Reyn's Pasta Bella, LLC v. Visa Usa, Inc.

• Decision Date: 27 March 2006
• Docket Number: No. 04-15581.,04-15581.
• Parties: REYN'S PASTA BELLA, LLC; Jeffrey Ledon Deweese; Barry Leonard, dba Critter Fritters; Hat-In-The-Ring Inc., dba Eddie Rickenbacker's, Plaintiffs-Appellants, v. VISA USA, INC.; MasterCard International, Inc.; Bank of America N.A. (USA); Wells Fargo Bank NA; U.S. Bank, a subsidiary of U.S. Bancorp, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

442 F.3d 741

REYN'S PASTA BELLA, LLC; Jeffrey Ledon Deweese; Barry Leonard, dba Critter Fritters; Hat-In-The-Ring Inc., dba Eddie Rickenbacker's, Plaintiffs-Appellants, v. VISA USA, INC.; MasterCard International, Inc.; Bank of America N.A. (USA); Wells Fargo Bank NA; U.S. Bank, a subsidiary of U.S. Bancorp, Defendants-Appellees.

No. 04-15581.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 7, 2005.

Filed March 27, 2006.

COPYRIGHT MATERIAL OMITTED

James A. Kopcke, Golden & Kopcke, San Francisco, CA, and Richard J. Archer, Archer & Hanson, Occidental, CA, for the plaintiffs-appellants.

M. Laurence Popofsky, Marie L. Fiala & Jonathan R. Dowell, Heller, Ehrman, White & McAuliffe LLP, San Francisco, CA, for defendant-appellee Visa U.S.A. Inc.

Jay N. Fastow, Weil, Gotshal & Manges LLP, New York, NY, for defendant-appellee MasterCard International Inc.

Paula Quintiliani & Robert L. Stolebarger, Holme, Roberts & Owen L.L.P., San Francisco, CA, and R. Steward Baird, Jr., Office of the General Counsel Wells Fargo Law Department, San Francisco, CA, for defendant-appellee Wells Fargo Bank, N.A.

Sonya D. Winner, Covington & Burling, San Francisco, CA, for defendant-appellee Bank of America, N.A.

Maurice J. McSweeney & Michael Lueder, Foley & Lardner, Milwaukee, WI, and Eileen R. Ridley, Foley & Lardner, San Francisco, CA, for defendant-appellee U.S. Bank, N.A.

Appeal from the United States District Court for the Northern District of California; Jeffrey S. White, District Judge, Presiding. D.C. No. CV-02-03003-JSW.

Before BETTY B. FLETCHER, DAVID R. THOMPSON, and CARLOS T. BEA, Circuit Judges.

BEA, Circuit Judge.

Plaintiffs Reyn's Pasta Bella, LLC; Jeffrey Ledon Deweese; Barry Leonard, dba Critter Fritters; and Hat-In-The-Ring Inc., dba Eddie Rickenbacker's appeal from the dismissal of their complaint seeking damages and injunctive relief for Defendants' alleged antitrust violations. They claim that Defendants Visa USA, Inc. (Visa); MasterCard International, Inc. (MasterCard); Bank of America, N.A. (USA); Wells Fargo Bank NA; and U.S. Bank, a subsidiary of U.S. Bancorp fixed prices on credit— and debit-card transactions in violation of section 1 of the Sherman Act, 15 U.S.C. § 1.¹ The district court found that Plaintiffs' claims were released by the class action settlement in In re Visa Check/Mastermoney Antitrust Litig., 297 F.Supp.2d 503 (E.D.N.Y.2003) (Wal-Mart I), aff'd sub nom., Wal-Mart Stores, Inc. v. Visa USA, Inc., 396 F.3d 96 (2d Cir. 2005) (Wal-Mart II). We have jurisdiction under 28 U.S.C. § 1291 and we affirm. We hold that issue preclusion bars Plaintiffs from re-litigating the Wal-Mart courts' determination that Plaintiffs' price-fixing claims were properly released. We also hold, in the alternative, that Plaintiffs' claims are extinguished by the Wal-Mart settlement because the two actions share an identical factual predicate. Since Plaintiffs chose not to file an amended complaint based on acts occurring after the time period covered by the Wal-Mart release, the district court correctly dismissed their action.

Facts and Procedural History

Plaintiffs here purport to represent all merchants nationwide who currently have a contract with one or more of Visa and MasterCard's member banks for credit and debit transactions. To understand Plaintiffs' claims, it is necessary to describe how a consumer pays for goods with a credit card or debit card.²

Visa and MasterCard do not issue credit cards and debit cards directly. Rather, they coordinate the issuance of credit and debit cards by their members, which include many of the nation's largest banks, under common card brands and rules.

Their member banks play two roles in a sale of goods to a Visa or MasterCard user. First, one of their members (the issuing bank) issues the consumer his or her credit or debit card. Second, it or another Visa or MasterCard member bank (the acquiring bank) contracts with the merchant to accept payment through Visa or MasterCard.³

As described in the footnoted hypothetical, the typical credit-card transaction involves more than a consumer buying goods from a merchant. The transaction is actually a chain of transactions among the merchant, who sells the goods to the acquiring bank, who sells the goods to the issuing bank, who sells the goods to the consumer. At each step, the buyer must purchase the goods at a price lower than its selling price—or make no profit.

Plaintiffs-merchants allege that price-fixing by Defendants and their member banks of the interchange rate at 1.25% results in the merchant upstream receiving less for its goods from the acquiring bank. Less, that is, than the merchant would receive were there to be competition at the interchange-rate level and the rate were to be driven down to 1.00% or less by such competition. The lower the cost of the interchange rate, the less would have to be taken ("discounted") from the merchant. Plaintiffs thus claim to have stated a cause of action for price-fixing under section 1 of the Sherman Act, 15 U.S.C. § 1.

Defendants moved to dismiss Plaintiffs' complaint for failure to state a claim. The court granted in part, and denied in part, Defendants' motions. Pertinent here, the court held that Plaintiffs had stated a claim for price-fixing on the theory described above. See Reyn's Pasta Bella, 259 F.Supp.2d 992, 1000-01 (N.D.Cal. 2003). The court dismissed or struck each of Plaintiffs' other substantive allegations. See id. at 1001-04.

Meanwhile, in the Eastern District of New York, the lead plaintiffs in the Wal-Mart class action had negotiated a global settlement of that class' claims. See Wal-Mart I, 297 F.Supp.2d at 508. There, the court had certified a nationwide class of plaintiffs under rule 23(b)(3). See In re Visa Check, 192 F.R.D. at 90. The class consisted of all merchants who were forced to accept Visa and MasterCard's debit cards as a condition of accepting their credit cards from October 25, 1992 to June 21, 2003. See id.; CV-96-5238, Notice of Settlement of Class Action (E.D.N.Y. June 13, 2003). The Wal-Mart class thus included every member of the putative class action that Plaintiffs bring here.⁴ In Wal-Mart, the plaintiffs alleged that Visa and MasterCard obtained excessive discount fees (1.6% in the hypothetical above) by "tying" their debit cards to their credit cards and conspiring to monopolize the debit-card market. See Wal-Mart I, 297 F.Supp.2d at 507. On the eve of trial, the Wal-Mart class action settled for more than three billion dollars and significant injunctive relief. See id. at 508. The Wal-Mart settlement agreements⁵ include releases that purport to absolve Visa, MasterCard, and the Banks of all antitrust liability arising out of conduct, prior to January 1, 2004, that is related to the claims asserted in the Wal-Mart class action.

Plaintiffs were Wal-Mart class members. Rather than opt out of the Wal-Mart class, they appeared through counsel at the settlement fairness hearing and raised several objections. On December 19, 2003, the Wal-Mart I court approved the settlement over their objections. See Wal-Mart I, 297 F.Supp.2d at 526, aff'd, 396 F.3d at 124. In approving the settlement, the Wal-Mart I court expressly determined that Plaintiffs' price-fixing claims were released. See id. at 513-15.

In June 2003, Defendants renewed their motions to dismiss and asserted that the release in the proposed Wal-Mart settlement would bar Plaintiffs' claims once it was approved. On October 3, 2003, the district court heard argument on the effect of the Wal-Mart release. Then, on January 14, 2004, the court ordered Plaintiffs to show cause why their action should not be dismissed. After further briefing, the court dismissed Plaintiffs' complaint with prejudice on March 4, 2004. Plaintiffs filed a timely notice of appeal.

Analysis

The application of issue preclusion and claim preclusion is reviewed de novo. Frank v. United Airlines, Inc., 216 F.3d 845, 849-50 (9th Cir.2000). While the court's two-page order of dismissal does not explicitly state that it is applying issue preclusion, we may affirm on any ground that is supported by the record. See, e.g., McClure v. Life Ins. Co. of No. Am., 84 F.3d 1129, 1133 (9th Cir.1996).

A.

First, we hold that Plaintiffs may not collaterally attack the Wal-Mart settlement. "[A] class member who is represented by counsel during a class action settlement hearing . . . cannot attack the settlement collaterally. . . ." Dosier v. Miami Valley Broadcasting Corp., 656 F.2d 1295, 1299 (9th Cir. 1981) (citing Hansberry v. Lee, 311 U.S. 32, 42-43, 61 S.Ct. 115, 85 L.Ed. 22 (1940)). Here, Plaintiffs' appearance through counsel at the Wal-Mart fairness hearing binds them to the Wal-Mart settlement and all of its preclusive effects.

The district court correctly dismissed Plaintiffs' action as barred by the Wal-Mart settlement. Issue preclusion bars relitigation of issues adjudicated in an earlier proceeding if three requirements are met:

(1) the issue necessarily decided at the previous proceeding is identical to the one which is sought to be relitigated; (2) the first proceeding ended with a final judgment on the merits; and (3) the party against whom collateral estoppel is asserted was a party or in privity with a party at the first proceeding.

Kourtis v. Cameron, 419 F.3d 989, 994 (9th Cir.2005).

First, the Wal-Mart courts' decision that the settlement covered, and thereby released, Plaintiffs' claims in the Northern District of California was necessary to their final judgment that approved the Wal-Mart settlement. The issues Plaintiffs raised all relate to the Wal-Mart settlement, its scope, and its substantive and procedural fairness.⁶ In approving the settlement as "fair, reasonable, and adequate" under Federal Rule of Civil Procedure 23(e)(2), the Wal-Mart courts necessarily had to adjudicate the objections Plaintiffs raised, including whether the Wal-Mart settlement...