Opinion
DISCOVERY ORDER (Granting Docket # 265) FILED UNDER SEAL (Redacted Version)
James Larson, Chief Magistrate Judge
Introduction
All discovery in this case has been referred by the district court (Hon. Charles R. Breyer) as provided by 28 U.S.C. §636(b) and Civil Local Rule 72. Plaintiffs moved to compel production of documents by Defendants. The district court continued the motion for summary judgment for hearing on September 15, 2006 and in the meantime stayed all discovery except with respect to that motion. (Docket # 281) The motion to compel came on for hearing before this Court. Appearing for Plaintiffs were Joseph Saveri, Merrill Davidoff, Joshua Davis, Michael Kane, Paul Moore, Bart Cohen and Peter Leckman. Appearing for Defendants were: Gregory Koltun and Robert Stern for Bank One; Brian Wallach for Concord; Kristen Daru for Wachovia; Rachel Jones for Sun Trust; Carrie Anderson for Citibank; Joshua Holain for Wells Fargo and Tara Steeley for Bank of America. The Court heard oral argument and took the matter under submission. After considering the moving and opposing papers and the arguments of counsel, the Court hereby grants the motion. In light of the imminent deadline for Plaintiffs to file their opposition to Concord's motion for partial summary judgment, compliance shall be due five days from the e-filing of this order.
Background
Plaintiffs' First Amended Complaint ("FAC") alleges that, prior to Concord's acquisition of the Star network, the Bank Defendants "collectively owned and/or operated" Star, and thereby "fixed" the interchange fee charged by Star for foreign ATM withdrawals over that network. (See FAC ¶¶ 14-19, 42, 56, 66, 72; see Brennan v. Concord EFS, Inc., 369 F.Supp.2d 1127, 1128-29 (N.D. Cal. 2005)). According to the complaint, the Bank Defendants' alleged control over Star's interchange fee constitutes horizontal price fixing by competitor-banks, and is a perse violation of the Sherman Act. See Brennan, 369 F.Supp.2d at 1128 (Plaintiffs "disclaim any intention of proceeding on a rule of reason theory."). Plaintiffs do not allege that any fee other than Star's ATM interchange fee has been set unlawfully. (FAC ¶¶1, 77.) A "Foreign ATM Transaction" is a cash withdrawal in which an ATM cardholder uses an ATM owned by an entity other than his or her own bank; for example, when a Bank of America customer uses a Wells Fargo ATM. In particular, plaintiffs challenge the "Interchange Fee" the customer's bank pays to the ATM owner for its customer's use of the ATM. Id. ¶ 39, Brennan, 369 F.Supp.2d at 1128.
At the motion-to-dismiss stage, Judge Walker held that Plaintiffs are not entitled to challenge the amount of Star's interchange fee. Plaintiffs had alleged that interchange fees should be abolished in their entirety. (FAC ¶ 62 ["the widespread adoption of Surcharges has eliminated any purported justification for Interchange Fees"].) Judge Walker rejected that theory, explaining that "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' perse claim." Brennan, 369 F.Supp.2d at 1131-32. The Court allowed the case to proceed "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." Id. at 1132.
Judge Walker's case and a case assigned to Judge Armstrong were related to his case by Judge Breyer as provided by Civil Local Rule 3-12.
On July 21, 2005, defendant Concord EFS filed its motion for partial summary judgment, explaining that since February 1, 2001 (all but seven months of the alleged class period), the Star ATM network has been wholly owned and controlled by Concord. (Docket No. 150.) Since February 1, 2001, Concord's pending motion explains, it is uncontroverted that Star has established its ATM interchange fee unilaterally, and that unilateral conduct by the independently owned Star cannot violate the antitrust laws. See Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984) ("Independent action is not proscribed by Section 1 of the Sherman Act").
The complaint alleges that Concord acquired Star from the banks in 2001. (FAC ¶ 8.)
Now pending before the district court is Defendants' motion for partial summary judgment. On February 1, 2001, six months after the commencement of the class period, defendant Concord EFS, Inc. ("Concord") purchased the Star network from its shareholders (made up of banks and credit unions). Id. ¶ 63. Defendants allege that since that time Concord has owned 100% of the Star network and that Concord alone has unilaterally set the price for the Interchange Fee. In other words, they contend that as of the date of the sale there was no horizontal price fixing as a matter of law. If Defendants are correct, the scope of this action will be much smaller than as currently pled. In response to defendants' motion, Plaintiffs assert, among other things, that they have not had sufficient opportunity to take discovery to test Defendants' contention.
Discovery in Dispute
Plaintiffs analyzed their document requests to extract which requests they contend are relevant to the two major issues in the motion for partial summary judgment:
(1) The Bank Defendant's role, if any, in determining the amount of the interchange fee since Concord's acquisition of the Star network; and (2) The formal cessation, if any, of the price-fixing agreement that existed prior to Concord's acquisition of the Star network. (Notice of Motion and Motion to Compel filed March 24, 2006 at page 2)
Plaintiffs identify the following documents which relate to these issues in the motion for partial summary judgment:
1. Plaintiffs' First Set of Requests for Production of Documents Propounded to the Bank Defendants ("Bank Doc. Req.") Nos. 18-19; and Plaintiffs' First Set of Requests for production of Documents to Concord and First Data Defendants ("Concord Doc. Req.") Nos. 19-21. These are organizational charts or other information sufficient to identify persons or departments responsible for administration, supervision or decision-making regarding Star interchange. Plaintiffs believe this will provide circumstantial evidence of the concerted action and price-fixing Plaintiffs challenge. These are relevant to summary judgment, although they were not identified in the motion to compel. No Defendant has confirmed that it has produced the materials identified in items 1 and 13.
2. Bank Doc. Req. Nos. 1, 2, 4, 5 and 24; Concord Doc. Req. Nos. 9 and 10. These are standards, factors, criteria and information, including, but not limited to, pricing policies and methodologies, considered by Concord, Star, Star's Advisory Board, Star's Board of Directors or Star's member banks about the price of Star's interchange fees from February 1, 1998 through the present.
3. Bank Doc. Req. Nos. 7-8, 24; Concord Doc Req. Nos. 7-8. These are restrictions, of any kind and for any reason, on Concord's alleged authority to change the price of Star's interchange fee, from February 1, 1998 to the present, including Defendants Banks' "Membership Institution Agreements." 4. Bank Doc Req. Nos 6-8, 24; Concord Doc. Req. Nos. 1, 2, 7-10. These relate to decisions to change Star's interchange fees from February 1, 1998 through the present, including all reasons and research, analysis and modeling conducted relative to any potential price change.
5. Bank Doc. Req. Nos. 7-8; Concord Doc. Req. Nos. 7-8. These are agreements by member banks to abide by Star's interchange fee from February 1, 1998 through the present.
6. Bank Doc. Req. Nos. 2, 3, 5, 6-8, 24; Concord Doc. Req. Nos. 2, 3, 5 and 7-8. These are offers or proposals made by Concord to any member bank to give the bank a seat on Star's Board of Directors or an equity position in the Star network on or after February 1, 2001. This group includes not only the proposals, but also any considerations, discussions, negotiations, acceptance or rejection of any proposals; and implementation of any such proposal.
7. Bank Doc. Req. Nos. 1, 2, 4-9, 24; Concord Doc. Req. Nos. 1, 2, 4, 5, 7-10. These are recommendations or requests made by any member bank regarding the price of Star's fees or any concerns expressed about Star's fees from February 1, 1998 to the present.
8. Bank Doc. Req. Nos. 1, 2, 4-9, 24; Concord Doc. Req. Nos. 1, 2, 4, 5, 7-10. These include information or recommendations provided to the Star Advisory Board or the Advisory Board's individual members concerning Star's fees, and any consideration and discussions of and decisions made regarding the information or recommendations, from February 1, 1998 through the present.
9. Bank Doc. Req. Nos. 1, 2, 4, 5 and 24; Concord Doc. Req. Nos. 1, 2, 4, 5. These contain information or recommendations made by Star's Advisory Board's individual members to Concord or Star's Board of Directors concerning Star's fees and any considerations and discussions of and decisions made regarding the information or recommendations from February 1, 1998 through the present.
10. Bank Doc. Req. No. 6. This includes internal deliberations, discussions or consideration by any Bank Defendants regarding Star's interchange fees from February 1, 1998 through the present.
11. Bank Doc. Req. Nos. 12, 13, and 24; Concord Doc. Req. Nos. 13, 14. These include information provided to the member banks regarding actual or prosed changes to the organization, structure and/or operations of Star as a result of the Department of Justice's review or investigation of Concord's acquisition of Star.
12. Bank Doc. Req. Nos. 12-14; Concord Doc. Req. Nos. 13-15. These are communications with the Department of Justice concerning its review or investigation of Concord's acquisition of Star.
13. Bank Second Set of Doc. Req. Nos. 91-92. These include the reasons, rationale or analysis regarding any bank's decision to leave Star, to join Star or to remain with Star. Plaintiffs believe this will provide circumstantial evidence of the maintenance and continuation of the concerted action and price-fixing Plaintiffs challenge here. Plaintiffs contend these are relevant to summary judgment, although they were not identified in the motion to compel. No Defendant has confirmed that it has produced the materials identified in items 1 through 13.
Most Recent Status of the Dispute Defendants' Procedural Objections
Defendants contend that Plaintiffs amended their discovery motion to add new requests and arguments after Judge Breyer's April 10 order staying all discovery except that related to summary judgment. Instead of filing new motion papers, Plaintiffs piled more on top of their already voluminous filings, including ex parte briefing only 48 hours before Defendants' opposition was due, raising new arguments not included in the initial motion to compel. Defendants object that Civil Local Rules 7-4 and 37-2 require Plaintiffs to define the issues in their opening brief, after good faith efforts to meet and confer on the same issues. Defendants contend Plaintiffs' motion is procedurally improper and should be denied by the court on that basis. This Court declines to assign blame for discovery difficulties.
Parties' Substantive Argument
In their Reply Memorandum, Plaintiffs observe that with the hearing imminent on their motion to compel, Defendants are now beginning to produce documents in response to requests which Plaintiffs propounded eight months ago. Plaintiffs' deadline for filing their opposition to Defendants' motion for summary judgment is August 4, 2006, so Plaintiffs say enough delay, time for Defendants to accelerate their production. The parties have only two remaining disagreements:
1) temporal scope; and 2) the relevance of the Bank Defendants' reasons for departing from, joining, or remaining with the Star network based on fees associated with foreign ATM transactions.
Defendants' motion for summary judgment is predicated on their assertion that on February 1, 2001, Defendant Concord EFS, Inc. ("Concord") acquired the Star Network and Star ceased colluding with the Bank Defendants (Bank of America Corporation; Citibank (West) FSB; JP Morgan Chase Bank, N.A. successor-in-interest to Bank One, N,.A.; SunTrust Banks, Inc.; Wachovia Corp.; and Wells Fargo Bank, N.A., Wells Fargo & Co. and Servus Financial Corp.) Regarding the amount of the interchange fee.
Defendants assert (Plaintiffs say incorrectly) that if Star did begin to set the interchange unilaterally on that day, then Defendants' alleged conspiracy came to an end and they ceased violating the antitrust laws. Plaintiffs seek discovery to establish that the Bank Defendants continued to exercise control over the amount of the interchange fee after February 1, 2001.
Time Frame
Defendants have agreed to produce documents back to January 1, 2000, which predates Concord's acquisition of Star by more than a year (Koltun deck, Ex. K) Defendants object to producing documents going back before January 1, 2000. Defendants contend that Plaintiffs are not entitled to discovery to fish for possible causes of action. Defendants cite this Court's ruling in Caliper Technologies Corp. V. Molecular Devices Corp., 213 F.R.D, 555, 558 (N.D.Cal. 2003) ("[a] party may not obtain documents in order to discover whether it has a cause of action.") Defendants contend it is unreasonable to suggest that, merely because the Banks "collectively owned or operated" the Star network and had the right to appoint Star's Board of Directors (FAC pp14-19, 42, 56, 66, 72), that after Concord's acquisition of Star, the Banks covertly maintained control over ATM interchange including fees. Defendants argue that Plaintiffs reliance on Continental Ore v Union Carbide & Carbon Corp., 370 U.S. 690 (1962) is misplaced. (Pltf. Letter Brief filed May 1, 2006 at 2). Continental Ore did not involve an alleged claim arising out of defendants' joint ownership of a network or other company.
Plaintiffs argue that discovery back to February 1, 1998 "will allow Plaintiffs to compare Star's operations and decision-making before and after it was acquired by Concord. Similar decision-making procedures before and after the acquisition, or a pattern of supra-competitive fees that persisted past February 1, 2001 would constitute evidence that the banks continued to control, either formally or informally, the interchange fee.
Defendants contend that these documents are not reasonably calculated to lead to the discovery of admissible evidence of whether the banks controlled Star's ATM interchange fee after Concord acquired Star in February 2001. The issue on summary judgment is whether the Bank Defendants conspired to set the Star ATM Interchange Fee following Concord's acquisition. (Docket # 150)
Concord has also refused to produce documents dated after the First Amended Complaint, filed on July 2, 2004. Plaintiffs contend that these later documents are "directly relevant to whether the Bank Defendants exercised control over the interchange fee. Indeed, documents produced by the Defendants show that by 2005, the Bank Defendants may have reclaimed formal control of the interchange fee, and essentially revived the scheme that persisted from 1984 through early 2001."
Defendants contend that "discovery of materials concerning the amounts of and revenue from all fees on foreign ATM transactions plainly is stayed by the Court's April 10 order."
Category 13
Defendants object to Category 13 of Plaintiffs' April 14 letter, as overbroad. Category 13 seeks all "materials pertaining to the [bank's] decision to leave, join, or remain in the Star network relating in whole or in part to the amount of, revenue from, or control of the fees on foreign ATM transactions. (See Pltf. "Local Rule 37-2 Filing" at 1, n. 1; Koltun Decl. Ex. J [letter dated April 24, 2006 confirming the scope of documents sought by Category 13].) Defendants object that demands relating to "amounts" and "revenues" from any fees on foreign ATM transactions have nothing to do with control over Star or its interchange fee.
Defendants question how discovery related to other fees can be relevant when it is only the Star ATM Interchange Fee that Plaintiffs allege was fixed illegally.
Bank One propose limiting Category 13 to cover:
any "offers or proposals made by Concord to any member bank to give the bank a seat on Star's Board of Directors and/or an equity position in the Star network" (see Category No. 6), and any other documents that discuss, refer or relate to control or influence over the Star ATM network interchange fee as a reason for joining, leaving, or remaining with the Star ATM network, or any role in governance of Star as a reason for joining, leaving, or remaining with the Star ATM network.'
(Koltun Dec. Ex. K at 1-2) Plaintiffs rejected this and other proposals. (Id. ¶16, See also Jones Deck, Ex. J at 4; Steeley Decl. Para. 23; Daru Decl. Para. 23).
The Court finds that if the Bank Defendants could influence the setting of other fees, that would tend to show that they could influence the Star ATM interchange fee. Therefore, Defendants should provide this discovery.
Defendants contend they will have made all relevant responsive production prior to the hearing on this motion, and in fact had produced most of their responses before Plaintiffs even filed their motion to compel. Defendants claim that Bank of America refrained from production, at Plaintiffs' direction. (Steeley Decl. Para 8-16) Plaintiffs only recently advised Bank of America that it could proceed. (Id. ¶1, 26).
Defendants blame Plaintiffs for discovery problems, saying they have "squandered much of the discovery period through a series of discovery-related blunders." These including insisting that even documents that originated in hard copy be produced electronically and failing to respond to requests for a reasonable cost-sharing proposal for electronic document production. (See e.g. Koltun Decl.¶ 8-10; Anderson Decl. ¶ 5-20; Jones Decl. ¶2, 17 and Ex. A).
Analysis and Conclusion
In its motion for partial summary judgment, Concord contends that prior to February 1, 2001, the Star network was a joint venture owned by some of its member banks and credit unions. In 2000, Concord approached Star's management about purchasing it and eventually acquired 100% of its voting securities in exchange for $850 million of Concord's voting securities. (Labry Decl. ¶4). The parties signed their Merger Agreement and submitted the transaction to the Federal Trade Commission and the Justice Department for approval in October 2000. (Id.)
Declarations and Exhibits are to motion and opposition to motion for summary judgment, filed 7-21-05 and 4-9-06 respectively.
As part of Concord's acquisition of Star, it formed an advisory board, comprised of representatives of 20 financial institutions. (Id. at para 5, Congemi Decl. at ¶6, 8). The board was intended to "provide insight on electronic payments services directly to the executives of Star Systems and . . . help Star Systems shape its future business activities." (Congemi Decl ¶ 6 and Ex. 1). The parties agreed that Concord alone would have authority to select the members of the advisory board. It was also initially agreed that the advisory board would have veto power over any interchange fee imposed by the network. (Id. ¶ 6 and Ex. 1). This power was to be exercised only by majority vote.
However, as part of its approval of Concord's acquisition of Star, the Justice Department required that the advisory board's veto power be eliminated. This was based on concern that competition between ATM networks should be fostered. Defendants contend this is not related to the issue raised by Plaintiffs. (Id. ¶ 6) As a result, the parties agreed not to implement the veto provision and that Concord would retain "sole discretion" to set the network's interchange fee. (Id.; Congemi Decl. ¶ 7) This was memorialized in a letter to the DOJ by counsel for Concord and Star. (Def. Motion at 6-7). The Advisory Board was still permitted to propose changes to "Network operating rules and pricing," but Concord would have the final say.
For this reason, Concord contends that the banks did not control the interchange fee and that accordingly there was no agreement among competitors, no price-fixing and no cause of action for violation of the Sherman Act. Concord denies that the banks' power to propose changes to the ATM interchange fee alters the analysis, because the advisory board has not proposed such changes, and Star and Concord management have retained control over the ATM interchange fee and set that fee at their sole discretion. (Congemi Decl. ¶ 9; Labry Decl. ¶ 6-8).
Concord contends that even if the advisory board had made proposals regarding the ATM. interchange fee, this type of advisory role - without actual control - is insufficient to sustain an inference that there was a horizontal price-fixing agreement among the banks.
In their opposition to Concord's motion for summary judgment, Plaintiffs cite the limited discovery they have received to date as creating a triable issue of fact that the Bank Defendants exercised formal control over the amount of the interchange fee even after Concord purchased Star February 1, 2001. They cite the "PNC letter," from James S. Walker, Senior Vice President of PNC Bank to Mr. Congemi dated September 6, 2002, asserting that, /// ///(Saveri Decl. Ex. 2, STAR 00032903)
Text of the Court's order replaced below by slashes (III) cites to pleadings which were filed under seal and is accordingly redacted. The unredacted version of this order is filed underseal in the Court's file in the Office of the Clerk.
In fact, PNC Bank was not the only bank with this kind of influence, say Plaintiffs. Letters from Star to Wells Fargo and Wachovia, and what appears to be a Star internal memorandum, suggest that /// /// ///(Saveri Decl., Ex. 3, at STAR 00033075; Ex. 4 at STAR 00033478; Ex. 5 at STAR 00031093-94; Ex. 6 at STAR 00030869-86). /// ///(Saveri Decl, Ex. 4 at STAR 00033478 (emphasis added).
This is also germane to whether the Bank Defendants should produce documents generated after 2001. If Concord was making new deals with the Bank defendants which affected their control over interchange pricing, then that is surely relevant to the motion for summary judgment.
The Bank Defendants, in their motion for summary judgment, deny that they have control, whether formal or informal, over Star's ATM interchange fee. Plaintiffs, in their opposition, allege that they do. Therefore the Bank Defendants' role with Star, both before and after its acquisition by Concord, and even into fairly recent time, is at issue and Plaintiffs are entitled to related discovery. Plaintiff's motion to compel is granted. Compliance is due five days from the e-filing of this order.
IT IS SO ORDERED.