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

Decision Date19 July 1972
Docket NumberNo. LR-71-C-248.,LR-71-C-248.
Citation345 F. Supp. 1309
PartiesWORTHEN BANK & TRUST COMPANY, Plaintiff, v. NATIONAL BankAMERICARD INCORPORATED, Defendant.
CourtU.S. District Court — Eastern District of Arkansas

Stephen D. Susman of Fulbright, Crooker & Jaworsky, Houston, Tex., Philip S. Anderson, of Wright, Lindsey & Jennings, Little Rock, Ark., for plaintiff.

John T. Williams, of Smith, Williams, Friday, Eldredge & Clark, Little Rock, Ark., John B. Bates, of Pillsbury, Madison & Sutro, San Francisco, Cal., for defendant.

OPINION

JOHN E. MILLER, Senior District Judge.

This action comes before the court on a motion for a partial summary judgment by the plaintiff, Worthen Bank & Trust Company (Worthen). The complaint, filed on November 26, 1971, alleges that the conduct of the defendant, National BankAmericard Incorporated (NBI), violates Sections 1 and 2 of the Sherman Antitrust Act, and asks for (a) a declaratory judgment that the defendant has violated Sections 1 and 2 of the Sherman Act, (b) injunctive relief against continuing or threatening violations of said laws, and (c) damages for the violations of said laws. Specifically Worthen charges that, as a Class A member of NBI, it is restricted by a by-law of said corporation from handling any other national bank credit card.

Included in the complaint are allegations that raise the question whether the case should be prosecuted as a class action. This question has been considered and determined in a separate opinion 345 F.Supp. 1323 filed along with this opinion.

The defendant has answered the allegations of the plaintiff and denied that it has violated the Sherman Antitrust Act in any way, or that Worthen is entitled to injunctive relief or damages.

The court has jurisdiction of the parties and the subject matter under 15 U.S.C.A. § 1526.

Worthen is a corporation duly organized and existing under the banking laws of the State of Arkansas, with its office and principal place of business in Little Rock. It is a subsidiary of First Arkansas Bank Stock Corporation, a bank holding company, which also owns the Stephens Bank of Stephens, Arkansas, and the First National Bank of Hot Springs, Arkansas.

The defendant, National BankAmericard Incorporated (NBI), is a for-profit membership corporation which produces and provides a distinctive product and service: A national general purpose bank card and service under the registered marks "BankAmericard" and the "Blue, White and Gold Bands Design." The members of NBI are banks which have banded together to provide this national bank card product and service.

Prior to 1970 Worthen had been involved in the growing bank credit-card business for a number of years. In May of 1970 Worthen became a Class A, or proprietary member of NBI. On November 10, 1970, Worthen submitted an application for full membership, or proprietary membership, in the Interbank Card Association, which operates the Master Charge card system. At that time NBI had no by-law prohibiting one of its Class A members from being a part of any other national bank credit-card system. On April 5, 1971, Worthen's application to Interbank was approved, and Worthen began to negotiate merchant agreements for acceptance of Master Charge cards.

It is necessary to digress at this point into a brief summary of how a national bank credit-card system works. There are several relationships involved in the average bank credit-card transaction. There are only two national bank credit-card operations, NBI and Interbank. In both the Master Charge and BankAmericard systems there are two types of member banks. A Class A member in NBI and a full member in Interbank have the responsibility for the issuance of cards, the collection of accounts, and the operation of the interchange system, along with the Class B or associate member banks, which function merely as agent or merchant banks holding the merchants' sales slips and forwarding them to the full member or Class A bank. Banks benefit from promoting the credit cards by collection of a service charge for handling the sales paper, increased deposits from merchants who want to deposit their sales slips in the same bank where they have an account, and to a certain extent from interest on cardholder accounts which are not paid within thirty ways of receipt of a statement for the same. By the end of 1971 there were approximately 9,500 banks participating in national bank credit-card programs with approximately eight billion dollars in volume. Interbank (Master Charge) is the larger of the two systems.

A typical transaction can be described as follows: A BankAmericard holder in Little Rock, Ark., using a card issued by Worthen through one of its agent or merchant banks in another city in Arkansas travels to Dallas, Texas, where he wishes to purchase a $25 item in a store which accepts BankAmericard. After the sale the merchant takes the sales slip to a bank in Dallas which is a Class A or full member bank in the NBI system and holds a merchant agreement with the retailer. This banks pays the merchant for the sales slip, less a discount, and returns the sales slip to Worthen in Little Rock for collection from the cardholder. The Dallas bank is paid an interchange fee for handling the sales slip. This is a very simple bank credit card transaction, but it gives a general idea of how the system works.

The crux of the complaint of Worthen is that by-laws 2.15 and 2.16 of NBI violate Section 1 of the Sherman Antitrust Act, 15 U.S.C.A. § 1. As previously stated, Worthen applied for a full membership in Interbank (Master Charge) in the middle of the year 1970. NBI immediately expressed its disapproval of this action, and began an effort to determine what it could do about dual memberships in the national bank credit card systems. The end result of all NBI's activities are reflected in the aforementioned by-laws approved on September 24, 1971, which read as follows:

"Section 2.15. Confidentiality. No member shall publish, disclose, convey or distribute to any person or organization, including, but not limited to, any parents, subsidiaries or affiliates, any confidential or proprietary matters of the corporation, including, but not limited to, documents, ideas, products and data, without the prior written consent of the corporation, except (a) to a person or organization which (i) is rendering services to such member with respect to its BankAmericard program and to the extent that such disclosure is necessary to properly perform such services, (ii) does not compete with the corporation or its members with respect to the BankAmericard program, and (iii) agrees to hold such matters in confidence; and (b) such matters that have been publicly released by the corporation.
"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 circumstances 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 guaranteeing of checks.
(g)
...

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    ...in Little Rock, Arkansas, sued for the right to issue both Visa cards and MasterCard cards. 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). I......
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