SCFC ILC, Inc. v. Visa USA, Inc., 93-4105
| Citation | 36 F.3d 958 |
| Decision Date | 23 September 1994 |
| Docket Number | No. 93-4105,93-4105 |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
| Parties | , 1994-2 Trade Cases P 70,725 SCFC ILC, INC., doing business as MountainWest Financial, Inc., Plaintiff-Counter-Defendant-Appellee, v. VISA USA, INC., Defendant-Counter-Claimant-Appellant, v. SEARS, ROEBUCK AND COMPANY, an Illinois corporation; Sears Consumer Financial Corporation an Illinois corporation, Counterclaim-Defendants-Appellees. American Bankers Association; Independent Bankers Association of America; Colorado Bankers Association; Community Bankers Association of Kansas; Community Bankers Association of Oklahoma; Independent Bankers of Colorado; Independent Community Bankers of New Mexico; New Mexico Bankers Association; Kansas Bankers Association; Utah Bankers Association; Wyoming Bankers Association; American Automobile Manufacturers Association; Boulder Technology Incubator; Chevron Corporation; Corning Incorporated; Pacific Telesis Group; Plasticom Industries, Inc.; Rmes Communications Inc.; American Financial Services Association; Bankcard Holders of America, Amici Curiae. |
M. Laurence Popofsky (Stephen V. Bomse, Marie L. Fiala, Renata M. Sos, Robert G. Merritt, Heller, Ehrman, White & McAuliffe, San Francisco, CA, Dale A. Kimball, Clark Waddoups, Heidi E.C. Leithead, Kimball, Parr, Waddoups, Brown & Gee, Salt Lake City, UT, with him on the briefs), Heller Ehrman, White & McAuliffe, San Francisco, CA, for appellant Visa USA.
William H. Pratt (Francis M. Holozubiec, Jason Klein, Kirkland & Ellis, New York City, James D. Sonda, Jeffrey S. Cashdan, Kirkland & Ellis, Chicago, IL; Kenneth W. Starr, Paul T. Cappuccio, Kirkland & Ellis, Washington, DC; Gary F. Bendinger, Giauque, Crockett & Bendinger, Salt Lake City, UT, with him on the briefs), Kirkland & Ellis, New York City, for appellee Mountainwest.
Robert H. Bork, Washington, DC, on the brief for amicus curiae American Financial Services Ass'n.
A. Douglas Melamed, Randolph D. Moss, Wilmer, Cutler & Pickering, Washington, DC; and Leonard J. Rubin, Bracewell & Patterson, Washington, DC, on the brief for amici curiae American Bankers Ass'n, etc.
E. Thomas Sullivan, Tucson, AZ, on the brief for amicus curiae Bankcard Holders of America.
Phillip Areeda, on the brief for amici curiae American Automobile Mfrs. Ass'n, etc.
Before MOORE and SETH, Circuit Judges, and DAUGHERTY, District Judge. *
Visa USA provides payment services to its 6,000 members which individually issue credit cards to consumers. Sears, Roebuck and Company, a competitor offering its own credit card, the Discover Card, wanted to become a Visa USA member and also issue Visa cards. The question presented by this case is whether Visa USA's refusal to admit Sears to its joint venture restrains trade in violation of section 1 of the Sherman Act, 15 U.S.C. Sec. 1. Rejecting Visa USA's legal and factual challenges to the jury's adverse verdict, the district court found the evidence of exclusion constituted antitrust injury and harm to competition. SCFC ILC, Inc. v. Visa U.S.A., Inc., 819 F.Supp. 956, 990 (D.Utah 1993). We conclude, however, the exclusion does not trigger section 1 liability and reverse.
As set forth more extensively in the district court's order, the factual background of this dispute encompasses the history of the general purpose credit card industry. What is known today "everywhere you want to be" as Visa has evolved over the last forty years from direct extensions of credit for a single purpose; for example, oil company or department store credit cards, to a "charge card which could be used for general purposes at a wide variety of retail establishments." Id. at 963 n. 2. The resulting card was offered without geographic restrictions under the neutral trademark, Visa.
Now, to its approximately 6,000 associates, Visa USA, 1 the umbrella organization, provides technology to process credit card transactions and regulates and coordinates the individual programs through rules and bylaws proposed by management and adopted by a board of directors (the Board). 2 The bylaws cover a range of issues: members' liability, termination, and confidentiality, to name a few. However, since its inception, each Visa USA member independently decides the terms and conditions of credit extensions, the number of cards issued, and the interest rates charged. That is, individual banks establish, operate, and promote their own credit card programs under the Visa aegis, while Visa USA serves as a clearinghouse for the ultimate transaction between issuer, consumer, and merchant. The fees members pay to Visa USA for its services vary according to a formula established by the association.
Any financial institution which is eligible for federal deposit insurance may become a Visa USA member. Among its current membership are Citicorp, Ford Motor Company, General Electric, and ITT. Although the membership was originally restricted to exclusively issuing Visa cards, a challenge to the bylaw prohibiting members from issuing MasterCard forced Visa USA to withdraw the rule. See Worthen Bank & Trust Co. v. National BankAmericard, Inc., 345 F.Supp. 1309 (E.D.Ark.1972), rev'd, 485 F.2d 119 (8th Cir.1973), cert. denied, 415 U.S. 918, 94 S.Ct. 1417, 39 L.Ed.2d 473 (1974). Consequently, Visa USA members now generally offer both Visa and MasterCard, a practice referred to in the industry as duality.
Prior to its entry into the general credit card arena, Sears 3 mustered a bankcard steering committee to investigate the alternatives of developing its own general purpose charge card or joining the Visa USA/MasterCard association. In 1985, Sears introduced the Discover Card, its own proprietary card, one "owned and distributed solely by a single business entity," 819 F.Supp. at 963 n. 3., to be marketed and issued nationally. This entry was intended to compete with Visa, MasterCard, American Express, and Citibank's Diners' Club/Carte Blanche, the only other national proprietary cards. Despite Visa USA's aggressive efforts to thwart its new rival, id. at 963, Discover succeeded with such innovations as preapproved, no fee cards offering cash back bonuses to cardholders and deeper discounts to merchants. In fact, at the time of this litigation, Sears was the largest individual issuer of credit cards in terms of the number of cards distributed and the second largest, following Citicorp, in credit card receivables volume. 4 To compete with the Visa Gold Card and American Express Optima Card, Sears also introduced an upscale Discover Card called Prime Issue. Another Sears' entity, Sears Payment Services (SPS), assists other companies in operating their credit card programs.
In 1988, Greenwood Trust Company, a Sears-owned Delaware bank which issues Discover Card, applied for membership in Visa USA, prompting the Board to adopt the bylaw which is the genesis of this antitrust litigation. The amendment to the Board rule, Bylaw 2.06, stated:
Notwithstanding (a) above, if permitted by applicable law, the corporation shall not accept for membership any applicant which is issuing, directly or indirectly, Discover cards or American Express cards, or any other cards deemed competitive by the Board of Directors; an applicant shall be deemed to be issuing such cards if its parent, subsidiary or affiliate issues such cards.
Subsequently, the Board denied Greenwood Trust's application to Visa USA.
In 1990, the Resolution Trust Corporation sold Sears the assets, including the Visa USA membership, of MountainWest Savings and Loan Association, a bankrupt savings and loan in Sandy, Utah. Sears then created a new entity, SCFC ILC, Inc., doing business as MountainWest Financial, by merging the Sandy bank with Basin Loans, a Utah Industrial Loan Company.
Through this vehicle, Sears was poised to inaugurate a national Visa program it dubbed the Prime Option card, a charge card featuring a two-tiered interest rate, 9.9% for the first two months and 15.9% thereafter. To this end, Sears moved Discover's top executives to Prime Option and ordered an initial printing of 1.5 million Prime Option Visa cards. However, upon inadvertently discovering the plan, Visa USA cancelled the printing and invoked Bylaw 2.06 to exclude Sears from the association. Sears then instituted this antitrust litigation.
In this appeal, Visa USA contends Sears has failed to carry its burden of showing Visa USA's conduct was harmful to competition in violation of section 1. Indeed, Visa USA underscores, the district court conceded had it tried the facts, it "would have concluded that the harm to competition from letting Sears into the Visa system is greater than any harm from keeping Sears out." 819 F.Supp. at 983. Sears, however, urges this fact-intensive case persuaded the jury that preventing consumers access to the Prime Option card and destroying rivals' incentives to develop new proprietary cards harmed competition.
Nonetheless, we focus only on those relevant antitrust facts, which, when viewed most favorably to Sears, underpin our plenary review under Fed.R.Civ.P. 50(b). In the context of this case, if there is evidence upon which a jury could properly find Visa USA restrained trade, we must affirm. 5A J. Moore & J. Lucas, Moore's Federal Practice p 50.07, at 50-76 (2d ed. 1994). Naturally, we do not weigh the credibility of the evidence when reviewing the record. However, if the evidence is insufficient "under the controlling law," Fed.R.Civ.P. 50(a), we must enter judgment as a matter of law for the moving party.
Having stated its contrary view, but reluctant to substitute its judgment for that of the jury, the district court articulated those facts which it opined could become the basis for judgment:
1. Testimony of Sears' expert, Professor James Kearl, on the appropriateness of calculating Visa USA's market power by aggregating the individual market...
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