SCFC ILC, Inc. v. Visa USA Inc.
| Decision Date | 22 February 1991 |
| Docket Number | No. 91-C-0047-S.,91-C-0047-S. |
| Citation | 763 F. Supp. 1094 |
| Parties | SCFC ILC INC. d/b/a MountainWest Financial, Plaintiff, v. VISA U.S.A. INC., Defendant. |
| Court | U.S. District Court — District of Utah |
Gary F. Bendinger, Richard W. Giauque, Giauque, Wilcox & Bendinger, Salt Lake City, Utah, Randall A. Hack, Leonard A. Gail, James D. Sonda, James H. Gale, William H. Pratt, Kirkland & Ellis, Chicago, Ill., for plaintiff.
Dale A. Kimball, Jonathan A. Dibble, Elaine A. Monson, Don B. Allen, Ray, Quinney & Nebeker, Salt Lake City, Utah, for defendant.
This matter is before the court on the motion of plaintiff SCFC ILC Inc. d/b/a MountainWest Financial (MountainWest)1 for a preliminary injunction to prevent Visa U.S.A. Inc. (Visa) from prohibiting MountainWest from participating in its Visa program. The hearing on this motion took place on February 7, 1991. William H. Pratt, Esq. argued on behalf of MountainWest and M. Laurence Popofsky, Esq. represented Visa.2
The facts relevant to this motion are as follows:
In June 1989, Visa enacted the following amendment to its by-laws prohibiting Sears, which issues the Discover card, from becoming a Visa member:
The above by-law was apparently enacted in response to Sears' effort to participate in the Visa program through Greenwood Trust. Sears did not challenge the by-law at that time nor did it further attempt to participate in the Visa program through Greenwood Trust.3
On May 25, 1990, SCFC ILC Inc., a subsidiary of Sears, purchased MountainWest Savings and Loan, operating in the State of Utah. MountainWest Savings and Loan had been placed into federal receivership. Control of such failed institutions is assumed by the Resolution Trust Corporation (RTC). Among the powers of RTC is the authority to transfer assets of institutions to private sector owners at the best possible prices. Included among the assets SCFC ILC purchased from RTC were "all agreements, forms, procedures and memberships ... including, but not limited to, the VISA U.S.A. Inc. membership of the Failed Association." Visa claims that at the time of purchase it did not know that SCFC ILC was a Sears subsidiary. However, articles appeared in national publications concerning Sears' transaction with RTC and the transaction is also a matter of public record.
Pursuant to Visa By-Law § 2.08, Visa requested SCFC ILC to reapply for membership in the Visa program. That by-law provides that the membership of a participating institution terminates at the time of transfer and that the purchaser of the transferred institution, if it desires Visa membership, is obligated to reapply. SCFC ILC filled out the necessary forms, but on the top of those forms printed "Updating existing membership information", thereby indicating to Visa that SCFC ILC did not consider it necessary to reapply for membership because membership was an asset purchased in the sale by RTC.4 Visa did not respond to, or in any way challenge, the notations made by SCFC ILC on the top of each page of the forms.5
After the purchase of MountainWest Savings and Loan, Sears decided to launch the "Prime Option" program through which it would offer Visa cards to consumers at very competitive terms. In preparation for that program, MountainWest ordered 1.5 million cards bearing the Visa and "Prime Option" logos.
On January 8, 1991, Visa received notification that SCFC ILC had placed an order for 1.5 million cards bearing the Visa logo. Up to that time, MountainWest had only issued approximately 5,800 Visa cards to its account holders. This request triggered some investigation by Visa which revealed that SCFC ILC was a Sears subsidiary. Upon such discovery, Visa prohibited MountainWest from obtaining the Visa cards, thereby effectively preventing MountainWest from launching the "Prime Option" program. MountainWest thereupon filed this lawsuit which raises claims of federal and state antitrust violations and unfair trade practices. Jurisdiction is predicated on 15 U.S.C. §§ 15, 26 and 28 U.S.C. §§ 1331, 1337. Included in the prayer for relief is a request for a permanent injunction. Shortly after filing this lawsuit, MountainWest moved for a preliminary injunction which is the subject of this memorandum decision.
After the hearing on that motion and further review of the pleadings, the court requested additional briefing on the issue of whether the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) provision permitting RTC to transfer assets without approval violated the Contract Clause of the United States Constitution. The briefs were submitted on February 19, 1991, after which MountainWest's counsel was given until 10:00 a.m. the following day to respond to new arguments raised in Visa's post-hearing brief.6
A preliminary injunction is designed to preserve the status quo during the course of litigation. Litton Systems, Inc. v. Sundstrand Corp., 750 F.2d 952, 961 (Fed. Cir.1984). The parties to this lawsuit have divergent opinions as to what constitutes the status quo. The court will focus initially on the status quo issue, the heart of this dispute.
According to Visa, MountainWest is not authorized to participate in the Visa program because, pursuant to Visa By-Law § 2.08, the membership of MountainWest Savings and Loan terminated when its assets were transferred to SCFC ILC. Therefore, Visa contends that this motion should be treated under the more stringent standard applicable to motions for mandatory injunctions in which a party requests a departure from the status quo.
On the other hand, MountainWest claims that Visa By-Law § 2.08 was rendered ineffectual by FIRREA legislation which authorizes RTC to transfer all assets of a failed institution "without any approval, assignment, or consent...." 12 U.S.C. § 1821(d)(2)(G)(i)(II). MountainWest claims that its Visa membership remains intact and that preservation of the status quo would permit it to launch the "Prime Option" program just as any other Visa member would be permitted to do.
At oral argument, Visa's response to the FIRREA provision was an unsupported allegation that such legislation is an unconstitutional violation of the Contract Clause.7 In the post-hearing brief submitted to the court, Visa fails to provide any support for that proposition, but concedes that "FIRREA would invalidate a contract clause that made the act of transfer, itself, a ground of termination or default...." Visa's Post-hearing Memorandum at 3 (emphasis added). However, Visa contends that FIRREA cannot authorize an otherwise ineligible institution to participate in the Visa program.
Visa cites In re Pioneer Ford Sales, Inc., 729 F.2d 27 (1st Cir.1984), in which the First Circuit reversed the bankruptcy and district courts' approval of the assignment of a Ford dealership over Ford's objection. According to Visa, the case stands for the proposition that the bankruptcy court could not compel assignment "notwithstanding the express provisions of the Bankruptcy Code invalidating anti-assignment clauses...." Visa's Post-hearing Memorandum at 4 (footnote omitted). Visa fails to acknowledge, however, that the First Circuit based its decision on the following express exception to the bankruptcy provision which invalidated anti-assignment clauses:
11 U.S.C. § 365(c)(1)(A). That provision required application of a Rhode Island statute which outlawed assignments of dealerships without consent.
Visa has not brought to the court's attention any exception to 12 U.S.C. § 1821(d)(2)(G)(i)(II), the FIRREA provision which allows RTC to transfer assets of a failed institution without consent. The existence of an exception to a similar bankruptcy provision demonstrates that Congress could have included such an exception had it been so inclined. The court will not create an exception to a clear expression of congressional intent where no exception exists.
The court's conclusion is further supported by another FIRREA provision which demonstrates congressional intent to give broad powers to the receiver of a failed institution. RTC is given the power to repudiate contracts entered into before its appointment when RTC, in its "discretion", considers performance of the contract to be "burdensome" and concludes that repudiation "will promote the orderly administration of the institution's affairs." 12 U.S.C. § 1821(e)(1). In view of the fact that Congress empowered RTC to repudiate contracts, the court cannot say that empowering RTC to transfer assets without consent rises to the level of a constitutional violation.
Visa also argues that MountainWest is not qualified to use the Visa trademark and that Visa is "required ... to approve all uses of its trademarks." Visa's Post-hearing Memorandum at 7. It appears, from the record, that when a Visa member orders cards, the manufacturer notifies Visa in order to obtain routine authorization. It also appears that authorization has been routinely given to all members of Visa, including MountainWest when it requested new cards changing the logo to "MountainWest Financial." Visa has not provided ...
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SCFC ILC, Inc. v. Visa USA Inc., 91-C-47B.
...injunction which prohibited Visa from interfering with MountainWest's Prime Option Visa credit card program. 763 F.Supp. 1094 (D.Utah 1991) (opinion by Judge Sam). Visa appealed the preliminary injunction imposed by the district court, and the Tenth Circuit Court of Appeals reversed and rem......
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