Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (20 page)

As the parties filed the third round of summary judgment submissions on July 31, 2000, we still didn’t know whether we could rely on Ander-sen’s Shark. I believed that The Shark standing (or swimming) alone would deliver a knockout punch and make it unlikely that the defendants would get anything out of their summary judgment motions. After that July 31, 2000 filing, the voluminous summary judgment submissions, which both sides had almost killed themselves to complete under Judge Gleeson’s brutal schedule, were put into a time capsule.

But after two years of delay, we returned to court on June 21, 2002, right after the Supreme Court denied Visa/MasterCard’s petition seeking review and the reversal of the class-certification order. On that same day, Judge Gleeson ordered most of the court file unsealed in response to the motion made by the
Wall Street Journal.
Judge Gleeson set a new trial date of April 28, 2003, and set a date in December 2002, later changed to January 10, 2003, for arguing the summary judgment motions.

At the defendants’ request and over our objection, Judge Gleeson permitted an additional round
of expert reports, an additional round of expert depositions, and a fourth round of summary judgment briefs and supporting documentation. On December 13, 2002, two and a half years after the parties completed their submission of more than 60,000 pages of summary judgment briefing and exhibits, the parties supplemented these with an additional 10,000 pages.

Oral argument was scheduled for January 10, 2003. The largest courtroom in the old federal courthouse, at Cadman Plaza in Brooklyn, had been selected as the arena. Our technicians had worked for a week to “wire” this old room with large video screens and all the gizmos necessary to project the multimedia presentation I was prepared to make. Judge Gleeson had allocated only 90 minutes for each side to distill what it took 70,000 pages to say in writing. In a case where I thought nothing would surprise me, the defendants’ presentation on January 10, 2003, did.

I was not surprised that the defendants would divide their precious 90 minutes for oral argument, even though this was a bad idea. Two years before, they had divided the 30 minutes allotted by the Second Circuit, probably because one of the associations would have lost face if it had ceded to the other association the exclusive role of doing a high-profile argument. In planning for both the 2001 and 2003 arguments, Visa and MasterCard probably thought it was harder to pretend to be competitors if one lawyer did the oral argument for both.

It did surprise me a little that, having divided their 90 minutes in two for arguing summary judgment, MasterCard went the extra step of inserting a third lawyer to argue part of its 45 minutes. The big surprise was that after more than six years of litigation and three years of planning for this day, the defendants, who are among the most media-savvy companies, arrived in court with a low-tech/no-tech presentation, virtually devoid of video, audio, or cyber-technology aides.

We went to court with a high-tech presentation that would allow me to illustrate every point I made with a Visa or MasterCard
executive or expert testifying on two huge video screens. The defendants’ executives would confirm that what I said was true and show that what the defendants said was false. These talking heads were synchronized with defendants’ documents and scrolling transcripts of their deposition testimony. The documents and transcripts were highlighted and popped up and out at the viewer in compelling and entertaining ways. For example, when the courtroom saw and heard a witness testifying at her deposition, there also would be a scrolling transcript of that testimony. If she referred to a document, an image would pop up on another screen, highlighting the part of the document she was talking about.

With the assistance of outside consultants and two technical wizards at C&P, Jon Shaman and Jason Lipton, we had a multimedia presentation ready to roll and ready to counter what we expected would be a polished high-tech presentation by the defendants. After all, Visa and MasterCard are companies that sell hundreds of millions of additional revolving credit cards yearly to Americans who already have them and are already deeply in debt. They do this by using slick commercials that say that MasterCard isn’t really selling high-priced credit, but invaluable moments of family togetherness. Visa’s ads say that its mission is to take shoppers anywhere they want to go, without mentioning that the final stop is frequently the bankruptcy court. To be fair, it must be said that Visa and MasterCard have actually eliminated that last stop for many consumers by successfully lobbying for legislation that will make it impossible to discharge most revolving credit card debt in bankruptcy proceedings.

The defendants argued first on January 10, 2003, in a courtroom that could not accommodate the scores of reporters, lawyers, friends and family who had come to witness the highly anticipated and long-delayed showdown. I will not spend much time on what they said, because three months later, all of their fourteen motions for summary judgment were
denied in their entirety. By the time I got up to argue, I knew that the defendants had come to court with nothing but the arguments in their briefs. I would soon demonstrate that these arguments were falsehoods, using the defendants’ own documents and testimony as my proof.

Our multimedia show had been refined in numerous practice sessions in front of our clients and the C&P staff and in one trial simulation. Although our entire show was five hours long, I was able to use most of it in my ninety minutes by editing on the fly with Jason and Jon’s help. We had compiled seventy-one distinct thematic groupings of documents, video clips, and trial graphics to make specific points. These could be sifted and shortened, depending upon the needs of the moment. We had given these seventy-one groupings names like “Andersen Is Visa’s Arms and Legs,” “Klein [Visa’s economist] Admits Visa is Forcing Merchants,” “MasterCard and Visa Asked The Regionals to Abandon the Debit Market,” “Visa Lies About Its Honor All Cards Rule,” and “MasterCard Lies About Its No Steering Rule.” “Looks Like a Credit Card” was a montage of bank commercials not only bragging that Visa debit cards looked like credit cards, but one in which the voice in the commercial jokes about how the merchant will think that the debit card is a credit card. Certain key documents and video clips were multi-image issue sequences unto themselves. Andersen’s Shark had his own thirteen-image sequence. “Wes’s Vote,” where former Visa executive Wesley Tallman admits that he took a vote of Visa bankers in 1991 to “wait and be sued,” had its own three-part presentation of video clips synchronized with a handwritten document recording the vote.

The transcript of the hearing reflects me asking for each thematic grouping by name. For example, I tell Jason, “Put the Shark Up,” and later I say, “Let’s show the Face of the Earth,” one of our thematic groupings showing several PIN debit network executives testifying about the many tactics Visa was using to destroy their businesses.

The defendants spent a good portion of their ninety minutes repeating their argument that merchants got extra (incremental) sales when they accepted debit cards. Visa and MasterCard argued that merchants were actually helped by the tying arrangements but that different merchants were helped to different degrees. They argued that this differential impact meant that the merchants had suffered no damages and they also argued that there should not be a class. At every step, the defendants tried to reargue the class ruling, which they had already lost three times.

Before I got to the lectern to begin my argument, I swatted away one of the closing arguments made by Steve Bomse for Visa. He had said that PIN debit couldn’t be superior, as we claimed, because it couldn’t be used in fancy restaurants. When Judge Gleeson asked why, Bomse responded that using a PIN pad would be “tacky” at a gracious dining establishment. So, as I strolled to the lectern, I sarcastically observed:

You can use your online PIN debit card up in Canada, which means the restaurants up there are tacky or the entire country is tacky. . . .

Judge Gleeson: The restaurants we go to are tacky.

I started my formal argument with a grouping of video and documents showing Visa and MasterCard experts and executives testifying that there was no evidence that debit cards increased sales. Professor Schmalensee was shown testifying that he hadn’t “seen any such studies [showing incremental sales]” and that “for purposes of this analysis it didn’t seem particularly important.” On the screen, Janet Crane, MasterCard’s head of interchange, was shown testifying that she had not seen any proof of incremental sales. Another Visa
economist, Orley Ashenfelter, assured the packed courtroom that he hadn’t seen any proof of incremental sales but that he would have “if it existed or they [Visa] could find them.” For good measure, I threw in the video of Steve Cole, the head of the Cash Station debit network in Chicago, testifying that “there was no evidence to support [incremental sales]. There continues to be no evidence that it results in incremental sales.”

I showed this testimony of a regional debit network executive because the defendants had emphasized the fact that the regional debit networks were not suing Visa/MasterCard, despite our allegations that the defendants were trying to destroy them. To counter this argument, ATM/debit network executives were shown rebutting the defendants’ arguments at every turn.

Judge Gleeson gave me a perfect opening when he asked, “Your adversary says the regionals aren’t complaining. What accounts for that?” I instructed Jason to project on the large video screens “Face of The Earth,” a grouping of testimony and documents from Regional ATM/debit network executives, which included Ron Congemi, the CEO of the STAR network, testifying that Visa had made it very clear that it wanted to eliminate STAR “from the face of the Earth.” Next up was Stan Paur, the CEO of the PULSE debit network, testifying that he believed that the “Visa Check II program was an apparent effort to destroy regional EFT pro-grams.” EFTs are electronic funds transfers, meaning debit and ATM transactions. We showed an analysis from the MAC debit network stating that “off-line debit, an inferior and far more costly product, has quickly moved from a minority share of the national general purpose POS debit card market to dominance over online’s safer, faster, and far less costly service.”

We played a video of MasterCard President Alan Heur testifying that he had met with executives of STAR, NYCE, PULSE, and HONOR, the four largest regional debit networks, and offered each
a deal in which they would abandon their debit network business in return for doing other work for MasterCard.

To demonstrate malice, intent and consumer harm, we showed a thematic grouping in which Visa set out to force the regional networks to raise their prices. These higher prices are paid by merchants and ultimately by consumers. Then, with interactive graphics, we explained how prices increased by over 2,000 percent in three distinct time periods following specific MasterCard and Visa conduct. We also showed Visa documents stating that forcing the regional networks to raise their prices was Visa’s primary objective in offering the new Visa Check II debit card. One document said, “Even if product is never successful, you have earned your spurs. Regionals will increase cost.”

One thematic grouping featured numerous Visa and Andersen executives testifying that Visa focused its missionary efforts at getting banks to stop issuing competing debit cards on “five or six key banks that represented the majority of the business.” This testimony was repeated over and over again by witnesses who identified the Bank of America, Banc One, U.S. Bank, Norwest, First Union, and Wachovia as the key banks. The same executives testified that these “five or six key banks” had been selected to set in motion a “domino effect,” “project domino,” and a “snowball effect,” in which the smaller banks would emulate the larger banks and stop doing business with the competing regional debit networks.

The repetition of the same names and same words over and over again by every witness and in every document probably had the same effect on Judge Gleeson that it had on every group we showed it to. The evidence screamed
conspiracy.
It reminded me of the witnesses in the classic Costa Gavras movie
Z
all telling the inspector that when the assailant pounced on the victim, he looked “lithe and fierce like a tiger.”

Accounts of the famous trial following the tragic Triangle Shirt Waist Fire discuss how the jury was heavily influenced by the repetition
of identical phrases by numerous witnesses. A similar effect was produced by a thematic grouping where several Visa and Andersen executives all testified that Andersen was acting as Visa’s arms and legs. It was important to show that Andersen was not only Visa’s limbs, but also part of its brain, so that Visa could not distance itself from The Shark’s analysis shown in thirteen images.

The last page of The Shark predicted that Visa By-law 2.10(e) would be invalidated. The December 1997 date on The Shark, which I highlighted for Judge Gleeson, was ten months before the Department of Justice sued to invalidate that Visa by-law and a virtually identical MasterCard policy. This prediction, underlined in my argument, suggested that Visa was a lawless organization. This was a good argument to make to a judge who had spent most of his career in the Department of Justice. An equally valid interpretation of the Andersen prediction was that Judge Gleeson would declare the Visa by-law invalid in the
Merchants’
case. We had asserted that this Visa by-law and the similar MasterCard policy blocked Discover and American Express from entering the debit card market, while they also proclaimed that Visa and MasterCard were not competitors. Either interpretation—that Visa had been told in 1997 that it would lose the
Merchants’
case or that it had been told that it would lose another future case by the Department of Justice or lose both (as it eventually did)—would likely demean Visa in the eyes of Judge Gleeson because it was enforcing a policy that it knew was illegal.

Ken Gallo, one of Master-Card’s lawyers, had argued that our claim of conspiracy had no basis. So I showed a MasterCard document stating that Visa and MasterCard had agreed to remove their debit card names “Electron” and “MasterCard II” from their debit cards and played a video of MasterCard executive Edward Hogan testifying that “there was an agreement made with Visa . . . that we [MasterCard] would not use the Roman numeral II.”