Barry's Cut Rate Stores Inc. v. Visa, Inc.

• Decision Date: 20 November 2019
• Docket Number: 05-MD-1720 (MKB) (JO)
• Parties: BARRY'S CUT RATE STORES INC.; DDMB, INC. d/b/a EMPORIUM ARCADE BAR; DDMB 2, LLC d/b/a EMPORIUM LOGAN SQUARE; BOSS DENTAL CARE; RUNCENTRAL, LLC; CMP CONSULTING SERV., INC.; TOWN KITCHEN, LLC d/b/a TOWN KITCHEN & BAR; GENERIC DEPOT 3, INC. d/b/a PRESCRIPTION DEPOT; and PUREONE, LLC d/b/a SALON PURE, Plaintiffs, v. VISA, INC.; MASTERCARD INCORPORATED; MASTERCARD INTERNATIONAL INCORPORATED; BANK OF AMERICA, N.A.; BA MERCHANT SERVICES LLC (f/k/a DEFENDANT NATIONAL PROCESSING, INC.); BANK OF AMERICA CORPORATION; BARCLAYS BANK PLC; BARCLAYS BANK DELAWARE; BARCLAYS FINANCIAL CORP.; CAPITAL ONE BANK, (USA), N.A.; CAPITAL ONE F.S.B.; CAPITAL ONE FINANCIAL CORPORATION; CHASE BANK USA, N.A.; CHASE MANHATTAN BANK USA, N.A.; CHASE PAYMENTECH SOLUTIONS, LLC; JPMORGAN CHASE BANK, N.A.; JPMORGAN CHASE & CO.; CITIBANK (SOUTH DAKOTA), N.A.; CITIBANK N.A.; CITIGROUP, INC.; CITICORP; and WELLS FARGO & COMPANY, Defendants.
• Court: U.S. District Court — Eastern District of New York

BARRY'S CUT RATE STORES INC.; DDMB, INC. d/b/a EMPORIUM ARCADE BAR;DDMB 2, LLC d/b/a EMPORIUM LOGAN SQUARE; BOSS DENTAL CARE;RUNCENTRAL, LLC; CMP CONSULTING SERV., INC.; TOWN KITCHEN, LLCd/b/a TOWN KITCHEN & BAR; GENERIC DEPOT 3, INC. d/b/a PRESCRIPTION DEPOT;and PUREONE, LLC d/b/a SALON PURE, Plaintiffs, v. VISA, INC.; MASTERCARD INCORPORATED;MASTERCARD INTERNATIONAL INCORPORATED;BANK OF AMERICA, N.A.; BA MERCHANT SERVICES LLC(f/k/a DEFENDANTNATIONAL PROCESSING, INC.); BANK OF AMERICA CORPORATION;BARCLAYS BANK PLC; BARCLAYS BANK DELAWARE; BARCLAYS FINANCIAL CORP.;CAPITAL ONE BANK, (USA), N.A.; CAPITAL ONE F.S.B.;CAPITAL ONE FINANCIAL CORPORATION; CHASE BANK USA, N.A.;CHASE MANHATTAN BANK USA, N.A.; CHASE PAYMENTECH SOLUTIONS, LLC;JPMORGAN CHASE BANK, N.A.; JPMORGAN CHASE & CO.; CITIBANK (SOUTH DAKOTA), N.A.;CITIBANK N.A.; CITIGROUP, INC.; CITICORP; and WELLS FARGO & COMPANY, Defendants.

05-MD-1720 (MKB) (JO)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

November 20, 2019

MEMORANDUM & ORDER

MARGO K. BRODIE, United States District Judge:

A putative Rule 23(b)(2) class of millions of merchants commenced this antitrust action under the Clayton Act,15 U.S.C. § 16, to prevent and restrain violations of the Sherman Act,15 U.S.C. §§ 1and2, and the California Cartwright Act, Bus. & Prof. Code § 16700 et seq., seeking injunctive relief against Defendants Visa and Mastercard networks, as well as various issuing and acquiring banks ("Bank Defendants").(Compl., Docket EntryNo. 6892.)Plaintiffs seek to represent a class of merchants that accept Visa- and Mastercard-branded cards as forms of payment, and allege that Defendants engage in anticompetitive conduct that harms competition and imposes supracompetitive and collectively-fixed fees on the merchants.(Id.¶ 4.)

Currently before the Court is Bank Defendants' joint motion to dismiss the claims against them pursuant to Rules 12(b)(1)and12(b)(6) of the Federal Rules of Civil Procedure for lack of standing and for failure to state a claim upon which relief can be granted.(Bank Defs. Mot. to Dismiss("Defs. Mot."), Docket EntryNo. 7399;Bank Defs. Mem. of Law in Supp. of Mot. to Dismiss("Defs. Mem."), Docket EntryNo. 7399-1.)For the reasons set forth below, the Court finds that Plaintiffs have standing to assert claims against Bank Defendants, and that Plaintiffs have sufficiently alleged that Bank Defendants are participants in ongoing conspiracies.Accordingly, the Court denies Bank Defendants' motion to dismiss.

I.Background

The Court assumes the truth of the factual allegations in the Complaint for the purposes of deciding Bank Defendants' motion to dismiss.

A putative class of over twelve million nationwide merchants brought an antitrust action under the Sherman Act,15 U.S.C. §§ 1and2, and state antitrust laws, against Defendants Visa and Mastercard networks, as well as various issuing and acquiring banks.¹SeeIn re PaymentCard Interchange Fee & Merch. Disc. Antitrust Litig., 986 F. Supp. 2d 207, 213, 223(E.D.N.Y.2013)("Interchange Fees I"), rev'd and vacated, 827 F.3d 223(2d Cir.2016)("Interchange Fees II");(First Consolidated Am. Class Action Compl., Docket EntryNo. 317).

The plaintiffs sought both injunctive and monetary relief, and after years of litigation, former District Judge John Gleeson approved a settlement for an injunctive relief class and a monetary damages relief class (the "2013 Settlement Agreement"), seeInterchange Fees I, 986 F. Supp. 2d at 216 n.7, 240, which the Second Circuit vacated on June 30, 2016, and remanded to this Court,²Interchange Fees II, 827 F.3d at 227, 229.Following remand, the two putative classes — a Rule 23(b)(2) injunctive relief class³ and a Rule 23(b)(3) damages class — have been proceeding separately, each represented by separate counsel.(See Mem. and Order dated Nov. 30, 2016, Docket EntryNo. 6754.)The Rule 23(b)(2) injunctive relief class filed itsComplaint on March 31, 2017.⁴(Compl.)Bank Defendants now move to dismiss claims against them by the putative Rule 23(b)(2) injunctive relief class plaintiffs("Plaintiffs" or "Rule 23(b)(2) Class Plaintiffs").(Defs. Mot.)

The Court assumes familiarity with the facts and extensive procedural history of the MDL, as set forth in prior decisions.SeeInterchange Fees I, 986 F. Supp. 2d 207;Interchange Fees II, 827 F.3d 223;In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., No. 05-MD-1720, 2017 WL 4325812(E.D.N.Y.Sept. 27, 2017), order set aside, No. 05-MD-1720, 2018 WL 4158290(E.D.N.Y.Aug. 30, 2018);In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., No. 05-MD-1720, 2017 WL 4620988(E.D.N.Y.Oct. 13, 2017), andIn re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 2019 WL 359981.The Court therefore provides only a summary of the relevant facts and procedural history.

a. Payment card transactions

The processing of card-based transactions and the actors involved have been described multiple times in this action and related cases, and the Court draws on the facts alleged in the Complaint and case law to describe the transactions.

"When a cardholder uses a credit card to buy something from a merchant, the transaction is facilitated by a credit-card network."Ohio v. Am. Express Co. ("Amex III"), --- U.S. ---, ---, 138 S. Ct. 2274(2018).This also applies to certain debit card transactions.The relevantnetworks in this action are Visa and Mastercard.⁵Visa and Mastercard are "bank-card networks whose members include banks, regional-banking associations, and other financial institutions."(Compl. ¶ 56.)Both networks "operate as standard-setting organizations" for certain credit and debit card services and "facilitate the exchange of transaction data and funds," typically among four main actors: merchants, acquiring banks, issuing banks, and consumers.(Id.¶ 84.)Acquiring banks are members of Visa and/or Mastercard that acquire payments from merchants when processing card payments.(Id.¶ 9(b).)Generally, after a customer presents a card for payment, a merchant transfers the transaction information to an acquiring bank, and the acquiring bank contacts the issuing bank via the Visa or Mastercard network for the authorization of payment.(Id.)Issuing banks are members of Visa and/or Mastercard that issue Visa- and/or Mastercard-branded cards to consumers.(Id.¶ 9(m).)

When a customer (cardholder) makes a purchase with certain Visa- and/or Mastercard-branded cards, the merchant from whom the purchase is made "sends an electronic transmission to" the merchant's acquiring bank or a third-party processor.⁶(Id.¶ 85.)The acquiring bank or third-party processor sends an electronic transmission to Visa or Mastercard.(Id.)Visa or Mastercard then informs the cardholder's issuing bank or a third-party processor of the transaction, and the issuing bank or third-party processor pays the acquiring bank via the Visaor Mastercard network.(Id.)

During this process, two types of fees are deducted.(Id.)First, the "interchange fee" is deducted from the full price of the payment when the issuing bank pays the acquiring bank.(Id.)Plaintiffs define the interchange fee as "a fee that Merchants pay to the Issuing Bank through the [Visa or Mastercard] network and the Acquiring Bank for each transaction."(Id.¶ 9(l).)Second, the acquiring bank takes a "merchant-discount fee" when crediting the merchant's account for the payment.(Id.¶ 85.)Plaintiffs define the merchant-discount fee as a total sum fee that is deducted from the amount of money paid to a merchant when a consumer makes a Visa- or Mastercard-branded purchase, the largest component of which is the interchange fee.(Id.¶¶ 9(o), 85.)According to Plaintiffs, "[u]nder this system, the Issuing Bank earns revenue from annual fees and interest charged to cardholders, as well as the amount of the Interchange Fee, while the Acquiring Bank earns revenue from the difference between the Merchant-Discount Fee and the Interchange Fee."(Id.¶ 85.)

b. History of bank and network relationships

At the beginning of this litigation, and in prior related litigation in this Circuit, Visa and Mastercard were effectively owned by their member banks.See, e.g., United States v. Visa U.S.A., Inc., 344 F.3d 229, 235(2d Cir.2003)(noting that at the time, in 2003, Visa and Mastercard were "organized as open joint ventures, owned by the numerous banking institutions that are members of the networks" — "MasterCard . . . by . . . approximately 20,000 member banks; Visa . . . by . . . approximately 14,000 member banks" — and that "[t]he networks' operations [were] conducted primarily by their member banks").Given this ownership structure, the Second Circuit noted that it would be inaccurate to compare the structure of Visa or Mastercard to single entity structures such as Coca-Cola, because they"are not singleentities; they are consortiums of competitors.They are owned and effectively operated by some 20,000 banks, which compete with one another in the issuance of payment cards and the acquiring of merchants' transactions.These 20,000 banks set the policies of Visa U.S.A. and MasterCard."Id. at 242.

During the course of this litigation, both networks underwent restructuring.In 2006 and 2008, Mastercard and Visa, respectively, made initial public offerings ("IPOs"), becoming publicly traded individual companies.SeeInterchange Fees II, 827 F.3d at 229(noting that after the first consolidated complaint had been filed in this action in 2006, "[b]oth Visa and MasterCard conducted initial public offerings that converted each from a consortium of competitor banks into an independent, publicly traded company");Interchange Fees I, 986 F. Supp. 2d at 215("While the case has been pending . . . .[t]he very structures of Visa and MasterCard themselves changed; in 2008 and 2006, respectively, initial public offerings . . . converted each from a consortium of...