Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (25 page)

On both sides sat experienced counsel. In some screened-off part of our brains, we all knew that the case might settle. One reason that settlement was conceivable involved MasterCard, the weak sister. Visa was way ahead of MasterCard in credit cards at the start of the case. Visa was even farther ahead in debit cards. Its lead in debit was so big that there was practically no second. So while Visa and MasterCard were joined at the hip, MasterCard’s share of the glory and money was relatively small. A smart and independent MasterCard would have settled the case in 1997 or 1998 by agreeing to abandon the tying arrangement in return for not paying damages. Such a settlement would likely have forced Visa to settle as well. MasterCard could then have competed in the rapidly expanding debit market with a fresh start on a substantially leveled playing field.

MasterCard either was not smart enough to understand this or insufficiently independent to do it, even if it understood. Nevertheless, beginning in 1997, Kevin Arquit, the head of Clifford Chance’s antitrust practice and counsel for MasterCard, periodically had lunch with me in order to keep the lines of communication open. He and I knew that this would facilitate settlement, if discussions ever became serious. No lunches were necessary with Visa’s counsel. There was long-standing mutual respect between me and Visa’s attorneys Larry Popofsky and Steve Bomse, which could be tapped if necessary. Even so, I had drinks and breakfast with Popofsky every so often. In November 2001, after
the Second Circuit affirmed Judge Gleeson’s certification of the class, Popofsky called to congratulate me. During the call, we expressed our mutual admiration and realization that settlement discussions might eventually occur.

Settlement discussions are confidential and may not be revealed, even after settlement, except by mutual consent or court order. Therefore, I am severely limited in what I can say about the substance of the settlement discussions. I can say that a series of meetings with Visa took place in early 2002. They were futile except to confirm Magistrate Judge Mann’s opinion, expressed at the conclusion of her settlement conference over two years earlier. She had said that the parties were so far apart that until something changed, further discussions were a waste of time. Nothing narrowed this gap in these early 2002 meetings. However, as the case headed towards trial, the possibility of mediation was discussed.

One early settlement meeting took place on February 13, 2002, but something that was
not
said that day wound up derailing the process for several months. What Visa’s lawyers didn’t tell me was that they were going to try to get another delay in the case by seeking an extension beyond the March 4, 2002, deadline to file their petition for certiorari in the U.S. Supreme Court. Such an extension would likely delay a ruling otherwise expected from the High Court in June until its October term, another long delay. The defendants hired Carter Philips of Sidley &Austin to handle the petition for certiorari.

Philips is one of a small group of Supreme Court specialists—a group that includes Ted Olson, Larry Tribe at Harvard, Walter Dellinger of O’Melveny &Myers and used to include (now ChiefJustice) John Roberts when he was in private practice. These so called “Cert. Doctors” have a way with the High Court. They typically are former clerks of the Justices and have made many appearances before the Court. They are likely to get courtesies from the Court that are not
generally afforded to other lawyers who practice before it only occasionally, as I have. In Visa’s case, Philips requested and was granted an extension by Justice Ginsburg before we had a chance to oppose it. Justice Ginsberg is the “Circuit Justice” assigned to rule on such procedural requests arising from cases in the Second Circuit. The request—served on C&P by
regular mail
—reached us six days after Justice Ginsburg had granted the extension. The extension would have prolonged the case by five months, instead of one, had we not hustled to file our briefs very early. That resulted in a denial of certiorari in June 2002, on one of the last days of the Court’s term, instead of sometime during its next.

Settlement discussions require respect, civility, and courtesy. Heller Ehrman’s failure to tell me they would seek the delay and the regular-mail tactic used by their cocounsel at Sidley &Austin were breaches of professional courtesy and marked departures from the way the lawyers had behaved toward each other until that time.

After we feverishly prepared our expedited opposition to the defendants’ petition to the Supreme Court, I traveled to Brussels with my younger daughter Elizabeth to give a speech about our case at a conference of European bankers. With the defendants’ recent sleight of hand fresh in my sleep-deprived mind, I wrote, and rehearsed to Elizabeth, an extremely aggressive speech on the high-speed train trip between Paris and Brussels. I got our paralegal Jason Lipton to provide me with a visual aid for the speech. Projected on a large screen behind me, as I spoke to the bankers, was an image from Kaspar Meglinger’s
Dance of Death
mural on the Spreuer Bridge in Lucerne. This mural commemorates the Black Plague by depicting skeletons dancing gaily in a circle. In comparing Visa and MasterCard’s predicament to the victims of the Black Death in medieval Europe, I was, theatrically, underlining my predictions.

I predicted that (1) the Supreme Court would deny the bank associations’ pending March 2002 request for a hearing, (2) the banks
would be big losers and the merchants big winners when Judge Gleeson finally decided the pending summary judgment motions, and (3) by then, potential damages would be so high for Visa and MasterCard that a trial would represent a bet-the-business contest against tough odds. A year after this April 2002 speech, when all the things I predicted had happened, MasterCard’s CEO, Bob Selander, explained the settlement this way:

What happened with the retailers’ suit is that we got caught in a situation where we were facing a trial and where the destiny of our company was going to be taken out of the hands of our board and shareholders and put in the hands of a jury. I don’t think it is reasonable . . . to take a chance on losing control of your company to a jury verdict.

But at the time of my Brussels speech, a year earlier, the defendants considered my predictions impertinent and my “Dance of Death” imagery beyond the pale. Visa cancelled our next scheduled settlement meeting and called a halt, at least temporarily, to any further discussions.

An op-ed piece, titled “Wal-Mart’s Ugly Suit,” by James Glassman, appeared in the May 30, 2002,
Wall Street Journal
and alluded to the skeletons in my “Dance of Death” speech. Glassman is a frequently deployed right-wing pundit. He is the author of
Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market,
a book written during the “irrational exuberance” of the Internet bubble. Glassman’s op-ed attacked Wal-Mart and me by name. He wrote that my prediction that the Supreme Court would turn down Visa/MasterCard’s petition for a hearing—much less grant a reversal of class certification—showed that, unless I “had tapped the Justices’ chambers,” I was just another “cocksure lawyer.”

I consider assaults from the likes of Glassman, George Priest of Yale, and Lester Brickman of Cardozo Law School, who also attacked our case in the media, to be badges of honor. However, the Glassman article either caused a fresh problem for Wal-Mart or exacerbated an existing one. Wal-Mart may have read the op-ed and felt that my in- your-face speech had provoked an attack on them in an influential newspaper. Wal-Mart heard a war cry for banks to close ranks and keep it from entering the financial services market, something it had long wanted to do.

Glassman’s article took aim at Wal-Mart’s attempt to buy the Franklin Bank in California. He speculated about the various ways Wal-Mart could use Franklin to enter the financial services market and lower credit card and debit card costs. At the time, the
American Banker
frequently published articles reflecting banks’ fears about Wal-Mart. The Arkansas giant was an outsider already putting pressure on Visa and MasterCard. It might try competing directly with retail banks. Wal-Mart’s historically successful low-cost/low-pricing strategy was anathema to the banks, which were using Visa/MasterCard to overcharge consumers. Wal-Mart may have thought that the
Merchants’
case, widely referred to in the media as “The Wal-Mart Suit,” could impede the Franklin deal or that the Glassman article would stir up bank opposition to this proposed acquisition. Either way, Wal-Mart was angry, and it expressed its displeasure at a time when new leadership on the so-called Wal-Mart Legal Team was taking control.

Stung by a series of judicial rebukes and sanctions for allegedly failing to maintain or produce evidence in numerous cases, Wal-Mart had wisely made significant changes to its in-house counsel staff. Their choices for new leadership were generally good. At the very top, they brought in Tom Hyde, a sophisticated lawyer who had been Raytheon’s general counsel. However, they also hired Tom Mars for the number-
two job and the title of being general counsel of the world’s largest business. Mars had been a partner in a Fayetteville firm, and before that, he had been head of the Arkansas State Police.

The general counsel’s office at Wal-Mart began to pick fights with me, firing off memos demanding that I answer questions about the case, which the in-house Wal-Mart lawyers could have easily addressed. The most insulting was a question suggesting that C&P’s contingency-fee arrangement created a conflict of interest, because we wanted to win big bucks, but it was in Wal-Mart’s best interests to procure a speedy end to Visa and MasterCard’s tying arrangements.

I sent back a wad of correspondence from 1996, documenting the genesis of the fee arrangement, including correspondence where I had advised Wal-Mart that the most important relief would be to end the tying arrangements and that any contingency fee should factor in the savings Wal-Mart realized from that result. I documented Wal-Mart’s rejection of that proposal. Seeing how wrong and unprepared they were to argue with me just angered them more. Tom Mars “ordered” me to travel to Bentonville for a meeting with him on June 11, 2002.

On June 10, the day before my trip to Arkansas, the Supreme Court denied the defendants’ petition for certiorari, ending their attempt to overturn Judge Gleeson’s certification of a five million-member class. This was a day we had worked hard to achieve for more than three years. Our team and all of the other clients were jubilant. I received calls from numerous retailer CEOs and general counsel from around the country congratulating me and my firm for staying the course.

I awoke at 3:45 AM the morning of June 11, 2002, to catch the 6:00 AM flight to Bentonville. During the trip, I read the
New York Times’
and
Wall Street Journal’
s coverage of the Supreme Court action. The
Journal
’s piece ran my pixilated headshot, which coincidentally was next to Eliot Spitzer’s for a different article, which in
turn was next to Manhattan District Attorney Bob Morgenthau’s. Eliot and I have framed copies of this coincidence, the only time he was ever shown sandwiched between his two mentors. A few hours later in Bentonville, the article with my picture made my welcome even chillier than it had been intended to be.

Seated in the “Quail Room,” the windowless space decorated with hunting photos of the late Sam Walton, was a group of grim-faced lawyers and a copy of the
Wall Street Journal
article spread out on the conference table. Tom Mars, who had ordered me to meet with him in Bentonville, was not in attendance.

The first thing said to me by one of the lawyers was, “I guess congratulations are in order. Now that
you
have
your
class, what are
you
going to do with it?” That was the worst moment in the entire case for me. To know that at a moment of victory, won after years of incredibly difficult team effort, our client was rooting against us and against itself, was deeply depressing. I answered by congratulating
them
and telling
them
I was going to win
their
case, a case
they
had hired me to win. Readers who are familiar with what the leader of the Passover Seder says in response to the hostile question posed by the “wicked son” will immediately realize that my response to the Wal-Mart lawyer was loosely plagiarized from the Haggadah.

I demanded that Martin Gilbert, the Wal-Mart in-house lawyer who had negotiated the fee arrangement, come to the Quail Room. When Gilbert arrived, we reviewed the genesis of the fee arrangement. He confirmed everything that I had said and then left. I told the remaining lawyers that they could pull out of the case anytime they wanted. However, because Wal-Mart was a class representative, any separate deal it cut with the defendants would have to be submitted to Judge Gleeson for approval. The smarter lawyers around the table knew that this fight was over. I left Bentonville a lot happier than when I arrived, mulling the scene from
Butch Cassidy and the Sundance Kid,
where Cassidy (played by Paul Newman) is challenged to a fight a man twice his size and preempts the contest with a quick kick to the groin.

Wal-Mart hired Bernie Nussbaum of Wachtell Lipton to advise them about their prerogatives. Nussbaum had been President Clinton’s counsel and Hillary Clinton’s boss in the Watergate inquiry. (Hillary had been Tom Mar’s boss at the Rose Law Firm in Arkansas.) Bernie has the ability and maturity to handle the most difficult legal problems and has made a career of doing it skillfully. I met with Nussbaum many times. We became friends and mutual admirers. Bernie told Wal-Mart that it was being well represented. Given the Wal-Mart approach to “buying” legal services, which were treated like a commodity, they needed the sage advice of lawyers like Nussbaum and his partner Meyer Koplow. To his credit, Tom Hyde must have recognized this when he retained Bernie. After a few nasty months, the Wal-Mart Legal Team began to behave. Wal-Mart’s business executives had always been committed to the
Merchants’
case, and that commitment never wavered.