Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (26 page)

The Supreme Court’s denial of certiorari may have initially depressed the lawyers at Wal-Mart, but it sobered Visa. Soon after, Larry Popofsky and I had lunch at the economics conference annually held by NERA in Santa Fe, where he forgave me for the “Dance of Death” speech. It is always gratifying to be forgiven for accurate predictions. My wife, Jan, then general counsel of Rupert Murdoch’s News America, occasionally used economists from NERA as experts in her cases. She and Popofsky were both attending the conference as NERA clients. The conference featured a presentation by Heller Ehrman lawyers about how to disqualify opposing economists with Heller Ehrman’s
Daubert
motion tactics. I was there merely as a spouse, not a conference participant, but was well-known as the conference’s former main speaker. As a guest, I
was free to attend any session and chose to drop in at Heller Ehr-man’s
Daubert
session while it was in progress. The cognoscenti present giggled when they saw me enter the room. It was well known (in the small circle of elite antitrust lawyers and economists) that Heller Ehrman’s
Daubert
gambit had backfired so badly that it not only failed to disqualify our economist, Professor Dennis Carlton, but had also resulted in NERA’s star, Dean Richard Schmalensee, getting the boot from his lucrative and glamorous assignment in the
Merchants’
case.

I was also forgiven by Visa’s Steve Bomse when we returned to court on June 21, 2002. The interrupted discussion about hiring a mediator resumed in July, and MasterCard was invited to join in the discussion. After months of swapping lists of potential mediators and interviewing a group of eminent candidates, which included a former Second Circuit judge and a former chairman of the Federal Trade Commission, we agreed to hire Boston University law professor Eric Green. Green was one of the two best known mediators. Ken Feinberg, the head of the 9/11 Victims Compensation Fund, was the other one. He had more important things to do.

A month before Judge Glee-son’s summary judgment decision, in March 2003, Magistrate Judge Mann summoned the parties for another settlement conference. I believe it was Mann’s intention again to try her hand at forging a settlement. As the conference began, Mann asked whether any talks were taking place. Prior to the conference, the opposing parties had agreed not to reveal that we were engaged in a mediation process. But when asked the question directly, Bomse, Gallo, Arquit and I looked at each other and nodded, and one of us responded that Eric Green had been hired as our mediator.

One reason for breaking our vow of silence was to tell the truth. Another was to avoid an awkward confession to the magistrate judge, “We have agreed not to tell you.” In my mind, there was a third and more important reason: I didn’t want Magistrate Judge Mann’s help.

The manner in which she had conducted the December 1999, settlement conference and “supervised” the out-of-control process of discovery gave me little reason to want her assistance in further discussions. A name like Eric Green’s was likely to get her to back off. And she did.

Eric Green is very good at what he does. But he needs parties who are willing to compromise their positions in order to conduct meaningful mediation sessions. At the time, Green didn’t have the ingredients he needed. We had a lot of meetings, some with all of the parties together, but most with one side or the other meeting separately with Green. During these sessions, Green acted as a shuttle diplomat. The meetings and the preparations for them consumed precious time in the run-up to trial. We had none to waste, so we initially treated these sessions as additional prep sessions for the January 10, 2003, summary judgment argument. After that hearing, we used the meetings with Green as an opportunity to perform parts of our intended trial presentation.

We introduced Green to business executives and experts who summarized their likely trial testimony. We also tested video, trial graphics and documents. If Green was impressed by the strength of our case, he never showed it. Presumably, he was as poker-faced with Visa and MasterCard. To a mediator who likes to stress the strengths of the other side, confidence from either party impedes settlement. Both sides exuded it, with the bank associations construing Judge Gleeson’s admonitions after the January 10, 2003, hearing as a warning to the merchants. We construed the same words as a warning to Visa/MasterCard. Green’s skeptical, almost amused attitude never wavered—except on the night of April 1, when he called me saying he guessed I was right about whom Judge Gleeson had threatened on January 10. I had admired Green’s acting skills, which are so important to a mediator’s craft. His terse admission on that April Fool’s night was clearly a studied response. Had he failed to acknowledge
the significance of Gleeson’s decision, I would have lost respect for his acting skills.

Until April 1, 2003, the mediation was going nowhere. Then Judge Gleeson’s seismic summary judgment decision, so completely in our favor, made things look bleak for Visa and MasterCard. It gave Eric Green what he needed. But Green also needed to push back against any belief on our part that the case was already over. Although the liability case was more or less won, the trial simulations convinced us that the issue of damages was more than a tap-in.

Real settlement discussions with both Visa and MasterCard began the day after the summary judgment decision in April 2003. The parties gave Eric Green permission to bring in a second mediator, Jonathan Marks. He was the same lawyer who assisted Green in the mediation toward the end of the
Microsoft
antitrust case. Green said that the number of meetings necessary to fully explore settlement could not be handled by a single mediator. Bringing in Marks raised the price of the daily mediation fee to $20,000.

In his April 1, 2003, summary judgment decision, Judge Gleeson delivered on what he had previously called a “strongly, strongly” put warning to settle before he issued the summary judgment decision. He ordered the parties to appear in his chambers on April 9 and began to tighten the screws. I won’t reveal what was said on that day. However, the tactics used by Judge Gleeson can be revealed. They were simple, forceful, and effective. He deprived us, and especially me, of time to make the countless last-minute preparations for trial. I was plaintiffs’ lead trial counsel, and my opening statement would begin the trial. Perhaps more wisely, the defendants used one set of lawyers to discuss settlement and another to serve as lead trial counsel.

Our case, which went first, had to be substantially reformatted after the summary judgment decision. Because Judge Gleeson had eliminated
most of the liability case, the opening, which I had worked on for months, had to be completely redone. All of the live testimony had to be changed. All of the defendants’ and third parties’ video depositions had to be reedited. All of the questions and answers designed to prove that there were a credit card market and a debit card market, that credit and debit cards were distinct products, that the two products had been tied, and that Visa had market power as well as others—all of this had to be eliminated. Judge Gleeson would simply instruct the jury that these things had already been determined. He would not allow us to waste his or the jury’s time on any of this. Scaling back our case, however propitious, would require enormous amounts of time. Judge Gleeson was depriving me of this vital time. As a former trial lawyer, Gleeson knew exactly what he was doing to me. But in case he had forgotten, I reminded him. I only did this once, however, because afterward he made things worse for me.

Judge Gleeson pointedly and repeatedly told me and my clients that if we didn’t settle we would “still get a fair trial,” a phrase that by its sheer superfluity acts as a kind of doublespeak. Every lawyer assumes a fair trial. When a judge keeps insisting that you’re going to get one, it’s an implicit threat that maybe you won’t, that various things will be made very difficult for you. This statement became more threatening each time Gleeson repeated it. Given the prerogatives of a trial judge and his extraordinarily wide latitude to decide what constituted a “fair” trial, the lawyers were confused and nervous about what the judge meant. Judge Gleeson sensed this uncertainty and exploited it. I also believed, and constantly reminded my clients, that Judge Gleeson was issuing similar warnings to the defendants, though likely much harsher. After all, he had just flattened them at summary judgment and put us in the driver’s seat.

On April 10, the day after the first post-summary judgment meeting with Judge Gleeson, Kevin Arquit and I had a cup of coffee at the Doubletree Hotel on Lexington Avenue and 51st Street. I left our
brief meeting reasonably sure that MasterCard was throwing in the towel. I can’t overstate the difficulty of that moment for me. There had been and would be worse, but this one was very difficult because of the psychological and logistical problems it created.

Although I was reasonably sure that MasterCard was surrendering, I was not positive. If they did, Visa would likely have to follow suit, even if they were otherwise inclined to risk the “Dance of Death.” Having been through this many times before (albeit never in a case nearly as large), I knew that the settlement, if it occurred, would come no earlier than the day before trial. The day before or day of trial settlement is so typical that it seems to be a constant, like the speed of light in physics. That is what happened in 1998 in our antitrust case against AOL and in 2001 in our antitrust case against Time Warner and in a bunch of other cases along the way. With all this in my mind, I feared that we would kill ourselves to reformat the
Merchants’
case because of Judge Gleeson’s summary judgment decision, and still never get to use the beautiful opening, the skillful direct and cross examinations, and the thousand other elegant trial presentations we had painstakingly created.

I had to avoid a letdown and be ready to try the case. I had to hide the likelihood of settlement from all but the absolute minimum number of people. Most of our trial team were told that the settlement discussions were pro forma and likely futile. They believed this was true because we all did until April 1 and because they, as much as I, wanted it to be true and to have our trial. The mock trials and the summary judgment hearing had put everyone on our side in a state of great excitement. They needed to stay that way, and I needed to compartmentalize my brain and keep half in that trial-ready state.

Commencing three weeks before trial, there were live meetings or teleconferences with the mediators every day. Judge Gleeson
had ordered the parties to return to his chambers on April 14, this time with the mediators. At that meeting, he increased the pressure and ordered the mediators and parties to give him a daily progress report.

Judge Gleeson ordered us into chambers again on April 22 and that day issued an order for executives at the CEO or CFO levels of Visa, MasterCard, Wal-Mart, Sears, The Limited, Safeway, Circuit City, The National Retail Federation, The Food Marketing Institute, and The International Mass Retail Association to come to Brooklyn and be prepared to stay in negotiations until either a settlement was reached or the trial began six days later. I referred to this forced stay of the executives in Brooklyn as the “Days of Incarceration.”

Over the years, my desire to be a federal judge has vacillated, peaking twice before that moment in the
Merchants’
case. The first time was early in my career after watching District Judge Jack Weinstein at work, helping humanity by being a tough and brilliant dude. The second time was in 1992 during a brief moment of delusional euphoria, when I expected that Bob Abrams would become as U.S. senator and deliver on a promise made to me during his campaign. After Bob lost the election to the incumbent Al D’Amato, I lost interest in a federal judgeship until April 2003. During one of Judge Gleeson’s round-the-clock sessions in Brooklyn at the United States Courthouse, I told him that what he was doing to me had rekindled my interest in being a federal judge. I said, “Some day, I want to be able to do to some other poor bastard, what you are doing to me now.”

Preparing for the January 2003 summary judgment hearing, I believed that Judge Gleeson would be more offended by proof that Visa and MasterCard had knowingly harmed consumers and small store owners than by evidence that they had intentionally violated the antitrust laws. Sensing this, I ended my summary judgment argument with a document accurately painting that harsh picture of Visa.

Gleeson’s April 1 summary judgment decision was devastating to both defendants but especially tough on Visa.

During the Days of Incarceration in late April 2003, I again got to see how right I was about Judge Gleeson’s populist tendencies. He was going to imprison the highly paid senior business executives and general counsel of my five giant retailer clients until they acted responsibly. He viewed them as overpaid, spoiled high rollers working for mega merchants whose class action was, as he would later tell us, “riding on the backs of the small store owners of America.” He lectured to them, “You have won this case,” and advised them to settle for the billions of dollars being offered, but more importantly, for the injunctive relief that included an end to Visa and MasterCard’s “Honor All Cards” tying arrangements. This was the core of the case, and the relief most likely to help those millions of small store owners and hundreds of millions of American consumers.

If motivating my clients to settle required keeping them over the weekend in a tiny witness room that stank of take-out food and backed-up toilets, even better. Gleeson wouldn’t allow the executives to leave, even for emergencies. One was permitted to go home only when a new hostage arrived from a thousand miles away to replace her. I stupidly took a chance and allowed one high-level executive to leave without Judge Gleeson’s permission and was subsequently tongue-lashed and nearly held in contempt of court for doing so.

The incarceration put more pressure on me than it did on my clients. I needed to prepare for trial. I also felt responsible for these client-warriors, who included Steve Cannon and Linda English from Circuit City; Bob Gordon and Dennis Stokely from Safeway; Chris Crow, Carol Ann Petren, Ellenore Angelidis, and Glenn Richter from Sears; Jay Fitzsimmons, Mike Cook, and Ross Higman from Wal-Mart; Mike Canter and Lisa Klinger from The Limited; Mallory
Duncan and Tracy Mullin from NRF; George Green from FMI; Moe Cain and Sandy Kennedy from IMRA; and others who came and went as part of Judge Gleeson’s hostage-exchange program. They never complained and managed to adopt a spirited boot camp mentality. They did everything in their power to keep me going, knowing I was exhausted and that my private shuttle diplomacy sessions with the Judge were rough and highly charged. The parties had consented to Judge Gleeson holding these private sessions with each side, as if we really had any choice but to consent to the judge who was about to conduct his “fair trial.” In the meantime, Judge Gleeson was also skillfully using the mediators to deliver veiled threats and engage in a kind of legal hazing. Still, I did not want to settle. Winning was not enough for me. I wanted my trial.