Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (17 page)

These kinds of impromptu hijinks are not supposed to occur in the second most prestigious courtroom in our nation. However, my improvised part in this Keystone Kops scene was not my tactical error during the argument. Mine was to bother with Judge Jacobs at all. Among the three judges on the panel, I’d decided to focus my argument squarely on him. I attempted to appeal to his better nature and directly confront his well-known neo-conservative tendencies. At the beginning of my argument, I turned directly to Judge Jacobs and argued that he and everybody else knew that there really was no serious doubt about the propriety of certifying this class, and that the only reason that the circuit court was hearing the appeal was because so much money was potentially at stake. Although the principle or issue of law should govern the outcome of a case, not the amount of money involved, I said, “Let’s talk about that. . . . We are here because of the big number involved in this case. So the question is, what do you do with that?”

Jacobs nodded his agreement with my point that the only reason Judge Gleeson had asked the Second Circuit to take the case, and the only reason they had, was “the enormous financial consequences [for the defendants] of class certification.” And I quoted for Judge Jacobs
the famous observation of Supreme Court Justice Oliver Wendell Holmes that “great cases make bad law because they are deemed great because of some immediate overwhelming interest which distorts judgment, making what previously seemed clear to seem doubtful.” And then building upon Justice Holmes, I told Jacobs:

The immediate overwhelming interest in this case is the amount of money claimed by the plaintiffs against the defendants. That is what is really going on in this case.

Judge Jacobs again nodded his agreement with my statement. Confronting this issue head-on was not an effective tactic with Judge Jacobs, a man on a mission to torpedo class actions in general, and especially this one, which I impertinently reminded him was perhaps the biggest in federal court history.

Judge Jacobs’s dissenting opinion was a tirade against class actions, class action lawyers, and how honest folk like Visa/MasterCard were being judicially blackmailed into settling frivolous class actions. Judge Jacobs’s opinion contained virtually every right-wing ideological cliché about class actions and plaintiffs’ lawyers. While Jacobs denied any view on the ultimate merits of the case, he disclosed uncertainty concerning the legal issues actually presented. Early in his dissent, Jacobs observed:

Even a defendant who is innocent and holy may rationally choose to pay a few hundred million dollars in settlement of a class rather than run the risk of ruinous liability.

Was Jacobs’s assessment that Visa/MasterCard were “innocent and holy?” Perhaps not. Maybe this was Jacobs’s advice to Visa/MasterCard on the proper settlement amount, if indeed they were innocent. Judge Jacobs sarcastically said that “if each merchant’s claim took no more than
half a day to sort out, the damages phase of trial would last as long as the whole course of Western Civilization from Ur.” However, the scientific advances of Eastern and Western civilization, namely the invention of the abacus and the digital computer, would make calculation of damages for five million class members simple and straightforward under our damages formula.

Judge Jacobs actually suggested that the stores were eager accomplices in their own injuries, expecting that the money they lost would be returned threefold because antitrust damages are automatically tripled. Judge Jacobs stated: “An antitrust plaintiff seeking treble damages can profit by avoiding mitigation of loss.” Finally, Jacobs took a cheap shot at me by saying that plaintiffs’ counsel had improperly “herded together” dissimilar stores into a class to their detriment, in a quest for attorneys’ fees. Jacobs contended that my herding of dissimilar claims together in this class demonstrated the inadequacy of my representation. However, this ground was not asserted by the defendants, as Judge Sotomayor pointed out, in her October 17, 2001, majority opinion joined by Judge Cote, upholding the class certification. Therefore, Judge Sotomayor demonstrated, it was not a proper ground for reversal. Such appellate rules and the clear principles of law applied by Judge Sotomayor in the majority opinion don’t govern judges with a predetermined agenda.

The launching pad for all of these counterfactual discussions was Judge Jacobs’s assumption that when the defendants forced stores to pay higher prices for debit transactions, they lowered the price charged for credit transactions. Jacobs had to avoid both the facts and the law to do this. He avoided the law, which said that Judge Gleeson’s finding that credit card rates wouldn’t have declined could only be disregarded if Jacobs found that Gleeson’s factual determination was “clearly erroneous.” Judge Jacobs didn’t make that finding because he couldn’t. He couldn’t because all of the evidence in the record went in the other
direction. The evidence showed that, as important as it was to Visa/MasterCard to gouge the stores on debit prices, to destroy the regional debit networks, and to monopolize the debit market, it was equally or more important for defendants to maintain their credit card monopoly. Judge Jacobs couldn’t rebut the evidence in the record about this, such as a Visa document that measured the value of suppressing the regional debit networks. The record showed that the defendants’ conduct caused an escalation in Visa/MasterCard credit card prices of hundreds of millions of dollars.

Because Judge Jacobs could not rebut this evidence and because there was nothing in the record for him to use, he just ignored it. His dissent was written in a manner sure to get the attention of Justice Antonin Scalia, the leading neo-conservative Supreme Court Justice at the time. Justice Scalia, like Judge Jacobs, is a founder of the Federalist Society. The dissent gave Visa/MasterCard their only chance of getting the Supreme Court to hear their appeal of the Second Circuit’s decision. Visa and MasterCard made this request by filing a petition for certiorari.

The petition for certiorari, which extensively quoted Judge Jacobs’s dissent, was designed to attract the attention of Justice Scalia, Justice Clarence Thomas and the late Chief Justice William Rehnquist. Nevertheless, the petition still had little chance of success and was primarily used as another delaying tactic by Visa/MasterCard. The delay game was the one the defendants consistently won throughout the case. The courts were extraordinarily accommodating to the defendants’ desire to stall, from Magistrate Judge Mann to the Second Court to Judge Gleeson, and finally, to the Supreme Court.

By filing and losing a motion to reargue the appeal in the Second Circuit, the defendants stopped the 90-day clock on their time to file a petition for certiorari in the Supreme Court. After this, the defendants had until March 4, 2002, to file their certiori, petition.
Our opposition to the petition would have been due no later than April 3, 2002, making virtually certain that the Supreme Court would decide the petition before the Court adjourned in June. The summer recess lasts until the first week in October. Delaying the petition for certiorari could extend the delay by four months from June to October. This is how the defendants tried, and almost succeeded, in getting this additional delay.

The defendants hired yet another big law firm, Sidley & Austin, and Sidley’s well-known Supreme Court specialist, Carter Philips. Philips made a motion to extend the time to file defendants’ petition for certiorari from March 4, 2002, until April 3, 2002. Philips’s request for the delay argued that he was too busy working on other Supreme Court cases to file a timely petition for Visa and MasterCard. To make sure that we had no opportunity to oppose this motion, the defendants’ papers were sent to us by regular mail on the same day that the motion was delivered to Supreme Court Justice Ruth Bader Ginsburg. Prior to this, the parties had served each other with motion papers on the same day they were filed in court by using hand delivery, fax, or overnight service. Regular mail from Washington to New York City is normally slow, but in March 2002 it was even slower. Such mail was coming from and going to the two cities that had recently experienced anthrax attacks on their post offices. C&P received the defendants’ request for an extension nine days after it was mailed to us and six days after Justice Ginsburg granted Visa and MasterCard an extension of their time to file a cert petition.

We consulted a Supreme Court specialist at a firm we were friendly with. We also consulted former U.S. Solicitor General Barbara Underwood. They both told us that the extension would likely delay the Court’s decision on whether to hear Visa/MasterCard’s appeal until October 2002 instead of June. Attempting to avoid this, we tried to anticipate the defendants’ arguments and
wrote most of our response to the defendants’ petition for certiorari be-fore we received it. Our predictions about the arguments Visa and MasterCard would make in their petition were good. We were able to file our opposition eleven days early. A clerk in the Supreme Court, aware of the game-playing by the defendants, complimented us on our quick response. He observed that “rarely, if ever, are opposition papers filed as early as yours were filed in this case.”

The defendants’ petition for certiorari was not compelling. The primary reason that the Supreme Court will grant a petition for certiorari and hear an appeal is because the case raises some important and novel issue and/or because the Court of Appeals has decided the case in a way that conflicts with an important ruling of another Court of Appeals in another “Circuit.” Neither factor was present in our case. The defendants’ petition advanced bogus novel issues and nonexistent conflicts, but not very convincingly.

More impressive than the arguments advanced in the defendants’ cert petition were the names, number and size of the organizations that filed
amicus curiae
or, “friend of the court” briefs urging the Supreme Court to grant the defendants’ petition. Visa/MasterCard’s friends included the Alliance of Automobile Manufacturers, the American Chemistry Council, the American Council of Life Insurers, the American Insurance Association, the American Petroleum Institute, the Association of American Railroads, the California Bankers Association, the European-American Business Council, the Institute of International Bankers, the Mortgage Bankers Association of America, the Pharmaceutical Research and Manufacturers of America, the Texas Bankers Association, the American Bankers Association, the Consumer Bankers Association, the Financial Services Roundtable, the Independent Community Bankers of America, America’s
Community Bankers, the Delaware Bankers Association, the New Mexico Bankers Association, the New York Bankers Association, the New York Clearing House Association, the North Carolina Bankers Association, the Oklahoma Bankers Association, the South Carolina Bankers Association, and the Fertilizer Institute. I frequently point out that Visa/MasterCard was a front for a bank cartel. As the above list shows, the cartel showed up in force for this event. In supporting Visa/MasterCard, these friends were represented by three additional law firms and Drew Days, a former U.S. Solicitor General.

Uncomfortably close to adjourning for the summer, the Supreme Court, without dissent, denied defendants’ petition for certiorari on June 10, 2002. Though it had eaten up much more time than we desired, taking thirty nine months from start to finish, another crucial battle had been won. The case had been certified as a class action on behalf of five million merchants by the district court and confirmed by the Court of Appeals. The Supreme Court had declined to review this result. Judge Gleeson ordered us to appear back in court eleven days later, on June 21, 2002, and rescheduled the trial for April 28, 2003.

At the same June 21 conference, Judge Gleeson granted a motion made months before by the
Wall Street Journal
to unseal most of the documents hidden from the public in the sealed court file. However, before the documents in the court file could be unsealed, they actually had to be in the court file. Many of them weren’t there, and many of the rest were misfiled. Realizing this, Magistrate Judge Mann called for our help. A team of lawyers and paralegals from C&P, led by Amy Roth, went in and restored the file to order so it could be unsealed. After these documents were unsealed, examined, and excerpted in the
Wall Street Journal,
the
New York Times
and scores of other papers, the observation in Judge Jacobs’s dissent about “innocent and holy” defendants who are coerced to settle class actions could no longer be used to describe Visa/MasterCard.

O
ver the course of the first five years of the litigation, the press interest in the
Merchants’
case steadily increased, especially in business periodicals such as
Fortune, Forbes, Business Week,
the
Financial Times,
and the
Wall Street Journal.
The case was vilified on the
Journal
’s editorial pages but conspicuously and fairly reported in that paper’s news section, many times on the front page. One
Journal
reporter, John Wilke, sensed that the case would be historic and that the largely sealed discovery file contained many documents that Visa, MasterCard, and the banks never wanted to see the light of day. Wilke asked Stuart Karle, the
Journal
’s general counsel, to file a motion asking Judge Gleeson to unseal the court file. Unsealing would permit the public to find out what was really happening in a case that involved virtually all of America’s stores and consumers. The
Journal
’s motion to unseal, which later was joined by other newspapers, was granted by Judge Gleeson at the June 21, 2002, court hearing.