Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-02676/USCOURTS-cand-3_04-cv-02676-0/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 15:1 Antitrust Litigation

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

PAMELA BRENNAN et al,

Plaintiffs,

v

CONCORD EFS, INC et al,

Defendants.

 /

No C-04-2676 VRW

ORDER

In this putative class action, plaintiffs assert that

defendants -- banks and other entities involved in the processing

of withdrawals from automated teller machines (ATMs) in the “Star”

ATM network (“Star”) -- have engaged in horizontal price fixing

declared illegal by section 1 of the Sherman Antitrust Act, 15 USC

§ 1. Plaintiffs argue that defendants’ conduct is condemned per

se; they disclaim any intention of proceeding on a rule of reason

theory. Several defendants move to dismiss the complaint (or for

judgment on the pleadings) on the ground that Star is a

procompetitive cooperative joint venture subject only to rule of

reason analysis. Doc ##26, 29, 42. Other defendants move to

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dismiss on the ground that the complaint does not sufficiently

allege their involvement in setting the terms of Star’s operations. 

Doc ##17, 33.

I

“On a motion to dismiss, all well-pleaded allegations of

material fact are taken as true and construed in a light most

favorable to the non-moving party.” Wyler Summit Partnership v

Turner Broadcasting System, Inc, 135 F3d 658, 661 (9th Cir 1998)

(citing Parks School of Business, Inc v Symington, 51 F3d 1480,

1484 (9th Cir 1995)). Accordingly, what follows is drawn from

plaintiffs’ complaint (Doc #1), taking its allegations as true.

As almost anyone who has an ATM card knows, withdrawals

can be made from an account at one bank -- the bank that issues the

ATM card (the “issuing bank”) -- using an ATM owned by a third

party (the “ATM owner”). Only banks can issue ATM cards, but banks

and non-banks alike can operate ATMs. Transactions in which the

issuing bank is not the ATM owner -- known as “foreign ATM

transactions” -- are mediated by an ATM network that connects the

ATM to the issuing bank. One such network (the subject of this

suit) is Star, which is owned by defendant Concord EFS, Inc

(“Concord EFS”); Concord EFS is a wholly owned subsidiary of First

Data Corp (“First Data”). Compl (Doc #1) ¶8. Transactions in

which the issuing bank is also the ATM owner -- known as “on us”

transactions, see Doc #26 at 6 n4 -- do not involve the ATM

network; such transactions are not the subject of this suit.

Another thing that ATM cardholders know is that while “on

us” transactions are typically free, foreign ATM transactions

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involve fees. First, there is the “ATM surcharge,” which is

typically displayed on the ATM screen and collected by the ATM

owner as part of the cardholder’s withdrawal. The ATM surcharge

ranges from zero (offered as an promotional enticement by some ATM

operators) to $3.00 or more. Second, there is the “foreign ATM

fee,” which is assessed by the issuing bank and typically appears

on the cardholder’s bank statement as a fee. The foreign ATM fee

ranges from zero (offered by banks that own few ATMs and are at a

competitive disadvantage relative to banks that own many ATMs) to

about $2.00 (currently the fee charged by the large banks that are

defendants here). Third, there is a “switch fee” on the order of

$0.05 paid by the issuing bank to the ATM network (Star in this

case) for the network’s services in mediating a foreign ATM

transaction. Fourth, there is an “interchange fee” of $0.45 or

$0.55 paid by the issuing bank to the ATM owner for use of the

foreign ATM. See Compl (Doc #1) ¶1 (defining fees); ¶2 & Fig A

(diagraming typical foreign ATM transaction); ¶52 (describing

current foreign ATM fees); ¶57 (describing interchange fees).

This suit concerns the interchange fee, which is fixed by

Star and applies to all foreign ATM transactions mediated by the

network. Presently, the interchange fee is $0.45 for on-bankpremise cash withdrawals and $0.55 for off-bank-premise cash

withdrawals. Id ¶57. The interchange fee is supposedly passed on

to plaintiffs -- ATM cardholders who have paid (or expect to pay)

foreign ATM fees for transactions mediated by Star -- in the form

of artificially inflated foreign ATM fees.

The complaint is somewhat fuzzy on Star’s corporate

constitution, but at a minimum, see id ¶8, Star is controlled

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directly or indirectly via its board of directors by a host of

large banks that are defendants in this case: Bank of America Corp

(“B of A”); Bank One Corp; Bank One NA; J P Morgan Chase & Co

(“JPMorgan Chase”); Citibank (West) FSB (“Citibank”); SunTrust

Banks, Inc (“SunTrust”); Wachovia Corp (“Wachovia”); Wells Fargo &

Co; Wells Fargo Bank, NA; Servus Financial Corp (“Servus”)

(collectively, the “defendant banks”). The whirlwind of bank

mergers and acquisitions in the last five years makes for quite a

tangle of rights and liabilities, but the complaint clearly states

that each of the defendant banks either (1) is entitled to appoint

outside directors to the Star board of directors, or (2) controls

or succeeded to the rights and liabilities of an entity that was so

entitled. Id ¶¶9-14. (The one exception is Wachovia Bank NA,

which appears in the complaint’s caption but is mentioned nowhere

in the complaint.) Through this control structure the defendant

banks “have caused Star to continue to impose [i]nterchange

[f]ees,” from which the defendant banks benefit, both because they

charge foreign ATM fees and because the defendant banks receive

interchange fees to the extent they own ATMs. Id ¶61.

Although the defendant banks control Star, an ATM network

derives value from the participation of a large number of issuing

banks and ATM owners -- indeed, the complaint effectively concedes

that Star is a joint venture that benefits consumers and fosters

competition among issuing banks by allowing smaller banks that

cannot afford to deploy a large number of ATMs nonetheless to

compete with larger banks that do own many ATMs. Id ¶49. As such,

Star accepts as members issuing banks and ATM owners other than the

defendant banks. Id ¶50. Although bound by Star’s network

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policies, those issuing banks and ATM owners have “virtually no

role” in setting network policies; but the bank defendants “have a

significant role in establishing network policies.” Id. On

information and belief, plaintiffs allege that “some or all of the

[b]ank [d]efendants” serve on an advisory committee “with the

authority to veto or propose operating rules for the network and

external [i]nterchange rates and fees payable between or passed to

network participants.” Id ¶58. Although plaintiffs implicitly

concede that some horizontal restraints are necessary to create

Star and thereby benefit consumers, plaintiffs contend that

“[i]mposing fixed [i]nterchange [f]ees is unnecessary to Star

operations.” Id ¶64.

Plaintiffs seek both damages (for past payment of

putatively inflated foreign ATM fees) and an injunction (against

future fixing of interchange fees). Plaintiffs propose to proceed

on behalf of four classes: two classes of California residents

(one seeking retrospective damages relief; the other seeking

injunctive relief), and two classes of non-California residents

(seeking similar relief). Combined, those classes would roughly

comprise all persons and business entities who (1) opened a bank

account with a bank defendant and (2) either (a) paid a foreign ATM

fee directly to a bank defendant or its affiliate or (b) currently

have a bank account with a bank defendant.

II

Several dispositive motions are now before the court. 

Some are motions to dismiss pursuant to FRCP 12(b)(6) for failure

to state a claim upon which relief can be granted; some are motions

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for judgment on the pleadings pursuant to FRCP 12(c). The

pertinent legal standard is the same. In re World War II Era

Japanese Forced Labor Litigation, 114 F Supp 2d 939, 944 (ND Cal

2000) (citing Enron Oil Trading & Transp Co v Walbrook Insurance

Co, 132 F3d 526, 529 (9th Cir 1997)), aff’d sub nom Deutsch v

Turner Corp, 324 F3d 692 (9th Cir 2003). Accordingly, the court

will treat all pending motions under FRCP 12(b)(6) and refer to

them as “motions to dismiss.”

FRCP 12(b)(6) motions to dismiss essentially “test

whether a cognizable claim has been pleaded in the complaint.” 

Scheid v Fanny Farmer Candy Shops, Inc, 859 F2d 434, 436 (6th Cir

1988). FRCP 8(a), which states that a plaintiff’s pleadings must

contain “a short and plain statement of the claim showing that the

pleader is entitled to relief,” provides the standard for judging

whether such a cognizable claim exists. Lee v City of Los Angeles,

250 F3d 668, 679 (9th Cir 2001). This standard is a liberal one

that does not require a plaintiff to set forth all the factual

details of the claim; rather, all that the standard requires is

that a plaintiff give the defendant fair notice of the claim and

the grounds for making that claim. Leatherman v Tarrant County

Narcotics Intell & Coord Unit, 507 US 163, 168 (1993) (citing

Conley v Gibson, 355 US 41, 47 (1957)). To this end, a plaintiff’s

complaint should set forth “either direct or inferential

allegations with respect to all the material elements of the

claim”. Wittstock v Van Sile, Inc, 330 F3d 899, 902 (6th Cir

2003). 

Under Rule 12(b)(6), a complaint “should not be dismissed

for failure to state a claim unless it appears beyond doubt that

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the plaintiff can prove no set of facts in support of [its] claim

which would entitle [it] to relief.” Hughes v Rowe, 449 US 5, 9

(1980) (citing Haines v Kerner, 404 US 519, 520 (1972)). See also

Conley, 355 US at 45-46. All material allegations in the complaint

must be taken as true and construed in the light most favorable to

plaintiff. See In re Silicon Graphics Inc Sec Litig, 183 F3d 970,

980 n10 (9th Cir 1999).

The court will first take up the bank defendants’ motions

to dismiss on the ground that plaintiffs do not state a claim for a

per se violation of the antitrust laws. Then the court will turn

to the individual motions by Bank One Corp and JPMorgan Chase and

by First Data to dismiss for failure adequately to allege those

entities’ involvement in setting Star’s terms.

A

Citibank and Suntrust (the “Citibank movants”) (Doc #26)

and B of A, Bank One Corp, Bank One NA and JPMorgan Chase (the “B

of A movants”) (Doc #29) move to dismiss the complaint for failure

to state a per se antitrust claim. Although the bank defendants’

memoranda in connection with these motions run several dozen pages,

the nub of their argument is a simple syllogism: (1) Restraints in

furtherance of procompetitive cooperative joint ventures are

subject to rule of reason analysis, see, e g, Broadcast Music, Inc

v Columbia Broadcasting System, Inc, 441 US 1 (1979) (“BMI”);

National Collegiate Athletic Association v Board of Regents, 468 US

85 (1984) (“NCAA”); (2) fixing the interchange fee is necessary to

the existence of Star, the joint venture at issue; therefore (3)

the fixing of the interchange fee should be analyzed under the rule

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of reason.

Defendants’ logic is impeccable, but the syllogism’s

minor premise -- that fixing the interchange fee is necessary -- is

an inherently factual contention that cannot properly be resolved

on a motion to dismiss. In fact, plaintiffs have pled exactly the

opposite: “Imposing fixed [i]nterchange [f]ees is unnecessary to

Star operations. Interchange [f]ees neither create a product that

would not exist absent the fees nor enhance or promote competition

in the ATM market.” Compl (Doc #1) ¶64. This is a factual

contention and it is axiomatic that the court must accept it as

true for purposes of the present motions. It is a plausible

inference from plaintiffs’ complaint, for example, that modern

information technology could inexpensively automate competitive

price setting among even the hundreds or thousands of Star members,

making fixed interchange fees unnecessary to Star’s existence. If

plaintiffs are right, then horizontal price fixing is horizontal

price fixing -- and it is beside the point that prices were fixed

in the context of an otherwise-lawful joint venture.

The court must note at the outset that plaintiffs’

challenge to the “fixed interchange fee” is susceptible of two

interpretations, only one of which is the proper subject of a per

se challenge. On the one hand, plaintiffs might seek to replace

the $0.45 or $0.55 fee with a fee of $0.00 -- a “zero fee,” so to

speak. This interpretation is suggested by the historical account

of interchange fees described in ¶¶49-60 of the complaint and the

conclusion in ¶62 that “the widespread adoption of [s]urcharges has

eliminated any purported justification for [i]nterchange [f]ees.” 

Under the “zero fee” argument, plaintiffs would contend that

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although interchange fees were necessary back when ATM owners had

no other source of remuneration (that is, when surcharges were

banned), interchange fees can now be set at zero because ATM owners

can fend for themselves through surcharges. But to say that

interchange fees should be abolished (the same thing as “set at

zero”) is to concede that setting the interchange fee with

certainty at some level is necessary to Star’s existence -- which

is fatal to plaintiffs’ per se claim. (Indeed, such an argument is

not an antitrust argument at all, for it amounts to a dispute over

prices and competition law is not concerned with setting a proper

price.) By contrast to the “zero fee” argument, plaintiffs do have

a viable per se argument if what they seek is to permit competitive

(e g, bilateral) negotiation of interchange fees among issuing

banks and ATM owners. The court proceeds -- as must plaintiffs to

maintain a per se case -- on the premise that a challenge to the

“fixed interchange fee” is a challenge not to the fee’s existence

but to the fixed nature of the fee; that is, plaintiffs challenge

the fixing of the interchange fee.

On that understanding, recent Ninth Circuit authority is

squarely on plaintiffs’ side. In Freeman v San Diego Ass’n of

Realtors, 322 F3d 1133 (9th Cir 2003) (Kozinski, J), the Ninth

Circuit considered a joint venture among several realtor

associations to create a centralized multiple listing service (MLS)

database. Access to the centralized MLS database, maintained by

Sandicor, was sold to individual realtors, with the realtor

associations providing billing services and technical support. 

Sandicor charged realtors $44 per month; the realtor associations

agreed that Sandicor would pay $22.50 per month to each of them for

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each subscriber they supported. Id at 1146. The plaintiffs --

realtors who contended they were overpaying for MLS services --

brought suit to challenge the fixed $22.50 price for support

services. The Ninth Circuit held that the realtor associations’

agreement to fix support services pricing was illegal per se under

section 1 of the Sherman Act. Id at 1150-54. Indeed, the Ninth

Circuit explicitly rejected the argument that “the inherent

cooperative aspects of the MLS as a joint venture warrant more

deferential review,” explaining that “any elements of novelty and

cooperation in the MLS are irrelevant to whether support fees are

fixed or set competitively.” Id at 1151. Put succinctly:

Antitrust law doesn’t frown on all joint

ventures among competitors -- far from it. If

a joint venture benefits consumers and doesn’t

violate any applicable per se rules, it will

often be perfectly legal. The decision to

combine MLS databses fits comfortably within

this category. The further decision to fix

support fees does not.

Id at 1157 (citation omitted).

The same point is made in Dagher v Saudi Refining, Inc,

369 F3d 1108 (9th Cir 2004), petition for cert pending. Dagher

concerned a joint venture between the oil refining and marketing

companies Texaco and Shell; the joint venture included an agreement

to fix prices in the retail market for gasoline produced under the

joint venture. The Ninth Circuit summarized the question presented

and its holding:

The question we confront in this case * * * is

not whether two companies engaged in run-ofthe-mill price fixing. Instead, the defendants

have asked us to find an exception to the per

se prohibition on price-fixing where two

entities have established a joint venture that

unifies their production and marketing

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function, yet continue to sell their formerly

competitive products as distinct brands. In

doing so, the companies fixed the prices of

these two brands of gasoline, Texaco and Shell,

by agreeing ex ante to charge the same price

for each. We think the exception the

defendants seek is inconsistent with the

Sherman Act as it has been understood to date.

Id at 1116. And again, the Ninth Circuit explained that “joint

venture” is not a mantra to escape per se analysis:

It is not the case * * * that the mere

existence of a bona fide joint venture means

that participating companies may use the

enterprises to do anything they please with

full immunity from per se analysis under § 1,

including price fixing. * * * [T]he issue with

respect to legitimate joint ventures is whether

the price fixing is “naked” (in which case the

restraint is illegal) or “ancillary” (in which

case it is not).

Id at 1118 (citing Herbert Hovenkamp, XI Antitrust Law ¶1908 (1998)

(“[A] restraint is not saved from the ‘naked’ classification simply

because it is included in some larger joint venture arrangement

that is clearly efficient.”)).

The core question identified in Dagher -- whether a

restriction such as fixing the interchange fee is a “naked”

restraint or an “ancillary” restraint -- is quintessentially one of

fact, and one that plaintiffs have pled in their favor in the

complaint. If the restraint proves to be naked, it is subject to

per se analysis and plaintiffs have stated a claim. Against these

elementary propositions, the bank defendants offer several

arguments, none of which persuades.

The B of A movants try to beg the question. See, e g,

Doc #29 at 7:22-8:3 (“In the context of an arrangement like this,

in which some form of agreement among the parties is necessary to

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permit the system to operate, it is well established * * * that the

per se doctrine does not apply.”); id at 9:5 (referring to the

fixed interchange fee as “one of the many rules that have been

adopted of necessity to make the network work”); id at 11:1-2 (“The

challenged interchange fee is therefore plainly ancillary to a

lawful joint enterprise * * *.”). These conclusory statements are,

of course, insufficient to sustain a motion to dismiss.

The Citibank movants do somewhat better in arguing that

“[w]ithout [the] advance certainty of obligation [that comes from a

fixed interchange fee], no bank would agree to pay out money to

individuals with whom it has no depository relationship” and that

“there is no way that each member bank [or ATM owner, presumably,]

possibly could reach agreement with each and every other bank about

the terms on which they will make their machines available to each

other.” Doc #26 4:3-5, 11-13. The Citibank movants also make a

game theoretical argument that in the absence of a collective

promise by the issuing banks to pay a minimum interchange fee to

ATM owners, individually self-interested issuing banks would set

foreign ATM fees so high that ATM owners would be unable to collect

a surcharge large enough to entice them to enter the market -- and

there would be no ATM service. See Doc #115 at 6-7. Whatever the

merits of these arguments, they are intrinsically factual, contrary

to plaintiffs’ pleading and inappropriate for resolution at the

motion to dismiss stage.

The bank defendants also rely on several cases to support

their position, but they are distinguishable. For example, while

BMI supports the bank defendants in stating that “[j]oint ventures

and other cooperative arrangements are * * * not usually unlawful,”

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the BMI Court immediately added the caveat “at least not as pricefixing schemes where the agreement on price is necessary to market

the product at all.” 441 US at 23. Moreover, the “blanket

license” to musical compositions offered by BMI was upheld as

lawful by the Court not at the pleadings stage, but after an eightweek trial on the merits; it was this trial that established that

“[a] middleman with a blanket license was an obvious necessity if

the thousands of individual negotiations, a virtual impossibility,

were to be avoided.” Id at 20.

Likewise, National Bankcard Corp v Visa USA, Inc, 779 F2d

592 (11th Cir 1986) (“NaBanco”), is distinguishable. There, the

Eleventh Circuit based its rejection of a per se analysis on the

fact that the interchange fee between banks operating the Visa

credit card payment system was a “‘necessary’ term without which

the system would not function.” Id at 602. And again, that

conclusion rested on the district court’s finding of fact following

a nine-week bench trial that the interchange fee was “an agreement

on the terms of interchange necessary for VISA to market its

product and be an effective competitor.” National Bankcard Corp v

Visa USA, Inc, 596 F Supp 1231, 1253 (SD Fla 1984).

NCAA is not especially helpful to the bank defendants in

that it too followed an “extended trial,” 468 US at 88, and

ultimately held the restraints in question to violate the Sherman

Act (albeit under a rule of reason analysis). NCAA supports the

bank defendants in one respect, however: NCAA treated the question

whether “the agreement on price is necessary to market the product

at all” as germane to an efficiencies defense under a rule of

reason analysis, see id at 113-15 (citing BMI), and (apparently)

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irrelevant to the threshold issue whether per se or rule of reason

analysis governed the case, see id at 100-04. This analytical

reordering -- rarely if ever seen outside the context of sports

leagues -- appears to be the product of the Court’s pronouncement

(again, following a lengthy trial) that “what is critical is that

this case involves an industry in which horizontal restraints on

competition are essential if the product is to be available at

all.” Id at 101. But a sports league, while appearing to be a

joint venture of competitors (and on the field, they are), is

really only one firm and cases involving the leagues may be

essentially sui generis. See, e g, Gary R Roberts, Sports Leagues

and the Sherman Act: The Use and Abuse of Section 1 to Regulate

Restraints on Intraleague Rivalry, 32 UCLA L Rev 219 (1984). For

present purposes, it suffices to say that the ATM industry may be

as exceptional as the televised college sports industry, but that

is subject to proof by defendants.

The one case cited by the bank defendants that is both

legally and procedurally on point is the decision by Judge White of

this court in Reyn’s Pasta Bella LLC v Visa USA, Inc, 259 F Supp 2d

992 (ND Cal 2003). In Reyn’s, the court determined on a motion to

dismiss that a horizontal price fixing challenge to the fixing of

credit card interchange fees should be analyzed under the rule of

reason. Three reasons persuade this court not to follow Judge

White’s opinion in this case: First, the Reyn’s court had the

benefit of NaBanco’s decision on a very similar (if not identical)

set of credit card interchange fees; this court does not have

analogous appellate authority with respect to the ATM interchange

fee in this case. (Though similar in name, the interchange fees in

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the two industries are structurally rather different.) While

perhaps not unflinchingly faithful to the Eleventh Circuit’s

analytical path in NaBanco and distinguishing that decision in

certain respects, the Reyn’s decision pragmatically took the same

path as NaBanco in analyzing the credit card interchange fee under

the rule of reason. Second, Reyn’s did not have the benefit of

Dagher and Freeman: Dagher was decided over a year after Reyn’s,

and although Freeman had issued only weeks before Reyn’s, Reyn’s

does not cite Freeman, which may not have been brought to Judge

White’s attention. Third, Reyn’s quotes the canonical language

from BMI -- that the rule of reason applies “where the agreement on

price is necessary to market the product at all” -- yet the

analysis in Reyn’s focuses entirely on whether the Visa payment

system is a joint venture, and it ignores the “necessary” language

of BMI. See 259 F Supp 2d at 1000.

In some respects, a better analogy to the case that

plaintiffs have pled is a case not yet mentioned: United States v

Topco Associates, 405 US 596 (1971). Topco was “a cooperative

association of approximately 25 small and medium-sized regional

supermarket chains.” Id at 598. The cooperative procured and

distributed to its members a variety of food and nonfood items,

branded under various names owned by Topco. Id. As a buying

cooperative, Topco’s “very existence * * * improved the competitive

potential of Topco members with respect to other large and powerful

chains.” Id at 600. Topco was, in more recent parlance, a

cooperative procompetitive joint venture. But the darker side of

Topco -- its bylaws required horizontal territorial division among

the association’s members -- led the Court to condemn it as a per

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se violation of the Sherman Act. Id at 608.

The parallels between this case and Topco are

crystallized by Chief Justice Burger’s dissent in Topco, in which

he stressed the interbrand competition fostered by Topco’s

existence:

[W]e have here an agreement among several small

grocery chains to join in a cooperative

endeavor that, in my view, has an

unquestionably lawful principal purpose; in

pursuit of that purpose they have mutually

agreed to certain minimal ancillary restraints

that are fully reasonable in view of the

principal purpose * * *.

Id at 613 (Burger, CJ, dissenting). But of course, the Chief

Justice’s view did not prevail. The law is this: Horizontal

restraints in the context of a procompetitive joint venture remain

unlawful per se unless they are necessary to (or, in certain

formulations, “reasonably ancillary to”) the achievement of the

joint venture’s procompetitive benefits.

The bank defendants offer various reformulations of their

basic argument, but the court is constrained to reject them at this

stage. Accordingly, the bank defendants’ motions to dismiss (Doc

##26, 29) are DENIED.

B

Bank One Corp and JPMorgan Chase move to dismiss the

complaint against them pursuant to FRCP 12(b)(6) on the ground that

it fails adequately to allege their participation in the alleged

conspiracy. Doc #17. Bank One Corp and JPMorgan Chase contend

that they are “nonoperating holding corporations,” id at 1:22, and

that the complaint does not explain how they participated in the

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alleged conspiracy or are liable for the actions of a subsidiary,

Bank One NA. As alleged in the complaint, the holding company

structure is this: JPMorgan Chase was created on July 1, 2004, by

the holding company merger between J P Morgan Chase & Co and Bank

One Corp. Bank One NA, which was a wholly owned subsidiary of Bank

One Corp at the time of the July 2004 merger, had previously

acquired Bank One of Arizona NA, which was entitled to appoint

outside directors to Star’s board. Compl (Doc #1) ¶10. In short,

the complaint alleges that at present Bank One NA is a subsidiary

of JPMorgan Chase; it is unclear whether Bank One Corp continues to

exist following the July 2004 holding company merger. There is no

dispute -- at least at this stage -- that Bank One NA has successor

liability for Bank One of Arizona NA’s actions.

Bank One Corp and JPMorgan Chase make two arguments, both

of which the court would have to accept to grant their motion to

dismiss. One argument goes to vicarious liability, the other to

conspiracy liability. As to vicarious liability, they contend that

the complaint does not adequately plead alter ego liability on Bank

One Corp’s part for actions of Bank One NA; and that in turn,

JPMorgan Chase cannot be liable because Bank One Corp had no

liability to which JPMorgan Chase could have succeeded in the

holding company merger. As for liability for conspiracy, Bank One

Corp and JPMorgan Chase argue that the complaint’s pleading format

-- specifically, grouping them with the other bank defendants and

alleging that the group in general conspired to fix interchange

fees -- is inadequate under FRCP 8, which sets a minimum threshold

of defendant-by-defendant specificity that a plaintiff must meet.

These arguments are convincing. The allegations of the

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complaint regarding both the vicarious liability and conspiracy

theories are simply legal conclusions without supporting facts. 

For example, plaintiffs allege that “Bank One [Corp] exercised such

dominion and control over Bank One, NA and Bank One Arizona that it

is liable according to the law for the acts of Bank One, NA and

Bank One Arizona.” Compl (Doc #1) ¶10. See, e g, Neilson v Union

Bank of California, NA, 290 F Supp 2d 1101, 1116 (CD Cal 2003)

(“Conclusory allegations of ‘alter ego’ status are insufficient to

state a claim. Rather, a plaintiff must allege specifically both

of the elements of alter ego liability, as well as facts supporting

each.”).

With respect to the conspiracy theory of liability, Bank

One Corp and JPMorgan Chase are quite correct that the complaint

lumps them in with the other bank defendants for purposes of

pleading the conspiracy. They are equally correct that the

allegations of the complaint doing the work under FRCP 8 of

pleading the conspiracy are not the generalized allegations of, for

example, ¶61 (“The [b]ank [d]efendants * * * have caused Star to

continue to impose [i]nterchange [f]ees * * * .”), but rather the

particularized allegations of ¶¶9-14 that state how each bank,

individually, exerted control over Star’s rulemaking. 

Consequently, there are no allegations in the complaint

specifically connecting Bank One Corp and JPMorgan Chase to the

alleged conspiracy that controlled Star. Cf In re Sagent

Technology, Inc, Derivative Litigation, 278 F Supp 2d 1079, 1094

(ND Cal 2003) (“While [FRCP] 8 requires only that the a pleading

set forth a short and plain statement of the claim showing that the

pleader is entitled to relief, the underlying requirement is that a

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pleading give fair notice of the claim being asserted and the

grounds upon which it rests. A complaint that lumps together

thirteen individual defendants, where only three of the individuals

was alleged to have been present for the entire period of the

events alleged in the complaint, fails to give fair notice of the

claim to those defendants.” (citation and quotation marks

omitted)).

In response to this, plaintiffs argue principally that

Bank One Corp and JPMorgan Chase are conspirators in this case for

an entirely different reason -- to wit, because they exerted

control over Visa USA Inc and Visa International Corp

(collectively, “Visa”) and Mastercard International Inc

(“Mastercard”). Id ¶¶17-20. Visa and Mastercard own,

respectively, Plus and Cirrus, the two worldwide ATM networks. Id

¶¶18-19. Plaintiffs contend -- and the complaint is far from clear

on the causation or conspiracy in this -- that action by these two

networks precipitated the adoption of ATM surcharges in all ATM

networks. Id ¶¶54-55. This in turn rendered fixed interchange

fees unnecessary. Id ¶62. Plaintiffs’ tale about the involvement

of Bank One Corp and JPMorgan Chase in all this is not totally

improbable. But the complaint is so poorly developed in this

particular respect that it does not give fair notice under FRCP 8

to Bank One Corp and JPMorgan Chase (or the court, for that matter)

of the role they are alleged to have played in the conspiracy. 

Indeed, the complaint is ambiguous on just what the scope of the

alleged conspiracy was: The complaint concentrates largely on the

decisionmaking surrounding Star, yet Visa and Mastercard -- avowed

competitors of Star, no less -- are announced as coconspirators,

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see Compl (Doc #1) ¶¶17-18.

Accordingly, Bank One Corp and JPMorgan Chase’s motion to

dismiss is GRANTED. The defects in the complaint against these

entities could possibly be resolved by an amended pleading;

accordingly, plaintiffs are given leave to amend their complaint

against Bank One Corp and JPMorgan Chase. See United States v

Smithkline Beecham Clinic Labs, 245 F3d 1048, 1052 (9th Cir 2001). 

On the other hand, the parties may wish to defer resolution of the

liability of Bank One Corp and JPMorgan Chase by entering into a

tolling agreement pending the outcome of other issues. The choice

is, in the first instance, plaintiff’s and then, possibly, Bank One

Corp’s and JPMorgan Chase’s.

C

First Data moves to dismiss the complaint on the ground

that it fails to allege First Data’s involvement in the claimed

conspiracy. Doc #33. First Data proceeds from a simple premise: 

The complaint states that “Concord [EFS] was acquired by First Data

* * *, the largest US credit card processor, and is now a whollyowned subsidiary of First Data,” Compl (Doc #1) ¶8, but beyond

this, the complaint says nothing specific about First Data. 

Plainly, the allegation quoted above is insufficient to state a

claim for alter ego liability on First Data’s part for acts taken

by its subsidiary Concord EFS. And although the complaint

repeatedly refers to “the defendants” or “the bank defendants” in

the aggregate -- groups that include First Data, even though it is

not a bank -- there are no allegations in the complaint specific to

First Data that suggest how it could have taken the actions

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ascribed to “the defendants” or “the bank defendants.” The court

agrees with First Data that the complaint does not give it fair

notice of the claims against it.

Plaintiffs’ response largely ignores their complaint. 

They assert that “First Data has now owned Star for over a year,”

Doc #109 at 16:10-11, but of course, that is not what the complaint

alleges: The complaint asserts that First Data owns a corporation

that in turn owns Star. Plaintiffs rely on material outside the

complaint to suggest that First Data acts as Star’s agent. Id at

18-19. They ask the court to take judicial notice of several

hundred pages of SEC filings made by First Data, Doc #111, and they

parse this material at length in their filings, Doc #109 at 5-10.

Perhaps under certain circumstances, SEC filings are the

proper subject of judicial notice; the court expresses no view on

this question. Judicial notice at the pleadings stage is properly

invoked to fill in a small gap in an otherwise complete portrait

painted by the complaint. But here, the canvass is missing as well

as the image: Plaintiffs would defeat a motion to dismiss by

piling a ream of SEC filings (literally) onto one half-sentence in

their complaint. This is not proper at the pleadings stage -- not

as a matter of procedure and certainly not as a matter of good

practice. Plaintiffs are manifestly in command of vast knowledge

about First Data’s activities; the length of their opposition

paper, which runs to the very limits of Civ L R 7-4(b), more than

amply illustrates that. Distilling the material in plaintiffs’

opposition paper into an amended complaint should be trivial for

plaintiffs, will likely give fair notice to First Data and will

surely be a boon to the court.

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Accordingly, First Data’s motion to dismiss (Doc #33) is

GRANTED, and plaintiffs are given leave to file an amended

complaint to amplify their allegations against First Data.

III

Plaintiffs have filed a paper styled “plaintiffs’

submission regarding scheduling and arbitration.” Doc #120. 

Defendants have filed a paper in response. Doc #125. Plaintiffs

seek an order directing defendants (1) to state by a date certain

their intentions to file a motion to compel arbitration and (2) if

they so intend, to file such a motion by a date certain. The court

is not entirely satisfied that it has the authority to force the

issue, and even if the court were so empowered, the issue seems

better resolved by litigating equitable defenses such as waiver and

estoppel in the context of an actual motion to compel arbitration -

- if and when such a motion should be presented to the court.

IV

In sum, the court DENIES the motions to dismiss the

complaint for failure to state a per se antitrust claim (Doc ##26,

29); GRANTS First Data’s motion to dismiss (Doc #33); and GRANTS

Bank One Corp and JPMorgan Chase’s motion to dismiss (Doc #17). 

Plaintiffs are given leave to file an amended complaint. The

parties may stipulate to a pleading schedule in accordance with

their respective positions, but shall appear on July 13, 2005, at

10:00am for a hearing on any motions filed and for a scheduling

conference, at which the parties should be prepared to address a

discovery plan and any outstanding pleading issues. As previously

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set at the January 26, 2005, case management conference,

defendants’ initial disclosure are due 60 days from the date of

this order.

IT IS SO ORDERED.

 

VAUGHN R WALKER

United States District Chief Judge

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