contends Garaufis misrepresented the context of a July 2012 email in which Friedman referred to a “huge fucking number” Amex was balking at. According to Friedman, he was talking about his $2.2 billion demand for class damages, not his fee request.

HELPING THE CLASS?

If he wasn’t scheming to rig an Amex deal, why did Friedman give Ravelo confidential documents and strategy memos? According to him and Gilles, he had two motivations in the two different cases. In the Visa and MasterCard litigation, Friedman said, the defendants refused to hold formal meetings with retailers’ lawyers unless both credit card companies attended. So his friendship with Ravelo provided an informal way for the merchants to test MasterCard’s positions.

“Perfectly appropriate,” Friedman said. “I haven’t seen anybody point to a single email or memo I sent that I wouldn’t happily defend as moving the puck up the ice.” Friedman said he does not know if other lawyers at Ravelo’s firm, Willkie Farr, were aware he was disclosing retailers’ negotiating strategies, but he said Willkie lawyers certainly knew Ravelo was his good friend. He and Gilles said they met Willkie partners at a party Ravelo threw the night Barack Obama was first elected president. The MasterCard litigation was already under way by then.

According to Friedman, he did not send Ravelo confidential documents from the American Express case until after retailers reached a preliminary settlement with Visa and MasterCard in July 2012. At that point, he said, he and Ravelo were no longer adversaries, since both were working to win approval of the settlement. (Friedman also said Ravelo would have been entitled to see the Amex documents if he had simply obtained her signed statement agreeing to keep the material confidential.)

Friedman said he gave Ravelo Amex documents after July 2012 because he wanted advice from a defendant’s perspective as he continued to represent the merchants suing American Express. His intention, he said, was to help his clients, not to sell them out. “If in those emails there is something that shows I’m not acting in the best interests of the class, then shame on me,” he said. But according to Friedman, none of his emails show that.

Friedman said his biggest regret is showing Ravelo portions of an expert witness report prepared for a group of retailers in the Amex litigation. The expert, he said, reached many of the same conclusions about the credit card industry as him, and he shared the report with Ravelo to brag about his own analysis.

“It was tremendously vain,” Friedman said, the only time he sounded ashamed of his conduct. “I’m mortified.”

THE UNRAVELING

The unraveling of Friedman’s career began in March 2014, when Ravelo’s husband, Feliz, was arrested for allegedly conspiring to transport cocaine from California to New Jersey. Both Friedman and Gilles said the news came as a shock. Feliz was always involved in one business or another – a copy shop, a radiology clinic in the Bronx, real estate ventures – and had all sorts of moneymaking ideas, like buying a used Gulfstream jet and starting up an airline charter business with a pilot he knew. (Friedman and Ravelo exchanged emails about the private charter idea.) But Gilles said she and Friedman “didn’t have a great sense of Mel’s work life.”

After Feliz’s arrest, Ravelo told Gilles and Friedman that federal investigators were looking into a litigation support company Feliz operated. (Friedman and Gilles said they hadn’t known anything about the company.) Ravelo claimed the New Jersey U.S. Attorney’s office was trying to frame her with allegations the litigation support company was a fraud, collecting millions of dollars based on phony invoices.

She showed Gilles a July 2012 email chain with Willkie personnel, purporting to show that the litigation support business was doing real work. Although federal prosecutors have since said in court that the emails are not credible, they have turned into a headache for Friedman because they seem obliquely to suggest he gave protected Amex documents to Ravelo before the MasterCard and Visa settlement. Judge Garaufis included a reference to the emails in his opinion rejecting the Amex deal.

Ravelo was arrested in December and is out on bail. She has not yet been indicted. Her defense lawyer, Steven Sadow of Schulten Ward & Turner, has said Ravelo was under the thumb of her husband. Melvin Feliz pled guilty in August to conspiring with Ravelo in the fraud scheme, which prosecutors now say took in nearly $8 million in sham billings.

Friedman and Gilles said it did not occur to them that Friedman would be caught up in Ravelo’s alleged wrongdoing. “I stood by Keila for months,” Friedman said. “I had no earthly idea this was going to implicate me.”

He found out in February, along with the other lawyers in the parallel MasterCard and Amex cases, when Willkie called a meeting to disclose that it found emails from Friedman and confidential Amex documents in its search of Ravelo’s files.

That was the beginning of Friedman’s long descent. So far, the low point has been Judge Garaufis’ opinion rejecting the American Express settlement, which Friedman called “galling” for its accusation that he betrayed the retailers he represented. Friedman said he still believes that if he could stand before the judge and defend himself, “my every fiber tells me I would be able to turn him around.”

Friedman’s wife, Gilles, said he has been lonely and isolated since the disclosure scandal broke. Business prospects, including an agreement to work with Kirkland & Ellis on individual retailer arbitrations against American Express, have dried up and money is tight. American Express has threatened to bring an ethics complaint for Friedman’s disclosure of its confidential documents, though Friedman said he has not been notified of any ethics case against him.

Friedman said he expects the MasterCard and Visa settlement to hold up. He also said he believes he will receive fees for his work on that case.

Gilles said she still cannot believe she and Friedman were deceived by Ravelo and Feliz, whose friendship turned out to be so costly to her and her husband. Friedman is more sentimental.

“I can’t divorce myself from feeling very sad for Mel and Keila,” he said. “I can’t overlook the human side. What we are going through is collateral damage.”

(This article has been corrected. An earlier version incorrectly reported that Ravelo showed Friedman MasterCard’s pre-trial “war room” in 2003. She did not.)

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