Antitrust Law Daily Injunctive relief plaintiffs in long-running Visa, Mastercard fee suit allowed to proceed with claims against banks
Tuesday, December 3, 2019

Injunctive relief plaintiffs in long-running Visa, Mastercard fee suit allowed to proceed with claims against banks

By E. Darius Sturmer, J.D.

The plaintiffs’ allegations of ongoing antitrust misconduct by the defendant banks sufficed to establish standing and to survive a motion for dismissal.

The federal district court in Brooklyn, New York, has refused to dismiss claims brought on behalf of a putative class of over twelve million merchants against banks for participating in a conspiracy to fix the fees imposed on merchants for payment transactions processed over the Visa and Mastercard networks. The plaintiffs had standing to assert their claims against the banks and sufficiently alleged that the bank defendants were participants in ongoing conspiracies. Therefore, the bank defendants’ motion to dismiss the claims was denied (Barry's Cut Rate Stores Inc. v. Visa Inc., November 20, 2019, Brodie, M.).

Parties, dispute history. The long-running antitrust lawsuit over interchange fees began in 2005, with plaintiffs seeking both injunctive and monetary relief. After years of litigation, the court approved a settlement in 2013 for an injunctive relief class and a monetary damages class, but that ruling was vacated and remanded by the U.S. Court of Appeals in New York City in 2016. The two classes have retained separate counsel and have been proceeding separately since then. The instant ruling concerns the bank defendants’ motion to dismiss the claims brought against them by the putative Rule 23(b)(2) injunctive relief class plaintiffs.

The named plaintiffs are merchants that accept payment by Visa- and Mastercard-branded cards. Their principal allegations, the court explained, are that the 19 bank defendants "impose supracompetitive interchange fees on Visa and Mastercard transactions" and "facilitate these anticompetitive practices by forcing merchants to abide by anti-steering and other restraints." The plaintiffs maintain that the defendants’ misconduct causes antitrust injury common to the plaintiffs and putative class members and will continue to do so unless enjoined. Though noting that "litigation, legislation, and regulation forced needed reforms on the Defendants and technology threatened to disrupt [the cards’] dominant position in the marketplace," the plaintiffs claim that the defendants still use their market power to restrain competition, causing the plaintiffs to "continue to suffer antitrust injury due to current anti-steering restraints "and as a result of the continuing effects of decades of enforcement of the No-Surcharge Rule and the prior versions of the restraints."

Standing. The court found first that the plaintiffs had Article III standing to pursue their claims against the banks, rejecting the defendants’ assertion that they were incapable of redressing the alleged harm. There was "a substantial likelihood that a favorable decision on the merits and a grant of the request relief would provide partial redress," the court stated, as the plaintiffs "pled sufficient facts to suggest that it is likely, and not merely speculative, that relief from the Court against Bank Defendants could partially redress their alleged injury." Moreover, the plaintiffs could reasonably expect to encounter the very same injury in the future, the court observed.

Ongoing antitrust conspiracy. The plaintiffs also adequately alleged an ongoing antitrust conspiracy, the court held. The court discarded, in turn, arguments by the defendants that the plaintiffs failed to allege sufficient ongoing conduct by the banks in furtherance of a conspiracy and that "simply operating as members of the card networks and following network rules is insufficient in and of itself to constitute a violation of the Sherman Act," as well as their contention that "because there are no allegations of post-IPO overt acts by them, the Court must dismiss claims against them."

The plaintiffs plausibly alleged that the bank defendants remain members of an ongoing conspiracy that they assisted in designing, the court remarked, and also plausibly alleged that the anticompetitive practices they challenge have "continued despite the networks’ and the banks’ more recent attempt to avoid antitrust liability by restructuring the Visa and Mastercard corporate entities." Far from suggesting "withdrawal from the conspiracy or that the bank defendants wished to disavow the purpose of any agreement" through the restructuring, the factual allegations "plausibly suggest that the preference of all involved—Visa, Mastercard, and Bank Defendants—was that the benefits to everyone continue exactly as they did prior to the IPOs.

Further, the court determined, the plaintiffs sufficiently alleged a hub-and-spoke conspiracy and unlawful agreement. They averred agreement between the "spokes"—the bank defendants—and more than simple membership in a trade association, in the court’s view. In a complaint stating "allegations akin to those found in other major hub-and-spoke conspiracy cases," the plaintiffs pled facts suggesting the hybrid existence of both vertical and horizontal conspiracies, the court said. Their allegations amounted to more than mere parallel conduct, the court added, given their assertion of certain "plus factors" for the existence of conspiracy, including the bank defendants’ common motive to conspire and the investigatory and regulatory actions that have been taken with respect to the conspiracies, and "numerous other unique facets of the current action ... from which Bank Defendants’ involvement in an antitrust conspiracy could be inferred."

The case is No. 05-MD-1720 (MKB) (JO).

Attorneys: Daniel Lawrence Berger (Grant & Eisenhofer P.A.) for Barry’s Cut Rate Stores Inc., DDMB, Inc. d/b/a Emporium Arcade Bar and DDMB 2, LLC d/b/a Emporium Logan Square. Donna M. Ioffredo (Paul, Weiss, Rifkind, Wharton & Garrison LLP) for Mastercard Inc. and Mastercard International Inc. Blair Eden Kaminsky (Holwell Shuster & Goldberg LLP) for Visa Inc.

Companies: Barry's Cut Rate Stores Inc.; Mastercard Inc.; Mastercard International Inc.; Visa Inc.

MainStory: TopStory Antitrust NewYorkNews

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