© 2017 Thomson Reuters. No Claim to Original U.S. Government Works. 1 Photos Etc

Photos Etc. Corp. v. Home Depot U.S.A. Inc., 2016 WL 7557579 (2016)

2016 WL 7557579 (U.S.) (Appellate Petition, Motion and Filing) Supreme Court of the United States.

PHOTOS ETC. CORP. et al., Petitioners, v. HOME DEPOT U.S.A. INC. et al., Respondents.

No. 16 - 710 . December 29, 2016.

On Petition for a Writ of Certiorari to the United States Court of Appeals for the Second Circuit

Defendants' Brief in Response in Support of Petition for Certiorari

Benjamin R. Nagin, Eamon P. Joyce, Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, (212) 839-5300.

Carter G. Phillips, * Joshua J. Fougere, Christopher A. Eiswerth, Sidley Austin LLP, 1501 K Street, N.W., Washington, DC 20005, (202) 736-8000, [email protected].

David F. Graham, Robert N. Hochman, Sidley Austin LLP, One South Dearborn Street, Chicago, IL 60603, (312) 853-7000, for defendants-respondents Citigroup Inc., Citibank, N.A., and Citicorp.

Robert C. Mason, Arnold & Porter LLP, 399 Park Avenue, New York, NY 10022, (212) 715-1000.

Richard J. Holwell, Michael S. Shuster, Demian A. Ordway, Holwell Shuster & Goldberg LLP, 750 Seventh Avenue, 26th Floor, New York, NY 10019, (646) 837-5153.

Robert J. Vizas, Arnold & Porter LLP, Three Embarcadero Center, 10th Floor, San Francisco, CA 94111, (415) 471-3100.

Mark R. Merley, Matthew A. Eisenstein, Arnold & Porter LLP, 601 Massachusetts Ave., N.W., Washington, DC 20001, (202) 942-5000, for defendants-respondents Visa Inc., Visa, U.S.A. Inc., and Visa International, Service Association † .

Kenneth A. Gallo, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 2001 K Street, N.W., Washington, DC 20006, (202) 223-7300.

Gary R. Carney, Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Ave. of the Americas, New York, NY 10019, (212) 373-3000, for defendants-respondents MasterCard Inc., and MasterCard International Inc.

Joseph R. Palmore, Morrison & Foerster LLP, 2000 Pennsylvania, Avenue, N.W., Washington, DC 20006, (202) 887-6940.

Mark P. Ladner, Michael B. Miller, Morrison & Foerster LLP, 250 West 55th Street, New York, NY 10019, (212) 468-8000, for defendants-respondents Bank of America, N.A., BA Merchant Services LLC, (f/k/a National Processing, Inc.), Bank of America, Corp., and FIA Card Services, N.A. (f/k/a MBNA, America Bank, N.A., and Bank of America, N.A. (U.S.A.)).

Andrew J. Frackman, Abby F. Rudzin, O'Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY 10036, (212) 326-2000, for defendants-respondents Capital One, Bank (USA), N.A., Capital One F.S.B., and Capital One Financial Corp.

James P. Tallon, Shearman & Sterling LLP, 599 Lexington Avenue, New York, NY 10022, (212) 848-4000, for defendants-respondents Barclays Bank plc (in its individual capacity and as successor in interest to Barclays Financial Corp.) and Barclays Bank Delaware.

Richard L. Creighton, Drew M. Hicks, Keating Muething & Klekamp PPL, One East Fourth Street, Suite 1400, Cincinnati, OH 45202, (513) 579-6400, for defendant-respondent Fifth Third Bancorp.

John P. Passarelli, James M. Sulentic, Kutack Rock LLP, The Omaha Building, 1650 Farnam Street, Omaha, NE 68102, (402) 346-6000, for defendant-respondent First National Bank of Omaha.

David S. Lesser, Wilmer Cutler Pickering Hale and Dorr LLP, 7 World Trade Center, New York, NY 1007, (212) 230-8851, for defendants-respondents HSBC Finance Corp. and HSBC North America Holdings Inc.

Jonathan S. Massey, Leonard A. Gail, Massey & Gail, LLP, 1325 G Street, N.W., Suite 500, Washington, DC 20005, (202) 652-4511.

Peter E. Greene, Boris Bershteyn, Peter S. Julian, Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, NY 10036, (212) 735-3000, for defendants-respondents JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., Chase Bank USA, N.A., Chase Manhattan Bank USA, N.A., Chase Paymentech Solutions, LLC, Bank One Corp., Bank One Delaware, N.A., and JPMorgan Chase Bank, N.A., as acquirer of certain assets and liabilities of Washington Mutual Bank ‡ .

Frederick N. Egler, Jr., Reed Smith LLP, 225 Fifth Avenue, Pittsburgh, PA 15222, (412) 288-3396, for defendants- respondents National City Corp. and National City Bank of Kentucky.

Teresa T. Bonder, Valarie C. Williams, Kara F. Kennedy, Alston & Bird LLP, One Atlantic Center, 1201 W. Peachtree Street, NW, Atlanta, GA 30309, (404) 881-7000, for defendants-respondents SunTrust Banks, Inc. and SunTrust Bank.

Robert P. LoBue, William F. Cavanaugh, Patterson Belknap Webb & Tyler LLP, 1133 Avenue of the Americas, New York, NY 10036, (212) 336-2000, for defendants-respondents Wachovia Bank, N.A., Wachovia Corp., and Wells Fargo & Co.

Jonathan B. Orleans, Adam S. Mocciolo, Pullman & Comley, LLC, 850 Main Street, Bridgeport, CT 06601, (203) 330-2000, for defendant-respondent Texas Independent Bancshares, Inc.

*i PARTIES TO THE PROCEEDINGS AND RULE 29.6 STATEMENT

Defendants-Respondents, who were defendants-appellees below and counterparties to the settlement with petitioners, are:

Citigroup Inc., Citibank, N.A., and Citicorp;

Visa Inc., Visa U.S.A. Inc., and Visa International Service Association;

MasterCard Inc. and MasterCard International Inc.;

Bank of America, N.A., BA Merchant Services LLC (f/k/a National Processing, Inc.), Bank of America Corp., FIA Card Services, N.A. (f/k/a MBNA America Bank, N.A., and Bank of America, N.A. (U.S.A.));

Capital One Bank (USA), N.A., Capital One F.S.B., and Capital One Financial Corp.;

Barclays Bank plc (in its individual capacity and as successor in interest to Barclays Financial Corp.) and Barclays Bank Delaware;

Fifth Third Bancorp;

First National Bank of Omaha;

HSBC Finance Corp. and HSBC North America Holdings Inc.;

JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., Chase Bank USA, N.A., Chase Manhattan Bank USA, N.A., Chase Paymentech Solutions, LLC, Bank One Corp., Bank One Delaware, N.A., and JPMorgan Chase Bank, N.A., as acquirer of certain assets and liabilities of Washington Mutual Bank;

National City Corp. and National City Bank of Kentucky;

*ii SunTrust Banks, Inc. and SunTrust Bank;

Wachovia Bank, N.A., Wachovia Corp., and Wells Fargo & Co.; and

Texas Independent Bancshares, Inc.

Given their length, corporate disclosures for these entities pursuant to Rule 29.6 are attached as an addendum to this brief.

*iii TABLE OF CONTENTS PARTIES TO THE PROCEEDINGS AND RULE 29.6 STATEMENT ...... i TABLE OF AUTHORITIES ...... iv INTRODUCTION AND SUMMARY ...... 1 ARGUMENT ...... 6 I. THE DECISION BELOW CONFLICTS WITH RULE 23 AND CANNOT BE SQUARED 6 WITH PRECEDENT FROM THIS COURT OR OTHER COURTS OF APPEALS ...... II. THE SECOND CIRCUIT'S RULE RISKS HARMING THE JUDICIAL PROCESS AND 11 OBSTRUCTING CLASS SETTLEMENTS ...... CONCLUSION ...... 17 ADDENDUM: Rule 29.6 Corporate Disclosure Statement ...... 1a

*iv TABLE OF AUTHORITIES CASES Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997) ...... 2, 6, 7 Ass'n of Cmty. Orgs, for Reform Now (ACORN) v. Edgar, 99 F.3d 261 (7th Cir. 13 1996) ...... City P'ship Co. v. Atl. Acquisition Ltd. P'ship, 100 F.3d 1041 (1st Cir. 1996) ...... 13 Dewey v. Volkswagen Aktiengesellschaft, 681 F.3d 170 (3d Cir. 2012) ...... 3, 8, 9 Jeff D. v. Kempthorne, 365 F.3d 844 (9th Cir. 2004) ...... 12 In re Literary Works in Elec. Databases Copyright Litig., 654 F.3d 242 (2d Cir. 12 2011) ...... Marisol A. v. Giuliani, 126 F.3d 372 (2d Cir. 1997) ...... 16

Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999) ...... 2, 6, 7 Rufo v. Inmates of Suffolk Cty. Jail, 502 U.S. 367 (1992) ...... 12 Sullivan v. DB Invs., Inc., 667 F.3d 273 (3d Cir. 2011) ...... 16 Uhl v. Thoroughbred Tech. & Telecomms., Inc., 309 F.3d 978 (7th Cir. 2002) ...... 8 Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338(2011) ...... 16 In re Warfarin Sodium Antitrust Litig., 391 F.3d 516 (3d Cir. 2004) ...... 12, 13 Williams v. First Nat'l Bank of Pauls Valley, 216 U.S. 582 (1910) ...... 11 RULES Fed. R. Civ. P. 23 ...... 3, 6, 13 *v Fed. R. Civ. P. 23 advisory committee's note on 1966 amendment ...... 6 Fed. R. Civ. P. 41 ...... 11, 13 Fed. R. Civ. P. 68 ...... 11 SCHOLARLY AUTHORITY M. Schlanger, Beyond the Hero Judge: Institutional Reform Litigation as 12 Litigation, 97 Mich. L. Rev. 1994 (1999) ...... OTHER AUTHORITIES 4 W. Rubenstein, Newberg on Class Actions (5th ed. 2014) ...... 12 7A Wright et al., Federal Practice and Procedure (3d ed. 2005) ...... 7 7B Wright et al., Federal Practice and Procedure (3d ed. 2005) ...... 13

*1 INTRODUCTION AND SUMMARY

After years of extensive litigation and settlement discussions that faithfully adhered to the ordinary ground rules governing class actions, a panel of the Second Circuit upended those settled rules and dismantled one of the most significant class action settlements in United States history. That decision conflicts with the Federal Rules of Civil Procedure, finds no support in this Court's precedent it purports to follow, and does not square with the precedent of other courts of appeals. The issues the decision below implicates are also exceptionally important. Only this Court can straighten out the Second Circuit's novel approach to class action settlements and restore the proper boundaries of Rule 23. Defendants-respondents (Visa, MasterCard and various member banks) thus agree with petitioners that the Court should grant certiorari and reverse. 1

The Second Circuit's finding of inadequate representation (Pet. App. 11, 16) and insistence that separate class counsel should have been brought in at some - wholly undefined - point in this long-running litigation (id. at 16-22) are fundamentally unworkable. The Second Circuit minted a new rule that “perfect[] overlap” is required for settlement classes pursuant to Rules 23(b)(2) and (b)(3) to coexist with unitary representation. Id. at 19. It holds that this rule applies even if, as here, the class representatives simultaneously seek injunctive relief and damages, and the majority of absent class members would be entitled to both. See Pet. 4, 19, 25. That rule essentially *2 forecloses settlement discussions with unitary counsel for putative (b)(2) and (b)(3) classes - at least until a litigation class or classes have been certified. See Pet. App. 21 (“Of course we have blessed multi-class settlements that were the product of unitary representation, but those were entered into after class certification.”).

Moreover, if there were any meaningful flexibility to this rule (which is dubious), cf. Pet. App. 20-21, it still would leave defendants in the dark: they cannot know whether, when a case's posture turns from litigation to settlement, they are negotiating with the right counsel if putative class representatives simultaneously have sought relief under Rules 23(b)(2) and 23(b)(3). That remains true even when, as here, the counsel with whom they are negotiating have studied millions of pages of documents, have taken and defended hundreds of depositions, and have unmatched knowledge of the strengths and weaknesses of their clients' damages and injunctive claims. The uncertainty the Second Circuit has imposed upon class settlement negotiations is exceptionally high in a variety of institutional or structural reform settings. For instance, whether class plaintiffs seek relief against school districts, employers, prisons, or, as here, payment card networks, class plaintiffs often seek damages for harms allegedly inflicted in the past and significant injunctive relief (here, changes to

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 4 Photos Etc. Corp. v. Home Depot U.S.A. Inc., 2016 WL 7557579 (2016) the rules and structures of the Visa and MasterCard payment networks) that those plaintiffs believe will prevent the alleged harms going forward.

The Second Circuit's holding that there was inadequate representation rests on a profound misunderstanding of Rules 23(a)(4) and 23(e) and of this Court's holdings in Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997), and *3 Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999). In those decisions, the Court outlined the need, under Rule 23(a)(4), to avoid fundamental conflicts of interest between class representatives and mutually exclusive subgroups of class members whose opposing interests require separate subclasses and separate counsel. Among distinct subclasses seeking distinct remedies from a finite pool of money (some for past harm, and others for future harm), that makes good sense. But nothing in those decisions - or in Rule 23 - requires that a class led by representatives who seek both past damages (under (b)(3)) and future injunctive relief (under (b)(2)) must artificially pry itself apart into separately represented yet substantially overlapping subclasses. Allowing representatives arguing for both remedies to represent class members seeking those same remedies “fairly and adequately protect[s] the interests of the class.” Fed. R. Civ. P. 23(a)(4); see also Dewey v. Volkswagen Aktiengesellschaft, 681 F.3d 170, 185 (3d Cir. 2012) (recognizing that a plaintiff who already allegedly sustained damage and also stood to continue to sustain damage can represent future claimants).

The Second Circuit's holding that the routine and sensible practices employed here always risk unwinding a class action settlement is misguided. The folly of the approach is worse yet where an experienced district judge (in this case, Judge Gleeson) and a court-appointed expert independently and thoroughly evaluated the benefits that both the (b)(2) and (b) (3) classes expected to achieve through settlement. Pet. App. 46, 48-50, 57, 59-60, 76-86. They also carefully assessed the risks that those classes faced if litigation continued, see, e.g., id. at 62-74, thus ensuring that no improper trade-offs occurred, id. at 95-97, 86-90.

*4 Indeed, the breadth of the Second Circuit's reasoning is inescapable, despite the occasional attempt to downplay it. According to the Second Circuit, Amchem, Ortiz, and Rule 23(a) require separate subclasses and separate counsel every time class members seeking damages and injunctive relief under (b)(2) and (b)(3) “d[o] not perfectly overlap.” Pet. App. 19 (emphasis added). That is a shocking conclusion. Ensuring that litigants make no mistake about what the court meant, the Second Circuit elaborated that, in its view, “[p]roblems arise when the (b)(2) and (b)(3) classes do not have independent counsel, seek distinct relief, have non-overlapping membership, and (importantly) are certified as settlement-only.” Id. at 20. But all of those situations arise as a matter of course: (b)(2) and (b)(3) classes seek “distinct relief” by definition, have some “non-overlapping membership” (especially in institutional reform settings, see Pet. 31), and are regularly “certified as settlementonly.” The holding that class actions involving (b)(2) and (b)(3) classes without “perfect[] overlap” can never be certified for settlement without separate representation requires this Court's immediate attention.

In addition to the break from binding authority, the ramifications of the Second Circuit's new rule are difficult to overstate. The class action device in structural reform cases is powerful but fragile. It requires balancing many interests and moving parts while simultaneously implicating potentially huge payouts and defendants' commitments to change certain of their practices at issue. Settling cases in that environment is hard enough under the existing regime and its numerous built-in protections. Without this Court's review, however, the Second Circuit's holding threatens to complicate an already delicate process, *5 and at the sensitive moment when the parties are nearing an agreement to resolve the litigation.

This case is a prime example. Plaintiffs challenged as anticompetitive core structures necessary to the success of the Visa and MasterCard networks - networks that permit widespread use of bank-issued payment cards for consumers while practically eliminating the risk of non-payment for the millions of merchants who accept those cards. Facing dispositive motions and “a substantial probability of securing little or no relief at the conclusion of trial,” Pet. App. 69, class plaintiffs settled with defendants for billions of dollars and a host of going-forward changes to the rules governing payment card networks. The passage of time, moreover, had especially increased the risks for claims about prospective

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 5 Photos Etc. Corp. v. Home Depot U.S.A. Inc., 2016 WL 7557579 (2016) harms given changes to Visa and MasterCard and to the regulatory landscape over the course of the litigation. Id. at 66. The overwhelming majority of plaintiffs were satisfied with the deal and did not object. See id. at 47, 59. Indeed, many of the plaintiffs who opted-out of the (b)(3) class to pursue greater individual damage awards had no objection to the (b)(2) settlement (the very settlement that the Second Circuit deemed to have compromised class counsel). Id. at 59-60. Similarly, two distinguished mediators, an independent court-appointed expert, and the federal judges (until the appeal), who closely supervised this litigation for almost a decade, all found the deal to be favorable for both classes of plaintiffs. If objections from a small fraction of the class (just 0.05% of class members, albeit composed of many large stakeholders, see id. at 59) can overturn a years-long, bargained-for settlement like this one, and do so based on the Second Circuit's far-reaching reasoning, class action settlements and negotiations will suffer. This Court's review is sorely needed.

*6 ARGUMENT

I. THE DECISION BELOW CONFLICTS WITH RULE 23 AND CANNOT BE SQUARED WITH PRECEDENT FROM THIS COURT OR OTHER COURTS OF APPEALS.

1. Rule 23 imposes numerous, complementary checks on class actions. At the outset, Rule 23(a) delineates four threshold “[p]rerequisites” for any and all putative classes. Among the “desired qualifications of the representative parties” is that they “will fairly and adequately protect the interests of the class.” Fed. R. Civ. P. 23(a)(4); Advisory committee's note to 1966 amendments. Rule 23(e) governs settlement and provides “additional requirement[s]” beyond those in subsections (a) and (b). Amchem, 521 U.S. at 621; see also Ortiz, 527 U.S. at 858 (describing these “precertification” and. “postcertification” “protections”). The text of subsection (e), which has expanded considerably since Amchem and Ortiz, ensures that any settlement is substantively and procedurally legitimate by mandating a “finding [by the district court] that it is fair, reasonable, and adequate.” Fed. R. Civ. P. 23(e)(2).

Rule 23(a)(4)'s “adequa[cy]” requirement thus plays an important but discrete role in the overall context of Rule 23. Its reach is both more circumscribed than subsection (e)'s (because it applies only to class representation), and broader (because it applies to all class actions, including those that settle). Ortiz, 527 U.S. at 858. Within its specific domain, subsection (a)(4) helps police conflicts between class representatives and class members, but it does not forbid class representatives from having multiple interests in a litigation (e.g., damages, declaratory, injunctive). Only when conflicts are so fundamental, going to “the very subject matter of the litigation,” does Rule 23(a)(4) *7 defeat class representatives' ability to litigate on behalf of an entire class. 7A Wright et al., Federal Practice and Procedure § 1768 (3d ed. 2005).

The prototypical example of such a situation, as this Court discussed in Amchem and Ortiz, is when mutually exclusive groups of class members are vying for the same resources and thus directly competing against one another. In Amchem, “the currently injured,” seeking “generous immediate payments,” necessarily clashed with “exposure-only plaintiffs,” who wanted to “ensur[e] an ample, inflation-protected fund for the future.” 521 U.S. at 626. Class representatives came from both camps, id. at 602, but a plaintiff could be only one or the other, not both. Rule 23(a)(4), this Court held, required that the two groups have separate counsel to protect their mutually exclusive interests. Id. at 625-28. Ortiz was similar. There was no overlap between subgroups with divergent interests, and holders of “present and future claims” thus required “division into homogenous subclasses.” 527 U.S. at 856 (emphasis added).

Nothing about either of these holdings speaks to a situation involving class representatives who, along with most class members, simultaneously seek both (b)(2) future relief and (b)(3) past relief. This, of course, is a frequent feature of institutional reform litigation. For example, a class of prisoners may seek damages for deprivations they have experienced prior to and during the course of litigation, as well as changes to prison rules that they expect will eliminate the risk of injuries going forward and benefit similarly situated inmates. Nor does anything in Rule 23(a)(4) erect a categorical bar against a class representative's ability to adequately represent overlapping groups of class members seeking such dual relief.

*8 Other courts of appeals have likewise rejected the proposition, embraced by the Second Circuit, that claimants to backward- and forward-looking relief can never be jointly represented. The Third Circuit, for example, recognizes that Amchem does not preclude an adequacy of representation holding in such circumstances, particularly when a “class member who has already suffered [damage], and is thus a ‘past’ claimant, can continue to suffer [damage] into the future to the same extent as a future claimant, and can continue to make future claims.” Dewey, 681 F.3d at 185; see also Uhl v. Thoroughbred Tech. & Telecomms., Inc., 309 F.3d 978, 986 (7th Cir. 2002) (rejecting argument under Amchem and Ortiz that class representative who had “a real stake in all aspects of the case” could not represent all class members).

2. The Second Circuit's holding in this case contravenes and splits from these precedents. Purporting to find “glaring” “fault lines … as to matters of fundamental importance,” the court of appeals held that no class representative could ever represent (b)(2) and (b)(3) settlement classes unless the two groups “perfectly overlapped.” Pet. App. 16, 19; id. at 20 (“[p]roblems arise” when there is “non-overlapping membership” and class is “certified as settlement-only”).

That holding has no support in Amchem or Ortiz. The Second Circuit's attempts to find some are wrong. Most critically, the Second Circuit thought the existence of (b)(2) and (b)(3) classes manifested “clear” conflicts, as one “would want to maximize cash compensation for past harm, and the [other] would want to maximize restraints on network rules to prevent harm in the future.” Pet. App. 16 - 17 (relying on Amchem and Ortiz). But the same paragraph betrays *9 the basic problem with that belief, as such reasoning is premised on a separation between those “pursuing solely monetary relief” and those “seeking only injunctive relief.” Id. at 16 (emphasis added). Here, unlike Amchem and Ortiz, every class representative was allegedly injured as a past merchant and was a going-concern keenly interested in prospective relief. Pet. 22-23; see Dewey, 681 F.3d at 185-86.

The intractable conflicts of interest that animated Amchem and Ortiz, moreover, do not extend to overlapping (b)(2) and (b)(3) classes in the manner suggested by the court below. If, for example, the bargained-for (b)(2) relief were as impotent as objectors maintain and as the Second Circuit thought, merchants that would accept payment cards in the future, including the class representatives, would have no interest in settlement. No rational merchant would choose to inflict ongoing harm against itself for the foreseeable future - doing so “in perpetuity” by the Second Circuit's account, Pet. App. 9, 33 - in order to recoup some damages for the harms they purportedly already suffered.

What is more, in ignoring this and instead effectively smuggling its own de novo Rule 23(e) fairness analysis into the guise of a Rule 23(a)(4) holding, the Second Circuit's analysis was simply counterfactual. It ignored the district judge's findings, which are entitled to the utmost deference, that the future relief stood to “exceed the value of the monetary relief in the long run.” C.A.SPA 67; see Pet. App. 76-86 (discussing rules reforms). 2 Likewise, the appeals court *10 turned a blind eye to the merchants' odds of recovery going forward (whether to obtain more damages or any additional injunctive relief), which were substantially weaker than they had been for alleged retrospective harms because (i) Visa and MasterCard's structures following their IPOs had undone plaintiffs' original theory of antitrust liability, Pet. App. 66 (discussing walking or structural conspiracy theories), and (ii) changes in business practices that occurred during litigation and through the settlement undermined merchants' ability to show anticompetitive harm, id. at 66-71; see also Pet. 8-10, 12 (discussing the reforms). The court-appointed expert summarized, “ ‘plaintiffs face considerable difficulty in establishing … that the core practices … in the case and left in place by the proposed settlement … cause anticompetitive harm that outweighs their procompetitive benefits.’ ” Pet. App. 69 (quoting expert report). 3 Thus, petitioners rightly admit that “[c]lass *11 counsel recognized that even after years of further litigation, victory was by no means assured; plaintiffs faced a number of potential risks in their efforts to establish liability and damages and maintain a class action; and the out-of-court successes would narrow the scope for injunctive relief even in the event of a complete litigation victory.” Pet. 11.

In sum, the separate and separable interests of mutually exclusive subclasses in Amchem and Ortiz have no analogue here. The court of appeals' conclusion that a landmark settlement, taking into account these and countless other

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 7 Photos Etc. Corp. v. Home Depot U.S.A. Inc., 2016 WL 7557579 (2016) considerations, could not proceed without “perfect[] overlap” between the (b)(2) and (b)(3) classes unless new settlement counsel were appointed warrants certiorari.

II. THE SECOND CIRCUIT'S RULE RISKS HARMING THE JUDICIAL PROCESS AND OBSTRUCTING CLASS SETTLEMENTS.

Certiorari is also needed because the Second Circuit's rule will profoundly disrupt class action litigation. Not only will it make settlements harder to reach, more expensive for plaintiffs and defendants alike, and more burdensome for the lower courts to oversee, but it will also create significant uncertainty about whether plaintiffs and defendants can even safely begin discussing settlement when the same counsel represents plaintiffs simultaneously seeking injunctive and damages relief.

This Court, the Federal Rules of Civil Procedure, and the courts of appeals have long encouraged the settlement of private litigation, particularly complex class actions. See, e.g., Williams v. First Nat'l Bank of Pauls Valley, 216 U.S. 582, 595 (1910); *12 Fed. R. Civ. P. 41, 68; In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 535 (3d Cir. 2004) (“[T]here is an overriding public interest in settling class action litigation, and it should therefore be encouraged.”). And these interests are particularly acute in litigation seeking institutional or structural reform. See, e.g., Margo Schlanger, Beyond the Hero Judge: Institutional Reform Litigation as Litigation, 97 Mich. L. Rev. 1994, 2011 (1999) (“The ordinary litigation incentives favoring settlement operate strongly for parties and judges in structural reform cases.”); Jeff D. v. Kempthorne, 365 F.3d 844, 852 (9th Cir. 2004) (“the central purpose of consent decrees … is to enable parties to avoid the expense and risk of litigation while still obtaining the greater enforceability (compared to an ordinary settlement agreement) that a court judgment provides”); cf. also Rufo v. Inmates of Suffolk Cty. Jail, 502 U.S. 367, 389 (1992) (requiring proof of unforeseen changes in law or fact to alter consent decrees so as not to “disincentiv[ize] … negotiation of settlements in institutional reform litigation”). The Second Circuit's decision undermines this policy and erects unwarranted procedural barriers to settlement. Review is therefore necessary to prevent wasteful litigation, and to encourage settlement through reliable negotiations.

1. “Settlement is generally favored because it represents a compromise reached between the parties to the suit and relieves them, as well as the judicial system, of the costs and burdens of further litigation.” 4 W. Rubenstein, Newberg on Class Actions § 13.44 (5th ed. 2014). It provides the parties with certainty, particularly in cases involving ongoing injunctive relief, and it brings an orderly end to costly litigation. See, e.g., In re Literary Works in Elec. Databases Copyright Litig, 654 F.3d 242, 247-48 (2d Cir. 2011); *13 Jeff D., 365 F.3d at 852; Ass'n of Cmty. Orgs, for Reform Now (ACORN) v. Edgar, 99 F.3d 261, 262 (7th Cir. 1996) (“The purpose of a consent judgment is to resolve a dispute without further litigation[.]”).

Settlements in class actions, unlike litigation involving only named parties, must be approved as substantively and procedurally fair in order to protect the interests of absent class members. Compare Fed. R. Civ. P. 23(e), with Fed. R. Civ. P. 41. Reaching a settlement in these cases is difficult, and, as here, the cases often drag on for years and often involve extensive discovery. Clearing the Rule 23(e) hurdle in such circumstances is no small task, especially when plaintiffs agree to release future claims based on the agreed-upon changes to defendants' practices. See, e.g., 7B Wright et al., supra, § 1797.3. Reflecting the general policy in favor of settlement, however, federal courts typically presume a settlement is procedurally fair “[w]hen sufficient discovery has been provided and the parties have bargained at arms-length,” City P'ship Co. v. Atl. Acquisition Ltd. P'ship, 100 F.3d 1041, 1043 (1st Cir. 1996); see also In re Warfarin, 391 F.3d at 535. This approach protects against collusion and gives the parties sufficient guidance in how to resolve their ongoing disputes.

2. The court of appeals' holding that counsel could not represent both a (b)(3) class seeking damages and a (b)(2) class seeking injunctive relief - even though they contain enormous overlap - unduly disrupts this well-established process.

This process is arduous enough to begin with, as the lengthy history of settlement discussions in this case illustrates. See Pet. App. 43-45. Under the Second Circuit's rule, those burdens will multiply because when settlement discussions begin, parties, courts, and mediators will need to consider whether *14 to introduce new counsel (including counsel potentially unversed in the litigation) and to create subclasses even though, as would have been the case here, the same putative class representatives may span those subclasses.

Furthermore, Amchem and Ortiz established an adequacy rule that was predictable from class action defendants' perspective, and indeed defendants themselves can prevent the need for separate subgroups of class counsel by simply declining to propose limited fund settlements that would benefit one class or subclass at another's detriment. In sharp contrast, the Second Circuit's rule leaves chaos in its wake for parties in class action cases at the first moment when they transition from litigating injunctive and damages claims simultaneously under the (b)(2)/(b)(3) rubric to discussing settlement of such claims.

Indeed, it is anything but clear exactly how the Second Circuit envisions the implementation of its newly fashioned rule, let alone how litigants are supposed to react to it. On the one hand, for example, the court below holds only that (b) (2) and (b)(3) plaintiffs could not be represented unitarily and need separate counsel; on the other hand, the opinion purports to find “fault lines” even within those two apparently-mandated subclasses. And that is not even to mention what the holding means for all the overlapping class members who belong to both the (b)(2) and (b)(3) classes and who are apparently now supposed to be simultaneously represented by different lawyers potentially arguing against one another, as well as and against defendants. These dynamics will undoubtedly accentuate tensions and make it even more difficult to negotiate. Furthermore, the costs to defendants and to plaintiffs themselves (as opposed to their counsel), as well as the burdens placed on the parties *15 and courts alike, can only increase as the number of counsel multiply. These results will undermine the well-established judicial policy of promoting settlement.

The panel's opinion claims it does not go so far. Pet. App. 20 (“None of this is to say that (b)(3) and (b)(2) classes cannot be combined in a single case, or that (b)(3) and (b)(2) classes necessarily and always require separate representation.”). That disclaimer cannot be reconciled with the breadth of the rule articulated. Supra § I. But, even if true, it also would be cold comfort for defendants. Defendants have no meaningful way to determine ex ante whether they can negotiate with the plaintiffs' counsel, who have been litigating the case on behalf of both classes, or whether they must insist each class or subclass has separate representation, even though defendants generally have no place in advising plaintiffs regarding the adequacy of their counsel. The former course risks a settlement being overturned and all efforts lost; the latter requires plaintiffs' current counsel to cede a portion of the class (and the accompanying recovery or fees) to additional counsel, making the negotiations even more tense, inefficient, and prolonged. Both paths frustrate rather than facilitate a resolution. And the uncertainty threatens to push risk-averse parties and courts to subdivide classes endlessly, introducing new counsel, increasing costs, and slowing the process.

These consequences are also not outweighed by the additional protections that the Second Circuit believed its rule would provide to (b)(2) classes; nor were those protections necessary to safeguard the (b)(2) class here. The process that led to this settlement was unimpeachable and fair, as Judge Gleeson expressly found. Pet. App. 56-57; see id. at 43-45. *16 The suggestion that a non-opt-out (b)(2) class was inappropriate is legally unsupported and illogical. The (b)(2) class obtained significant modifications to the network rules, which are structural changes and quintessential (b)(2) relief. Pet. App. 76-86; see, e.g., Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 360-61 (2011) (discussing categories of cases appropriate for (b)(2) treatment); Marisol A. v. Giuliani, 126 F.3d 372, 378 (2d Cir. 1997) (per curiam). For such forward-looking rules changes to become part of any settlement, defendants must be able to protect themselves from future actions based on these negotiated rules. See Pet. App. 86-88. Any other regime would deprive defendants of consideration for changing the rules and perversely allow new actions to be filed the day after the settlement is approved, effectively rendering litigation interminable. Id. No rational defendant would sign up for that outcome. See, e.g., Sullivan v. DB Invs., Inc., 667 F.3d 273, 311 (3d Cir. 2011) (en banc) (“[A]chieving global peace is a valid, and valuable, incentive to class action settlements …. No defendants would consider settling under [a] framework [where the release would allow certain class members to

© 2017 Thomson Reuters. No claim to original U.S. Government Works. 9 Photos Etc. Corp. v. Home Depot U.S.A. Inc., 2016 WL 7557579 (2016) go right back into court to continue to assert their claims] for they could never be assured that they have extinguished every claim from every potential plaintiff.”).

This is an important case in its own right, but the ripple effects from the Second Circuit's rule are far greater than just this case. They implicate any case in which the putative class representatives simultaneously seek Rule 23(b)(2) and (b) (3) relief, and they pose a special threat to institutional or structural reform cases in which, as here, plaintiffs seek to change the defendants' systems or rules going forward. This Court's review is necessary to remove the uncertainty *17 and to reaffirm the judicial policy promoting private resolution of re source-intensive class actions.

CONCLUSION

For the foregoing reasons, and those stated by petitioners, the petition should be granted.

Footnotes * Counsel of Record † Arnold & Porter LLP is counsel to the Visa Defendants-Respondents except as to Objectors-Respondents Barnes & Noble, Inc., Barnes & Noble College Booksellers LLC, J.C. Penney Corporation, and The TJX Companies, Inc. and related entities. ‡ Skadden, Arps, Slate, Meagher & Flom LLP is counsel to the Chase Defendants-Respondents except as to Objectors- Respondents American Express Co., American Express Travel Related Services Co., Inc., American Express Publishing Corp., Serve Virtual Enterprises, Inc. ANCA 7 LLC d/b/a Vente Privee, USA, AMEX Assurance Co., Accertify, Inc., Wal-Mart, Inc., Alon USA, LP, Amazon.com, Zappos.com, Foot Locker, Inc., and J.C. Penney Corp., Inc. and related entities. 1 Pursuant to Supreme Court Rule 12.6, defendants-respondents notified counsel of their intent to file a brief in support of petitioners on December 16, 2016. 2 Despite the panel's lip service to abuse of discretion review, Pet. App. 10, the Second Circuit largely disregarded Judge Gleeson's analysis of the settlement's fairness and conclusion that the (b)(2) class was not sold out by the (b)(3) class, see Pet. 23 (“Judge Gleeson believed” that the class (b)(2) “injunctive relief … ‘may very likely exceed the value of the monetary relief in the long run.’ ” (quoting C.A.SPA67)); id. at 2, 37; Pet. App. 49, 78 (discussing plaintiffs' theory that rules changes they achieved would exert “downward pressure” that would benefit all class members); compare Pet. App. 26 (claiming that some class (b)(2) merchants “gainf[ed] no benefit at all”). 3 The Second Circuit's decision to ignore these realities allowed it improperly to impugn the release to which the (b)(2) class agreed as evidence of inadequacy, see Pet. App. 22-31, rather than consideration essential for defendants in this structural reform litigation. Defendants, who had just agreed to substantial changes in business practices, could not reasonably tolerate the likelihood that as soon as those changes took effect, the very same merchants and counsel that had just bargained for them would call the new system anticompetitive and sue again. See id. at 86-87; id. at 88 (“In exchange for a new, going-forward rules structure, the defendants are entitled to bargain for and receive releases of claims that are or could have been alleged based on the identical factual predicate of the claims in this case.”); id. at 88-89.