Osborn v. Visa Inc.

• Court: U.S. Court of Appeals — District of Columbia Circuit
• Writing for the Court: WILKINS, Circuit Judge
• Citation: Osborn v. Visa Inc., 797 F.3d 1057 (D.C. Cir. 2015)
• Decision Date: 04 August 2015
• Docket Number: Nos. 14–7004,14–7005,14–7006.,s. 14–7004
• Parties: Sam OSBORN, et al., Appellants v. VISA INC., et al., Appellees.

797 F.3d 1057

Sam OSBORN, et al., Appellants

v.VISA INC., et al., Appellees.

Nos. 14–7004

14–7005

14–7006.

United States Court of Appeals, District of Columbia Circuit.

Argued Feb. 20, 2015.

Decided Aug. 4, 2015.

Rehearing En Banc Denied Sept. 28, 2015.

Steve W. Berman argued the cause for appellants. With him on the briefs were Craig L. Briskin, Michael G. McLellan, Douglas G. Thompson, Brooks E. Harlow, and Don A. Resnikoff. David A. LaFuria and Jonathan L. Rubin entered appearances.

Kenneth A. Gallo argued the cause for appellees. With him on the brief were Mark R. Merley, Matthew A. Eisenstein, Mark P. Ladner, Michael B. Miller, William F. Cavanaugh, and Peter E. Greene. Robert P. LoBue and Ana Maria Iquat entered appearances.

Before: TATEL, SRINIVASAN and WILKINS, Circuit Judges.

Opinion

Opinion for the Court filed by Circuit Judge WILKINS.

WILKINS, Circuit Judge:

Users and operators of independent (non-bank) automated teller machines (ATMs) brought these related actions against Visa, MasterCard, and certain affiliated banks, alleging anticompetitive schemes for pricing ATM access fees. The crux of the Plaintiffs' complaints is that when someone uses a non-bank ATM, the cardholder pays a greater fee and the ATM operator earns a lower return on each transaction because of certain Visa and MasterCard network rules. These rules prohibit differential pricing based on the cost of the network that links the ATM to the cardholder's bank. In other words, the Plaintiffs allege anticompetitive harm because Visa and MasterCard prevent an independent operator from charging less, and potentially earning more, when an ATM transaction is processed through a network unaffiliated with Visa and MasterCard.

The District Court concluded that the Plaintiffs had failed to allege essential components of standing, and also that they had failed to allege an agreement in restraint of trade cognizable under the Sherman Antitrust Act. See 15 U.S.C. § 1. We disagree, and so we vacate and remand these cases for further proceedings based on the proposed amended complaints.

I.

ATMs “have been a part of the American landscape since the 1970s—beacons of self-service and convenience, they revolutionized banking in ways we take for granted today.” Linda Rodriguez McRobbie, The ATM is Dead. Long Live the ATM!,SMITHSONIAN.COM (Jan. 8, 2015), http://www.smithsonianmag.com/history/atm–dead–long–live–atm–180953838/. One view is that “[t]hey live to serve; we only really notice them when we can't seem to locate one.” Id. But Plaintiffs tell us they do take notice of ATMs—specifically, of the fee structure that attaches to their use and what they gain or lose from it. We credit for purposes of this appeal all facts alleged in the proposed amended complaints.

Some background history: Until the mid–1990s, consumers who wished to withdraw cash from their bank accounts generally could do so only by visiting a bank branch or a bank-operated ATM. But states began to abolish various laws that had prohibited ATM operators from charging access fees directly to cardholders. This created a financial incentive for nonbanks to enter the ATM market, and independent ATMs took root accordingly. See National ATM Council Proposed Second Amended Complaint (“NAC Prop. Compl.”) ¶ 43; Osborn Proposed Second Amended Complaint (“Osborn Prop. Compl.”) ¶ 66. These independent ATMs connect to a cardholder's bank through an ATM network. The most popular networks are operated by Visa (the Plus, Interlink, and VisaNet networks) and MasterCard (the Cirrus and Maestro networks). Rival networks include Star, NYCE, and Credit Union 24. NAC Prop. Compl. ¶ 40.

Today, a cardholder can use any independent ATM to access her bank account, so long as her bank card and the ATM are linked by at least one common network. Most bank cards indicate the networks to which they are linked with logos printed on the back of the card, referred to colloquially as “bugs.” Id.

Independent ATM operators rely on two streams of revenue to sustain their businesses. The first is the “net interchange” fee: the gross interchange fee paid by the cardholder's bank to the ATM operator, which runs between $0.00 and $0.60 per transaction, less any network services fee charged by the ATM network. MasterCard and Visa generally charge high network services fees, which means that ATM operators receive low net interchange fees—running between $0.06 and $0.29 for domestic transactions, and even less for international transactions—for transactions on these networks. Several competing networks charge comparatively low network services fees, thus enabling an ATM operator to collect a higher net interchange fee (up to $0.50 per transaction) when using the lower-fee networks. Id. ¶ 59.

The second source of revenue comes from the ATM access fees paid by the cardholder. The average access fee in 2012 was $2.10. See Osborn Prop. Compl. ¶ 99 (citing Gov't Accountability Office, GAO–13–266, Automated Teller Machines: Some Consumer Fees Have Increased 14 (2013)).

Visa and MasterCard each impose, as a condition for ATM operators to access their networks, a sort of nondiscrimination or most favored customer clause called the “Access Fee Rules.” These rules provide that no ATM operator may charge customers whose transactions are processed on Visa or MasterCard networks a greater access fee than that charged to any customer whose transaction is processed on an alternative ATM network.¹ Thus, under the Access Fee Rules, operators cannot say to cardholders: “We will charge you $2.00 for a MasterCard or Visa transaction, but if your card has a Star or Credit Union 24 bug on it, we will charge you only $1.75.”

Both Visa and MasterCard were owned and operated as joint ventures by a large group of retail banks at the time that the Access Fee Rules were adopted. NAC Prop. Compl. ¶ 89. Although these member banks later relinquished direct control over the bankcard associations through public offerings, the IPOs did not alter the substance of the Access Fee Rules, which remain intact to this day.

Plaintiffs assert that these rules illegally restrain the efficient pricing of ATM services. They characterize the Access Fee Rules as constituting an “anti-steering” regime that prevents independent ATM operators from incentivizing cardholders to choose and use cards “that are more efficient and less costly than either Visa or MasterCard's.” NAC Prop. Compl. ¶ 1.

This consolidated appeal arises from decisions in three separate but related civil actions. The first action, Stoumbos v. Visa, was filed by a debit cardholder, Mary Stoumbos, who paid access fees in connection with ATM transactions at various independent ATMs. The second action, Mackmin v. Visa (referred to here as the Osborn case), was filed by four consumers of independent and bank-run ATM services. The third action, National ATM Council v. Visa, was brought by a leading association of independent ATM operators and several individual ATM operators. The Plaintiffs allege violations of Section 1 of the Sherman Act as well as various state laws, and they name Visa and MasterCard entities as defendants. In addition, the Osborn plaintiffs name certain member banks as co-defendants.

On February 12, 2013, the District Court concluded that the Plaintiffs' respective complaints had failed to allege facts sufficient to establish standing and, in the alternative, lacked adequate facts to establish concerted activity under Section 1 of the Sherman Act. Nat'l ATM Council, Inc. v. Visa Inc., 922 F.Supp.2d 73 (D.D.C.2013) (“NAC I ”). It dismissed not just the complaints, but the cases without prejudice.

In an attempt to toll the statute of limitations, Plaintiffs timely moved the District Court to modify its judgment from dismissal of the cases without prejudice to dismissal of the complaints with leave to replead. Plaintiffs simultaneously submitted proposed amended complaints. On December 19, 2013, the District Court denied Plaintiffs' motions after concluding that their proposed amended complaints still lacked sufficient facts to establish standing or a conspiracy. Nat'l ATM Council, Inc. v. Visa Inc., 7 F.Supp.3d 51 (D.D.C.2013) (“NAC II ”). The Plaintiffs appeal.

II.

Procedural quirks notwithstanding, we review de novo the District Court's determination that the filing of the amended complaints would be futile due to the perceived deficiencies of those complaints under Rules 12(b)(1) and 12(b)(6). See Kim v. United States, 632 F.3d 713, 715 (D.C.Cir.2011) (stating standard of review for Fed.R.Civ.P. 12(b)(1) & 12(b)(6) ). To reach that bottom line, we must do some procedural untangling.

The District Court's February 12 order dismissed the cases without prejudice. The principle guiding a dismissal without prejudice is that absent futility or special circumstances (such as undue delay, bad faith, or dilatory motive), a plaintiff should have the opportunity to replead so that claims will be decided on merits rather than technicalities. Foman v. Davis, 371 U.S. 178, 181–82, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) ; see also English–Speaking Union v. Johnson, 353 F.3d 1013, 1021 (D.C.Cir.2004). Where, as it appears was the case here, a plaintiff has not notified the district court that a statute of limitations issue might bar the plaintiff “from correcting the complaint's defects and filing a new lawsuit,” a dismissal of the case without prejudice is not an abuse of discretion. See Ciralsky v. CIA, 355 F.3d 661, 671 (D.C.Cir.2004).

Plaintiffs followed an appropriate course against this background, asking the District Court to modify its judgment pursuant to Rule 59 —so that merely the complaint, and not the case, would have been dismissed—and simultaneously filing a proposed amended complaint. See Firestone v. Firestone, 76 F.3d 1205, 1208 (D.C.Cir.1996) (describing this as proper procedure). In its December 19 opinion on those motions, the District Court asked and answered the essential question—whether leave to amend was...