Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (27 page)

I had worked toward this moment for twelve years and didn’t want to win my Wimbledon on what would feel like a default. In resisting Judge Gleeson’s demand that we take our victory and do the right thing for the small stores, I tried to hide behind my huge retailer clients. I told Judge Gleeson that I could not force these big guys to settle. After all, I was just their lawyer. He responded, “This is your case. You are counsel for the entire class and have a responsibility to all of them. You can settle this case even without the consent of any of the five big stores.”

I told Judge Gleeson I knew that he was technically correct, but after their years of expensive, noble, and unselfish service as champions for the class, I probably would not settle without their consensus approval. Instead, I would convince them to settle, but only if I was convinced that it was the right thing to do. My heart said it was wrong to settle, but my brain said it was right. So, I convinced them. But it was very painful and took not hours or days but six weeks.

My clients agreed to settle in three stages. The first was on my “verbal handshake” with MasterCard at 4:45 AM on April 28, 2003, while I was lying on a king-sized bed with Bob Begleiter, Mitch Shapiro, and George Sampson in the Marriott Hotel in downtown Brooklyn. Later that morning, we picked the jury, and I was scheduled to give my opening argument. The second stage was when we signed written memoranda of understanding with both Visa and MasterCard on the evening of April 30 in the offices of Simpson Thacher, a firm brought in by MasterCard toward the end of the case. This came after the trial team, for the second time, completely reformatted the case, this time for a trial against Visa only. They did this in only sixty hours.

The third-stage final settlements were long, detailed, and heavily negotiated documents. They are dated June 4, 2003, but were actually signed on June 5, at 5:30 AM in C&P’s midtown office. After I signed them, I went directly to play squash and, after that, to a long-deferred appointment with a podiatrist at the Hospital for Special Surgery. He took one look at me, told me I was dangerously dehydrated, and instead of treating my injured foot, sent me to my internist, Larry Inra, who immediately sent me to a gastroenterologist, Paul Miskovitz, who put me on medication for dehydration, which had been worsening for months. Two weeks after the January 2003 summary judgment hearing, my exhaustion and dehydration caused me to lock up at the midtown Marriott Marquis Hotel, where I was chairing a panel on “Antitrust Federalism—The Clash between Federal and State Enforcement.” The speakers, including Debbie Majoras, later “chairman” of the FTC, and Eliot Spitzer, then New York’s attorney general, asked me why I wouldn’t sit down. I lied and claimed nervousness. Marty Jaramillo, the chief physical therapist at the Hospital for Special Surgery was dispatched, met me in a hotel room, massaged me until I could bend, and got me to drink two quarts of salty liquids. Nevertheless, the condition
persisted for months. On June 5, the gastroenterologist ordered me not to travel to Australia as I was scheduled to later that week. He said the long flight would seriously exacerbate my severe dehydration. I complied and waited a few days to follow Jan and see our “baby,” Elizabeth, who was in Tasmania as an exchange student. When I returned to the U.S. and had my deferred visit with Dr. Rock Positano, the foot guy, he confirmed what the gastroenterologist had told me—had I taken the 20-plus-hour direct flight to Sydney, Australia, without being treated for dehydration, I might have died.

While all this was happening, I thought about a five-set third- round match I had attended between Jim Courier and Sjeng Schalken at Wimbledon in 1999. After the conclusion of the fifth set, which Courier won 13–11, both players were taken to the hospital and treated for dehydration. I was one of the few Americans to watch the entire match on a small and intimate Wimbledon side court. All by myself, I matched the volume and intensity of a screaming bunch of face- painted Dutchmen rooting for Schalken. As Courier left the court to go to the hospital, he turned directly to me and thrust his clenched fist at me in victory and appreciation for my patriotic and rowdy support. As the doctor re-hydrated me on June 5, 2003, I thought of Jim Courier, clenched my fist and sent him telepathic thanks for giving me something to emulate.

D
URING THE EVENING of April 30, I accepted the fact that the case would settle. That night, the merchants, MasterCard, and Visa signed short-form, but binding, memoranda of understanding containing the outlines of the settlement. At that moment, I surrendered my plans for a beautiful trial. The next day, I settled my bill at the Brooklyn Marriott, where the weekend before, I had checked in for ninety-two days. Several circumstances delayed the depression that I eventually experienced. That night, the demons were warded off by sheer physical exhaustion and a comic incident.

I signed the MasterCard agreement early in the evening and the Visa agreement at 10:00 PM. At about 10:15 PM, the lawyers for all the parties were summoned to a hearing by teleconference on a motion that Visa had just made. Visa was asking Judge Gleeson to lift the gag order he had imposed on the parties two days earlier.

After we had shaken hands with MasterCard on April 28, Judge Gleeson had prohibited any party from publicly discussing the verbal MasterCard settlement or the ongoing settlement negotiations involving Visa. This had been done to protect Visa, as much as possible, from the impact that MasterCard’s billion-dollar-plus settlement might have
on a jury who had been read a jury questionnaire telling them that the merchants of America were accusing Visa
and
MasterCard of engaging in an antitrust conspiracy. The jury might infer Visa’s culpability from MasterCard’s settlement and its payment of such a large sum of money.

Someone, however, had leaked the MasterCard settlement to the press. An article describing the verbal settlement, with specifics that could only be known by an insider, appeared on the front page of the
Wall Street Journal
on April 29. My speculation is that MasterCard leaked their own settlement and that they did it in an effort to control the spin. If they leaked the story, and for that reason, the strategy failed. There’s just no way to put a positive spin on more than a billion dollars, plus a massive price reduction and the surrender of a basic business practice that you have repeatedly told the press is a necessity for your business, is good for consumers, and will be defended until the end of time.

Once the MasterCard settlement was leaked to the
Wall Street Journal
, articles appeared in hundreds of other media outlets on April 30. At some point that day, Visa released a statement in blatant violation of the gag order. Now Visa was asking Judge Gleeson to lift the gag order it had already violated. Coming at the very end of an incredibly tense month, this was not as funny as it sounds, and Judge Gleeson was not amused. He ripped into Visa as they began to argue that they had violated the gag order only because they were sure that either the merchants or MasterCard must have violated it first. MasterCard’s indignance, contrived or genuine, made the situation even worse. I just kept my mouth shut, which is as hard as it is rare for me.

After threatening contempt against Visa, Judge Gleeson pointed out that he had imposed the gag order for Visa’s benefit. We all knew that Gleeson properly didn’t like gag orders or any impediments to press and public scrutiny of his courtroom and proceedings. When Gleeson granted the
Wall Street Journal
’s motion to open up the files
back in June 2002, he had gone well beyond the
Journal
’s request and unsealed virtually everything. On that night of April 30, 2003, Judge Gleeson kept the gag order in place only until the next morning to enable MasterCard to get their press office ready. They claimed to need this extra time. Our press consultant, Kent Jarrell, was ready and scheduled a news conference for the next morning.

The news conference proved to be a catharsis for me. I got to say precisely what I thought about the settlements and the process that had produced them, without time to edit, embellish, or rationalize. Here is most of what I was asked, and said, similarly unedited:

Lloyd Constantine: I am the managing partner of this law firm, Constantine & Partners—good name—and I’m lead counsel for the merchants in this litigation. And I’m happy to be joined by Bob Begleiter and George Sampson, my co-lead counsel. And all the people you see around me are the team that litigated this case, and they’re the people who won this case.

So, anyway, I’m glad to be here today, and I’ll just make a brief opening statement. I didn’t get to make my opening statement at the trial, so I’ll make my brief opening statement now, and then I’ll answer your questions.

We’re very happy today be-cause we feel that we have achieved a great result for our clients, which are virtually every store in the United States, every merchant in the United States, and virtually every consumer in the United States. This was a case against Visa and MasterCard, which is a cartel of 8,000 banks. Visa and MasterCard are owned by the same banks, they’re members of the same banks, and they do the same thing. And that’s what this case was about.

They imposed their regime of price-fixing and restraint of trade on merchants in America. They were forcing merchants in the
United States to take debit card transactions at credit card prices, they were denying merchants freedom of choice, and that imposed billions of dollars in extra cost on merchants every year. All those costs were passed along to consumers in the form of higher prices.

Beginning today, that is going to end almost immediately. As of May 1 of this year, merchants in the United States are being paid $50 million. Beginning on August 1 of this year, Visa and MasterCard prices and the prices of all of their banks are going to drop by more than a billion dollars to merchants just for the balance of this year, and that’s going to lead to lower prices for American shoppers.

Beginning in 2004—on January 1, 2004, merchants in the United States will have a right that they never had before, which is to freely choose to accept certain Visa or MasterCard products or not, based upon their quality and based upon their price. They just never had that opportunity before. And for the first time, they will have the opportunity to purchase the use of these services in a free and open market. And that’s going to lead to better products and lower prices for every store in the United States. We’re very happy about that. We’re very happy that the people who you see around you were able to deliver this result for every store in the United States and for every consumer in the United States. And it is an important achievement.

These people, this firm, and the other firms that assisted us went to battle with four of the finest and largest law firms in the world—Clifford Chance, Heller Ehrman, Simpson Thacher, and Arnold &Porter. And they were good, fine adversaries, but this group of people matched them and overmatched them on behalf of a very important cause—the cause of American consumers and American merchants where tens of millions—tens of millions of
Americans work. And so we’re very happy about that and very proud of our achievement.

And today is the beginning of a new day in the United States, where the system of free enterprise actually comes to Visa and MasterCard. And actually I think it’s a good day for them, too, because I think ultimately they will not only survive in that system, but they will thrive because the wisdom of the antitrust laws is that people do better when they compete. Starting today, Visa and MasterCard will compete for the business of merchants, for the business of consumers, and they will compete with each other. That’s a very important result. And this firm and all these people you see around me—we have some of our clients here from Sears Roebuck, as well, have worked really hard for this result. So, that’s what I have to say, and I will answer your questions.

REPORTER: Can you give us an example of how this might affect an individual store? I mean how the practice—what would the store have to pay, or the retailer have to pay, or the chain have to pay that it might not have had to pay?

LLOYD CONSTANTINE: It’s very, very simple. On August 1 of this year, Visa and MasterCard are going to drop their fees by at least a third on a bunch of products which will be sold in the United States for more than $400 billion in transactions this year. So, more—there will be more than $400 billion in debit transactions this year, and the prices of all those debit transactions will drop by a third or even more on August 1.

REPORTER: And what percentage of that $400 billion just represents the fee? I mean how much . . .

LLOYD CONSTANTINE: The fee is a percentage—usually somewhere between 1.5 percent and 2 percent of that transaction. That in and of itself amounts to billions of dollars a year.

For the rest of this decade, the court has estimated in a published decision that the value of the injunction that we won in this case is going to run between $63 billion and $100 billion in lower prices—lower costs to American stores, which is going to result in lower prices to American consumers. That’s not just our calculation. That’s a calculation of Federal District Judge John Gleeson and the Second Circuit Court of Appeals that the value of this injunction for the balance of the decade is worth somewhere between $63 and $100 billion. That’s the real worth of what we’ve achieved.