In re Atm Fee Antitrust Litig.., C 04–02676 CRB.

• Decision Date: 04 September 2009
• Docket Number: No. C 04–02676 CRB.,C 04–02676 CRB.
• Citation: 768 F.Supp.2d 984
• Parties: In re ATM FEE ANTITRUST LITIGATION.
• Court: U.S. District Court — Northern District of California

768 F.Supp.2d 984

In re ATM FEE ANTITRUST LITIGATION.

No. C 04–02676 CRB.

United States District Court, N.D. California.

Sept. 4, 2009.

Daniel O. Myers, Richardson, Patrick, Westbrook and Brickman, LLC, Mt. Pleasant, SC, Joseph R. Saveri, Jahan C. Sagafi, Lieff Cabraser Heiman & Bernstein, LLP, Joshua P. Davis, University of San Francisco School of Law, San Francisco, CA, Andrew W. Hutton, Channel P. Townsley, Deborah Brown McIlhenny, Hutton & Hutton, LLC, Mark G. Ayesh, Ayesh Law Offices, Wichita, KS, Anthony J. Bolognese, Bolognese & Associates, LLC, Daniel B. Allanoff, Joel Cary Meredith, Meredith Cohen Greenfogel & Skirnick, P.C., David Felderman, Eugene A. Spector, Jeffrey J. Corrigan, William G. Caldes, Spector, Roseman & Kodroff, P.C., Joseph C. Kohn, William E. Hoese, Kohn Swift & Graf, P.C., Merrill G. Davidoff, Bart D. Cohen, Berger & Montague, P.C., Philadelphia, PA, Daniel E. Gustafson, Gustafson Gluek PLLC, Minneapolis, MN, George A. Shohet, Attorney at Law, Venice, CA, Gretchen M. Nelson, Law Offices of Gretchen M. Nelson, Los Angeles, CA, Karla M. Gluek, Gustafson Gluek PLLC, Minneapolis, MN, Kim Keevers, Michael J. Brickman, Richardson Patrick Westbrook & Brickman, Charleston, SC, Marc Howard Edelson, Esq., Edelson & Associates, LLC, Doylestown, PA, Marc S. Moller, Kreindler & Kreindler LLP, New York, NY, Jayne A. Goldstein, Mager & Goldstein LLP, Coral Springs, FL, for Plaintiffs.Benjamin K. Riley, Howrey LLP, Tara M. Steeley, Sonya D. Winner, Covington & Burling, Kathryn Ann Vaclavik, Diane E. Pritchard, Jesse William Markham, Jr., Morrison & Foerster LLP, Kirsten Joy Daru, Michele D. Floyd, Reed Smith LLP, Daniel M. Wall, Erica T. Grossman, Joshua N. Holian, Mark Jeremy Seifert, Latham & Watkins LLP, San Francisco, CA, Buckmaster Dewolf, Howrey Simon Arnold & White, LLP, Menlo Park, CA, Benjamin Jonathan Fox, Morrison & Foerster LLP, Los Angeles, CA, Carrie M. Anderson, James Christopher Egan, Jr., Peter D. Isakoff, Steven A. Newborn, Weil, Gotshal & Manges LLP, Donald I. Baker, Baker & Miller PLLC, Brian Wallach, Peter Edward Moll, Esq., Howrey Simon Arnold & White, LLP, Washington, DC, Sarkis Ohannes Beudjekian, Weil Gotshal & Manges LLP Silicon Valley Office, Redwood Shores, CA, Jack R. Nelson, Reed Smith LLP, Oakland, CA, for Defendants.

ORDER

CHARLES R. BREYER, District Judge.

With this antitrust action, filed over five years ago, Plaintiffs challenge the legitimacy of the fixed interchange fees in the Star ATM network. This case has slowly wound its way through several Judges and multiple rounds of dispositive motions. In the Court's most recent order addressing Defendants' motion for summary judgment, the Court held that the per se rule is inapplicable to Plaintiffs' claim. Plaintiffs then filed their Second Amended Complaint (“SAC”) which purports to allege an antitrust violation that may be sustained under the rule of reason analysis.

Before the Court are four motions to dismiss through which Defendants challenge the sufficiency of Plaintiffs' pleading. Having held oral argument on August 28, 2009 and carefully considering the submissions of the parties, the Court hereby GRANTS dismissal with leave to amend because Plaintiffs have failed to allege a legally adequate “relevant market.” The Court also GRANTS dismissal of Bank of America, N.A. (“BANA”) because claims against BANA are barred by the statute of limitations. Further, the Court GRANTS with prejudice dismissal of the bank holding companies for failure to state a claim.

Background ¹

I. The Star Network

This case challenges the right of a non-proprietary network to set network-wide “interchange” fees that govern the amount of money paid by an ATM card issuer—generally a bank—to a foreign ATM owner when the ATM is used by the issuer's customer. Customers at most commercial banks receive ATM cards that allow them to make withdrawals from their accounts electronically. Typically, these ATM cards permit withdrawals not only from ATM machines at the bank where they hold their accounts, but also from ATM machines elsewhere. Such “foreign ATM transactions” involve four parties: (1) the “cardholder,” i.e. the customer who retrieves money from the ATM machine; (2) the “card-issuer bank,” i.e. that bank at which the customer holds an account and from which the customer has received an ATM card; (3) the “ATM owner,” i.e. the entity that owns the ATM machine from which the customer withdraws money on his account; and (4) the “ATM network,” i.e. the entity that administers the agreements between various card-issuer banks and ATM owners and thereby ensures that customers can withdraw money from one network member's ATM as readily as from another's.

Foreign ATM transactions involves multiple fees. Generally, a customer must pay two fees—one to the ATM owner for the use of that entity's ATM machine (known as a “surcharge”), and one to the bank at which he has an account (known as a “foreign ATM fee”). But that is not all. Out of the money that a customer pays directly to his own bank, the bank then also pays two fees. The first of the bank's fees is known as a “switch fee” and is paid directly to the ATM network. The second of the bank's fees—and the one at issue in this lawsuit—is known as an “interchange fee” and is paid directly to the owner of the foreign ATM. Since 2003, the interchange fee has been set at $0.46 for on-premise transactions ( i.e., transactions at ATMs deployed on a bank's premises), and $0.54 for off-premise transactions.

In this case, Plaintiffs contest the legality of only the interchange fee. They contend that the manner in which this fee is set and administered violates antitrust laws. In their SAC, Plaintiffs allege that certain members of the Star ATM network had “fixed the interchange fee.” SAC ¶ 1.

The Star Systems, Inc. (“Star”) network of ATM services was founded by a number of banks over twenty years ago. SAC ¶ 76. On February 1, 2001, Concord acquired Star by purchasing all of the member Banks' ownership interest. SAC ¶ 79. Star has over 5,400 members nationwide. SAC ¶ 80. It is one of approximately twenty-five ATM networks in the country. SAC ¶ 75.

Until 1996, interchange fees and foreign ATM fees were the sole sources of revenue on foreign ATM transactions for bank issuers and ATM owners. SAC ¶ 87. In 1996, Star and other ATM networks dropped their bans against customer surcharges. SAC ¶ 88. As a result, ATM owners began imposing surcharges, with banks now charging users of foreign ATMs around one to three dollars per foreign transaction. SAC ¶ 89. Plaintiffs allege that those surcharges are artificially inflated because the Star network continues to impose an arbitrary interchange fee, which gets passed on to customers through the surcharges. SAC ¶ 99. Plaintiffs further allege that the interchange fee was set through an illegal agreement of the Defendants, who controlled Star's Board of Directors. SAC ¶¶ 100–15. Plaintiffs contend that the banks enforced their illegal agreement by requiring all Star members—both banks and non-banks that own ATMs in the network—to abide by the fixed interchange fee. Id. ¶ 62.

II. Procedural History

On a previous motion to dismiss, this Court ruled that the Plaintiffs' allegations, if true, would establish that the Defendants had engaged in illegal price-fixing. See Brennan v. Concord EFS, Inc., 369 F.Supp.2d 1127 (N.D.Cal.2005) (Walker, J.). In its ruling, the Court first noted that the Plaintiffs' objection is not to the existence of an interchange fee, but rather to its fixed nature. Id. at 1132. In other words, Plaintiffs did not contend that it would be impermissible for a card-issuing bank to compensate foreign ATM owners, but only that they may not decide collectively what compensation to render. Further, the court noted that the Complaint had described a “naked” attempt to fix prices, as opposed to an attempt to fix price that the Star network members determined was “ancillary” to a legitimate, procompetitive venture. Id. at 1133. In other words, Plaintiffs alleged that Defendants fixed the interchange fee because they could, not because a fixed fee was necessary to sustain the ATM network. Because the Defendants could not defend against such allegations of “naked price fixing” without invoking evidence that was beyond the scope of the Complaint, the Court denied the motion to dismiss. Id. at 1138.

Shortly after the ruling on the motion to dismiss, Defendants filed a motion for partial summary judgment on the ground that, as of February 2001, the Star network ceased to be owned by a group of banks but instead was operated by Concord as a proprietary network. Taking a different tack, the Court issued a Memorandum and Order on November 30, 2006, terminating Concord's motion and directing the parties to address the fundamental question of whether a per se analysis applies to this case. The Court observed that “if Defendants can set forth evidence to support plausible, procompetitive justifications for their agreement to fix the interchange fee,” then the per se rule would not apply. Mem. & Order at 5 (Docket No. 360).

Defendants moved for summary judgment on August 3, 2007, having adduced evidence bearing on the applicability of the per se rule. In an order issued on March 24, 2008, the Court granted Defendants' motion and held that rule of reason analysis applies to this case, thereby determining that the price-fixing challenged by Plaintiffs is not the kind of naked horizontal restraint that lacks any redeeming virtue. In re ATM Fee Antitrust Litig., 554 F.Supp.2d 1003, 1016–17 (N.D.Cal.2008).

Given substantial uncertainty in the law regarding which mode of analysis to apply, the Court subsequently certified for appeal the issue of whether the per se or rule of reason rubric should be employed in this case. The Ninth Circuit declined to take the matter up, which led to Plaintiffs' SAC.

Presently before the Court are four motions to dismiss....