Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (13 page)

Finally, the defendants asked for another delay on top of the fifteen months that the magistrate judge had already granted. Jim Benedict, MasterCard’s lead lawyer, rationalized the request with a reverse David and Goliath—inaccurately stating that the defendants had only two firms against our “20, 30.” He was referring to C&P’s twenty-nine helper firms, several of which were one-lawyer firms.

Things were never quite the same after that day. Every major battle after that was resolved resoundingly in our favor. Immediately after the settlement conference, the motions argued the second day were decided in our favor. The magistrate judge consulted with Judge Gleeson, who denied the defendants’ request for a further delay. In the two months after the conference, Judge Gleeson took hold of a case that, up to that point, he had primarily delegated to the magistrate judge’s care. In that two-month period, the merchants won two more of the six key battles. Next up was the United States’ motion to intervene in the
Merchants’
case, so the United States could have all the evidence revealed in the discovery phase of our case and, more importantly, get all the analyses of evidence that C&P had done in the previous three years.

I
N THE YEAR prior to C&P filing the complaint, and during the two years after, I had a series of meetings with the FTC, numerous state attorneys general and the Federal Antitrust Division. Among the many government officials I met with were FTC Chairman Bob Pitofsky and Joel Klein, who soon would become the head of the Federal Antitrust Division. As described earlier, these meetings concerned the merchants’ complaints about the tying arrangements and other alleged Visa/MasterCard antitrust violations. We urged the government agencies to pursue some of these claims in cases of their own.

In October 1998, two years after we filed the
Merchants’
case, the Antitrust Division filed its own case in the Manhattan-based U.S. District Court for the Southern District of New York. The Southern District courthouse is within moderate walking distance of the Eastern District in Brooklyn, where our case was proceeding.

The primary focus of the United States’ case was different than ours, but much of the proof and economic theory necessary for the
United States to win its case was similar to that necessary for us to win ours. The United States claimed, as we had previously, that Visa and MasterCard’s exclusionary rules suppressed competition from American Express, Discover, and others by barring their banks from issuing American Express or Discover brand credit or debit cards or the cards of any other network that Visa/MasterCard considered to be a competitor. The United States’ case focused on how these rules, Visa By-law 2.10(e) and MasterCard’s “Competitive Programs Policy,” injured competition in the credit card market. Our focus had been on how these rules injured competition in the debit card market. Because Visa’s rule exempted MasterCard, and MasterCard’s rule exempted Visa, both rules practically screamed, “Hey, Visa and MasterCard are not really competitors.”

The United States also attacked Visa/MasterCard duality, but only in a limited and trivial way. The Antitrust Division didn’t attack the dual ownership of Visa and MasterCard by the same banks, nor the practice of most major banks that issued both Visa and MasterCard credit cards. The United States only attacked what they called “governance duality,” when a bank like Citibank sat on the board of Visa while also serving on a governing body at MasterCard, such as its so-called “Business Committee,” and thereby exercised a significant role in running both companies simultaneously. The
Merchants’
case also claimed that governance duality was anticompetitive, but only in conjunction with dual ownership and card-issuing duality.

The government limited, hampered, and eventually lost this claim for two reasons. First, the Antitrust Division was still trying to rationalize its 1975 error of encouraging duality in the first place. Second, the division harbored an honest but misguided fear that if banks were forced to choose affiliation with only one association, virtually all would abandon MasterCard and flock to Visa. The division feared a result in which the tightly coordinated Visa/MasterCard duopoly would be replaced by
a Visa monopoly. The fear was misguided because it essentially reflected a lack of trust in competition. In the ensuing years, when banks made choices to do business primarily with either MasterCard or Visa under so-called “dedication agreements,” MasterCard did very well.

Soon after the United States filed its case in October 1998, it moved to intervene in the
Merchants’
case in order to get access to the evidence we had obtained in the discovery process and the thousands of hours of analysis C&P had done concerning the legal and factual issues common to both cases. We also wanted the United States to have our analyses, which were protected by the so-called “attorney work product” privilege. Visa and MasterCard didn’t want the Antitrust Division to have the benefit of our work product and opposed their getting it unless they also got it. We couldn’t allow the defendants to get access to these analyses because they were a detailed blueprint of our case and trial strategy.

The parties submitted legal briefs to Judge Gleeson on these issues in March 1999. On January 3, 2000, Judge Gleeson ruled for the government and the merchants in a decision of first impression, meaning on a point of law that had not previously been ruled on by any court. He ruled that we could give our analyses to the Antitrust Division without waiving their privileged status. We turned over to the Antitrust Division virtually everything we had done, and later on, everything we did. We assigned several lawyers to cull the entire file to find documents, deposition extracts, facts and analyses that could assist the United States. One C&P lawyer, Mike Spyropolous, was assigned to do this and virtually nothing else for more than a year. He began the process of accumulating information helpful to the United States even before Judge Gleeson issued his ruling. We wanted to hit the ground running if and when Judge Gleeson made a favorable ruling. We wanted to help the United States get to trial as fast as possible and win its case.

Our motives were both public-spirited and selfish. We wanted the United States to win and win fast. Many of the issues that the United States had to establish were similar or identical to issues we had to establish in order to win our case. For example, for the United States to win its exclusionary rules claim, it had to prove that there was a credit card, market and rebut the defendants’ claim that credit cards were just a small part of the much bigger payment market that included cash, checks, debit cards, and wampum. We also had to prove that there was a separate credit card market in order to establish a tying arrangement between two distinct products—credit cards and debit cards. There were many other issues, facts, points of law, witnesses, and themes common to the two cases.

Despite its start two years after us, the United States was very likely to get to trial first. The government’s case was much smaller. The judge and magistrate judge in that case were less willing to grant Visa and MasterCard time extensions, and federal courts also generally expedite proceedings in which the United States is the plaintiff. If, as expected, the United States were to get to trial first and win on some of the legal issues common to both cases, we could get the benefit of such rulings under a doctrine called “collateral estoppel.” The collateral estoppel rule does not work in the opposite direction, meaning that if the United States were to lose on these common issues, we would not be bound by those negative rulings.

I thought it very likely that the judges in the two cases would find each other’s rulings persuasive. Judge Gleeson headed the Criminal Division of the U.S. Attorneys Office in the Eastern District during the same time period that Judge Barbara Jones, the judge in the U.S. case, had run the Criminal Division in the Southern District, only two miles away. They both had gained recognition as organized crime prosecutors. Gleeson had successfully prosecuted John Gotti. Jones had been part of a multiagency task force that had prosecuted the
Mafia Commission case that, parenthetically, had utilized the “Sal Avellino Black Jaguar” bugs, which are famous in law enforcement circles. These recordings of Luchese crime family conversations had been obtained by bugging a car, in which Anthony “Tony Ducks” Corallo, the Luchese “don,” was a frequent passenger. The recordings had been obtained during an investigation of mob-dominated trash hauling on Long Island, my one and only venture into organized crime prosecution, while working with Ron Goldstock and the Organized Crime Task Force of the New York Attorney general’s office.

Beyond the respect and affinity that I assumed the two judges had for each other, I believed that Judge Gleeson would be strongly inclined to respect a legal position asserted by the United States. Everything about Gleeson, including his résumé signaled his close identification with the Department of Justice and a desire to serve it and his country’s interests.

Judge Gleeson’s January 3, 2000, ruling on the status of our analyses worked out spectacularly for us. Despite starting two years after our case, the Antitrust Division got to trial first. In Judge Jones’s October 2001 ruling, the government won many major factual and legal disputes that were common to both cases. We might have gotten the benefit of some or all of these rulings prior to our trial. As it turned out, Visa/MasterCard’s appeal of Judge Jones’s ruling dragged on for so long that Judge Gleeson decided that we could not rely on that ruling while it was still being appealed. In that respect, the United States was as much a victim of the glacial pace of appellate proceedings in the United States Court of Appeals for the Second Circuit as we were.

Nevertheless, when Judge Gleeson made his summary judgment rulings on issues that were common to both cases on April 1, 2003, he decided for us in almost every instance. I believe that the substance of the earlier 2001 ruling by Judge Jones, the fact that the United States
took positions that we had previously taken in his court, and also the fact that the two cases shared so many witnesses, documents and issues, were all highly persuasive to Judge Gleeson. Battle number two had been won. “If you do everything, you will win.” This doesn’t mean that you will win in precisely the way planned, but you will win.

A
CRUCIAL THIRD HURDLE was to have Judge Gleeson grant our motion to certify a class of five million U.S. merchants, and then successfully defend that decision in the Court of Appeals and the U.S. Supreme Court. The certification of the class would raise the monetary stakes in the case from hundreds of millions of dollars to billions and potentially tens of billions. Both sides knew that the outcome of the class motion would not only change the defendants’ damage exposure by a factor of more than ten, but psychologically buoy the winners and crush the losers. More work was devoted to this single motion than is done in the entirety of most large and complex commercial cases.