Judge Rejects Proposed Settlement Between AmEx and Merchants

A federal judge rejected a proposed $79 million class-action settlement between American Express Co. and a group of merchants, citing a recent discovery that two opposing lawyers in the case had exchanged confidential documents.

In a 44-page decision released Tuesday morning, U.S. District Judge Nicholas Garaufis also removed from the case Gary Friedman, a lawyer who had represented some of the merchants. Mr. Friedman had exchanged documents with rival lawyer Keila Ravelo, who was representing MasterCard Inc. in a case that involved many of the same merchants.

The court "concludes that the improper and disappointing conduct of Co-Lead Class Counsel Gary B. Friedman has fatally tainted the settlement process," wrote Judge Garaufis.

The judge's ruling was unusual because he had granted preliminary approval to the pact last year.

AmEx said in a statement that it was "disappointed" with the judge's decision and "we continue to believe the agreement was fair to merchants, and would provide them with additional flexibility while ensuring our card members are treated fairly at the point of sale."

The company also said it would continue to fight the case in court.

A lawyer representing Mr. Friedman couldn't immediately be reached for comment.

Write to Robin Sidel at [e-mail]

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