Update: The parties are confirming that they have agreed to settle the case. No dollar figures have been released.
Judge Barbara Jones, Southern District of New York, issued a sweeping and bold decision permitting Discover to reach a jury on its claim that Visa and MasterCard antitcompetitively restrained banks from issuing Discover cards. The case is essentially a follow-on to the successful government prosecution of the two credit card giants that overturned system rules that allowed banks to issue both Visa and MasterCard cards, but neither AmEx nor Discover cards. Visa and MasterCard recently settled a similar case filed by AmEx.
Judge Jones recent decision granted, in part, Discover’s motion to employ non-mutual, offensive collateral estoppel to prevent Visa and MasterCard from re-litigating issues decided in the government prosecution. These included (1) market definition and market power; (2) the anticompetitive effect of Visa’s and MasterCard’s rules; (3) the lack of any procompetitive justification; and (4) that the harm to consumers necessarily caused antitrust injury to Discover. The court emphasized that employing collateral estoppel would serve the interests of judicial econonmy even though the jury would have to consider much of the same evidence in Discover’s damages case. In a clear rebuke to the defendants, the court emphasized that they had “demonstrated clearly by their unwillinness to accept even the most basic underpinnings of this Court’s decision in the DOJ action, that precluding them from relitigating those core determinations would conserve judicial resources, despite the fact that there may be substantial overlap in the evidence to support the damages model and liability.”
The court also rejected Visa’s statute of limitations defense concluding that separate causes of action accrued when individual banks refused to deal with Discover as a result of the Visa rule in large part because a claim for damages would have been entirely too speculative before that point. The DOJ action was also held to toll the statute with respect to both credit card claims (the subject of the DOJ suit) and debit claims, which were not asserted by the government, because the court found in the DOJ case that Visa’s anticompetitive conduct impacted the debit market.
The court also rejected Visa and MasterCard’s challenges to Discover’s attempt to collect damages for its inability to partner with third party acquirers, even though Visa and MasterCard’s rules placed limits only on issuers. Discover, the court held, had presented sufficient evidence to create a triable issue on whether the issuing limitation impacted acquiring as well.
MasterCard also complained that Discover failed to apportion damages between the two defendants, but the court agreed with Discover that they would be jointly and severally liable.
The court did reject Discover’s intersystem conspiracy and debit-related claims, finding insufficient evidence of an agreement between Visa and MasterCard to adopt their exclusionary rules or to prohibit Discover’s access to the debit market.
The court also dismissed Discover’s Section 2 claims on the ground that it failed to articulate an adequate theory of harm, pointing out that Visa had not foreclosed a sufficient percentage of the market to support an exclusive dealing theory.
Update: MasterCard has asked the court to clarify that Discover’s debit related claims do not relate to MasterCard.
Update 2: The court has ordered Visa and MasterCard to submit information about their agreement to apportion any damages that may be awarded with Visa paying a higher share.
Update 3: The court denied the defendants’ summary judgment motions with respect to injury in fact. Although the Court described the evidence as “thin even when viewed in the light most favorable to discover,” it held that the evidence was sufficient to create material issues of fact.
Update 4: The court granted Visa’s motion to reconsider a portion of the courts earlier ruling granting, in part, Discover’s motion to collaterally estop Visa and MasterCard from questioning the liability determinations in the early Department of Justice litigation. On reconsideration, the court reversed its decision to allow finding from the earlier case based on debit card markets to collaterally estop Visa and MasterCard in the current Discover case. Although the court reiterated that the it had made relevant debit-related findings that could support collateral estoppel, Discover would nonetheless have had to prove a relevant debit market and Visa’s market power in it, because those issues were not addressed in the earlier case. Given that the requirement of re-proving anticompetitive effect in the debit market would not significantly add Discover’s burden and held the potential to confuse the jury, the Court held that Discover had to prove its entire debit claim.
Update 5: The court rejected a Visa and MasterCard motion to exclude testimony by Discover executives about what Citibank excutives told them with respect to Citibank’s decision not to enter a card issuing joint venture with Discover. Trial now appears likely to be a he-said, she-said battle. Discover’s executives will testify that Citi refused to enter a JV because of the Visa and MasterCard rules being attacked in the case. Citi will say that those rules were only one consideration. Visa and MasterCard argued that the Discover executives testimony would be hearsay, but the court held that it could come in under the state of mind exception so long as Discover makes an adequate proffer that a deal between Discover and Citi was likely.