Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (2 page)

Robinson said, “You have to believe me, Lloyd, that I didn’t think Bob was serious.” I asked him what he had done to make sure that “Bob” wasn’t serious. He did not answer.

I told Robinson I was distressed about where our profession was headed. “Stanley, ten years ago, if a client of yours had said something like this, you would have fired the client on the spot. And five years ago, you would have, at least, made sure that it was just talk. But now, you just assumed that it wasn’t serious, without doing anything to make sure.” I then said to all three of them, “Get out of our offices. I will figure
out what I am going to do about you and about this.” They literally ran out of the office.

That day, I got calls from several acquaintances at Kaye Scholer. They begged me not to take action against Stanley Robinson or their firm. Josh Greenberg, the head of Kay Scholer’s antitrust department, told me that Robinson’s career had been distinguished, full of good and charitable works, and that Robinson had been his mentor. Besides that, Josh added that Robinson was about to retire. In fact, Stanley Robinson would continue to practice and represent MasterCard for several years.

I called Hal Lieberman, the chief counsel of the Departmental Disciplinary Committee for New York’s First Judicial Department in Manhattan. I told him about the incident, leaving out names. Realizing that I might be under some duty to report what had happened, I said the facts involved a friend of mine. Without directly saying so, Lieberman let me know that he understood that I was talking about myself. He said “my friend” was probably obliged under the disciplinary rules to report the incident to his office.

I thanked Hal for his advice and said I would pass it along to my friend. I did not, however, report Robert Norton, Stanley Robinson, or the incident. I believed that pressing an ethics complaint could make it difficult for me to litigate against MasterCard. This case was more important than putting some jerks in their place.

I was also just beginning to realize the magnitude of what would be involved in our attempts to break up the Entree joint venture. The MasterCard incident reminded me of the infamous effort by General Motors to discredit Ralph Nader during his early crusade against the “unsafe at any speed” Chevy Corvair. MasterCard’s discussion about discrediting me suggested that what we had discovered, in a relatively cursory investigation of Visa and MasterCard, was just the tip of an anticompetitive iceberg.

Moreover, the broader issues of what I considered to be the abandonment of antitrust enforcement by the Department of Justice and the abdication of the Federal Reserve’s stewardship of the U.S. payment system and its privatization by the Visa/MasterCard bank cartel, was a matter of great importance to the economy of the country. Like their colleagues at the federal antitrust agencies, the Reagan-Bush officials at the Fed were fanatical believers that the market would cure everything and always deliver optimal results. So, as electronic debit card transactions started to replace paper checks and cash, the Fed had begun to abandon its traditional role of regulating the nation’s payment system. The result was a great transfer of wealth from stores and consumers into the pockets of the banks and Visa/MasterCard.

I swallowed my private anger against MasterCard and proceeded in court with the
Entree
case. Visa and MasterCard quickly folded and abandoned their debit card merger, as described below. These events would eventually lead to the historic
Merchants’
case against Visa and MasterCard seven years later. The inside story of that second case, which lasted seven more years, is the subject of this book.

THE LAWSUIT FILED on October 25, 1996, is officially called
In re Visa Check/MasterMoney Antitrust Litigation.
It is sometimes referred to as
The Wal-Mart Case
or
The Merchants’ Case against Visa/MasterCard
to distinguish it from a lawsuit brought by the United States against Visa and MasterCard two years later.

The
Merchants’
case and this book are about an effort to stop certain business practices and alter the anticompetitive structure of an industry using the U.S. antitrust laws as the instrument of change. That is what the antitrust laws were designed to do, and, once in a generation, what they actually achieve. In the
Merchants’
case, my law firm, Constantine & Partners, which had eight lawyers when the case began
and seventeen when it ended, represented Wal-Mart, Sears Roebuck, Circuit City, The Limited, Safeway, and a class of five million stores against Visa and MasterCard. These bankcard associations were joint ventures owned by most of the country’s banks. Visa and MasterCard were represented by four of the largest law firms, including Clifford Chance, the biggest law firm in the world.

In
Means of Ascent,
Robert Caro quotes Lyndon Johnson as saying, “If you do everything you will win.” I thought of that quote constantly throughout the case, and it became a mantra for our litigation team. But unlike Johnson, we didn’t cheat. We did everything else and won.

The case was settled on April 30, 2003, after a jury had been impaneled for trial. Although the cash payment made by Visa and MasterCard to my clients was only the third most significant part of the settlement, that payment alone exceeded the combined total paid in the previous eight largest federal antitrust class action settlements. I began writing this book on November 23, 2003. It was important for me to begin writing then because the court’s award of attorneys’ fees had not yet been made. Although many people involved, as well as most observers of the case, consider our fee to be the most interesting event, I consider it incidental. It is a collateral benefit or damage of the case, depending on the point of view.

During my moment of celebrity following the settlement, I was profiled in the
New York Times,
which ran the headline, “He Won’t Discuss Money, But He Now Accepts Visa,” and the subheading, “Settlement $3 Billion, Taking on Master-Card, Priceless.” The money that I wouldn’t discuss was the amount of our attorneys’ fee, which had not yet been awarded, but was months later. It was important for me to begin writing about the
Merchants’
case without that event intruding, although I could not escape its looming presence.

The court estimated that the settlement would save stores and shoppers upward of $87 billion in the first decade alone. However, the actual tally of just these quantifiable benefits will not be complete for many years, after many moves and countermoves are made by merchants, shoppers, Visa, MasterCard, banks, and competing payment networks such as American Express, Discover, STAR, PULSE, and NYCE. As these moves are made and the savings are tallied, and other unforeseen benefits accrue, more articles or books about this case may be written by others. This is mine.

I
T’S A FALLACY that lawyers who specialize in big-case business litigation are wannabe athletes. We are athletes, and to be successful we must have some of the physical attributes required in other great sports, including extraordinary stamina.

The training for my sport and epic contest in the
Merchants’
case began under my father, Connie Constantine, a track star at Curtis High School on Staten Island, a boxer in Tuscaloosa, Alabama, and a football star at Syracuse University, who briefly played in the NFL. I was schooled and coached first in New York City, where I was born, and later at Herricks High School on Long Island, where I wrestled, played tennis, and was a football star but of a magnitude many notches below my father. Until he died, in May 1966, at the end of my freshman year at Williams College, my father—and mother—never missed any of my games or matches, not even a Friday afternoon freshman football game in Middlebury, Vermont—a fourteen-hour roundtrip from our home in Manhasset. After my father died, I lost interest in football but went through the motions for several more seasons.

Meanwhile, I was following the path of a stereotypical late ‘60s student activist at Williams. I attempted to levitate the Pentagon and worked for the McCarthy Campaign in the 1968 New Hampshire Democratic primary. I tried to gain some understanding of what my black friends at Williams were experiencing by becoming an exchange student at Howard University during the disastrous ’68 spring semester, when both Dr. King and Bobby Kennedy were murdered. I was a protege of Professor Frederic Schuman, a brilliant apostle of world government. And although I am Jewish, another major influence at Williams was Conrad van Ouwerkerk, a radical Dutch Jesuit whose ethical framework helped support my evolving commitment to advancing the greater good. After confiding these typical youthful yearnings to these two professors and one other, Professor James MacGregor Burns, I took their consensus advice and headed for law school, comforted by the thought that Gandhi had been a lawyer.

After Williams, I unhappily attended Columbia Law School, graduating in 1972. The unhappiness was my fault, not the school’s. Columbia Law wasn’t Williams and wasn’t supposed to be. It was more vocational than I had expected. Moreover, Columbia didn’t afford me four to five hours a day of basketball, squash, and tennis. I would have quit law school had it not been for an internship that I got in a Legal Services office in Queens, New York, during my second year.

Clients of Legal Services are poor people who are usually grateful to get any kind of lawyer, even a student masquerading as one, as I did during my second and third years at Columbia. I gave my clients all the skill I had, which at first wasn’t much. They gave me a reason to stay in law school and a sport where I really could excel. In my legal pleadings and briefs, and in the courtroom, I became an athlete of my father’s caliber. I became the person I wanted to be. I was brash, audacious, brave, and sometimes reckless.

After graduating from Columbia, I stayed in Legal Services for eight more years, litigating a series of civil rights and constitutional cases involving welfare and immigration statutes, abused prisoners, and discrimination against the disabled, gay people, and immigrants. I reveled in my role as an angry young man “speaking truth to power” for my poor and disenfranchised clients. But the real truth was that, although I cared deeply about my clients and “left it all out on the field” for them, I was working on my moves, using their problems as my training vehicle.

One day, during my first year out of law school, I went to the state appellate court in Brooklyn to file an exotic, but technically permissible, constitutional challenge to a provision of New York’s Civil Practice Law and Rules. Using this technicality, the New York attorney general had indefinitely delayed, without due process of law, payment of a badly needed money judgment I had won against the state for one of my welfare clients. While I waited in the clerk’s office for a judge to sign the order to show cause, which was the procedure to get my constitutional challenge before New York’s Appellate Division, Second Department, the court’s legendary clerk, Abe Selkin, appeared and asked to speak with me.

Selkin was an old curmudgeon, famous for his intellect, his tyrannical rule over a pool of law clerks, and his intolerance for any practitioner who couldn’t navigate the Appellate Division’s endless and seemingly senseless rules. So when he appeared to speak with me, I was ready for a whipping. Instead, he complemented me on the papers I had filed. He told me that my arguments wouldn’t be successful but said they were a great piece of work, and he offered me a job. He asked me, “Why are you wasting your time working for
these people
?” I didn’t have to ask him what he meant, and simply responded with an impression of the then popular comedian, Cliff Arquette, whose stage name was Charlie Weaver. In a booming voice that filled the courthouse,
I bellowed, “These are
my people.”
He shook his head and walked away, and so did I, and I never turned back.

I felt like I had found my home, and during the next eight years the conviction grew that I would stay with Legal Services for my entire career. However, during what turned out to be my last two years with Legal Services, I had two cases that resulted in my leaving the job I had thought was my life’s work. Both cases were class actions, a device used to represent a large number of plaintiffs who are all making the same or very similar claims against the defendants.