Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-02676/USCOURTS-cand-3_04-cv-02676-12/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

IN RE ATM FEE ANTITRUST

LITIGATION,

 /

This Document Relates To:

ALL ACTIONS

___________________________________/

No. C 04-02676 CRB

MEMORANDUM AND ORDER

Multiple motions and rounds of briefing are currently pending before the Court. 

These papers, however, cloud the critical legal question presented in this case: whether the

fixed interchange fee in the Star ATM network is an impermissible agreement to fix prices. 

For the reasons set forth below, the Court hereby TERMINATES the motions currently

pending before it. The Court further ORDERS the parties to proceed forthwith with any

discovery necessary to elucidate the plausible procompetitive justifications that might be

advanced in support of the fixed interchange fee. Following discovery, the parties may file

another motion for summary judgment on the question of whether the fixed interchange fee

constitutes an unreasonable restraint of trade in violation of the Sherman Act.

BACKGROUND

This putative class action was brought by several ATM cardholders (“Plaintiffs”)

against the companies that administer the Star ATM network, as well as against several

commercial banks that are members of that network (collectively, “Defendants”). Plaintiffs

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allege that Defendants have colluded to set the price of the interchange fee that a bank pays

when its customers use ATM machines owned by other institutions. They argue that this

collusion constitutes illegal price-fixing. See United States v. Socony-Vacuum Oil Co., 310

U.S. 150, 218 (1940).

On a motion to dismiss, this Court ruled that Plaintiffs had stated a viable claim for

price-fixing. See Brennan v. Concord EFS, Inc., 369 F. Supp. 2d 1127 (N.D. Cal. 2005)

(Walker, C.J.). Specifically, the Court held that Plaintiffs had stated a claim of “naked”

price-fixing subject to analysis under the per se rule. See 369 F. Supp. 2d at 1133. The

Court acknowledged Defendants’ “theoretical” arguments that the fixed interchange fee was

necessary to the very existence of the ATM network and that the fixing of the fee was

ancillary to the procompetitive joint venture. Id. at 1133. But those arguments, the Court

ruled, were not germane to a motion to dismiss. Instead, they were “intrinsically factual,

contrary to plaintiffs’ pleading and inappropriate for resolution at the motion to dismiss

stage.” Id. What mattered, said the Court, was that Plaintiffs had alleged in their complaint

that no procompetitive justification existed for the price-fixing. Because it was required to

accept that allegation as true, the Court denied the motion to dismiss. Id. at 1135.

Defendants then filed a motion for partial summary judgment. In this motion, they

argued that they could not be held liable for any alleged price-fixing that occurred after

February of 2001. They argued that the members of the Star network had transferred control

over the interchange fee to another company at that time, and that subsequent decisions

regarding the interchange fee were therefore merely “independent action,” which is not

proscribed by Section 1 of the Sherman Act. See Monsanto Co. v. Spray-Rite Serv. Corp.,

465 U.S. 752, 761 (1984) (“[T]here is a basic distinction between concerted and independent

action . . . . Section 1 of the Sherman Act requires that there be [concerted action] in order to

establish a violation. Independent action is not proscribed.” (citation omitted)).

Subsequent to oral argument, the parties submitted additional rounds of briefing. The

first round of briefing addressed an issue raised by this Court--to wit, the effect on this case,

if any, of the Supreme Court’s recent decision in Texaco, Inc. v. Dagher, 126 S. Ct. 1276

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(2006). The second round of briefing was initiated by Defendant Suntrust Bank, which

requested permission to file a motion for reconsideration of the Court’s previous ruling on

the motion to dismiss. Thus, there are ostensibly three questions currently pending before

the Court: (1) whether Defendants are absolved of liability by virtue of the fact that Concord

unilaterally set the interchange fee after February of 2001, (2) whether Dagher undermines

this Court’s earlier decision to apply the per se rule to Plaintiff’s complaint, and in a similar

vein, (3) whether this Court should revisit its ruling on the motion to dismiss.

DISCUSSION

Section 1 of the Sherman Act prohibits “[e]very contract, combination . . . , or

conspiracy, in restraint of trade.” 15 U.S.C. § 1. Read literally, this expansive language

would prohibit nearly every agreement among business entities. After all, by definition, any

contractual agreement binds an actor, either to perform or to refrain from performing certain

tasks, and thereby restrains the actor, in one way or another, from acting freely in the

marketplace. See Bd. of Trade of City of Chicago v. United States, 246 U.S. 231, 238 (1918)

(“Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain,

is of their very essence.”).

For this reason, the Supreme Court has long interpreted the Sherman Act as

prohibiting only unreasonable trade agreements. That is, antitrust law prohibits only those

commercial agreements with negative, anticompetitive effects, and not those agreements that

serve beneficial, procompetitive purposes. See id. (“The true test of legality is whether the

restraint imposed is such as merely regulates and perhaps thereby promotes competition or

whether it is such as may suppress or even destroy competition.”); see also Nat’l Soc’y of

Prof. Eng’rs v. United States, 435 U.S. 679, 690 (1978) (“The test . . . is whether the

challenged contracts or acts ‘were unreasonably restrictive of competitive conditions.’”

(quoting Standard Oil Co. v. United States, 221 U.S. 1, 65-67 (1911) (Holmes, J.)).

In all price-fixing cases, then, the inquiry is the same: whether an agreement is

reasonable when it is made between competitors and relates to the price of a certain good or

service. Yet the courts do not describe the analytical framework in price-fixing cases in

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1 In some context, courts have also applied a so-called “quick look” rule. This rule is of

more recent vintage and has come into existence as the result of several cases in which the

Supreme Court took a cursory glance at the economic circumstances of conduct that was

putatively illegal per se before ruling that the defendants had violated the relevant antitrust laws.

In the words of Justice White, “[i]n each of these cases, which have formed the basis for what

has come to be called abbreviated or ‘quick look’ analysis under the rule of reason, an observer

with even a rudimentary understanding of economics could conclude that the arrangements in

question would have an anticompetitive effect on customers and markets.” Federal Trade

Comm’n v. Indiana Fed’n of Dentists, 476 U.S. 447, 459 (1984). Thus, in one price-fixing case,

the Court ruled that a college football league could not require universities to charge minimum

prices for broadcasting rights, even though the sports industry had been treated favorably in the

context of other antitrust cases because of its peculiar characteristics. See Nat’l Collegiate

Athletic Ass’n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 100-01 (1984).

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precisely this fashion. Instead, they describe cases and claims as falling under one of a

number of rules.

First, there is the per se rule. This rule is essentially a statement that an agreement to

fix a price is, at least as a legal matter, never reasonable. When courts invoke this rule, they

use fierce rhetoric that condemns any agreement regarding prices as illegal, regardless of the

circumstances. As the Supreme Court stated in Socony-Vacuum, “price-fixing agreements

are unlawful per se under the Sherman Act and no showing of so-called competitive abuses

or evils which those agreements were designed to eliminate or alleviate may be interposed as

a defense.” 310 U.S. at 218. Second, there is the rule of reason. When courts invoke this

rule, they find that more thorough analysis of the alleged price-fixing agreement is necessary. 

Cases fall under this rule when there is a putative procompetitive effect to the alleged

agreement that might make per se analysis inappropriate. Courts eschew the rigid

prohibition on restraints of prices, for example, where a set price is viewed as “necessary” for

a given product to exist at all. See Broadcast Music, Inc v. Columbia Broadcasting Sys.,

Inc., 441 U.S. 1 (1979) (“Joint ventures and other cooperative arrangements are also not

usually unlawful, at least not as price-fixing schemes, where the agreement on price is

necessary to market the product at all.”).1

 Courts frequently have a hard time determining

what rule to apply in a given case. As one treatise on antitrust states, “the analytical

categories articulated by the courts are protean concepts that change and evolve with time

and competitive experience and are anything but bright lines of demarcation.” William C.

Holmes, Antitrust Law Handbook § 2:9, at 192 (2006).

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In this case, Chief Judge Walker employed a per se analysis in reviewing Plaintiffs’

complaint. He concluded that the per se rule was appropriate in the context of Defendants’

motion to dismiss because he was compelled to accept Plaintiffs’ allegations that there was

no procompetitive justification for the fixed interchange fee. See Brennan, 369 F. Supp. 2d

at 1131 (observing that Defendants’ arguments about the necessity of a fixed interchange fee

was “an inherently factual contention that cannot properly be resolved on a motion to

dismiss”); id. (noting Plaintiffs’ allegation that fixed interchanged fees “neither create a

product that would not exist absent the fees nor enhance or promote competition in the ATM

market,” and holding that this allegation presented “a factual contention . . . that the court

must accept . . . for purposes of the present motions”); id. at 1133 (“Whatever the merits of

the [procompetitive] arguments, they are intrinsically factual, contrary to plaintiffs’ pleading

and inappropriate for resolution at the motion to dismiss stage.”).

But it does not follow from Chief Judge Walker’s ruling that a per se analysis governs

the case from here on out. Indeed, the Court is not in accord with what seems to be the

parties’ shared assumption that this case must hereafter be analyzed under the per se rule. To

the contrary, if Defendants can set forth evidence to support plausible, procompetitive

justifications for their agreement to fix the interchange fee, then the Court would have to

examine their agreement under the rule of reason. See Dagher, 126 S. Ct. at 1280-81 & n.1;

see also Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85,

100-01 (1984); Broadcast Music, Inc v. Columbia Broadcasting Sys., Inc., 441 U.S. 1 (1979). 

Judge Walker’s holding was merely that the complaint, on its face, had stated a viable claim

for price-fixing because it had alleged that Defendants conspired, without any economic

justification, to set a fixed price.

This Court agrees that at least some discovery is necessary to determine whether there

procompetitive justifications really do exist for the fixed interchange fee, including inquiry

into the manner in which the banks made their collective decision to set a fixed interchange

fee; the structure of the fee agreement employed by the Star ATM network, which has

evolved over time; and the characteristics of the relevant market. Only after such discovery

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is conducted will the Court be in a position to weigh the putative procompetitive

justifications for the banks’ agreement. It is therefore unnecessary for the Court to review

the motion to dismiss as such. Instead, the parties must address the plausible procompetitive

justifications for the fixed interchange fee in the context of evidence about the actual

character of the agreement.

All of the motions and briefs filed by the parties basically revolve around this crucial

inquiry without tackling it head-on. Consider the issues currently pending: (1) whether the

Court should reconsider the motion to dismiss, (2) whether Dagher requires application of

the rule of reason, and (3) whether the case involves “concerted” or “independent action.” 

Each of these ostensibly discrete issues addresses exactly the same concept--namely, whether

there are plausible economic reasons to set a fixed interchange fee. But they approach this

concept from different angles. The first issue tackles the idea most directly, by requesting

this Court to apply the rule of reason based on the nature of the Star ATM network. The

second approaches the same idea in a somewhat more oblique fashion, by discussing whether

the Supreme Court’s decision undermines Chief Judge Walker’s per se analysis. And the

third raises the same ideas--Defendants’ argument that there has been no “concerted” action

is cut from the same cloth as its argument that there is no liability for price-fixing, at least

insofar as it requires an examination of whether the decision to set the interchange fee was

made by a unitary economic actor. These two different arguments present what is

substantially the same contention under antitrust law, only cast in a slightly different light.

The Court finds that it is inappropriate to adjudicate these discrete questions at this

junction, given that they all present the same crucial issue in the case in piecemeal and

indirect fashion. Instead, the Court directs the parties to engage in any discovery necessary

to explore any plausible procompetitive justifications that may exist for the Defendants’

agreement to fix the interchange fee. Such discovery need not be extensive, for many of the

plausible arguments are found in the very nature and structure of the agreement itself, as to

which all the parties by now have a thorough understanding. Upon the completion of any

relevant discovery, the parties may bring another motion for summary judgment, at which

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G:\CRBALL\2004\2676\order re pending motions.wpd 7

time the Court will again evaluate whether the alleged price-fixing agreement constitutes an

unreasonable restraint of trade in violation of Section 1 of the Sherman Act.

CONCLUSION

The motions currently pending before the Court all skirt the basic question presented

by this case: whether any procompetitive aspects of Defendants’ agreement to fix the

interchange fee are sufficient to render that agreement a reasonable restraint of trade, or

whether their compact must be condemned as unreasonable and therefore illegal. For this

reason, the motions currently pending before the Court are hereby TERMINATED. The

parties are here ORDERED to appear before the Court on Friday, December 15, 2006, at

8:00 a.m. for a status conference.

IT IS SO ORDERED.

Dated: November 30, 2006 

CHARLES R. BREYER

UNITED STATES DISTRICT JUDGE

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