Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

IN RE MEXICO MONEY TRANSFER LITIGATION

December 22, 2000

IN RE MEXICO MONEY TRANSFER LITIGATION (WESTERN UNION AND ORLANDI VALUTA) IN RE MEXICO MONEY TRANSFER LITIGATION (MONEYGRAM).


The opinion of the court was delivered by: Pallmeyer, District Judge.

    MEMORANDUM OPINION AND ORDER

In addition to the fee they charge for wire transfers of funds to Mexico, Defendants in these nationwide class actions collect the difference between the foreign exchange rate they charge their customers and the more favorable rate that Defendants themselves pay for pesos. In these consolidated actions, and a number of cases in other jurisdictions, Plaintiffs challenge Defendants' failure to disclose the exchange rate mark-up to their customers. After months of discovery and negotiation, the parties reached settlements. They now seek this court's final approval of their agreements, under which Plaintiffs' claims are released in return for discount coupons, an injunction, a cy pres fund, and attorneys' fees and costs.

This court had concerns about the wisdom and fairness of the coupon-based settlement proposed by the parties. In response to its own concerns and to objections voiced by individual class members and intervenors represented by counsel, the court conducted an unusually lengthy evidentiary hearing on December 10, 1999, January 18-20, 2000, and August 11, 2000. In addition to the evidence presented at that hearing, the court considered all parties' submissions, affidavits, and expert opinions on the fairness, reasonableness, and adequacy of the settlements. Several class members have objected to the terms of the settlements. The most significant objections were voiced by a group of California residents ("California Objectors" or "Intervenors") who argue that the availability of claims under California law renders the proposed settlements inadequate with respect to California residents. Having considered the record in its entirety, and giving appropriate consideration to the concerns expressed by the Intervenors, the court now grants approval of the proposed settlements, as explained in the findings and conclusions set forth herein.

FACTS

The facts generating these lawsuits are essentially undisputed. Defendants are engaged in the business of providing electronic fund transfers on behalf of clients seeking to transmit money to various locations in Mexico. Defendants include Western Union Financial Services, Inc., Orlandi Valuta, Orlandi Valuta Nacional, First Data Corporation (98 C 2407) and Integrated Payment Systems, Inc. (98 C 2408). As compensation for these services, Defendants charge their customers a transaction fee or service charge. In addition, Defendants recover revenue on the exchange rate. Although they receive dollars from their customers and provide pesos to the recipients at a disclosed rate, Defendants are able to purchase pesos themselves at a more favorable exchange rate. The difference between the exchange rate they make available to their customers and the ex change rate at which they purchase peso (referred to here sometimes as "FX [foreign exchange] spread") provides Defendants with substantial additional compensation ("FX revenue"). Plaintiffs brough these lawsuits under a variety of theories to challenge Defendants' practice of recovering this additional compensation without disclosing it.

At the time of each transaction, Defendants' customers are given a receipt that discloses the service charge, the exchange rate being offered by the Defendants, and the number of pesos that will be paid in Mexico to the designated recipient. Defendants, who purchase pesos in the "interbank" (or wholesale) market in blocks of $5 million, pay an interbank exchange rate for those pesos. There is no "official" set rate for exchange in this market; instead, the rate is determined by market forces and fluctuates rapidly. Similarly, there is no official exchange rate in the retail market for pesos. For example, a survey performed by Jim Dibe, an international currency market expert, demonstrated that on a date when the interbank market rate for pesos was approximately 9.345 pesos to the dollar, 34 retail companies were selling pesos at prices that ranged from 7.93 pesos to the dollar to as many as 9.30 pesos to the dollar. (Declaration of Jim Dibe, at ¶ 30.) On average, however, the difference between the retail exchange rate and the more favorable wholesale rate has been approximately 10%. (Plaintiffs' Consolidated Memorandum in Support of the Proposed Settlement of Each of the Nationwide Mexico Money Transfer Class Actions ("Plaintiffs' Memo"), at 4.)

In these cases, Plaintiffs alleged that Defendants' failure to disclose the existence of the FX spread to their customers is fraudulent and that the fraud is exacerbated by misleading advertising in which Defendants emphasize the transaction fee in a way that suggests this is the only revenue they receive for each exchange, for example, "Send up to $300 to Mexico for only $15." In fact, according to Plaintiffs, customers are paying not "only $15," but rather $15 plus the amount of the FX spread. (98 C 2407 First Amended Complaint ¶¶ 20-24.) Plaintiffs allege violations of the federal RICO statute, breach of contract, fraud through misrepresentation, fraud through omission, conversion, breach of fiduciary duty, discrimination, and accounting/restitution. The complaints seek compensatory and statutory damages and penalties, prejudgment interest, attorneys' fees and costs and an injunction barring Defendants from collecting any FX revenue without disclosure of such revenue in all advertising.

Litigation History

Seven lawsuits challenging Defendants' practices are pending. Attorney Fred Kumetz filed two class action complaints on November 3, 1997 in federal court in Los Angeles: Garcia v. Western Union Financial Services, Inc., Case No. 97-8118 RSWL (Rcx) and Bueno v. MoneyGram Payment Systems, Inc., Case No. 97-8117 RSWL (Rcx). These lawsuits claimed violation of federal RICO and civil rights laws, among other claims, on behalf of a class of California customers. On August 4, 1998, the court granted a motion to dismiss the federal claims in these actions as inadequately pleaded, but granted leave to amend. Plaintiffs Garcia and Bueno chose not to do so, however, and instead filed complaints in state court alleging only California state law claims. Garcia v. Western Union Fin. Servs., Inc., Los Angeles County Superior Court Case No. BC 197489 and Bueno v. MoneyGram Payment Sys., Inc., Case No. BC 197490. Defendants' demurrers to these complaints were filed in November 1998.

Several additional lawsuits were filed, including the two pending before this court, originally entitled Pelayo v. Western Union Fin. Servs., Inc., No. 98 C 2407 and Ross-Pineda v. MoneyGram Payment Sys., Inc., No. 98 C 2408; two in Texas (Sandoval v. Western Union Financial Servs., Inc., Case No. 20240 and Fernandez v. MoneyGram Payment Systems, Inc. et al., Case No. M-99-005), both on behalf of state-wide classes; and another case in federal court in California, this one on behalf of a nationwide class, Ibarra v. Orlandi Valuta, et al., Case No. SA CV-98-1011 GLT (C.D.Cal.). Yet another case was filed in Texas on behalf of a statewide class but voluntarily dismissed on January 6, 1999. Villalobos v. Western Union Fin. Servs., Inc., et al., Case No. C-5353-98-E. On March 1, 1999, Defendants in the Ibarra case moved to dismiss, and on May 1, 1999 the federal court granted that motion in part, concluding that the RICO claims were insufficient and allowing leave to amend that complaint.

The two lawsuits before this court were initially assigned to Judge Ann C. Williams. At her direction, attorneys in these two cases and in the two Texas actions (hereinafter collectively "National Class Counsel") initiated settlement negotiations which lasted nearly a year and resulted in preliminary agreements which were presented to the court in 1999. Judge Williams suggested, and the parties agreed to, an enhancement to their proposed notice to class members, directing that Defendants post notices at their local agent offices. Defendants and National Class Counsel executed nationwide settlement agreements in May 1999.

National Class Counsel consists of well-respected plaintiffs' attorneys from eight law firms in Illinois (Matthew Piers of Gessler, Hughes & Socol, Ltd. and Robert Graham of Jenner & Block) and Texas (Steve McConnico of Scott, Douglas & McConnico; Nelson Roach of Nix, Patterson & Roach; Timothy Crowley of Crowley & Douglas, LLP; and Craig Sico of Harris & Watts). Attorneys for the proposed class in the Ibarra action in California also agreed to the terms of the proposed settlement, as did Mr. Kumetz initially. In May 1999, National Class Counsel filed amended complaints and the parties filed joint motions for class certification and preliminary approval of their settlement. On May 12, 1999, Judge Williams entered a Preliminary Settlement Order in each of these cases in which she certified a nationwide class, granted preliminary approval to the settlement, and entered an anti-suit injunction which barred further prosecution of any claims that would be discharged in the settlement. On July 16, 1999, the court approved an amended class definition, approved the proposed notice provisions under Rule 23 and due process standards, established opt-out procedures, directed the parties to proceed with notice, and set a fairness hearing for December 10, 1999. The nationwide classes certified in the July 16 order consist of (1) all persons who used the Western Union and/or Orlandi Valuta electronic money transfer service to wire money from anywhere in the United States to the Republic of Mexico between January 1, 1987 and August 31, 1999 ("Pelayo settlement class") and (2) all persons who used the electronic money transfer service operated under the name MoneyGram to wire money from anywhere in the United States to the Republic of Mexico between January 1, 1988 and August 31, 1999 ("Ross-Pineda settlement class").

On January 12, 2000, National Class Counsel and Defendants amended the settlement of this case, enhancing the benefit to class members by narrowing the scope of the releases and doubling the size of a proposed cy pres fund. Upon Judge Williams' elevation to her seat on the Court of Appeals, these cases were reassigned to this court. On May 22, 2000, this court granted the parties' motion for leave to provide appropriate notice of this amendment to persons who had opted out of the class and to certify newly identified class members.

This court has reviewed the terms of the proposed settlements in detail. In addition, to provide ample opportunity for presentation of objections and evaluation of the proposed settlement terms, the court conducted several days of evidentiary hearings in December 1999, January 2000, and August 2000. The evidence supports the conclusions set forth below.

DISCUSSION

A. The Negotiation Process

National Class Counsel and Defendants' attorneys submitted declarations describing the history of the settlement negotiations in this case, which consumed nearly a year. National Class Counsel initially demanded that Western Union provide the class with the choice of cash equal to Defendant's FX revenue of $388 million, plus interest (essentially, a full relief recovery) or coupons valued at three times that amount. Plaintiffs demanded, further, that Western Union modify its practices regarding collection of FX revenue, provide a toll-free number at which customers could obtain current rates, and make a contribution to Mexican-American charitable causes in an amount equal to the unclaimed cash available to class members. Western Union's initial counteroffer was for a $2.75 million cash settlement agreement and $22 million in coupons.

After further negotiations, National Class Counsel agreed to consider a coupon-only settlement agreement, if Defendants agreed that coupons would be fully transferable and could be used in connection with any other discounts or promotions. In addition, Plaintiffs insisted that the claims procedure be simple and non-cumbersome. Defendants initially resisted these demands, but after protracted negotiations the parties reached an agreement in March 1999. Under the proposed resolution, the parties agreed to terms under which class members would receive two coupons worth $4.25 each for (1) each money transfer between November 3, 1993 and the end of the class period and (2) each 10 transfers from the beginning of the class period through November 2, 1993, in addition to equitable relief and a cy pres fund.

Fred Kumetz, who filed the Garcia and Bueno actions in California and who now represents five objectors to the proposed settlement here, participated in the settlement discussions. Although Mr. Kumetz declined Defendants' April 1999 invitation to Defendants participate in the negotiations with National Class Counsel, he did exchange proposals with Richard Grad, the attorney for Western Union. Western Union offered an all-coupon settlement and cy pres fund to resolve the Garcia case. Mr. Kumetz agreed to such terms but demanded an increase in the size of the cy pres fund and an increase from $4.25 to $7.00 of the face value of the coupons. Late in April, Western Union's attorney advised Mr. Kumetz that the agreement with National Class Counsel in the cases before this court provided for a nationwide settlement including two $4.25 coupons for each money transfer, a $2 million cy pres fund, an agreement to make certain disclosures in advertising, and an agreement to provide notice to class members via direct mail, print, radio and television advertising, and posting at agent locations. Mr. Kumetz asked that the terms of the nationwide settlements be amended to give class members one $6 coupon rather than two $4.25 coupons. National Class Counsel initially resisted this proposal, but ultimately agreed with Defendants and with Mr. Kumetz to an arrangement in which class members are given the option of choosing a $6 coupon or two $4.25 coupons. Believing that he had signed on to the nationwide settlement, Defendants' counsel then began a discussion of attorneys' fees with Mr. Kumetz. Only a few days later, however, in May 5, 1999, Mr. Kumetz advised the parties in these cases that he had changed his mind and would be objecting to the proposed agreements. Mr. Kumetz explained to Mr. Grad that he had changed his mind because he believed that National Class Counsel were critical of him.

B. The Terms of the Settlements

The settlements provide for distribution of discount coupons to class members; a cy pres fund; an injunction requiring disclosure of the FX revenue; and an award of attorneys fees and costs. The specific terms are as follows:

1. Coupons: Each class member is entitled to receive coupons for discounts on future transfers of funds to Mexico. The coupons have an estimated aggregate face value of $270 million in the Pelayo action and $105 million in the Ross-Pineda action. Class members will have the option to choose either one $6.00 coupon or two $4.25 coupons for (1) every transaction from November 3, 1993 through August 31, 1999 and (2) for every ten transactions from the beginning of the class period (January 1, 1987 for Pelayo and January 1, 1998 in Ross-Pineda) through November 2, 1993. The parties agreed to less favorable terms for earlier transactions due to the Defendants' strong statute of limitations defenses to claims arising from those earlier transactions, but for any such transactions, the parties have agreed to round up to ten (for example, 1 of the earlier transactions will be deemed 10, and 11 will be rounded up to 20). The size of the average FX spread on the challenged transactions was approximately $25. Thus, the two $4.25 coupons or one $6.00 coupon represent a recovery at face value of between approximately 24% and 34% of the FX spread on an average transaction. The coupons will provide for discounts of up to 50% of the service charge on future fund transfers. The coupons are freely transferable, redeemable in connection with any other discount, sale or promotion, and valid for 35 months.

2. Cy Pres fund: Defendants have agreed to a cy pres contribution in the amount of $4,000,000 in Pelayo and $634,920 in Ross-Pineda to be distributed to charitable or public interest organizations that serve Mexican or Mexican-American causes. Each fund will be administered by a committee which will include Antonia Hernandez, the President and General Counsel of the Mexican-American Legal Defense and Education Fund ("MALDEF"); Arturo Vargas, the Executive Director of the National Association of Latino Elected and Appointed Officials ("NALEO"); Matthew Piers, lead counsel for the Plaintiffs in this case; and a representative of the Defendant(s) in each case.

3. Injunctive Relief: Defendants have agreed to entry of an injunction requiring: (1) that they disclose on customer receipts the fact that they recover revenue on the difference between the foreign exchange rate they charge customers and the foreign exchange rate that Defendants pay for pesos; (2) that their price-related advertising will disclose not only the service charge but the FX rate set for each transaction; and (3) that they will establish a toll-free number at which customers can obtain current FX rates. This injunction will be in effect for 60 months but may be extended at the request of National Class Counsel for good cause.

4. Attorneys' Fees and Costs: National Class Counsel will seek an award of $9,000,000 in Pelayo and $1,428,571 in Ross-Pineda. Defendants will pay reasonable costs, subject to court approval.

5. Notice and Administration: Defendants will pay the costs of extensive notice and will administer the settlement, a benefit the parties value at more than $16 million.

6. Release and Anti-Suit Injunction: In return, Plaintiffs agree to a release of claims asserted in these actions and the other five pending actions, including any and all claims challenging the exchange rate, any and all claims relating to disclosures or non-disclosures concerning the exchange rate or the FX spread or FX revenue, and any and all claims that the recovery of FX revenue is unlawful for any reason. The court will issue an injunction barring any suit asserting these released claims.

C. Class Notice

Judge Williams approved a procedure under which notice of the settlement was provided to nearly 13.5 million unique names and addresses in the Defendants' computer records via first class mail. Defendant Western Union discovered in January 2000 that, due to a computer error, approximately 177,000 customers had been excluded from the records used to generate the initial mailing list; this court therefore ordered first-class mail notice to these additional class members.

Because transaction records did not extend as far back as 1987, and due to the concern that the addresses might be inaccurate, notice was also made through the electronic and print media. Print notice of the settlements appeared in 27 major English-language newspapers and 27 Spanish-language papers in nine states (California, Texas, New York, Florida, Illinois, Arizona, Georgia, North Carolina and Colorado); in 34 newspapers in Mexico, and twice in USA Today. A 30-second television announcement was broadcast in Spanish on the Univision television network eight times per week for two weeks and on 16 Spanish-language local television stations in the states of California, Texas, New York, Florida, Illinois, Arizona, and Colorado nine times per week for two weeks. The announcement was broadcast on four TV stations in Mexico. Further, the parties broadcast the announcement over 115 Spanish-language radio stations in the nine states in which the newspaper announcements appeared. This 60-second radio announcement ran 24 times per week for two weeks and was broadcast on 102 stations in Mexico, 25 times per week for two weeks. Finally, in addition to the direct mail and electronic media notice, Defendant prepared and distributed a print notice for posting by their domestic agents across all 50 states and established a toll-free number for class members seeking information about the settlements.

After the notice had been disseminated, the settlements were enhanced as described above. At the parties' request, the court therefore directed that notice of the amendments be provided by first class mail to all class members who had opted out.

The court concludes this notice program, and the form of the notice itself, was complete and adequate to convey all relevant information to class members and afforded adequate opportunity to opt out or object. The notice included a description of the litigation and of the settlements, the right of class members to object or to opt out, notice of the time and place of the fairness hearing, and an explanation of the binding nature of the settlements. The notices were written in language as simple and plain as possible under the circumstances and were provided in Spanish and English. In addition to the announcements generated by the parties, the settlements have been the subject of substantial news media coverage. The court concludes that notice to the settlement class in this case satisfies the requirements of Rule 23 and due process.

D. Class Certification

Under Rule 23(a), a class may, be certified where "the class is so numerous that joinder of all members is impracticable (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class." FED. R. CIV.P. 23(a). Judge Williams certified the settlement class at issue here in May 1999. As described below, the record supports her determination.

1. Numerosity: In each of these actions, the class definition includes "all persons who have used [one of Defendants' money transfer services] to transmit money from anywhere in the United States to anywhere in the Republic of Mexico" over a defined period of years. It is not possible to count the exact number of class members, but based on information regarding the volume and frequency of transactions, there are two to five million individuals nationwide who are members of the classes, with at least a million members in each of the two settlement classes. Joinder of millions of class members is plainly impracticable.

2. Commonality: This requirement is readily met in most cases. See generally Rosario v. Livaditis, 963 F.2d 1013, 1017-18 (7th Cir. 1992); 1 Herbert Newberg & Alba Conte, NEWBERG ON CLASS ACTIONS § 3.10, at 3-50 (3d ed. 1992). Because Defendants do business in much the same way at locations nationwide, a number of issues are common to the class members: whether Defendants misrepresented the price class members paid for sending money to Mexico; whether Defendants acted with fraudulent intent; whether Defendants' relationships with their agents in the United States and Mexico constitute "associated in fact enterprises" for purposes of RICO; whether Defendants breached the terms of their standardized contracts with customers by purchasing pesos at one exchange rate and then selling them, in effect, to customers at a higher, less favorable rate; and whether Defendants have an obligation to disclose the existence and amount of the FX spread to their customers.

3. Typicality: Class members claims need not be identical, as long as they are substantially similar. Binion v. Metropolitan Pier & Exposition Auth., 163 F.R.D. 517, 524-25 (N.D.Ill. 1995). The typicality test is met if named plaintiffs' claims "arise[] from the same event or practice or course of conduct that gives rise to the claims of other class members and . . . are based on the same legal theory." De La Fuente v. Stokely-Van Camp, Inc., 713 F.2d 225, 232 (7th Cir. 1983) (quotations omitted). Here, all class members' claims arise from Defendants' practice of giving class members a lower exchange rate for their dollars than Defendants themselves receive when they trade dollars for pesos in the wholesale or interbank market. Every class member, in each of the lawsuits filed, has asserted similar theories: that Defendants' FX practices constitute a fraudulent scheme carried out through a pattern of racketeering, conversion, breaches of fiduciary duty, and breaches of contract. Defendants' defenses to the claims of the named Plaintiffs are also identical to their defenses to the claims of all class members.

4. Adequacy of Representation: The purpose for examining the adequacy of class representation is to expose incompetent or ineffective class counsel and uncover any potential conflicts of interest between the class representatives and the remaining class members. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625-27, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). There can be no genuine dispute concerning the competence or effectiveness of the attorneys who have represented these classes. National Class Counsel are experienced litigators who have vigorously prosecuted these cases. Nor does the court perceive conflicts between the named representatives and the other class members; as discussed more fully below, the court has concluded that California residents have no different claims, nor any stronger claims for relief, than do other members of the settlement classes. Representation is adequate here.

5. Predominance of Common Questions, Superiority of Class Action: For a class certified under Rule 23(b)(3), the court must find that common questions predominate over questions affecting individual class members and that a class action is superior to other available methods of adjudicating class members' claims. Those requirements are met here because all class members share a common grievance: all received fewer pesos in exchange for dollars than the number of pesos that Defendants were able to purchase for those dollars; and, all paid a transaction fee or service fee under circumstances that could have led them to believe this fee was the only compensation that Defendants received for their money exchange services. Although individual issues relating to reliance, causation, and damages exist, they do not predominate and do not preclude class certification. As discussed more fully below, the court concludes that to the extent California class members may press other claims, these claims are not superior to the common claims set forth in the complaints in these cases, including claims under RICO.

Further, because individual compensation claims average approximately $25 per transaction, the court concludes that individual claims would allow for a far less efficient and fair resolution of the class members' claims. Nor do the manageability issues that might arise if this case were to be litigated preclude certification of a class for purposes of settlement.

E. Fairness and Adequacy of Settlement

Courts favor the resolution of a class action by way of settlement and will approve such a settlement if it is fair, reasonable, and adequate when viewed in its entirety. Isby v. Bayh, 75 F.3d 1191, 1196 (7th Cir. 1996). In evaluating a proposed settlement, the court recognizes that the "essence of settlement is compromise" and will not represent a total win for either side. Id. at 1200, quoting Armstrong v. Board of Sch. Dir., 616 F.2d 305, 315 (7th Cir. 1980). Accordingly, the court is not called upon to determine whether the settlement reached by the parties is the best possible deal, nor whether class members will receive as much from a settlement as they might have recovered from victory at trial. See In re Prudential Ins. Co. of Am. Sales Practices Litig., 962 F. Supp. 450, 534 (N.J. 1997), aff'd, 148 F.3d 283 (3d Cir. 1998); E.E.O.C. v. Hiram Walker & Sons, 768 F.2d 884, 889 (7th Cir. 1985). In assessing the fairness, reasonableness and adequacy of a class settlement, the court must balance six factors:

(a) the strength of plaintiffs' case, weighed against the settlement offer;
(b) the complexity, length, and expense of further ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.