Weit v. Continental Illinois Nat. Bank & Trust Co.

• Decision Date: 22 December 1978
• Docket Number: No. 70C1926.,70C1926.
• Citation: 467 F. Supp. 197
• Parties: Jack WEIT, James B. Cox and Robert W. McLallen, on behalf of themselves and all others similarly situated, Plaintiffs, v. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a corporation, Harris Trust and Savings Bank, a corporation, Pullman Bank and Trust Company, a corporation, Central National Bank in Chicago, a corporation, American National Bank and Trust Company of Chicago, a corporation, all other Illinois banks similarly situated, and Midwest Bank Card System, Inc., a corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

467 F. Supp. 197

Jack WEIT, James B. Cox and Robert W. McLallen, on behalf of themselves and all others similarly situated, Plaintiffs, v. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a corporation, Harris Trust and Savings Bank, a corporation, Pullman Bank and Trust Company, a corporation, Central National Bank in Chicago, a corporation, American National Bank and Trust Company of Chicago, a corporation, all other Illinois banks similarly situated, and Midwest Bank Card System, Inc., a corporation, Defendants.

No. 70C1926.

United States District Court, N. D. Illinois, E. D.

December 22, 1978.

Herbert J. Bell, pro se.

Arnold I. Shure, Chicago, Ill., for H. James Rosenberg.

C. D. Kasson, Hinsdale, Ill., Burditt & Calkins, Chicago, Ill., for John T. Jenos.

James E. Beckley, A Professional Corp., Chicago, Ill., for plaintiffs.

Francis A. Beninati, Chicago, Ill., John P. Meyer, Danville, Ill., Jeffrey Jahns, Jon R. Waltz, Dennis C. Waldon, William T. Huyck, Roan & Grossman, William R. Warnock, Chicago, Ill., for plaintiffs.

Jerald P. Esrick, Max Wildman, Wildman, Harold, Allen & Dixon, Chicago, Ill., for Pullman Bank and Trust Co., a corporation.

Bryson P. Burnham, John D. Donlevy, Bertram M. Long, Mayer, Brown & Platt, Chicago, Ill., for Continental Illinois Nat. Bank and Trust Co. of Chicago, a corporation.

Winston & Strawn, Demetri J. Retson, Chicago, Ill., for Central Nat. Bank in Chicago, a corporation.

Kirkland & Ellis, Carl S. Lloyd, Chicago, Ill., for American Nat. Bank and Trust Co. of Chicago, a corporation and all other Illinois banks similarly situated.

Christine H. Rosso, Chapman & Cutler, Keehn Landis, Chicago, Ill., for Harris Trust and Savings Bank, a corporation.

George W. Groble, pro se.

Memorandum

LEIGHTON, District Judge.

This is a class action brought by three charge cardholders in the Midwest Bank Card System, Inc., and its successor, the Interbank-Master Charge Bank Card System, Inc., against five Chicago banks¹ for alleged violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. The gist of the claim is that defendants conspired to fix the rate of interest charged for extended payment privileges on credit card purchases at 1.5% per month, or 18% annually. Counts I and II of the third amended complaint allege that defendants engaged in a horizontal conspiracy. Counts III and IV repeat the allegations of the first two counts and further allege several vertical conspiracies among defendants and their correspondent banks.² The class was certified on Counts I through IV by another judge of this court and consists of plaintiffs and all persons and business entities issued a bank credit card with a billing address in Illinois, which persons or business entities held an active Midwest Bank Card System, Inc. or Interbank-Master Charge, Inc. bank credit card account during the August, 1970 billing cycle, and who have incurred finance charges. See Weit v. Continental Illinois Nat. Bank & T. Co. of Chicago, 60 F.R.D. 5 (N.D.Ill.1973).

Plaintiffs seek one hundred million dollars in damages before trebling and an injunction requiring renegotiation of cardholder interest rates on an individual basis. Their suit has been pending for more than eight years, during which time the parties have conducted thorough and far-ranging discovery. The cause is before the court on motions by defendants Continental, Harris, and American for summary judgment as to the charges of horizontal conspiracy alleged in Counts I through IV and a motion by Continental for summary judgment as to the vertical conspiracy alleged in Counts III and IV. For the following reasons, the motions are granted.

I.

The historical facts, as drawn from the pleadings, depositions, affidavits, answers to interrogatories, and numerous documents produced in the course of discovery, are undisputed.

A. Formation of the Midwest Bank Card System

The idea of a regional, compatible bank charge card with a common identification mark, uniform sales slips, and a system for clearing or transferring them between banks, originated with First National Bank of Chicago³ in late 1965. In early 1966, First hosted a meeting attended by representatives of Continental, Harris and Northern Trust⁴ to discuss the feasibility of a card program. The proposal was well-received; and in May, 1966, the group began to hold regular meetings in order to work out the details of the system. A representative of American attended these meetings as an observer. The minutes of the May 22, 1966 meeting, attended by representatives of First, Harris and Northern, summarize a discussion about the maximum legal interest rate:

Lewis of Harris commented that the maximum must be no more than the equivalent of 7% add-on per annum or less than 14%. Foote of Harris, who said he had looked into credit cards on his own for Harris some months ago, found specific revolving credit enabling legislation in other states where 1½% per month is in effect. Wood of First commented that this is troubling First's lawyers, too.

The minutes of the May 26, 1966 meeting, attended by representatives of the same three banks, state that "Wood of First said the First's lawyers had two legal questions — rate and antitrust — and the antitrust seemed to be the easier of the two."

At these early meetings, the group determined that card design, imprinter and forms could be uniform, and that a participating merchant directory, a list of cancelled or stolen cards, and a merchant instruction booklet could be jointly issued. However, on advice of counsel, it was agreed that advertising and market research, other than necessary system research, could not be done jointly. Defendants were aware of potential antitrust liability; and various documents indicate they knew interest rates were not to be discussed.

In July, 1966, for assistance in working out the program, the group retained Information Sciences Associates of Cherry Hill, New Jersey, a consulting firm with experience in the formation of charge card systems. First, Continental, Harris and Northern consulted Wells Fargo Bank of California about the mechanics of its participation in the Western Bank Card Association. They also met with representatives of the BankAmericard Service Corporation concerning its operational procedures. In August, 1966, some group representatives met with officers of the Marine Midland Bank to discuss the possibility of creating a national bank charge card system. Members of the group also met several times in August with representatives of Pullman Bank and Trust Company⁵ which was planning its own separate charge card program, Illinois Bank Charge.

Various internal bank memoranda express concern over the timing of introduction of the service. A Continental internal memorandum of August 11, 1966 states: "Three month lead over competitor would be advantageous. Valley National Bank of Phoenix, Arizona believes that if anyone goes in Chicago, others will and this may result in chaos in the market. Could be disasterous sic . . .. From the standpoint of competition, the longer Continental waits the less advantage it has. The more opportunity other banks have to study the program, the more opportunity there is for every bank in the city to become a full-fledged card issuer and merchant solicitor, which dilutes the market extensively." A Harris internal memorandum of December, 1966 likewise concluded that

For many months, prior to last May, all of us had been reading of the increasing interest in bank credit card plans throughout the country and most of us concluded, I think, that it would be very difficult for any one bank in Chicago to successfully operate a broad credit card plan in our area because of our unit banking system. And, even if it tried, others would soon initiate similar and competitive plans resulting in a chaotic state of affairs as far as the public and the merchants were concerned. In May, therefore, representatives from the Continental, First National, Northern, and ourselves met for the first time to discuss the feasibility of devising a system that would enable any and all banks in the Chicago Metropolitan Area and in the State of Illinois to operate a charge card plan on a compatible and competitive basis.

Obviously such a system to insure prompt interchange of sales slips between banks had to include a uniform type credit card with a common identification mark or logogram, a uniform sales slip for merchant use, a standard type machine for functioning the sales slips, and finally the key to the whole compatible system — a method of clearing or transferring slips between banks.

The group originally planned to open membership to all Chicago area banks and each member bank was to be free to set its own terms on which it would do business with its cardholding customers and its merchants. Outlines of the system prepared for distribution to their correspondents by Continental and Harris in August, 1966 state:

It must be emphasized that nothing in this system is intended to restrict competition among banks with respect to any facet of the charge card business. It is apparent, however, that the mechanical problems involved in the presenting and paying of sales slips must be solved by the development of a uniform system for handling sales slips in order that the convenience of a charge card service can be made available to the largest possible segment of the people at the lowest possible cost.

During the summer, David M. Kennedy, Continental's chairman of the board of directors, determined that its Town and Country charge card should carry the highest interest rate legally permissible so as to make the system, for which Continental projected early high losses, profitable as soon as possible. On October 3, 1966, before issuing the cards, Continental applied to the Comptroller of the Currency on its own behalf seeking confirmation of its interpretation of the Consumer Finance and...