Read Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel Online

Authors: Lloyd Constantine

Tags: #Antitrust, #Business & Economics, #History, #Law, #Nonfiction, #Retail

Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (28 page)

BOOK: Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel
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You know, it was nice to get a few billion dollars in damages, and that was fine. But it’s a much less significant result than what’s going to happen in the future. When we began this case, there were $20 to $30 billion a year in these transactions. This year, there will be $400 billion. By the end of the decade, there’ll be over a trillion dollars annually in these transactions.

So the dimensions of this are getting greater and greater. The harm was getting greater and greater. Therefore, the benefit going forward will be greater and greater. And so, the real benefit of this is a better deal for merchants and a better deal for American consumers.

REPORTER: Can you sort of walk us through how this deal came together in the last twenty-four hours? And what effect did the MasterCard settlement on Monday have on these talks?

LLOYD CONSTANTINE: I can barely walk, let alone walk you through it.
(laughter)

It actually came together over the last week. And what happened in the last week—and I’m smiling now, but it was—it was a rough week. It was a rough week for everybody—for our clients, for our adversaries who are, you know, fine people, and for us here.

Around a week ago, Judge John Gleeson called all of the major parties into New York and asked them to seriously consider whether
or not they should go to trial on this case with such high stakes because he believed there was a resolution and a compromise which would best serve the interests of all the parties and the American economy. And so, all of the top executives from Sears and Wal-Mart and Circuit City and Safeway and The Limited and The National Retail Federation and The Food Marketing Institute and The International Mass Retail Association on our side and Visa and MasterCard and many bank executives from Bank of America and Banc One and Chase and Citicorp all arrived in New York and began a series of very, very arduous shuttle negotiations supervised by the court.

And that went on for the entire week, including the entire weekend, late into the night well into the morning. Some of the people who are standing here were involved in that. Some of those negotiations took place here. Some took place at another law firm. Many of those took place right in the courthouse. Judge Gleeson essentially commandeered the courthouse, made available jury rooms and back rooms and his chambers and empty courtrooms to put all these various people in because there had to be lots of different conversations between groups of business people and lawyers and with the judge and without the judge, and that all took place literally on a twenty-four-hour basis for the entire week.

And it was through that process—through that very painful process—both physically painful and emotionally painful—that the resolution in this case was hammered out. And I think everybody on all sides of this case owes a debt of gratitude to that judge because in my thirty-one years of practice, I have never seen a judge handle something on one level with such vigor but on another level with such intelligence. So that’s how it happened.

REPORTER: . . . from CNN. If you could prove what your damages were—and I believe antitrust cases have settled at so many treble
damages—why would you settle for only one or two billion when you can calculate damages way higher than that number?

LLOYD CONSTANTINE: If we could have proven our damage methodology, we would have wound up with a gazillion dollars, OK? And that gazillion dollars would have been like Confederate money—for a variety of reasons. One, there is no way that either of the associations had the ability to pay that. Two, they would have launched off on an appellate process, which would have taken up until 2007. We would have probably been up to the Supreme Court again. You know, we’ve already been to the Supreme Court on this case once. It took two-and-a-half years’ delay.

So we would have been in 2006 or 2007 before we would have seen any of that—any of that money. In the meantime, the injunction was the issue. In those two to three years, an additional $30 to $40 billion in real tangible damage would have been done to American stores and American consumers. And so, while it was nice to collect $3, $4 billion—that was, and that’s what, we got. That paled in comparison—was so insignificant to stopping this—to stopping it right in its tracks.

The best thing that’s happening right now is that on May 1, you know, we have stopped this. There will be great reductions on August i. And our merchants will be free and American consumers will be free on January 1, 2004. That would have not have happened if we had won a trillion dollars times three.

The collectibility of that money was seriously in doubt, and we knew there was no doubt that that day would have been many years from now. And that is—that is one of the issues which the judge I think quite wisely impressed upon us, that you can have a paper
judgment, but you will not get the injunctive relief which you can get right now
[(inaudible)]
he said, “You have won this case.”

reporter: So this settlement precludes merchants following up on their own then?

Lloyd Constantine: Well, going forward, merchants can do what they want. But in terms of the case that we filed on October 25, 1996, it is concluded. Now, it’s not completely concluded. There’s going to be a notification to five million merchants, which will be sent out. They will have an opportunity to say what they think about this—to object. And that—there’s a process, and we honor that process.

So five million merchants will get a notice, and they’ll be able to say, “Lloyd, you didn’t do a good enough job,” if that’s what they think. But we are very proud of what we’ve done. And I think that the people around here are proud of what we’ve achieved.

REPORTER: What is the plan for dividing up the money among the retailers? And can you talk a little bit more about what the process is for getting this approved. . . .

LLOYD CONSTANTINE: Sure, sure. Again, and I think I can’t stress enough how important the going-forward injunction is. But in terms of the few billion dollars that we’re going to collect here, the plan is very simple.

Every merchant in the United States is treated exactly equally. The five merchants who originally brought the case, and then there were 12 additional smaller merchants who joined in, will get exactly—you know, according to the exact same formula—as every small, large, or medium-sized merchant in the United
States. It is completely based upon their forced purchase of Visa and MasterCard off-line signature debit transactions.

So if they’ve purchased, you know, a million dollars of those, they will get something based upon that purchase. If they’ve purchased $100,000 of those, they will get something based upon that. It will be directly proportional to the number of those transactions and the value of those transactions that were forced on them.

So it’s quite simple. Everybody gets treated equally. It’s all subject to court approval. At the end of the day, the judge will sign off on it, so it will be his plan. Everything from this time on is the judge’s plan. He has to approve everything. He has to protect the interests of those five million merchants. And he also sees very much his role in protecting American consumers in this case. I know that because he told it to us.

REPORTER: What would you say was the toughest part of the agreement to reach?

LLOYD CONSTANTINE: I think the toughest part of the agreement on both sides, and I shouldn’t speak for my adversaries, but it was surrendering and letting go, and we had to surrender, too. We had to surrender, you know, our vision of a wonderful trial, of a beautiful opening argument. All the people around me you see, have worked inhumane hours for years, absolutely—I mean, I have never seen a level of dedication like this, and I assume the same thing was happening on the other side. You fall in love with your direct examination of Ms. Jones or Mr. Smith. You fall in love with the perfect cross-examination that you’ve prepared for Carl Pascarella or Bob Selander. You fall in love with your opening argument. I’m going to keep my opening argument in a box, you know, the way Alexander the Great kept the Iliad in a box. I’m going to keep that in a box; I think mine is slightly better, but I’m going to do that.

And all of the people here have those things. To surrender that on behalf of your clients, on behalf of consumers, is a tough thing to do, so surrendering that has been the hardest part. On the other side, they had an almost religious fervor about some of their rules. They really truly believed in those rules, and they had to surrender that as well. So, the hardest part was not the physical torture which we went through, the hardest part was surrendering—it was the hardest part for me. In that respect, I think Judge Gleeson helped us.

REPORTER: You mentioned the inhumane hours that you’ve been working back since 1996. How do you get compensated for those hours?

LLOYD CONSTANTINE: We get compensated by Judge Gleeson. The way that you get compensated in a class action is that you submit a plan to the judge, who approves it. You make sure that it’s fair and equitable, and he decides what you get paid. And I can tell you that right now that is the last thing on my mind.

The only reason that the people around here would work as hard as we’ve worked was for two reasons. One for the results; for our clients and for consumers. The other thing is for the work, for the joy of the work. It’s hard, but it’s joyful, and you cannot do it unless you have joy in it. So some day down the line, we’ll put together a fee application, Judge Gleeson will get it, he’ll say whether we did a good job or a bad job, and we get paid what he says.

Books that recount an event from one person’s perspective frequently resort to descriptions of the “worst moment,” “best moment,” “hardest thing,” and other subjective reactions stated in the superlative. This book inevitably has its share. Here is the only moment, in this very long case, that made me cry. The proud father of one of C&P’s lawyers attended the press conference. He forwarded a copy of the transcript
to Paul Ward, a colleague of his who was a high-level aide to Cardinal Egan in the New York Archdiocese. Ward’s reactions were passed along to me.

. . . I really appreciated Lloyd’s comments about the need to “surrender” in order to do something that makes sense or that is good. When you think about it spiritually, it’s very Christ-like: “whoever would save his life must lose it.”

The tears shed after reading these comments helped this Jewish man reach emotional closure with the settlement.

After that May 1, 2003, news conference, we began to work on a fully fleshed-out final settlement, which was signed on June 5, 2003. The settlement provided a bundle of very complicated and important injunctive relief for the merchants. But the simplest and most important provisions of the settlement were the following seven, in the exact words and order of priority assigned to them in Judge Gleeson’s December 19, 2003, decision approving the settlement, followed by my bracketed explanations where necessary.

(1) “The cessation, as of January 1, 2004, of defendants’ ‘Honor All Cards’ rules, by which the defendants’ debit card services to merchants were tied to their credit card services.”
[The tying arrangements cease.]

(2) “The creation of a $3.05 billion settlement fund.”
[Paid by Visa/MasterCard
.]

(3) “The creation of clear conspicuous and uniform visual identifiers on Visa and MasterCard debit cards by January 1, 2007 (80% by July 1, 2005), so merchants and consumers can distinguish
these products from credit cards.”
[The reissuance or more than 250 million cards with the word “DEBIT” clearly and conspicuously placed directly above the Visa and MasterCard names. That new DEBIT identification on all future cards, already numbering over 500 million.]

(4) “The lowering, by roughly one third, of the interchange rates on debit products for the period from August 1, 2003, through December 31, 2003.”
[A price decrease to merchants in that brief period amounting to more than $1 billion and which continued beyond that period.]

(5) “Other injunctive relief, such as the provision of signage from defendants to merchants communicating the merchants’ acceptance of defendants’ untied debit products; and a prohibition on defendants enacting any rules that prohibit merchants from encouraging or steering customers to use forms of payment other than defendants’ debit cards, including by discounting other forms of payment.”
[Visa and MasterCard had to make it easy for merchants to choose whether to continue accepting untied debit cards and credit cards and provide multiple notices and signage to ease this process. Visa and MasterCard had to stop preventing stores from urging their customers to use other forms of payment.]

(6) “The Court’s continuing jurisdiction to ensure compliance with the Settlement.”
[The Court makes sure that all the relief that Visa and MasterCard agreed to provide is in fact provided. Court supervision continues today and will continue.]

(7) “The release of Visa and MasterCard from claims arising out of the conduct at issue in the action prior to January 1, 2004.”
[Visa and MasterCard must live up to their obligations
under the Settlement, other than that their part of the
Merchants’
case is over. The Court and C&P (now Constantine Cannon) still have work to do and are still doing it.]

Judge Gleeson’s description of the core relief in the settlement was concise and impeccable. I generally agree with his order of priority, believing that prohibiting the “Honor All Cards” tying arrangements was the most important relief. However, I would shift his number three to second place, because I also consider the redesign and replacement of more than 250 million debit cards (and billions of future cards) with clear, conspicuous and uniform debit identification to be more important than the cash payment of $3.05 billion, even though this was by far the largest monetary recovery in any federal antitrust case. Judge Gleeson found that the total present value of the compensatory relief recovered (including the immediate mandated price drop) was $3.383 billion, a figure that exceeded the compensatory relief in the previous eight highest federal antitrust class action recoveries,
combined
!

BOOK: Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel
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