Luby's Fuddruckers Rests., LLC v. Visa Inc.

• Decision Date: 18 September 2018
• Docket Number: 05-MD-1720 (MKB) (JO),17-CV-4555 (MKB) (JO)
• Citation: 342 F.Supp.3d 306
• Parties: LUBY'S FUDDRUCKERS RESTAURANTS, LLC, Plaintiff, v. VISA INC., Visa U.S.A., Inc., Visa International Service Association, MasterCard Incorporated, MasterCard International Incorporated, BA Merchant Services LLC, Bank of America Corporation, Barclays Bank of Delaware, Capital One, N.A., Capital One Bank (USA), N.A., Capital One Financial Corporation, Chase Bank USA, N.A., JPMorgan Chase Bank, N.A., JPMorgan Chase & Co., Citibank, N.A., Citigroup, Inc., Fifth Third Bancorp, First National Bank of Omaha, HSBC Finance Corporation, HSBC North America Holdings, Inc., PNC Financial Services Group, Inc., SunTrust Banks, Inc., SunTrust Bank, Texas Independent Bancshares, Inc., Wells Fargo & Company, and Wells Fargo Merchant Services, LLC, Defendants.
• Court: U.S. District Court — Eastern District of New York

342 F.Supp.3d 306

LUBY'S FUDDRUCKERS RESTAURANTS, LLC, Plaintiff,

v.VISA INC., Visa U.S.A., Inc., Visa International Service Association, MasterCard Incorporated, MasterCard International Incorporated, BA Merchant Services LLC, Bank of America Corporation, Barclays Bank of Delaware, Capital One, N.A., Capital One Bank (USA), N.A., Capital One Financial Corporation, Chase Bank USA, N.A., JPMorgan Chase Bank, N.A., JPMorgan Chase & Co., Citibank, N.A., Citigroup, Inc., Fifth Third Bancorp, First National Bank of Omaha, HSBC Finance Corporation, HSBC North America Holdings, Inc., PNC Financial Services Group, Inc., SunTrust Banks, Inc., SunTrust Bank, Texas Independent Bancshares, Inc., Wells Fargo & Company, and Wells Fargo Merchant Services, LLC, Defendants.

05-MD-1720 (MKB) (JO)

17-CV-4555 (MKB) (JO)

United States District Court, E.D. New York.

Signed September 18, 2018

David Edwards Wynne, Kenneth R. Wynne, Scott G. Burdine, Burdine Wynne LLP, Houston, TX, for Plaintiffs.

Demian A. Ordway, Pro Hac Vice, Holwell Shuster & Goldberg LLP, Robert C. Mason, Arnold & Porter Kaye Scholer LLP, Gary R. Carney, Paul Weiss Rifkind Wharton & Garrison, LLP, Alex M. Hyman, Pro Hac Vice, New York, NY, Lee L. Kaplan, Smyser Kaplan & Veselka, LLP, Tynan Buthod, Baker Botts LLP, Eliot Fielding Turner, Norton Rose Fulbright US LLP, Layne E. Kruse, Fulbright & Jaworski LLP, Houston, TX, Mark R. Merley, Arnold & Porter Kaye Scholer LLP, Donna M. Ioffredo, Pro Hac Vice, Kenneth A. Gallo, Paul, Weiss, Rifkind, Wharton & Garrison, LLP, Washington, DC, for Defendants.

MEMORANDUM & ORDER

MARGO K. BRODIE, United States District JudgePlaintiff Luby's Fuddruckers Restaurants, LLC commenced the above-captioned action in Texas state court, on February 17, 2017, against the above-listed Defendants. (Pl. Pet., Docket Entry No. 1-2.) On April 5, 2017, invoking the Edge Act, 12 U.S.C. § 611 et seq. , Defendants removed the case to the United States District Court for the Southern District of Texas. (Notice of Removal, Docket Entry No. 1.) On April 7, 2017, Plaintiff filed an Amended Complaint, (Am. Compl., Docket Entry No. 4), and moved to remand the case to the Texas state court, (Pl. Mot. to Remand ("Pl. Mot."), Docket Entry No. 6). Defendants opposed Plaintiff's motion. (Defs. Opp'n. to Pl. Mot. ("Defs. Opp'n), Docket Entry No. 54-1.) On August 3, 2017, while the motion to remand was pending, the Judicial Panel for Multidistrict Litigation ("MDL") transferred the case to the Eastern District of New York because it shares "substantially similar factual allegations with [cases consolidated in In re Payment Card Interchange Fee and Merchant Discount Antitrust Litig. , 05-MD-1720], and thus falls squarely within the subject matter of the MDL." In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig. , No. MDL 1720, 2017 WL 4582708, at *1 (J.P.M.L. Aug. 2, 2017). By order dated September 14, 2017, the Court referred Plaintiff's motion to Magistrate Judge James Orenstein for a report and recommendation. (Order dated Sept. 14, 2017.)

By report and recommendation dated July 12, 2018, Judge Orenstein recommended that the Court deny Plaintiff's motion ("R & R"). (See generally R & R, Docket Entry No. 76.) Plaintiff filed objections to the R & R on July 18, 2018. (Pl. Obj. to R & R ("Pl. Obj."), Docket Entry No. 77.) Defendants responded to the objections on August 1, 2018. (Defs. Resp. to Pl. Obj. ("Defs. Resp."), Docket Entry No. 78.) For the reasons set forth below, the Court adopts the R & R and denies Plaintiff's motion to remand the case to state court.

I. Background

The Court assumes familiarity with the underlying facts as detailed in the R & R and provides only a summary of the pertinent facts and procedural background.

Plaintiff commenced this action in Texas state court alleging that Defendants "conspired, combined, and made agreements to restrain trade" in violation of the Texas Free Enterprise and Antitrust Act of 1983. (Pls. Pet. ¶ 3.) The Complaint¹ alleges that Defendants harmed merchants, such as Plaintiff, by imposing "competitive restraints" that resulted in "supracompetitive interchange fees." (Id. ¶ 11.) Plaintiff does not bring any claims under federal law. (See generally Pl. Pet.)

a. Defendants' removal to federal court and Plaintiff's motion to remand

Defendants removed the case to federal court pursuant to the Edge Act, which states in relevant part:

all suits of a civil nature at common law or in equity to which any corporation organized under the laws of the United States shall be a party, arising out of transactions involving international or foreign banking, or banking in a dependency or insular possession of the United States, or out of other international or foreign financial operations, either directly or through the agency, ownership, or control of branches or local institutions in dependencies or insular possessions of the United States or in foreign countries, shall be deemed to arise under the laws of the United States, and the district courts of the United States shall have original jurisdiction of all such suits; and any defendant in any such suit may, at any time before the trial thereof, remove such suits from a State court into the district court of the United States for the proper district.

12 U.S.C. § 632. Defendants contend that removal was proper because the action is a "suit of a civil nature at common law or in equity," five of the Defendants are "corporation[s] organized under the laws of the United States" ("Edge Act corporations"),² and the action arises out of "transactions involving international or foreign banking, or banking in a dependency or insular possession of the United States." (Notice of Removal ¶ 15.)

Plaintiff contends that the Edge Act does not confer federal jurisdiction, and the Court should remand the case back to the state court for four reasons. (Pl. Mot. 1.) First, Plaintiff contends the Court must determine jurisdiction based on its pleadings and cannot consider extrinsic evidence of foreign issued cards used at Plaintiff's restaurants. (Id. at 13–14.) Plaintiff also argues that even if the Court could consider such evidence, Defendants' argument is without merit because the use of foreign issued cards at Plaintiff's restaurants is too "fortuitous" and does not satisfy the Edge Act requirement that the suit arise out of transactions involving international or foreign banking. (Id. )

Second, Plaintiff contends that "setting fees and rules for a restaurant's use of a non-banking entity's network such as Visa and MasterCard" does not fall within the Edge Act's requirement of "an international or foreign transaction which falls within the realm of those characterized as traditional banking activities," or "international or foreign financial operations." (Id. at 15–17.)

Third, Plaintiff contends that even if the case arose out of "an international or foreign transaction which falls within the realm of those characterized as traditional banking activities," or "international or foreign financial operations," federal jurisdiction is still improper because the transaction must be through direct participation of an Edge Act corporation.³ (Id. at 18–19.)

Finally, Plaintiff argues that the Court should remand the action on the basis of Plaintiff's Amended Complaint, because it "expressly disclaims any damages related to attenuated purchases" made by foreign-issued cards. (Id. at 20.)

b. Judge Orenstein' recommendations

Judge Orenstein recommended that the Court deny Plaintiff's motion to remand the case to state court. (See generally R & R.)

Judge Orenstein found that the supracompetitive fees complained of by Plaintiff arise from multi-party payment card transactions that include both issuing and acquiring banks, and that some issuing banks are foreign, including dozens identified by Defendants that approved transactions with Plaintiff and its acquiring bank Chase, an Edge Act corporation. (Id. at 5 (citing Decl. of R. Garrison Harvey ("Harvey Decl."), annexed to Defs. Opp'n as Ex. A, Docket Entry No. 54-2).) Judge Orenstein noted that these transactions "fall[ ] within the realm of those ‘characterized as traditional banking activity’ " because a "foreign issuing bank's role in approving payments made on a consumer's credit card is an essential element of administering the four-way transactions at the center of this lawsuit." Id. at 6–7 (internal citations omitted) (citing Pinto v. Bank One Corp. , No. 02-CV-8477, 2003 WL 21297300, at *3 (S.D.N.Y. June 4, 2003) ). In recommending denial of the motion to remand, Judge Orenstein noted that there is "federal jurisdiction over a case if any part of it arises out of transactions involving international or foreign banking, even when foreign banking activity [is] not central to the case." (R & R 4 (citing Bank of Am. Corp. v. Lemgruber , 385 F.Supp.2d 200, 214 (S.D.N.Y. 2005) ). Judge Orenstein further noted that the practices complained of by Plaintiff "are inextricably intertwined with foreign banking transactions involving traditional banking activity."⁴

II. Discussion

a. Standards of review

i. Report and Recommendation

A district court reviewing a magistrate judge's recommended ruling "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C). When a party submits a timely objection to a report and recommendation, the district court reviews de novo the parts of the report and recommendation to which the party objected. Id. ; see also United States v. Romano , 794 F.3d 317, 340 (2d Cir. 2015). The district court may adopt those portions of the recommended ruling to which no timely objections have been made, provided no clear error is apparent from the face of the record. John Hancock Life Ins. Co. v. Neuman , No. 15-CV-1358, 2015 WL 7459920, at *1 (E.D.N.Y. Nov. 24, 2015). The clear error standard also applies when a party makes only conclusory or general objections....