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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.
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.
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").
The California plaintiffs represented by Mr. Kumetz, Raul
Garcia and Lydia Bueno, moved to intervene in these cases and to
vacate the injunction against other litigation. Judge Williams
granted leave to intervene on July 29, 1999. On October
13, 1999, she denied the motion to vacate the anti-suit
injunction. On November 24, 1999, Judge Williams ordered the
parties to the settlement and the objecting Intervenors to
submit declarations in advance of the fairness hearing, setting
forth the testimony of any witnesses they expected to call.
Nationwide Class Counsel, Defendants, and the Intervenors did
submit numerous declarations. In addition, on January 11, 2000,
attorneys for the Intervenors filed two new class actions in
California state court, Amorsolo v. Western Union Fin. Servs.,
Inc., Case No. BC 222974 and Amorsolo v. Money-Gram Payment
Sys., Inc., Case No. BC 222973; because class members consist
of persons who opted out of the classes in this case and persons
who used Defendants' services after August 31, 1999, these
lawsuits do not violate Judge Williams' injunction.
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.
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
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
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
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
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.
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.
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
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