Worthen Bank & Trust Co. v. National BankAmericard Inc.

Decision Date21 September 1973
Docket NumberNo. 72-1555.,72-1555.
Citation485 F.2d 119
PartiesWORTHEN BANK & TRUST COMPANY, Appellee, v. NATIONAL BANKAMERICARD INCORPORATED, Appellant.
CourtU.S. Court of Appeals — Eighth Circuit

Francis R. Kirkham, San Francisco, Cal., for appellant.

Philip S. Anderson, Wright, Lindsey & Jennings, Little Rock, Ark., and Stephen D. Susman, Houston, Tex., for appellee.

Before GIBSON and ROSS, Circuit Judges, and BENSON, Chief District Judge.*

Rehearing and Rehearing En Banc Denied October 24, 1973.

ROSS, Circuit Judge.

This is an appeal from an order granting partial summary judgment to the plaintiff in an antitrust action, based upon a holding by the trial court that the defendant had committed a "per se" violation of Section 1 of the Sherman Act. We reverse and remand for trial.

I. History
A. Procedural Background

On November 26, 1971, the Worthen Bank & Trust Company (Worthen) filed its complaint on behalf of itself and a class of banks charging that National BankAmericard Incorporated (NBI) had adopted a bylaw, which if enforced would constitute a "group boycott" in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. Worthen sought damages and an injunction. NBI and Worthen entered into a stipulation that NBI would not enforce the bylaw pending determination of this litigation. On April 10, 1972, Worthen filed a motion for summary judgment. NBI filed affidavits in opposition. The motion was argued on June 20, 1972 and on July 19, 1972, the court held that enforcement of the bylaw would constitute a "group boycott" per se violative of Section 1 of the Sherman Act. Worthen Bank & Trust Co. v. National BankAmericard Inc., 345 F.Supp. 1309 (E.D.Ark.1972). On August 7, 1972, the court entered an order permanently enjoining NBI from enforcing bylaw 2.16.1 Appeal from that order was taken pursuant to the provisions of 28 U.S.C. § 1292(a)(1).

B. Statement of Facts
1. The parties2

a. NBI

NBI is a for profit, nonstock, membership corporation comprised of commercial banks and established to produce and promote bank credit cards. Membership in NBI is divided into two classes of banks which are denominated A and B banks. A banks issue cards, extend credit, and perform all functions necessary to maintain the system. A banks are liable for fees to defray the expense of NBI and are entitled to any rebates and dividends and govern NBI by membership on its board of directors and on advisory committees. B banks act only as agents for A banks. The B bank status does not permit the bank to issue credit cards but does permit these banks to offer credit card service to merchant customers.3 NBI is comprised of about 250 A banks and approximately 4,100 B banks.

b. Interbank/Master Charge

Interbank/Master Charge (MC), not a party to this suit, is a membership corporation which is comprised of regional banking associations and individual banks established to produce and promote bank credit card services. MC does not formally characterize its members by class, although it also has both card issuing and agent bank members, and is considered the larger of the two national bank credit card systems.

c. Worthen

Worthen is a bank incorporated and organized under the laws of Arkansas with its principal place of business in Little Rock, Arkansas. Worthen is an A bank in the NBI system, and is also an issuing bank of MC.

2. The bank credit card industry.
a. History

The national bank credit card industry has grown rapidly since its inception. By the end of 1971 the gross dollar volume in the industry exceeded eight billion dollars. NBI controlled some $3,370,000,000 and MC about $5,000,000,000. In every other respect, from cardholders to merchant outlets, MC was the larger system. NBI and MC are the only national bank credit card systems, although these bank credit cards compete with other types of cards such as regional bank cards, oil credit cards, and travel and entertainment cards.

b. The mechanics of the system.

For a national bank credit card system to operate four requirements must be met. First, there must be credit card issuing banks, tied together with other banks on a nation wide basis, willing to accept the commercial paper generated by the use of the card at points both near and distant to the card issuing bank. Second, merchants must be willing to accept the card in lieu of payment in currency. Third, there must be a process whereby a merchant can take the sales draft, generated by the use of the card, to a bank and have the paper purchased. The "merchant's" bank must then be able to transfer the paper to the card issuing bank. This process is called interchange. Finally, to insure the integrity of the system, there must be a process whereby the validity of the card and the availability of credit may be established prior to a purchase.

c. The potential for profit.

A banks may profit from a national credit card system by charging cardholders interest on accounts not paid in full on the first billing; by acquiring, at a discount, merchant's sales paper, and by increased merchant business through the satisfactory handling of a merchant's sales paper. B banks may earn revenues through discounts charged to the merchant and from "spill over" business resulting from its handling of the merchant's sales paper.

d. The importance of computer technology.

Both systems are actively engaged in improving authorization capabilities by increasing computer utilization. Thus:

"NBI is presently developing a computerized national authorization system. . . . NBI\'s initial intent is to develop a nationwide communications system controlled by a central computer and several regional computers, which can be connected to electronically or optically engineered terminals in merchant or branch locations, capable of reading magnetically or optically encoded cards and providing virtually instantaneous communications for authorizations . . . ." App. 82-83.
MC:
"recently formed a subsidiary called International Communication Systems, Inc., . . . . It is working on providing computer links so that computers in one city can interface with each other and directly authorize cardholder transactions. MC is constantly reviewing and trying to improve its interchange system, including its charge-back and clearing procedures." App. 99.
3. NBI's bylaw 2.16.

While NBI does not set uniform merchant discount rates, nor does it establish uniform interest rates, nor does it make exclusive territorial assignments, NBI does prohibit A banks, like the Worthen Bank, from joining the MC system, or any new national system, by penalty of loss of A status. The bylaw complained of in this suit provides in pertinent part as follows:

"Section 2.16. Requirements with Respect to other Credit Cards.
(a) No Class A member shall directly or indirectly (i) own, (ii) issue, (iii) assist in the issuance of (iv) service, (v) honor, or (vi) enter into contractual relationships with persons for the issuance of, or with merchants to honor, any Credit Cards except (1) as permitted pursuant to sections 2.04 and 2.05, (2) Area Credit Cards, and (3) Credit Cards owned or issued by any organization licensed to conduct the BankAmericard program in a foreign country.
(b) No Class A member shall directly or indirectly accept for deposit or purchase any instruments arising from the use of any Credit Cards except those arising from (i) Credit Cards issued pursuant to sections 2.04 and 2.05, (ii) Area Credit Cards, and (iii) Credit Cards owned or issued by any organization licensed to conduct the BankAmericard program in a foreign country.
(c) No Class B member shall directly or indirectly (i) enter into contractual relationships with persons for the issuance of Credit Cards except as may be permitted by section 2.05 or (ii) own or issue in its own name Credit Cards, or (iii) appear on Credit Cards or elsewhere as the owner or issuer thereof, except Area Credit Cards.
(d) If a parent, subsidiary or affiliate of a member takes any action which the member may not take under the provisions of this section, such member shall be deemed thereby to have violated this section unless, in the case of affiliates, (i) there are no common officers or employees engaged in the management or operation of both BankAmericard and other Credit Card programs and (ii) the operations — including, without limitation, marketing, authorization, credit, collection and solicitation — of such programs are separate; provided that paragraph (c) shall not apply to parents, subsidiaries and affiliates which are Class A members. The provisions of section 2.15 shall apply, without limitation, to all officers and employees engaged in the operation of a member\'s Credit Card program and to all directors of members.
(e) The provisions of this section shall not apply during periods necessary to (i) convert a credit card program to or from the BankAmericard program or (ii) make an adjustment to a Credit Card program as required for compliance with this section, provided such conversion or adjustment is completed in accordance with such conditions and in such time as the corporation may require, which time shall not exceed twelve months from (1) the effective date of this section, (2) the date of acceptance of membership, (3) the date of delivery of notice of termination, or (4) the date of any future acquisition, merger or other circumstance which necessitates an adjustment hereunder, as the case may be.
(f) `Credit Cards\' as used in this section mean any instruments, whether in the form of a card, book, plate, coupon, or other credit device owned or issued by a bank (including any of its parents, subsidiaries or affiliates) which may be used to obtain money or to purchase or lease property or services on credit but do not include letters of credit or any such instruments usable exclusively for the obtaining of money from such bank or the
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