SCFC ILC, Inc. v. Visa USA Inc.
| Decision Date | 01 April 1993 |
| Docket Number | No. 91-C-47B.,91-C-47B. |
| Citation | 819 F. Supp. 956 |
| Parties | SCFC ILC, INC., d/b/a Mountainwest Financial, Plaintiff, v. VISA U.S.A. INC., Defendant. VISA U.S.A. INC. and Visa International Service Association, Delaware corporations, Counterclaimants, v. SEARS, ROEBUCK AND CO., a New York corporation; Sears Consumer Financial Corporation; and SCFC ILC, Inc., d/b/a Mountainwest Financial, Counterdefendants. |
| Court | U.S. District Court — District of Utah |
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William H. Pratt, Chicago, IL, Gary F. Bendinger, Salt Lake City, UT, Randall A. Hack, Leonard A. Gail, James D. Sonda, James H. Gale, Chicago, IL, Carol Clawson, Richard W. Giauque, Salt Lake City, UT, for plaintiff.
M. Laurence Popofsky, Stephen V. Bomse, San Francisco, CA, Clark Waddoups, Dale A. Kimball, Heidi E. Leithead, Salt Lake City, UT, Renata M. Sos, San Francisco, CA, Scott R. Ryther, Salt Lake City, UT, for defendant.
William H. Pratt, Chicago, IL, Gary F. Bendinger, Salt Lake City, UT, Randall A. Hack, Leonard A. Gail, James D. Sonda, James H. Gale, Chicago, IL, Richard W. Giauque, Salt Lake City, UT, Charles A. Tausche, Reuben L. Hedlund, Chicago, IL, for counterdefendant Sears Roebuck & Co.
William H. Pratt, Chicago, IL, Gary F. Bendinger, Salt Lake City, UT, James H. Gale, Randall A. Hack, James D. Sonda, Chicago, IL, Richard W. Giauque, Salt Lake City, UT, for counterdefendant Sears Consumer Financial Corp.
Stephen V. Bomse, Marie L. Fiala, San Francisco, CA, Clark Waddoups, Dale A. Kimball, Heidi E. Leithead, Salt Lake City, UT, Judith Z. Gold, Susan Rice, Robert G. Merritt, San Francisco, CA, Scott R. Ryther, Salt Lake City, UT, Renata M. Sos, San Francisco, CA, for counterclaimant Visa USA Inc.
Following a jury verdict in favor of the Plaintiff, a post-trial hearing was held Tuesday, December 22, 1992. The court heard argument on several motions, including: (1) Visa's Motion for Judgment as a Matter of Law under Rule 50(b) of the Federal Rules of Civil Procedure; (2) Visa's Motion for Entry of Judgment on its Clayton Act Counterclaim; and (3) Visa's alternative Motion for New Trial or Conditional New Trial. Sears, as Plaintiff and Counterdefendant, was represented by William H. Pratt and Gary F. Bendinger. Visa, as Defendant and Counterclaimant, was represented by M. Laurence Popofsky, Stephen V. Bomse, Marie L. Fiala, Dale A. Kimball, and Clark Waddoups. Having considered the memoranda, submissions of the parties, and oral argument, the court enters this Opinion and Order.
The Plaintiff in this lawsuit is Mountain-West Financial, a wholly-owned subsidiary of Sears Consumer Financial Corporation and Dean Witter Financial Services Group, which are themselves wholly-owned subsidiaries of Sears, Roebuck and Co.1 The Defendant is Visa U.S.A., Inc. ("Visa"), a non-stock corporation owned by approximately 6000 banks and other financial institutions located throughout the United States.
Visa's history dates back to the late 1950s when Bank of America began issuing the BankAmericard to consumers through an organization of approximately 70 bank franchises. The BankAmericard was the predecessor to the current Visa charge card. A second charge card association, Interbank, was formed and competed directly with BankAmericard. Interbank is now known as MasterCard.
Visa is a form of a joint venture governed by a board of directors which is comprised of bank executives selected from member banks. Visa divides the United States into twelve regions. Member banks in each region elect one director to the board. Large regions are represented by more than one director. In addition, one director is elected by the small banks to represent their interests. Furthermore, any member with more than ten percent of the total volume of outstanding Visa cards receives an automatic position on the Board.
The Visa association itself does not issue charge cards. It provides services to its members, including general advertising and computer services. Visa cards are issued by the individual members. Each of the 6000 members is allowed to set its own terms, deciding what prices to charge and the number of cards to issue.
When the Visa association was formed, its rules prevented members from also belonging to MasterCard. In 1974, a bank in Little Rock, Arkansas, sued for the right to issue both Visa cards and MasterCard cards. See Worthen Bank & Trust Co. v. National Bankamericard, Inc., 345 F.Supp. 1309 (E.D.Ark.1972), rev'd, 485 F.2d 119 (8th Cir. 1973), cert. denied, 415 U.S. 918, 94 S.Ct. 1417, 39 L.Ed.2d 473 (1974). In response, Visa sought advice from the United States Department of Justice to determine whether this prohibition could be considered an antitrust violation. The Justice Department responded by stating that, on the card-issuing level, such a "prohibition of dual affiliation appears unobjectionable." (Def.'s Ex. 102, at 2). With respect to the enlistment of merchants willing to accept the Visa card, however, the Justice Department's opinion was that the bar to dual membership could handicap efforts to create new bank credit card systems and might diminish competition. In other words, the Department of Justice found no problem with prohibiting a bank from issuing both Visa and MasterCard cards, but prohibiting dual affiliation by those banks responsible for signing merchants could pose an antitrust problem. As a result, the Department of Justice concluded that it could not promise that a civil action against Visa would not be initiated if Visa continued to refuse its members the right to issue MasterCard charge cards. In response, Visa withdrew its rule, settled the lawsuit, and allowed its members to also become members of the MasterCard association. Thereafter, most banks and other financial institutions in the United States became members of both Visa and MasterCard. Presently, most Visa members also issue MasterCard cards, a practice known as "duality." Visa contended in this action that as a result of duality, competition between Visa and MasterCard diminished significantly.
In 1982, Sears began investigating an entrance into the general purpose charge card market.2 Sears had discussions with Visa about the possibility of Sears' issuing a nationwide Visa card. Sears organized a steering committee to recommend a strategy. The committee considered Sears' becoming a member of Visa or MasterCard. The committee also considered developing a new general purpose charge card. In late 1984, Sears decided not to pursue issuing a Visa card at that time, but instead decided to launch its own proprietary card3 — the Discover Card. The Discover Card was introduced in Atlanta, Georgia, in late 1985, and was issued nationally in 1986.
Visa perceived the Discover Card as a direct competitor and made numerous attempts to limit the Discover Card's success. For example, Visa encouraged its member banks to deny the Discover Card access to Visa's merchant card terminals. This strategy forced Sears to develop its own terminals and to offer them to merchants at competitive prices. Thereafter, Visa refused to allow its merchants to process Visa transactions on a Discover Card terminal.4 Despite Visa's efforts, however, Discover continued to grow and prosper.5
In late 1988, Sears applied for membership in Visa through Greenwood Trust Co., a Delaware bank owned by Sears. Sears claims that its primary reason for applying for membership was in response to the competitive actions Visa had undertaken with respect to the Discover Card. In June, 1989, Visa's Board of Directors held a meeting in Cannes, France. At the meeting, the Board considered and unanimously rejected Greenwood Trust's application for membership. The Board also passed an amendment to its bylaws prohibiting Sears, or any other direct competitor, from becoming a Visa member. The following is an excerpt from the official minutes of the meeting of the Board, dated June 5-6, 1989:
In a letter advising Sears of the Board's action, Visa General Counsel Bennett Katz stated: "We believe that intersystem competition should be preserved and enhanced; membership by Greenwood Trust Co. would have the opposite effect." (Pl.'s Ex. 715). Sears contested Visa's rejection of its application. Sears' officers met with Visa board members in an attempt to resolve the situation, but Visa refused to change its position. Sears threatened antitrust litigation, but took no legal action at that time.
On May 25, 1990, Sears purchased the assets of a small, defunct Utah savings and loan association known as MountainWest Savings & Loan ("MountainWest Savings"). The purchase was made through the Resolution Trust Corporation ("RTC"), which had become the receiver of MountainWest Savings after its failure. Sears merged the assets of MountainWest Savings into those of Basin Loans, a Utah Industrial Loan Company, and renamed the new entity SCFC ILC, Inc., doing business in Sandy,...
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