280 F.3d 124 (2nd Cir. 2001), 00-7699, Wal-Mart Stores v Visa United States Inc.

Docket Nº:Docket No. 00-7699
Citation:280 F.3d 124
Party Name:IN RE: VISA CHECK/MASTERMONEY ANTITRUST LITIGATION WAL-MART STORES, INC., LIMITED, INC., SEARS ROEBUCK & COMPANY, SAFEWAY INC., CIRCUIT CITY STORES, INC., NATIONAL RETAIL FEDERATION AND THE FOOD MARKETING INSTITUTE, INTERNATIONAL MASS RETAIL ASSOCIATION, AND ALL SIMILARLY SITUATED PERSONS, PLAINTIFFS-APPELLEES, v. VISA U.S.A. INC. AND MASTERCARD IN
Case Date:October 17, 2001
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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280 F.3d 124 (2nd Cir. 2001)

IN RE: VISA CHECK/MASTERMONEY ANTITRUST LITIGATION

WAL-MART STORES, INC., LIMITED, INC., SEARS ROEBUCK & COMPANY, SAFEWAY INC., CIRCUIT CITY STORES, INC., NATIONAL RETAIL FEDERATION AND THE FOOD MARKETING INSTITUTE, INTERNATIONAL MASS RETAIL ASSOCIATION, AND ALL SIMILARLY SITUATED PERSONS, PLAINTIFFS-APPELLEES,

v.

VISA U.S.A. INC. AND MASTERCARD INTERNATIONAL INCORPORATED, DEFENDANTS-APPELLANTS.

Docket No. 00-7699

United States Court of Appeals, Second Circuit

October 17, 2001

Argued: February 5, 2001

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Steven V. Bomse, Heller Ehrman White & McAuliffe Llp, San Francisco, CA (m. Laurence Popofsky, Marie L. Fiala, Brian P. Brosnahan, Renata M. Sos, Adam Cole, Heller Ehrman White & McAuliffe and Philip H. Curtis, Robert C. Mason, Arnold & Porter, New York, Ny, on the brief), for defendant-appellant Visa U.S.A. Inc.

Kenneth A. Gallo, Clifford Chance Rogers & Wells Llp, New York, NY (James N. Benedict, Mark A. Kirsch, Guy C. Quinlan, Craig M. Walker, Joseph J. Simons, Keila D. Ravelo, on the brief), for defendant-appellant MasterCard International Incorporated.

Lloyd Constantine, Constantine & Partners PC, New York, NY (Robert L. Begleiter, Matthew L. Cantor, Stacey Anne Mahoney, Wendy M. Rogovin, Amy N. Roth, Gordon Schnell, Mitchell C. Shapiro, Jeffrey I. Shinder, Michael Spyropoulos, Constantine & Partners PC and Steve W. Berman, George W. Sampson, Jim Solimano, Hagens Berman Llp, Seattle, Wa, on the brief), for plaintiffs-appellees.

Jack C. Auspitz, Debra Freeman, Morrison & Foerster Llp, New York, NY (Geoffrey P. Miller, of counsel) filed a brief Amici Curiae for The American Bankers Association, The Consumer Banks Association, The Financial Services Roundtable, and The New York Bankers Association.

Appeal from an order of the United States District Court for the Eastern District of New York (John Gleeson, Judge) granting plaintiffs- appellees' motion for class certification.

Affirmed.

Before: Jacobs, Sotomayor, Circuit Judges, and Cote, District Judge.1

Judge Jacobs dissents in a separate opinion.

Sotomayor, Circuit Judge

Defendants-appellants Visa U.S.A. Inc. ("Visa") and MasterCard International Incorporated ("MasterCard") appeal from an order of the United States District Court for the Eastern District of New York (Gleeson, J.) granting plaintiffs-appellees' ("plaintiffs") motion for class certification. We hold that the district court did not abuse its discretion by finding that plaintiffs had established that this action is maintainable as a class action under Federal Rule of Civil Procedure 23(b)(3). We therefore affirm.

BACKGROUND

Plaintiffs - a number of large and small merchants and three trade associations - bring this antitrust class action against defendants Visa and MasterCard, alleging that defendants have created a tying arrangement in violation of § 1 of the Page 130

Sherman Antitrust Act, 15 U.S.C. § 1, by means of their "honor all cards" policy, which requires stores that accept defendants' credit cards to accept their debit cards as well. Plaintiffs also allege that defendants have attempted and conspired to monopolize the debit card market in violation of § 2 of the Sherman Act, 15 U.S.C. § 2.

The underlying facts are drawn from plaintiffs' Second Amended Consolidated Class Action Complaint. Although Visa and MasterCard are separate associations, their rules permit "duality," which allows banks to be members of both associations and to issue both brands of credit cards. There is a 95 percent overlap between Visa's and MasterCard's memberships, and virtually every retailer that accepts one of defendants' credit cards also accepts the other's credit cards. Additionally, as a result of the duality policy, Visa and MasterCard coordinate many of their policies.

Visa and MasterCard, through member banks, issue different types of payment cards, including credit cards and debit cards. Member banks, called card-issuing institutions, rather than defendants themselves, issue payment cards to consumers and set the cardholders' interest rates and fees. Other member banks, called acquiring institutions, contract on behalf of Visa and MasterCard with retailers to accept their payment cards. When a cardholder makes a purchase with his or her Visa or MasterCard payment card at a merchant's store, the acquiring institution reimburses the merchant the purchase price less a "discount fee" and the acquiring institution pays the card-issuing institution an "interchange fee."2 The interchange fee is set by Visa and MasterCard, and the discount fee is based largely on the interchange fee.3 Plaintiffs allege that, because of defendants' policy of duality, there is a high degree of uniformity in both the interest rates and fees charged by defendants' member banks to cardholders and in the discount rates charged by defendants' member banks to merchants accepting Visa and MasterCard payment cards.

This action centers around a class of debit cards issued by Visa and MasterCard. A debit card is an access device which enables a cardholder, among other things, to withdraw cash from his or her bank account at an automated teller machine and to make purchases at a point of sale ("POS") which are debited against the cardholder's bank account.

POS debit card transactions can either be "on-line" or "off-line." In an on-line debit card transaction, the cardholder enters his or her "personal identification number" ("PIN") into a PIN pad and then, during the retail transaction, the card-issuing institution Page 131

verifies that there are sufficient funds in the cardholder's account and electronically puts a hold on the funds needed for the transaction. Within a day, the funds are moved from the cardholder's account to the retailer's account. In contrast, in an off-line debit purchase, the cardholder signs a slip authorizing the purchase (rather than entering a PIN), the card-issuing institution does not necessarily verify that there are sufficient funds or put a hold on those funds, and the funds take approximately one to seven days to be moved to the retailer's account. Plaintiffs contend that there is a higher incidence of fraud in off-line POS debit transactions because they are authorized by signature, rather than by PIN. Visa offers an off-line POS debit card called "Visa Check" and MasterCard offers one called "MasterMoney," both of which are the subject of this litigation.

Defendants have an "honor all cards" policy, which requires any merchant accepting any of their credit cards to accept all of their payment cards, including Visa Check and MasterMoney. According to plaintiffs, retailers are even prohibited by the defendants' "honor all cards" policy from asking customers whether they would mind using a different payment system. Defendants have set the interchange fees for Visa Check and MasterMoney at or near the same level as the interchange fees for their respective credit cards despite the fact that, according to plaintiffs, credit card transactions - which rely on the extension of credit - involve far more risk. The interchange fees for competing on- line debit cards - where the risk of non-payment is substantially eliminated - is far lower.

Plaintiffs contend that if Visa Check and MasterMoney were not tied to defendants' credit cards by the "honor all cards" rule, retailers would refuse to pay the high Visa Check and MasterMoney fees, and as a result, defendants would have to lower those fees. Plaintiffs also allege that defendants have undertaken measures to deceive retailers into accepting their off-line debit cards. Specifically, plaintiffs contend that defendants designed their off-line debit cards to be indistinguishable from their credit cards by making them visually and electronically identical and by setting identical interchange fees for their credit and off-line debit cards.

Thus, plaintiffs allege that defendants have created an illegal tie between Visa Check and MasterMoney and defendants' credit cards and have attempted and conspired to monopolize the debit card market in violation of sections 1 and 2 of the Sherman Act. Plaintiffs request both injunctive relief and money damages.

Plaintiffs moved to certify a class pursuant to Rule 23 consisting of "all persons and business entities who have accepted Visa and/or MasterCard credit cards and therefore are required to accept Visa Check and/or MasterMoney debit cards under the challenged tying arrangements, during the fullest period permitted by the applicable statutes of limitations." In support of their motion for class certification, plaintiffs submitted an expert report from Dennis Carlton, Ph.D in economics. ("Carlton"). Defendants opposed the motion for class certification and moved to strike Carlton's report. Defendants offered an expert report from Richard L. Schmalensee, Ph.D in economics ("Schmalensee"), in opposition to plaintiffs' motion for class certification and in support of their motion to strike. The district court issued a memorandum and order granting plaintiffs' motion for class certification and denying defendants' motion to strike Carlton's expert report. In re Visa Check/MasterMoney Antitrust Litig., 192 F.R.D. 68 (E.D.N.Y. 2000). This Court Page 132

granted defendants' petition to appeal, pursuant to Federal Rule of Civil Procedure 23(f),4 the district court's grant of plaintiffs' motion for class certification.5 On appeal, defendants argue that the district court abused its discretion by finding that: (1) plaintiffs' expert report was sufficient to support class certification; (2) common issues...

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