Sam Osborn v. Visa Inc. , 797 F.3d 1057 ( 2015 )


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  •  United States Court of Appeals
    FOR THE DISTRICT OF COLUMBIA CIRCUIT
    Argued February 20, 2015             Decided August 4, 2015
    No. 14-7004
    SAM OSBORN, ET AL.,
    APPELLANTS
    v.
    VISA INC., ET AL.,
    APPELLEES
    Consolidated with 14-7005, 14-7006
    Appeals from the United States District Court
    for the District of Columbia
    (No. 1:11-cv-01831)
    (No. 1:11-cv-01882)
    (No. 1:11-cv-01803)
    Steve W. Berman argued the cause for appellants. With
    him on the briefs were Craig L. Briskin, Michael G.
    McLellan, Douglas G. Thompson, Brooks E. Harlow, and
    Don A. Resnikoff. David A. LaFuria entered an appearance.
    Kenneth A. Gallo argued the cause for appellees. With
    him on the brief were Mark R. Merley, Matthew A. Eisenstein,
    Mark P. Ladner, Michael B. Miller, William F. Cavanaugh,
    2
    and Peter E. Greene. Robert P. LoBue and Ana Maria Iquat
    entered appearances.
    Before: TATEL, SRINIVASAN and WILKINS, Circuit
    Judges.
    Opinion for the Court filed by Circuit Judge WILKINS.
    WILKINS, Circuit Judge:         Users and operators of
    independent (non-bank) automated teller machines (ATMs)
    brought these related actions against Visa, MasterCard, and
    certain affiliated banks, alleging anticompetitive schemes for
    pricing ATM access fees. The crux of the Plaintiffs’
    complaints is that when someone uses a non-bank ATM, the
    cardholder pays a greater fee and the ATM operator earns a
    lower return on each transaction because of certain Visa and
    MasterCard network rules. These rules prohibit differential
    pricing based on the cost of the network that links the ATM to
    the cardholder’s bank. In other words, the Plaintiffs allege
    anticompetitive harm because Visa and MasterCard prevent
    an independent operator from charging less, and potentially
    earning more, when an ATM transaction is processed through
    a network unaffiliated with Visa and MasterCard.
    The District Court concluded that the Plaintiffs had failed
    to allege essential components of standing, and also that they
    had failed to allege an agreement in restraint of trade
    cognizable under the Sherman Antitrust Act. See 
    15 U.S.C. § 1
    . We disagree, and so we vacate and remand these cases
    for further proceedings based on the proposed amended
    complaints.
    3
    I.
    ATMs “have been a part of the American landscape since
    the 1970s – beacons of self-service and convenience, they
    revolutionized banking in ways we take for granted today.”
    Linda Rodriguez McRobbie, The ATM is Dead. Long Live
    the     ATM!,       SMITHSONIAN.COM         (Jan.    8,    2015),
    http://www.smithsonianmag.com/history/atm-dead-long-live-
    atm-180953838/. One view is that “[t]hey live to serve; we
    only really notice them when we can’t seem to locate one.”
    
    Id.
     But Plaintiffs tell us they do take notice of ATMs –
    specifically, of the fee structure that attaches to their use and
    what they gain or lose from it. We credit for purposes of this
    appeal all facts alleged in the proposed amended complaints.
    Some background history:          Until the mid-1990s,
    consumers who wished to withdraw cash from their bank
    accounts generally could do so only by visiting a bank branch
    or a bank-operated ATM. But states began to abolish various
    laws that had prohibited ATM operators from charging access
    fees directly to cardholders. This created a financial incentive
    for nonbanks to enter the ATM market, and independent
    ATMs took root accordingly. See National ATM Council
    Proposed Second Amended Complaint (“NAC Prop.
    Compl.”) ¶ 43; Osborn Proposed Second Amended Complaint
    (“Osborn Prop. Compl.”) ¶ 66. These independent ATMs
    connect to a cardholder’s bank through an ATM network.
    The most popular networks are operated by Visa (the Plus,
    Interlink, and VisaNet networks) and MasterCard (the Cirrus
    and Maestro networks). Rival networks include Star, NYCE,
    and Credit Union 24. NAC Prop. Compl. ¶ 40.
    Today, a cardholder can use any independent ATM to
    access her bank account, so long as her bank card and the
    ATM are linked by at least one common network. Most bank
    4
    cards indicate the networks to which they are linked with
    logos printed on the back of the card, referred to colloquially
    as “bugs.” 
    Id.
    Independent ATM operators rely on two streams of
    revenue to sustain their businesses. The first is the “net
    interchange” fee: the gross interchange fee paid by the
    cardholder’s bank to the ATM operator, which runs between
    $0.00 and $0.60 per transaction, less any network services fee
    charged by the ATM network. MasterCard and Visa
    generally charge high network services fees, which means
    that ATM operators receive low net interchange fees –
    running between $0.06 and $0.29 for domestic transactions,
    and even less for international transactions – for transactions
    on these networks. Several competing networks charge
    comparatively low network services fees, thus enabling an
    ATM operator to collect a higher net interchange fee (up to
    $0.50 per transaction) when using the lower-fee networks. 
    Id. ¶ 59
    .
    The second source of revenue comes from the ATM
    access fees paid by the cardholder. The average access fee in
    2012 was $2.10. See Osborn Prop. Compl. ¶ 99 (citing GOV’T
    ACCOUNTABILITY OFFICE, GAO-13-266, AUTOMATED TELLER
    MACHINES: SOME CONSUMER FEES HAVE INCREASED 14
    (2013)).
    Visa and MasterCard each impose, as a condition for
    ATM operators to access their networks, a sort of non-
    discrimination or most favored customer clause called the
    “Access Fee Rules.” These rules provide that no ATM
    operator may charge customers whose transactions are
    processed on Visa or MasterCard networks a greater access
    fee than that charged to any customer whose transaction is
    5
    processed on an alternative ATM network. 1 Thus, under the
    Access Fee Rules, operators cannot say to cardholders: “We
    will charge you $2.00 for a MasterCard or Visa transaction,
    but if your card has a Star or Credit Union 24 bug on it, we
    will charge you only $1.75.”
    Both Visa and MasterCard were owned and operated as
    joint ventures by a large group of retail banks at the time that
    the Access Fee Rules were adopted. NAC Prop. Compl. ¶ 89.
    Although these member banks later relinquished direct
    control over the bankcard associations through public
    offerings, the IPOs did not alter the substance of the Access
    Fee Rules, which remain intact to this day.
    1
    The challenged Visa rule provides:
    An ATM Acquirer may impose an Access Fee if: It
    imposes an Access Fee on all other Financial
    Transactions through other shared networks at the same
    ATM; The Access Fee is not greater than the Access Fee
    amount on all other Interchange Transactions through
    other shared networks at the same ATM . . . .
    NAC Prop. Compl. ¶ 68 (citing Visa Int’l Operating Regulations
    ¶ 4.10A (Oct. 15, 2012)). The challenged MasterCard rule
    provides:
    An Acquirer must not charge an ATM Access Fee in
    connection with a Transaction that is greater than the
    amount of any ATM Access Fee charged by that Acquirer
    in connection with the transactions of any other network
    accepted at that terminal.
    
    Id.
     ¶ 64 (citing MasterCard’s Cirrus Worldwide Operating Rule
    ¶ 7.14.1.2 (Dec. 21, 2012)).
    6
    Plaintiffs assert that these rules illegally restrain the
    efficient pricing of ATM services. They characterize the
    Access Fee Rules as constituting an “anti-steering” regime
    that prevents independent ATM operators from incentivizing
    cardholders to choose and use cards “that are more efficient
    and less costly than either Visa or MasterCard’s.” NAC Prop.
    Compl. ¶ 1.
    This consolidated appeal arises from decisions in three
    separate but related civil actions. The first action, Stoumbos
    v. Visa, was filed by a debit cardholder, Mary Stoumbos, who
    paid access fees in connection with ATM transactions at
    various independent ATMs. The second action, Mackmin v.
    Visa (referred to here as the Osborn case), was filed by four
    consumers of independent and bank-run ATM services. The
    third action, National ATM Council v. Visa, was brought by a
    leading association of independent ATM operators and
    several individual ATM operators. The Plaintiffs allege
    violations of Section 1 of the Sherman Act as well as various
    state laws, and they name Visa and MasterCard entities as
    defendants. In addition, the Osborn plaintiffs name certain
    member banks as co-defendants.
    On February 12, 2013, the District Court concluded that
    the Plaintiffs’ respective complaints had failed to allege facts
    sufficient to establish standing and, in the alternative, lacked
    adequate facts to establish concerted activity under Section 1
    of the Sherman Act. Nat’l ATM Council, Inc. v. Visa Inc.,
    
    922 F. Supp. 2d 73
     (D.D.C. 2013) (“NAC I”). It dismissed
    not just the complaints, but the cases without prejudice.
    In an attempt to toll the statute of limitations, Plaintiffs
    timely moved the District Court to modify its judgment from
    dismissal of the cases without prejudice to dismissal of the
    complaints with leave to replead. Plaintiffs simultaneously
    7
    submitted proposed amended complaints. On December 19,
    2013, the District Court denied Plaintiffs’ motions after
    concluding that their proposed amended complaints still
    lacked sufficient facts to establish standing or a conspiracy.
    Nat’l ATM Council, Inc. v. Visa Inc., 
    7 F. Supp. 3d 51
    (D.D.C. 2013) (“NAC II”). The Plaintiffs appeal.
    II.
    Procedural quirks notwithstanding, we review de novo
    the District Court’s determination that the filing of the
    amended complaints would be futile due to the perceived
    deficiencies of those complaints under Rules 12(b)(1) and
    12(b)(6). See Kim v. United States, 
    632 F.3d 713
    , 715 (D.C.
    Cir. 2011) (stating standard of review for FED. R. CIV. P.
    12(b)(1) & 12(b)(6)). To reach that bottom line, we must do
    some procedural untangling.
    The District Court’s February 12 order dismissed the
    cases without prejudice. The principle guiding a dismissal
    without prejudice is that absent futility or special
    circumstances (such as undue delay, bad faith, or dilatory
    motive), a plaintiff should have the opportunity to replead so
    that claims will be decided on merits rather than
    technicalities. Foman v. Davis, 
    371 U.S. 178
    , 181-82 (1962);
    see also English-Speaking Union v. Johnson, 
    353 F.3d 1013
    ,
    1021 (D.C. Cir. 2004). Where, as it appears was the case
    here, a plaintiff has not notified the district court that a statute
    of limitations issue might bar the plaintiff “from correcting
    the complaint’s defects and filing a new lawsuit,” a dismissal
    of the case without prejudice is not an abuse of discretion.
    See Ciralsky v. CIA, 
    355 F.3d 661
    , 671 (D.C. Cir. 2004).
    Plaintiffs followed an appropriate course against this
    background, asking the District Court to modify its judgment
    8
    pursuant to Rule 59 – so that merely the complaint, and not
    the case, would have been dismissed – and simultaneously
    filing a proposed amended complaint. See Firestone v.
    Firestone, 
    76 F.3d 1205
    , 1208 (D.C. Cir. 1996) (describing
    this as proper procedure). In its December 19 opinion on
    those motions, the District Court asked and answered the
    essential question – whether leave to amend was futile – but
    the accompanying order purported to deny on the merits
    Plaintiffs’ motion for leave to amend their complaints, and to
    deny as moot their motion to modify the February 12
    judgment. As a technical matter, the District Court lacked
    authority to rule on the merits of the Rule 15(a) motion
    because it did not modify its final judgment dismissing those
    cases. See Ciralsky, 
    355 F.3d at 673
    ; Firestone, 
    76 F.3d at 1208
    .
    Because the District Court’s denial of the Plaintiffs’ Rule
    59(e) motion as moot was based on its conclusion that
    amendment of the complaints would be futile, see NAC II, 7
    F. Supp. 3d at 54, we review the decision below as a denial on
    the merits of the motion to modify the judgment. On this
    question, we look for abuse of discretion. Firestone, 
    76 F.3d at
    1208 (citing Browder v. Dir., Ill. Dep’t of Corrections, 
    434 U.S. 257
    , 263 n.7 (1978)). An abuse of discretion necessarily
    occurs when a district court misapprehends the underlying
    substantive law, and we examine the underlying substantive
    law de novo. Conservation Force v. Salazar, 
    699 F.3d 538
    ,
    542 (D.C. Cir. 2012); see also Dyson v. District of Columbia,
    
    710 F.3d 415
    , 420 (D.C. Cir. 2013) (reviewing de novo
    questions of law underlying district court’s denial of
    plaintiff’s Rule 59(e) motion). In other words, the District
    Court’s futility conclusion turned on a legal determination –
    here, the sufficiency of the proposed amended complaints
    9
    under Rule 12(b)(1) or Rule 12(b)(6) – and we review those
    legal determinations independently of the District Court. 2
    That brings us to the substantive questions we must
    decide. We look first, as always, at the question of whether
    the Plaintiffs have standing and second, whether the
    Plaintiffs’ proposed amended complaints adequately stated a
    claim.
    A.
    The District Court determined that the Plaintiffs lacked
    Article III standing because their allegations showed neither
    injury nor redressability. NAC II, 7 F. Supp. 3d at 60-61. To
    establish standing, a plaintiff must show that (i) it has
    “suffered a concrete and particularized injury in fact, (ii) that
    was caused by or is fairly traceable to the actions of the
    defendant, and (iii) is capable of resolution and likely to be
    redressed by judicial decision.” Sierra Club v. EPA, 
    755 F.3d 968
    , 973 (D.C. Cir. 2014) (citing Lujan v. Defenders of
    Wildlife, 
    504 U.S. 555
    , 560-61 (1992)).
    Plaintiffs contend that “in the absence of the access fee
    rules, ATM operators would offer consumers differentiated
    access fees at the point of transaction, consumers would then
    demand multi-bug PIN cards from their banks, their banks
    would provide these cards, and the market for network
    2
    The parties have focused on the sufficiency of the proposed
    amended complaints, rather than the complaints originally
    dismissed by the District Court, and the Plaintiffs have not argued
    that the initial complaints should not have been dismissed. See
    Appellants’ Br. 8 n.4 (explaining that the complaints dismissed on
    February 12 are of “questionable” relevance here, as this appeal is
    confined to the District Court’s rulings on the proposed amended
    complaints).
    10
    services would become more competitive, all resulting in
    more choice of networks and lower access fees for
    consumers.” NAC II, 7 F. Supp. 3d at 60. The District Court
    held that this was an “attenuated, speculative chain of events[]
    that relies on numerous independent actors, including the PIN
    card issuing banks.” Id. We disagree, and we think the
    District Court was demanding proof of an economic theory
    that was not required in a complaint.
    A plaintiff’s burden to demonstrate standing grows
    heavier at each stage of the litigation. See Lujan, 
    504 U.S. at 561
    .     Thus, “[a]t the pleading stage, general factual
    allegations of injury resulting from the defendant’s conduct
    may suffice, for on a motion to dismiss we presum[e] that
    general allegations embrace those specific facts that are
    necessary to support the claim.” 
    Id.
     (internal quotation marks
    omitted); see also Am. Nat. Ins. Co. v. FDIC, 
    642 F.3d 1137
    ,
    1139 (D.C. Cir. 2011) (observing that on a Rule 12(b)(1)
    motion, we “grant[] plaintiff the benefit of all inferences that
    can be derived from the facts alleged”).
    Two distinct theories of injury are relevant in this appeal.
    First is the ATM operators’ theory of harm. The operators
    allege that MasterCard and Visa, working in concert with the
    member banks, have maximized their own returns on each
    transaction, thereby minimizing the independent ATM
    operators’ cut. See NAC Prop. Compl. ¶¶ 77-88. According
    to the operators, in a competitive market, the imbalance
    between low- and high-cost networks “would be corrected by
    a price differential for the final service, and consumers would
    respond to lower prices for a fungible service by switching.”
    Id. ¶ 79. But while ATM operators can respond by routing
    transactions on multi-bugged cards over the lowest priced
    networks, they are prevented from using differential pricing to
    incentivize customers to use such cards. As the operator
    11
    plaintiffs put it, “ATM operators are prohibited from setting
    the price differential needed to encourage consumers to
    switch.” Id. Visa and MasterCard are thereby insulated from
    competition with other networks and can charge supra-
    competitive network services fees with impunity.
    The consumers’ theory of harm complements that of the
    operators. The consumers allege that they pay inflated access
    fees when they visit ATMs. They believe that the Access Fee
    Rules inhibit competition in both the network services market
    and the market for ATM access fees. But for the Rules, some
    ATM operators would offer discounted access fees for cards
    linked to lower-cost ATM networks, and this discounting
    would create downward pressure on access fees generally.
    Osborn Prop. Compl. ¶ 94-107; Stoumbos Proposed Second
    Amended Complaint (“Stoumbos Prop. Compl.”) ¶¶ 81-100.
    Economic harm, such as that alleged here, “is a classic
    form of injury-in-fact.” Danvers Motor Co. v. Ford Motor
    Co., 
    432 F.3d 286
    , 293 (3d Cir. 2005). But the Defendants
    painted Plaintiffs’ allegations as speculative and conclusory,
    and the District Court agreed. NAC II, 7 F. Supp. 3d at 60.
    The District Court reasoned that the “protracted chain of
    causation” alleged by Plaintiffs “fails both because of the
    uncertainty of several individual links and because of the
    number of speculative links that must hold for the chain to
    connect the challenged acts to the asserted particularized
    injury.” Id. (quoting Fla. Audubon Soc’y v. Bentsen, 
    94 F.3d 658
    , 670 (D.C. Cir. 1996) (en banc)) (internal quotation
    marks omitted). This was error.
    At the pleadings stage, a court “must accept as true all
    material allegations of the complaint,” Warth v. Seldin, 
    422 U.S. 490
    , 501 (1975), an obligation that we have recognized
    “might appear to be in tension with the Court’s further
    12
    admonition that an allegation of injury or of redressability that
    is too speculative will not suffice to invoke the federal judicial
    power,” United Transp. Union v. ICC, 
    891 F.2d 908
    , 911
    (D.C. Cir. 1989) (internal quotation marks omitted). But “this
    ostensible tension is reconciled by distinguishing allegations
    of facts, either historical or otherwise demonstrable, from
    allegations that are really predictions.” 
    Id. at 912
     (emphasis
    added). Thus, “[w]hen considering any chain of allegations
    for standing purposes, we may reject as overly speculative . . .
    those types of allegations that are not normally susceptible of
    labelling as ‘true’ or ‘false.’” 
    Id.
    Plaintiffs’ theories here are susceptible to proof at trial.
    The Plaintiffs allege a system in which Visa and MasterCard
    insulate their networks from price competition from other
    networks. This insulation yields higher profits for Visa and
    MasterCard (and higher returns for their shareholders), at the
    cost of consumers and independent ATM operators. The
    economic injury alleged is present and ongoing.
    Moreover, the complaints contain factual details,
    including details about the Plaintiffs’ own conduct, that
    support the alleged causal link between the Access Fee Rules
    and the economic harm. According to the Plaintiffs, Visa and
    MasterCard currently capture over half of all ATM
    transactions, despite charging higher fees than rival networks.
    See Osborn Prop. Compl. ¶¶ 91, 101. Plaintiffs further allege
    that independent ATM operators (such as the operator
    plaintiffs) have the desire and technical capacity to offer
    discounts on cards linked to low-cost networks. See NAC
    Prop. Compl. ¶¶ 79, 82; Stoumbos Prop. Compl. ¶ 85. They
    contend that consumers, such as Stoumbos and the Osborn
    plaintiffs, are “sensitive to differences in ATM Access Fees
    and where possible will seek out ATMs with the lowest
    13
    Access Fees.” Stoumbos Prop. Compl. ¶ 86; accord Osborn
    Prop. Compl. ¶ 105.
    To be certain, Plaintiffs also rely on certain economic
    assumptions about supply and demand: that other consumers
    besides the Plaintiffs are price conscious; that bank operators
    will respond to consumer demand for cards tied to low-cost
    networks; and that in the face of competitive pressure, ATM
    networks will reduce their network fees. But these sorts of
    assumptions are provable at trial. See United Transp. Union,
    
    891 F.2d at
    912 n.7 (allegations “founded on economic
    principles,” while “perhaps not as reliable as allegations based
    on the laws of physics, are at least more akin to demonstrable
    facts than are predictions based only on speculation.”); Ill.
    Brick Co. v. Illinois, 
    431 U.S. 720
    , 758 (1977) (recognizing,
    in the context of damages, that antitrust cases often involve
    “tracing a cost increase through several levels of a chain of
    distribution”). Indeed, allegations of economic harm “based
    on standard principles of ‘supply and demand’” are “routinely
    credited by courts in a variety of contexts.” Adams v. Watson,
    
    10 F.3d 915
    , 923 (1st Cir. 1993).
    In deciding that the Plaintiffs had failed to establish
    injury and redressability, the District Court relied on cases
    that had been decided at summary judgment. See NAC II, 7 F.
    Supp. 3d at 60 (citing Lujan, 
    504 U.S. at 560-61
    ; Valley
    Forge Christian Coll. v. Ams. United for Separation of
    Church and State, Inc., 
    454 U.S. 464
    , 496 n.10 (1982); Fla.
    Audubon Soc’y, 94 F.3d at 670); see also NAC I, 922 F. Supp.
    2d at 81 (citing Dominguez v. UAL Corp., 
    666 F.3d 1359
    ,
    1362 (D.C. Cir. 2012); Gerlinger v. Amazon.com Inc.;
    Borders Group, Inc., 
    526 F.3d 1253
    , 1255-56 (9th Cir.
    2008)). On a motion for summary judgment by a defendant,
    the question is not whether the plaintiff has asserted a
    plausible theory of harm, but rather whether the plaintiff has
    14
    offered sufficient evidence for a reasonable jury to conclude
    that its theory is correct. See Fla. Audubon Soc’y, 94 F.3d at
    672 (at summary judgment, the court “need not accept
    appellants’ alleged chain of events if they are unable to
    demonstrate competent evidence to support each link”);
    Dominguez, 666 F.3d at 1362-64 (evaluating plaintiff’s theory
    of supra-competitive pricing and concluding that no record
    evidence supported its theory of harm). A Rule 12(b)(1)
    motion, however, is not the occasion for evaluating the
    empirical accuracy of an economic theory. Because the
    economic facts alleged by the Plaintiffs are specific, plausible,
    and susceptible to proof at trial, they pass muster for standing
    purposes at the pleadings stage.
    B.
    We next turn to the District Court’s alternative holding
    that the Plaintiffs failed to plead adequate facts to establish
    the existence of concerted activity. Under the familiar
    Twombly-Iqbal standard, “[t]o survive a motion to dismiss, a
    complaint must contain sufficient factual matter, accepted as
    true, to state a claim to relief that is plausible on its face.’”
    Jones v. Horne, 
    634 F.3d 588
    , 595 (D.C. Cir. 2011) (quoting
    Ashcroft v. Iqbal, 
    556 U.S. 662
    , 678 (2009)).
    Section 1 of the Sherman Act prohibits any “contract,
    combination . . . or conspiracy, in restraint of trade or
    commerce.” 
    15 U.S.C. § 1
    . Thus, to make out a claim under
    this section, the Plaintiffs must allege that “the challenged
    anticompetitive conduct stems from . . . an agreement, tacit or
    express.” Bell Atl. Corp. v. Twombly, 
    550 U.S. 544
    , 553
    (2007) (internal quotation marks and brackets omitted). If
    such an agreement is among competitors, we refer to it as a
    horizontal restraint. See Bus. Electronics Corp. v. Sharp
    Electronics Corp., 
    485 U.S. 717
    , 730 (1988) (contrasting
    15
    horizontal agreements from vertical restraints imposed by
    firms at different levels of distribution). The complaints are
    sufficient if they contain “enough factual matter (taken as
    true) to suggest that an agreement was made.” Id. at 556. We
    conclude that the Plaintiffs have alleged a horizontal
    agreement to restrain trade that suffices at the pleadings stage.
    According to the Plaintiffs, the member banks developed
    and adopted the Access Fee Rules when the banks controlled
    Visa and MasterCard. The rules served several purposes.
    First and foremost, the rules protected Visa and MasterCard
    from competition with lower-cost ATM networks, thereby
    permitting Visa and MasterCard to charge supra-competitive
    fees. Osborn Prop. Compl. ¶ 80. The rules also benefited the
    banks, who were equity shareholders of the associations (and
    therefore financial beneficiaries of the deal). Id. ¶¶ 116-117.
    And the rules protected banks from competition with each
    other over the types of bugs offered on bank cards. See id.
    ¶ 80 (alleging that “banks were assured that their MasterCard
    customers would not have to pay more in fees than their Visa
    cardholders, and they would not face competition at the
    network level”).
    That the rules were adopted by Visa and MasterCard as
    single entities does not preclude a finding of concerted action.
    The Supreme Court has “long held that concerted action
    under [Section] 1 does not turn simply on whether the parties
    involved are legally distinct entities,” but rather depends upon
    “a functional consideration of how the parties involved in the
    alleged anticompetitive conduct actually operate.” Am.
    Needle, Inc. v. Nat’l Football League, 
    560 U.S. 183
    , 191
    (2010). Thus, “a legally single entity violate[s] [Section] 1
    when the entity [i]s controlled by a group of competitors and
    serve[s], in essence, as a vehicle for ongoing concerted
    activity.” 
    Id.
    16
    The allegations here – that a group of retail banks fixed
    an element of access fee pricing through bankcard association
    rules – describe the sort of concerted action necessary to make
    out a Section 1 claim. See, e.g., Nat’l Soc’y of Prof’l Eng’rs
    v. United States, 
    435 U.S. 679
     (1978) (upholding antitrust
    action against association that imposed ethical rule
    prohibiting competitive bidding by members); Robertson v.
    Sea Pines Real Estate Cos., 
    679 F.3d 278
    , 288-89 (4th Cir.
    2012) (finding adequate allegations that real estate brokerages
    agreed to restrain market competition through anticompetitive
    service rules in their joint venture). Indeed, in 2003 the
    Second Circuit upheld a trial court’s finding that rules
    adopted by Visa and MasterCard that prohibited member
    banks from issuing American Express or Discover cards
    violated Section 1 of the Act. United States v. Visa U.S.A.,
    Inc., 
    344 F.3d 229
     (2d Cir. 2003) (affirming United States v.
    Visa U.S.A., Inc., 
    163 F. Supp. 2d 322
     (S.D.N.Y. 2001)).
    The Defendants correctly observe that “[m]ere
    membership in associations is not enough to establish
    participation in a conspiracy with other members of those
    associations.” Fed. Prescription Serv., Inc. v. Am. Pharm.
    Ass’n, 
    663 F.2d 253
    , 265 (D.C. Cir. 1981); see also Kendall v.
    Visa U.S.A., Inc., 
    518 F.3d 1042
    , 1048 (9th Cir. 2008)
    (“[M]embership in an association does not render an
    association’s members automatically liable for antitrust
    violations committed by the association.”). But the Plaintiffs
    here have done much more than allege “mere membership.”
    They have alleged that the member banks used the bankcard
    associations to adopt and enforce a supracompetitive pricing
    regime for ATM access fees. See, e.g., Osborn Prop. Compl.
    ¶ 81 (“The unreasonable restraints . . . originated in the rules
    of the former bankcard associations agreed to by the banks
    themselves.”) (emphasis added); NAC Prop. Comp. ¶¶ 89-90
    (alleging that member banks appointed representatives to the
    17
    bankcard associations’ Boards of Directors, which in turn
    established the anticompetitive access fee rules, with the
    cooperation and assent of the member banks). That is enough
    to satisfy the plausibility standard.
    Defendants next seek refuge in the fact that the banks
    reorganized MasterCard and Visa as publicly held
    corporations in 2006 and 2008, respectively. The Defendants
    contend that even if there had been agreements or
    conspiracies, the public offerings terminated them. See
    Appellees’ Br. 40-41. In their view, the offering constituted a
    withdrawal by the member banks – and with that withdrawal,
    the cessation of any concerted action. The Rules that
    remained intact no longer represented an agreement by the
    member banks, but rather unilateral impositions by the
    bankcard associations themselves, over which the banks no
    longer had control.
    To establish withdrawal, a defendant may show that it
    has taken “[a]ffirmative acts inconsistent with the object of
    the conspiracy and communicated in a manner reasonably
    calculated to reach co-conspirators.” United States v. U.S.
    Gypsum Co., 
    438 U.S. 422
    , 464 (1978); accord Watson
    Carpet & Floor Covering, Inc. v. Mohawk Indus., Inc., 
    648 F.3d 452
    , 460 (6th Cir. 2011); In re Brand Name Prescription
    Drugs Antitrust Litig., 
    123 F.3d 599
    , 616 (7th Cir. 1997).
    Even where a member of the conspiracy appears to sever ties
    with other co-conspirators, there is no withdrawal if that
    member continues to support or benefit from the agreement.
    See United States v. Eisen, 
    974 F.2d 246
    , 269 (2d Cir. 1992)
    (finding no withdrawal from conspiracy where defendant
    resigned from corrupt firm but continued to receive a portion
    of profits); United States v. Antar, 
    53 F.3d 568
    , 583 (3d Cir.
    1995) (holding that resignation from conspiracy is insufficient
    if the defendant “continues to do acts in furtherance of the
    18
    conspiracy and continues to receive benefits from the
    conspiracy’s operations”), overruled on other grounds, Smith
    v. Berg, 
    247 F.3d 532
    , 534 (3d Cir. 2001). Whether there was
    an effective withdrawal is typically a question of fact for the
    jury. See United States v. Bafia, 
    949 F.2d 1465
    , 1480 (7th
    Cir. 1991); In re Cathode Ray Tube (CRT) Antitrust Litig.,
    No. C-07-5944, 
    2014 WL 1091589
    , at *9 (N.D. Cal. Mar. 13,
    2014) (noting that withdrawal generally “is a fact-sensitive
    affirmative defense”).
    According to the complaints, each member bank “knew
    and understood that it and each and every other member of
    the applicable network would agree or continue to agree to be
    bound” by the rules both before and after the public offerings.
    NAC Prop. Compl. ¶ 102. To support that allegation, the
    plaintiffs point out that the banks have continued to issue
    Visa- and MasterCard-branded cards and to comply with the
    Access Fee Rules at their own ATMs. 
    Id. ¶¶ 101, 103
    .
    Furthermore, even though the banks no longer directly control
    Visa and MasterCard, the plaintiffs observe, the banks work
    with those associations to route more transactions over their
    networks. For example, at least some member banks offer
    single-bug cards so that independent ATM operators have no
    choice but to run those transactions over a high-cost network
    run by Visa or MasterCard. See Osborn Prop. Compl. ¶¶ 83-
    85 (alleging that Bank of America, Wells Fargo, and Chase
    struck deals with Visa to drop alternative networks); 
    id. ¶ 87
    (alleging that Capital One and Fifth Third banks offer
    MasterCard debit cards with no rival bugs on the back).
    Based on these allegations, a jury could no doubt conclude
    that, in so doing, the banks continue to protect Visa and
    MasterCard from price competition.
    Plaintiffs also allege that several member banks continue
    to benefit indirectly from the Access Fee Rules. Because the
    19
    major banks still own shares in Visa and MasterCard, see
    NAC Prop. Compl ¶¶ 99-100; Osborn Prop. Compl. ¶¶ 116-
    117, it can be inferred that the banks reap some ongoing
    financial benefit from increased profits at Visa and
    MasterCard. And by removing any incentive for customers to
    demand multi-bugged debit cards, the banks are able to avoid
    competition with each other on network offerings attached to
    their cards. See NAC Prop. Compl. ¶ 105 (referring to
    “collusive agreement not to compete on the basis of the
    efficiency of each bank’s ATM services”).
    We therefore reject the Defendants’ assertion that the
    public offerings dispelled any hint of conspiracy. The
    Plaintiffs have adequately alleged an agreement that
    originated when the member banks owned and operated Visa
    and MasterCard and which continued even after the public
    offerings of those associations. 3
    In a final attempt to defeat the proposed complaints, the
    Defendants contend that even if the Plaintiffs have adequately
    pleaded standing and agreement, they have failed to state a
    claim because their allegations do not establish antitrust
    injury. Appellees’ Br. 21-22; see Brunswick Corp. v. Pueblo
    Bowl-O-Mat, Inc., 
    429 U.S. 477
    , 489 (1977) (defining
    antitrust injury as “injury of the type the antitrust laws were
    intended to prevent and that flows from that which makes
    defendants’ acts unlawful.”). The Defendants do not provide
    3
    The Plaintiffs plead in the alternative that the Access Fee Rules
    constitute unlawful vertical conspiracies to restrain trade. See
    Osborn Prop. Compl. ¶¶ 155-170; NAC Prop. Compl. ¶¶ 125-134.
    Stoumbos puts forward an alternative theory that the rules stem
    from unlawful “hub-and-spoke” conspiracies. See Stoumbos Prop.
    Compl. ¶ 53. Because we conclude that the proposed amended
    complaints allege a horizontal conspiracy, we do not reach the
    question of whether Plaintiffs’ alternative theories are tenable.
    20
    a meaningful argument as to why antitrust standing is not
    present here, where the Plaintiffs have alleged that the Access
    Fee Rules chill competition among network service providers,
    leading to artificially high access fees for consumers and
    artificially low margins for the Defendants. See, e.g., NAC
    Prop. Compl. ¶ 108 (arguing that Defendants’ anticompetitive
    conduct has forced the independent operators to pay supra-
    competitive network fees). We therefore decline Defendants’
    invitation to affirm on that basis.
    III.
    For the foregoing reasons, we hold that the District Court
    erred in concluding that the Plaintiffs had failed to plead
    adequate facts to establish standing or the existence of a
    horizontal conspiracy to restrain trade. We therefore vacate
    the District Court’s December 19 order denying the Plaintiffs’
    motion to amend the judgment, and we remand for further
    proceedings consistent with this opinion.4
    So ordered.
    4
    As futility was the sole ground articulated by the District Court
    for denying the Plaintiffs’ motions to amend the judgment and to
    file amended complaints, we see no reason that the motions should
    not be granted on remand. See Foman, 
    371 U.S. at 181-82
    (explaining that if “the underlying facts or circumstances relied
    upon by a plaintiff may be a proper subject of relief, he ought to be
    afforded an opportunity to test his claim on the merits”); Ciralsky,
    
    355 F.3d at 672-73
     (recognizing that it may be appropriate to
    convert a judgment that dismisses a case into an order dismissing a
    complaint for statute of limitations purpose). But we leave this
    discretionary decision to the district judge, see Firestone, 
    76 F.3d at 1208
    , whose view of the case is more nuanced than our own.
    

Document Info

Docket Number: 14-7004, 14-7005, 14-7006

Citation Numbers: 418 U.S. App. D.C. 193, 797 F.3d 1057, 2015 U.S. App. LEXIS 13529, 2015 WL 4619874

Judges: Tatel, Srinivasan, Wilkins

Filed Date: 8/4/2015

Precedential Status: Precedential

Modified Date: 11/5/2024

Authorities (28)

American Needle, Inc. v. National Football League , 130 S. Ct. 2201 ( 2010 )

Valley Forge Christian College v. Americans United for ... , 102 S. Ct. 752 ( 1982 )

English-Speaking Un v. Johnson, James , 353 F.3d 1013 ( 2004 )

In Re Brand Name Prescription Drugs Antitrust Litigation. ... , 123 F.3d 599 ( 1997 )

Warth v. Seldin , 95 S. Ct. 2197 ( 1975 )

United States v. Visa U.S.A. Inc. , 163 F. Supp. 2d 322 ( 2001 )

Myrna O'Dell Firestone v. Leonard K. Firestone , 76 F.3d 1205 ( 1996 )

United States v. Visa U.S.A., Inc., Visa International Corp.... , 344 F.3d 229 ( 2003 )

Browder v. Director, Dept. of Corrections of Ill. , 98 S. Ct. 556 ( 1978 )

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc. , 97 S. Ct. 690 ( 1977 )

Illinois Brick Co. v. Illinois , 97 S. Ct. 2061 ( 1977 )

Lujan v. Defenders of Wildlife , 112 S. Ct. 2130 ( 1992 )

Bell Atlantic Corp. v. Twombly , 127 S. Ct. 1955 ( 2007 )

Ashcroft v. Iqbal , 129 S. Ct. 1937 ( 2009 )

Adams v. Watson, Etc. , 10 F.3d 915 ( 1993 )

Jones v. Horne , 634 F.3d 588 ( 2011 )

Kim v. United States , 632 F.3d 713 ( 2011 )

Kendall v. Visa U.S.A., Inc. , 518 F.3d 1042 ( 2008 )

Gerlinger v. Amazon. Com, Inc. , 526 F.3d 1253 ( 2008 )

Robertson v. SEA PINES REAL ESTATE COMPANIES, INC. , 679 F.3d 278 ( 2012 )

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