Brennan v. Concord Efs, Inc.

• Citation: 369 F.Supp.2d 1127
• Decision Date: 04 May 2005
• Docket Number: No. C042676VRW.,C042676VRW.
• Parties: Pamela BRENNAN et al, Plaintiffs, v. CONCORD EFS, INC et al, Defendants.
• Court: U.S. District Court — Northern District of California

369 F.Supp.2d 1127

Pamela BRENNAN et al, Plaintiffs, v. CONCORD EFS, INC et al, Defendants.

No. C042676VRW.

United States District Court, N.D. California.

May 4, 2005.

Joseph R. Saveri, Jahan C. Sagafi, Joshua P. Davis, San Francisco, CA, Andrew W. Hutton, Channel P. Townsley, Deborah Brown McIlhenny, Mark G. Ayesh, Wichita, KA, Anthony J. Bolognese, Bart D. Cohen, Daniel B. Allanoff, Joel Cary Meredith, Joseph C. Kohn, Merrill G. Davidoff, William E. Hoese, Philadelphia, PA, Daniel E. Gustafson, Karla M. Gluek, W. Joseph Bruckner, Minneapolis, MN, George A. Shohet, Venice, CA, Gretchen M. Nelson, Los Angeles, CA, Kim Keevers, Michael J. Brickman, Charleston, SC, Marc S. Moller, New York, NY, for Plaintiffs.

Buckmaster Dewolf, Menlo Park, CA, Charles H. Samel, Los Angeles, CA, Brian Wallach, Peter Edward Moll, Esq., Carrie M. Anderson, James Christopher Egan, Jr., Peter D. Isakoff, Steven A. Newborn, Donald Baker, Washington, DC, Sarkis Ohannes Beudjekian, Redwood Shores, CA, Sonya D. Winner, Kathryn Ann Vaclavik, Diane E. Pritchard, Jesse William Markham, Jr., Michele D. Floyd, J. Thomas Rosch, Joshua N. Holian, Mark Jeremy Seifert, San Francisco, CA, for Defendants.

ORDER

WALKER, Chief Judge.

In this putative class action, plaintiffs assert that defendants — banks and other entities involved in the processing of withdrawals from automated teller machines (ATMs) in the "Star" ATM network ("Star") — have engaged in horizontal price fixing declared illegal by section 1 of the Sherman Antitrust Act, 15 USC § 1. Plaintiffs argue that defendants' conduct is condemned per se; they disclaim any intention of proceeding on a rule of reason theory. Several defendants move to dismiss the complaint (or for judgment on the pleadings) on the ground that Star is a procompetitive cooperative joint venture subject only to rule of reason analysis. Doc ## 26, 29, 42. Other defendants move to dismiss on the ground that the complaint does not sufficiently allege their involvement in setting the terms of Star's operations. Doc ## 17, 33.

I

"On a motion to dismiss, all well-pleaded allegations of material fact are taken as true and construed in a light most favorable to the non-moving party." Wyler Summit Partnership v. Turner Broadcasting System, Inc., 135 F.3d 658, 661 (9th Cir.1998) (citing Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995)). Accordingly, what follows is drawn from plaintiffs' complaint (Doc # 1), taking its allegations as true.

As almost anyone who has an ATM card knows, withdrawals can be made from an account at one bank — the bank that issues the ATM card (the "issuing bank") — using an ATM owned by a third party (the "ATM owner"). Only banks can issue ATM cards, but banks and non-banks alike can operate ATMs. Transactions in which the issuing bank is not the ATM owner — known as "foreign ATM transactions" — are mediated by an ATM network that connects the ATM to the issuing bank. One such network (the subject of this suit) is Star, which is owned by defendant Concord EFS, Inc ("Concord EFS"); Concord EFS is a wholly owned subsidiary of First Data Corp ("First Data"). Compl (Doc # 1) ¶ 8. Transactions in which the issuing bank is also the ATM owner — known as "on us" transactions, see Doc # 26 at 6 n4 — do not involve the ATM network; such transactions are not the subject of this suit.

Another thing that ATM cardholders know is that while "on us" transactions are typically free, foreign ATM transactions involve fees. First, there is the "ATM surcharge," which is typically displayed on the ATM screen and collected by the ATM owner as part of the cardholder's withdrawal. The ATM surcharge ranges from zero (offered as an promotional enticement by some ATM operators) to $3.00 or more. Second, there is the "foreign ATM fee," which is assessed by the issuing bank and typically appears on the cardholder's bank statement as a fee. The foreign ATM fee ranges from zero (offered by banks that own few ATMs and are at a competitive disadvantage relative to banks that own many ATMs) to about $2.00 (currently the fee charged by the large banks that are defendants here). Third, there is a "switch fee" on the order of $0.05 paid by the issuing bank to the ATM network (Star in this case) for the network's services in mediating a foreign ATM transaction. Fourth, there is an "interchange fee" of $0.45 or $0.55 paid by the issuing bank to the ATM owner for use of the foreign ATM. See Compl (Doc # 1) ¶ 1 (defining fees); ¶ 2 & Fig A (diagraming typical foreign ATM transaction); ¶ 52 (describing current foreign ATM fees); ¶ 57 (describing interchange fees).

This suit concerns the interchange fee, which is fixed by Star and applies to all foreign ATM transactions mediated by the network. Presently, the interchange fee is $0.45 for on-bank-premise cash withdrawals and $0.55 for off-bank-premise cash withdrawals. Id. ¶ 57. The interchange fee is supposedly passed on to plaintiffs — ATM cardholders who have paid (or expect to pay) foreign ATM fees for transactions mediated by Star — in the form of artificially inflated foreign ATM fees.

The complaint is somewhat fuzzy on Star's corporate constitution, but at a minimum, see id. ¶ 8, Star is controlled directly or indirectly via its board of directors by a host of large banks that are defendants in this case: Bank of America Corp ("B of A"); Bank One Corp; Bank One NA; J P Morgan Chase & Co ("JPMorgan Chase"); Citibank (West) FSB ("Citibank"); SunTrust Banks, Inc ("SunTrust"); Wachovia Corp ("Wachovia"); Wells Fargo & Co; Wells Fargo Bank, NA; Servus Financial Corp ("Servus") (collectively, the "defendant banks"). The whirlwind of bank mergers and acquisitions in the last five years makes for quite a tangle of rights and liabilities, but the complaint clearly states that each of the defendant banks either (1) is entitled to appoint outside directors to the Star board of directors, or (2) controls or succeeded to the rights and liabilities of an entity that was so entitled. Id. ¶¶ 9-14. (The one exception is Wachovia Bank NA, which appears in the complaint's caption but is mentioned nowhere in the complaint.) Through this control structure the defendant banks "have caused Star to continue to impose [i]nterchange [f]ees," from which the defendant banks benefit, both because they charge foreign ATM fees and because the defendant banks receive interchange fees to the extent they own ATMs. Id. ¶ 61.

Although the defendant banks control Star, an ATM network derives value from the participation of a large number of issuing banks and ATM owners — indeed, the complaint effectively concedes that Star is a joint venture that benefits consumers and fosters competition among issuing banks by allowing smaller banks that cannot afford to deploy a large number of ATMs nonetheless to compete with larger banks that do own many ATMs. Id. ¶ 49. As such, Star accepts as members issuing banks and ATM owners other than the defendant banks. Id. ¶ 50. Although bound by Star's network policies, those issuing banks and ATM owners have "virtually no role" in setting network policies; but the bank defendants "have a significant role in establishing network policies." Id. On information and belief, plaintiffs allege that "some or all of the [b]ank [d]efendants" serve on an advisory committee "with the authority to veto or propose operating rules for the network and external [i]nterchange rates and fees payable between or passed to network participants." Id. ¶ 58. Although plaintiffs implicitly concede that some horizontal restraints are necessary to create Star and thereby benefit consumers, plaintiffs contend that "[i]mposing fixed [i]nterchange [f]ees is unnecessary to Star operations." Id. ¶ 64.

Plaintiffs seek both damages (for past payment of putatively inflated foreign ATM fees) and an injunction (against future fixing of interchange fees). Plaintiffs propose to proceed on behalf of four classes: two classes of California residents (one seeking retrospective damages relief; the other seeking injunctive relief), and two classes of non-California residents (seeking similar relief). Combined, those classes would roughly comprise all persons and business entities who (1) opened a bank account with a bank defendant and (2) either (a) paid a foreign ATM fee directly to a bank defendant or its affiliate or (b) currently have a bank account with a bank defendant.

II

Several dispositive motions are now before the court. Some are motions to dismiss pursuant to FRCP 12(b)(6) for failure to state a claim upon which relief can be granted; some are motions for judgment on the pleadings pursuant to FRCP 12(c). The pertinent legal standard is the same. In re World War II Era Japanese Forced Labor Litigation, 114 F Supp 2d 939, 944 (N.D.Cal.2000) (citing Enron Oil Trading & Transp. Co. v. Walbrook Insurance Co., 132 F.3d 526, 529 (9th Cir.1997)), aff'd sub nom Deutsch v. Turner Corp., 324 F.3d 692 (9th Cir.2003). Accordingly, the court will treat all pending motions under FRCP 12(b)(6) and refer to them as "motions to dismiss."

FRCP 12(b)(6) motions to dismiss essentially "test whether a cognizable claim has been pleaded in the complaint." Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir.1988). FRCP 8(a), which states that a plaintiff's pleadings must contain "a short and plain statement of the claim showing that the pleader is entitled to relief," provides the standard for judging whether such a cognizable claim exists. Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir.2001). This standard is a liberal one that does not require a plaintiff to set forth all the factual details of the claim; rather, all that the standard requires is that a plaintiff give the defendant fair notice of the claim and the grounds for making that claim. Leatherman v. Tarrant County Narcotics Intell & Coordination Unit, 507 U.S. 163, 168, 113 S.Ct. 1160, 122 L.Ed.2d 517 (1993) (...