Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (12 page)

“Double-tracking” depositions means holding two depositions on the same day. Many courts require permission for double-tracking because, among other things, a big firm can overwhelm a small firm by double- or triple-tracking depositions. Because of the magistrate judge’s refusal to meaningfully control the discovery process, we had many days with four, five and six depositions, several days with seven and one day with nine depositions, occurring simultaneously all over the United States.

Rather than appeal Magistrate Judge Mann’s ruling to Judge Gleeson, we decided to turn it to our advantage. Our little firm wound up taking considerably more depositions than the defendants did with
their massive law firms. More importantly, the depositions we took were incredibly effective. Most of these were videotaped and revealed not just everything we had alleged, but much more.

In one deposition, MasterCard executive Ed Hogan, a former FBI official, blurted out that Visa and MasterCard had agreed to remove “MasterCard II” and “Electron,” the names of their debit card programs, from the face of their debit cards. Without these markings, merchants and consumers could not readily distinguish debit cards from credit cards. Startling admissions, like the one made by Mr. Hogan, are supposed to occur as the result of long and skillful questioning by the lawyer. You take the witness through a series of questions designed to corner him or her. You then ask a question that can only be answered truthfully with the information you want, or with a lie. The lie, if detected, would damage the credibility of the witness and could be used at trial to hurt the opposing party. I wish I could claim that my skillful questioning elicited this admission from former special agent Hogan, but in fact he just blurted it out. There is a deep-seated human need to confess.

As the discovery process reached its final months, and we prepared for the settlement conference, we were confident that we had uncovered a treasure trove of information that was damning to the defendants. However, we still continued to be wary of Magistrate Judge Mann, who had authorized the excessive “all you can eat” approach to discovery and had granted the defendants’ requests to seriously delay the case.

To prepare for the settlement conference, we held a meeting of our direct clients—the five big stores and the three trade associations. We flew into O’Hare and met at the Airport Hilton, where I showed the plaintiffs’ in-house counsel the best of the best evidence against the defendants. We then established settlement demands that we would make at the conference. Given the strength of the evidence, neither we nor our clients were inclined to compromise very much. The magistrate
judge later told us that our demands were ludicrous. A comparison of the demands we made in December 1999 with what we ultimately settled for reveals that the actual settlement provided for significantly more relief.

The settlement conference began on December 14, 1999, three months before the then scheduled end of discovery. The conference was held in the old United States Courthouse in downtown Brooklyn, in a cramped auxiliary courtroom of the kind assigned to magistrate judges. Twenty-nine lawyers from both sides shoehorned our way into the little courtroom, making the ballpark estimate of billable time for each and every hour of the two-day conference $15,000. All the heavy hitters from both sides were there, except one notable and anticipated (by me) exception, that of Bob Norton, MasterCard’s general counsel. He continued his practice of absenting himself from places where I would be.

I was nervous but confident, having prepared for my presentation of the merchants’ compelling evidence by making a similar six-hour presentation to our clients at the O’Hare Airport Hilton meeting a few weeks before. The mountain of evidence supporting our case was summarized for the magistrate judge in a 720-page binder that C&P had compiled. The defendants made a similar, submission, showing what they considered their most compelling evidence.

I believed that the magistrate judge had a slightly negative view of our case going into the conference. This impression was primarily based upon her rulings during the previous three years. She had accommodated the defendants’ dilatory tactics, and most of her rulings had gone against us. However, given the fact that the majority of these rulings were procedural, such as those dealing with the number and length of depositions, this in and of itself did not say much. In fact, judges tend to make procedural rulings against the side that is winning. They do this to eliminate certain bases for appeal and for subtle,
but understandable, psychological reasons. Parents often give the larger allowance to the less-favored child. The skepticism I perceived emanating from Magistrate Judge Mann was about the substance of our case and involved Visa/MasterCard’s main steering defense. I sensed that she found persuasive Visa/MasterCard’s argument that virtually all of the damage we complained of could easily be eliminated by a store steering the shopper to use another form of payment. “Miss Jones, I’d rather you pay some other way.”

At the outset of the conference, the Magistrate invited the parties to present some of their strongest evidence and best arguments. I seized the podium and, in a virtual soliloquy that would have impressed Fidel Castro, I spoke for almost four hours without stopping. In truth, there were some questions from the bench, but not very many. Those few were not challenging but merely asked for some clarification of a point or piece of evidence I had just presented.

I talked about some of the most probative documentary and deposition evidence. This was the evidence that would prove our case and rebut Visa/MasterCard’s defenses. My presentation that day was organized in the same way that I made every such presentation during the course of this case. It followed the elements of the two main claims in the
Merchants’
case, that Visa/MasterCard were illegally tying debit to credit and attempting to monopolize the debit card market. Each of these two claims had four parts or “elements” that we had to prove. The evidence I showed built on each element preceding it, such as that credit cards and debit cards were different products and that Visa and MasterCard each and collectively had “market power” in the credit card market. All of this was being disputed by the defendants. My “building-block” style of presentation may seem obvious and common. It’s not. Lawyers like to show juries and judges “hot documents,” which cast the opposing party in a very bad light. I think it’s a waste of time to prove that Visa executives are cheating on their spouses unless that is an element of a practice
violating the antitrust laws. On December 14, 1999, I went into court with an abundance of riches. The evidence I wielded was not only highly probative of each element of our claims but also very hot. The defendants were not cheating on their spouses, but they were beating up my clients in a manner that violated the antitrust laws. In addition to presenting this evidence, which essentially proved our case, I tried to anticipate the arguments the defendants would make, that is, if I ever actually would sit down. I also tried to preempt what I knew would be Visa and MasterCard’s presentation about steering, but left a few juicy items in reserve.

The defendants spoke for less than two hours and used the bulk of this time to talk about their steering defense. They ignored the evidence I had just presented, showing that merchants couldn’t steer for two reasons: first, because the defendants had disguised the identity of their debit cards, and second, because the defendants’ rules prohibited it. In the face of all this, they argued about the ease and ubiquity of steering customers away from using debit cards, but with virtually no documentary support. This seemed to jar the magistrate, whose facial expression and body language subtly changed right in front of us. The fact that this change was subtle was less significant than the fact that her demeanor changed at all. Ronnie Mann’s job was to get the parties to settle, and any hint from her that gave either party confidence would run counter to her objective.

Then, in rebuttal, I got up and showed a video clip from the deposition of Pete Hart, the former CEO of MasterCard, who had left that position in March 1994. Hart had been the MasterCard CEO during the aftermath of the states’ lawsuit terminating the Entree debit card network. At the time, Hart as much as said that the death of Entree would stimulate the growth of the debit card market. Soon after, Hart tried to get MasterCard to adopt a debit card strategy different from Visa’s. Visa called on the banks that owned both MasterCard and Visa to force MasterCard to reverse course. Soon after this episode, Hart left
MasterCard, and MasterCard did change direction, joining with Visa in the anticompetitive practices that formed the core of our case.

Pete Hart was a very likeable man. He was handsome and courtly, had captained the football team at Harvard, and also had a brief stint as an end with the Boston Patriots in the old American Football League. After we filed the case, a mutual acquaintance in the industry suggested that I meet with Hart. This friend thought that Hart might agree to testify for the merchants, given the fact that Hart’s position on debit while at MasterCard was similar to the one we were asserting in the
Merchants’
case. Considering Hart’s stature and previous position with MasterCard, such testimony would likely have been very damaging to the defendants’ case. Although we had never met personally, Hart took my call, knowing exactly who I was, and quickly agreed to meet with me a few weeks later. I traveled to Philadelphia, where Hart lived. We spent a day discussing the
Merchants’
case, and I asked him to testify about his knowledge of whether Visa had forced MasterCard to reverse its debit strategy and whether he had been forced out of MasterCard because of this episode. He said he would think about it, but his closing comment suggested that his ultimate answer would be no. He said he was well off and didn’t need work in the industry, but that one of his children might want a job. He said that his testimony could be a problem for her. He never got back to me and arrived at his deposition several months later with five lawyers representing him, all paid for by MasterCard. Three of these lawyers were in-house counsel for MasterCard and he also had two outside lawyers he had retained from Steptoe & Johnson.

During the two days that I deposed him, Hart, surrounded by his legal battalion, surrendered so much testimony damaging to the defendants’ case that showing the jury the video of this testimony would have proven more damaging for defendants than the friendly testimony I had attempted to obtain from him. Some of this damning
testimony was predictable, as it was well known that Hart had been a champion of the superior PIN debit product and had criticized the security, functionality, and pricing of signature debit cards. There was little doubt in my mind that Pete Hart had been forced out of MasterCard in 1994 because of these heresies. However, the most devastating testimony in Hart’s deposition concerned the Visa/MasterCard steering defense. I only showed the magistrate judge a small portion of this on December 14, 1999, and later showed the same clip in open court for the summary judgment argument on January 10, 2003.

In the video clip, Hart testified that MasterCard’s rules prohibited the steering that the defendants were relying upon as their magic bullet. If steering customers toward using another form of payment was prohibited by MasterCard’s own rules, then this main line of defense in the case would fall apart. The video showed the defendants asking for a break after Hart made this damning admission.

When the deposition resumed, Hart said he wanted to correct his previous testimony and stated that the steering, which he had said was prohibited by MasterCard’s rule, had in fact been allowed when he was CEO. Pete Hart, the epitome of Ivy League cool, looked uncomfortable and bewildered. I asked him what had caused him to change his testimony, and he said that he had a conversation during the break with Noah Hanft, MasterCard’s “U.S. counsel” and now its general counsel. Hart testified that Hanft had told him, “Pete, you’re confused a little around then.” I quickly took Hart through a series of questions about his changed testimony. He got more and more flustered and confused and repeatedly said that his revised testimony was due to his conversation with Noah Hanft. He said this nine times.

When I showed this clip to the magistrate judge in front of the defendants, she became visibly angry but said nothing. The subtlety in her change in demeanor was gone. She asked me why a merchant couldn’t distinguish a Visa or MasterCard debit card from a credit
card. Reaching into my back pocket for my wallet, I pulled my ATM card out and handed it to her. I had a Chase ATM/debit card with a MasterCard logo on the front. It had a peel-off sticker that read: “IMPORTANT—THIS CARD IS NOT A CREDIT CARD. IT IS YOUR NEW CHASE BANKING CARD . . . .” I explained that the sticker was there to warn the cardholder that what appeared to be a MasterCard credit card was, in fact, a debit card. I pointed out that when the cardholder removed the sticker, as Chase instructed, the actual nature of the card would remain unknown to the merchant. It seemed that a light went on in the magistrate judge’s head. After watching the Hart video and the card demonstration, Magistrate Mann clearly tilted toward us. I can’t prove it, but I strongly believe that she communicated her impressions to Judge Gleeson. The balance of the two-day conference was spent with the magistrate judge attempting shuttle diplomacy and hearing the oral argument of five motions that had been briefed by the parties but hadn’t been decided. Most of these motions were procedural in nature, involving the flow of information between the
Merchants’
case and the U.S. case against Visa/MasterCard, pending in the Southern District courthouse two miles away. One motion involved a request by the defendants for yet another delay, and there also was one important motion concerning the legal status of communications between Visa/MasterCard and their banks.

The clearest signal of Magistrate Judge Mann’s tilt toward our position came during the argument of that last motion. The motion concerned the so-called joint defense privilege that Visa/MasterCard and their banks were asserting. Under a joint defense privilege, the conversations of two separate parties about defending a case are privileged in the same way that the conversations between a lawyer and client are. Visa/MasterCard’s argument was that we should not be able to ask bank executives about their conversations with Visa or
MasterCard concerning the case. When lawyers for the defendants made this argument, Magistrate Judge Mann angrily asked them questions that referred to what she had seen in the video clip from Pete Hart’s deposition. She adverted to what she sarcastically called “more subtle prompting” in response to an argument made by Visa’s lawyer about communications between banks and Visa. Understanding that this sarcastic comment was directed at MasterCard and the Hart deposition clip, two MasterCard lawyers jumped up and tried to put their best spin on what Mann had seen and obviously been angered by. They also explained that Noah Hanft wasn’t MasterCard’s general counsel, he was their “U.S. counsel.” As if that mattered.