Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (10 page)

Among the many other stores we rejected, one more is worth mentioning. Home Depot contacted me and said they wanted in. Later, they said that it was politically unpalatable to be a plaintiff in a class action, even a “good one,” because they hated class actions. They said they were a defendant in many class actions and most painfully in cases alleging various forms of employment discrimination. Therefore, they didn’t want to do anything that might give aid and comfort to class actions. Though frequently sued for engaging in various forms of discrimination, they couldn’t themselves ”discriminate” between being a defendant and being a plaintiff or
between a meritorious class action and a frivolous one. I thought it fortunate that they weren’t entering the case. Almost seven years later, Home Depot’s counsel called me and demanded that his client have a “seat at the table” in the settlement discussions, which they were sure would soon occur. They threatened to “opt out” of the class unless I acceded to this demand. I told them that the named plaintiffs, who had carried the case on their backs for seven years, had the only seats at the table alongside me. Home Depot opted out and pursued its own lawsuit against Visa and MasterCard, which was entirely based upon our work and legal victories. Their very big additional recovery came as the result of our efforts and the sacrifices made by our clients.

One common theme expressed by most of the stores that asked C&P to represent them as additional named plaintiffs was their concern that the giant stores that were class representatives would not adequately represent their interests. I assured them that this was not true. Making sure that the interests of every class member were given equal regard with those of Wal-Mart was my job. Nonetheless, I was also concerned about this issue of powerful clients and potential big-store bias. It was not so much concern for a conscious slant toward the interests of Sears, Wal-Mart and the other giants as concern about only hearing the views of the biggest players. No small store approached us, and we weren’t about to solicit any. However, I was approached, and agreed to represent, three large retail trade associations, whose members included stores of all sizes.

The National Retail Federation (NRF), the International Mass Retail Association (IMRA), and the Food Marketing Institute (FMI), whose small and large store members had annual sales of over $1 trillion, asked to become plaintiffs. C&P gladly agreed to represent them without any fee, contingent or otherwise. I believed that these associations would be a constant source of industry expertise and
would keep us honestly focused on the concerns of all stores.

I had some background with each of these trade associations. IMRA, later called The Retail Industry Leaders Association, had been a client of McDermott Will & Emery, the large law firm where I had been a partner for three years. On several occasions, I had been a speaker on antitrust issues at meetings that FMI regularly held for the general counsel of U.S. supermarkets. I had also spoken at NRF’s annual convention in early 1997. At that time, I told the CEOs of many of the largest retailers in the United States that they each were paying millions of dollars in excess charges, and because of Visa’s and MasterCard’s deception, they probably didn’t even know it.

After our dream team of Wal-Mart, Sears, Circuit City, Safeway, The Limited, FMI, IMRA, and NRF was in place, we added MasterCard to the case as a defendant. The seven plaintiffs other than Wal-Mart did not share Wal-Mart’s opinion that MasterCard would do the right thing. Wal-Mart eventually found this out for itself, and MasterCard was sued as Visa’s codefendant by all eight.

I
n the weeks after the merchants’ October 25, 1996, complaint was filed, the defendants assembled an army of lawyers to squash and humiliate C&P, the little firm that dared to wage war against the U.S. banking industry and its plastic card cartel. Visa retained two firms, its longstanding outside counsel, Heller Ehrman White & McAuliffe (HEWM), based in San Francisco and Arnold & Porter (A&P), based in Washington, D.C.

Heller Ehrman and Visa, more than any other lawyer/client pair I have encountered, were mirror images. They were smart, slick, self-assured and quintessentially Californian. And the truth is, I liked and respected both. In contrast to San Francisco-based HEWM, A&P was thoroughly an Eastern, D.C. establishment and a firm with unique stature in antitrust for many reasons, including its namesake Thurman Arnold, a famous head of the Federal Antitrust Division from 1938 to 1943.

To say that Visa retained Heller Ehrman conveys the misimpression that there was a process of deliberation and decision resulting in this representation. That didn’t happen. Heller Ehrman had been antitrust counsel to Visa for decades. The functioning and structure of Visa are products of antitrust counseling and litigation done by Heller
Ehrman. Visa and MasterCard were each joint ventures of virtually all U.S. banks. These banks were supposed to be competitors. Because of this, Visa and MasterCard were constantly subject to antitrust scrutiny and attack. So, the role of antitrust counsel was more significant at Visa and MasterCard than at virtually any other large American corporation.

Many businesses can point to a period when antitrust concerns dominated their existence. The current AT&T is a smaller vestige of the old fully integrated Ma Bell. It was shaped and eventually split up in antitrust wars. Microsoft is still laboring under the influence of antitrust battles in the United States, Europe, and Asia. MCI, once the second largest telephone company in the United States, would not have existed but for winning a huge antitrust case against AT&T in 1983. However, at Visa, the influence of antitrust has been constant. Heller Ehrman didn’t get hired for each new matter—it was already there.

Such reflexive use of litigation counsel is foolish, regardless of how good the lawyers are. In addition to judging a firm’s track record, a litigant should evaluate the plan for each specific case. Visa most likely neglected to do that. Heller Ehrman also brought additional baggage to this assignment. The law firm helped design the business and antitrust strategies under attack. They were not just defending Visa, they were defending themselves. As the old saying goes, “A lawyer who represents himself has a fool for a client.”

The jubilation at Heller Ehrman, when C&P filed the merchants’ complaint, was palpable. They would vindicate the legal and business strategy they had developed for Visa, and they would make a fortune doing it. Heller Ehrman immediately had celebratory hats made up that were inscribed, “HEWM Fit To Be Tied,” a reference to the merchants’ challenge of the Visa tying arrangement. John Wilke, a
Wall Street Journal
reporter who wrote numerous articles about the case throughout the seven years, heard about the hats and asked me to get one for him. When the case was over, I asked Brian Brosnahan, a
brilliant HEWM litigator whom I had bonded with during the case, to get one of these hats for me. He perhaps misconstrued my request, although I doubt it, and sent a beautiful and expensive traditional hat. It was the type commonly worn by businessmen before the JFK inauguration relegated such hats to fashion antiquity. I sent him a beautiful shirt in return and asked again for the “Fit To Be Tied” baseball hat. He said that the hats had disappeared. I asked another Heller Ehrman lawyer for a hat and was told that those hats had never existed.

A&P, Visa’s second law firm, technically played the role of “local counsel,” because HEWM did not establish a New York office until 1999. A New York firm was a necessity for the
Merchants
’ case, which was filed in federal court in Brooklyn. Such local counsel generally act as little more than a “mail drop” for the primary counsel. In this case, A&P wound up doing more depositions than lead counsel do in most big commercial cases. A&P did its job with the kind of professional dispassion that Visa needed and Heller Ehrman couldn’t deliver because it was defending itself.

MasterCard retained Rogers & Wells to defend it. That firm was later acquired by, and became known as, Clifford Chance, the world’s largest law firm. Clifford Chance adopted the same tactics as Heller Ehrman. They attempted to bury little C&P and succeeded in delaying the case. Clifford Chance, by and large, provided a generic representation for MasterCard. There were several exceptions. Briefly, and too late, Clifford Chance deployed Ken Gallo, who would have been the best trial lawyer on the defendants’ side. They deployed Gallo so late, however, that the chances he would ever get to use his trial skills were slim, and eventually none.

From the outset, Clifford Chance assigned a special role to Kevin Arquit, or he may have assigned it to himself. Kevin, a handsome and charming guy from upstate New York, had been the general counsel and director of the Bureau of Competition of the FTC during parts of
the Reagan and first Bush administrations. These were the years of the state/federal agency antitrust clash. I was the commander in chief for the states. Kevin was one of the opposing federal agency generals. We always respected each other and found time to step outside our roles, have a drink, and laugh about the whole thing. He also danced with Jan at social occasions (I suffer from a common male disease that allows me to play tournament-level tennis and squash, but prevents me from dancing). For more than six years, Kevin didn’t take or defend a single deposition, or do much substantive work in the case, until January 10, 2003, the day we argued the enormous summary judgment motions. Until then, Kevin’s job for MasterCard was to have lunch with me twice each year.

I told Kevin that I understood and appreciated why he regularly called to have a drink or a meal. Nobody expected this case to settle before trial. However, a settlement might occur after trial, if we were to win a monstrous monetary damage award. Against everyone’s expectations, the case might even settle earlier. The day-to-day nastiness that quickly broke out between Clifford Chance and C&P, but which never occurred with Heller Ehrman or A&P, was not conducive to a settlement process. Kevin, whose greatest strength is his emotional intelligence, understood all this. He was out there implicitly saying, “If and when this case has to settle, you and I, who respect and like each other, will do it.” And almost seven years later, that’s the way it worked out.

Clifford Chance, Heller Ehrman, A&P, and Simpson Thacher & Bartlett, who joined in Master-Card’s defense toward the end, collectively had 5,839 lawyers. On top of that, the twenty-something banks that were on the Visa and MasterCard boards brought their own legions of lawyers. The banks were vitally concerned with the outcome of the
Merchants’
case, and both they and the networks asserted that the banks were legally entitled to come to the aid of Visa/MasterCard under a so-called “joint defense” privilege. If the court agreed that Visa, MasterCard, and the banks could utilize this privilege, their communications
in defense of the
Merchants’
case would remain secret, beyond the reach of our discovery demands. However, invoking this privilege on behalf of the two supposedly competing card networks and thousands of banks was another instance of Visa/MasterCard announcing to the world, “Hey, just in case you forgot, we are a fronting for a cartel, and this is a conspiracy.”

Arrayed against these primary defense firms with their thousands of lawyers was my firm, Constantine & Partners. When the case was filed, C&P had eight lawyers, and when active hostilities ended seven years later, we had grown to seventeen. Throughout these seven years of active litigation, 52 percent of C&P’s resources were devoted to the case. But we had some very important help.

After C&P filed the
Merchants’
case as a class action, twenty-nine other law firms representing fourteen additional stores filed “copycat” lawsuits. We anticipated this and arranged for this to be done in an orderly and friendly way. Copycat lawsuits are filed by plaintiffs’ firms in antitrust, securities, and products liability cases after the government, or a powerful entity such as Wal-Mart, first files a case. The copycat complaints are usually identical to the first case, except for the names of the new plaintiffs.

After the copycat lawsuits are filed, the court will usually “consolidate” the new complaints with the original lawsuit, creating a new “style” or name for the combined cases. After the copycat suits were filed and consolidated with the lawsuit we had filed for Wal-Mart and other giant merchants, the consolidated case was called
In re VisaCheck/MasterMoney Antitrust Litigation
. In most of these situations, the copycat lawsuits simply wait until the government or other lead plaintiff does all or most of the work, and if the lead plaintiff wins, the tag-along firms also collect damages for their clients and attorneys’ fees for themselves. In the
Merchants’
case, I decided to enlist the assistance of the plaintiffs’ firms who had filed the copycat cases. I reserved the vast majority of the complicated work for C&P, such as the court appearances, appeals, briefs,
motions, expert reports, and key depositions. C&P’s big clients expected, and indeed demanded, that our firm do those tasks. They had hired us, not those plaintiffs’ firms who were constantly suing them in other class actions. But the firms who filed the copycat cases could assist with the many rudimentary but very time-consuming and important projects.