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CITICORP & CITICORP SERVS. v. INTERBANK CARD ASSN.

October 3, 1979

CITICORP and CITICORP SERVICES, INCORPORATED, Plaintiffs, against INTERBANK CARD ASSOCIATION, et al., Defendants, against CITIBANK, N.A., et al., Counterdefendants.


The opinion of the court was delivered by: CANNELLA

MEMORANDUM AND ORDER

Motion to dismiss Counts 1 and 2 of defendants' counterclaim, for failure to state a claim upon which relief can be granted, is denied. Fed.R.Civ.P. 12(b) (6).

 Motion to dismiss Count 3 of defendants' counterclaim, on the ground that the defendants do not have standing to raise it, is denied.

 Motion to strike portions of defendants' counterclaims, as sham and false, is denied. Fed.R.Civ.P. 11.

 Defendants' objections, to rulings made by the Honorable Leonard A. Bernikow, United States Magistrate, at a hearing held on October 24, 1978, are dismissed. 28 U.S.C. § 636(b)(1)(A).

 Defendants' motion, for an Order placing materials on the public record, is denied.

 Jurisdiction in this case is based on 15 U.S.C. §§ 15, 26.

 BACKGROUND

 The plaintiffs Citicorp and Citicorp Services Inc. ("CSI") are Delaware and New York corporations, respectively, both with their principal places of business in New York City. Citicorp conducts a wide range of financial and banking activities, and most pertinent to the instant case, is the issuer of "First National City Travelers Checks," which CSI, its wholly owned subsidiary, distributes and sells.

 The defendants Interbank Card Association ("Interbank") and MCTC Corporation ("MCTC") are both not-for-profit membership corporations organized under the laws of Delaware, with their principal places of business in New York City. The defendant John J. Reynolds is President and a director of both Interbank and MCTC. Interbank has over 8,000 members, largely commercial banks and other thrift institutions located throughout the United States. It is the owner and exclusive licensor of the service mark "Master Charge" and an accompanying logo, which it has licensed most of its members to use on credit cards. Interbank is governed by a Board of Directors selected by its members.

 According to the complaint, some of Interbank's members created MCTC for the purpose of entering the travelers check market. The defendants concede, as they must to uphold MCTC's standing to raise its counterclaim, that Interbank has licensed MCTC to use the "Master Charge" service mark and logo on travelers checks, and that MCTC has definite plans to issue, distribute and sell "Master Charge Travelers Cheques" through the members of Interbank.

 A travelers check is a device for payment. Its "issuer" is the company that prints the check and offers it for sale, usually through a bank acting as selling agent. The check, which is customarily issued in various standard denominations of American or foreign currency, is much like a cashier's check in that the issuer is, in effect, drawer and drawee. *fn1" Upon purchasing a travelers check, the purchaser must sign it in the presence of the selling agent. Then, upon negotiating the check, the purchaser must fill in the date and countersign it in the presence of the person who accepts it as payment. He may also designate that person as payee. The extent of the issuer's promise is to pay on demand the amount indicated by the denomination of the check, provided that the check is properly countersigned, and, in the event that the check is lost or stolen, after having been signed at purchase, but before being countersigned, to provide the purchaser with an immediate refund or replacement. *fn2"

 Although they have been in use since 1891, the legal status of travelers checks remains largely unresolved. *fn3" They have been characterized as "contracts," *fn4" "money," *fn5" and various types of "negotiable instruments, " *fn6" including "cashier's checks" *fn7" and "certificates of deposit." *fn8" Fortunately, for the purposes of this case, their commercial attributes are more important than their legal ones. Because they are issued in standard denominations, easily negotiated, and readily accepted worldwide, they are the virtual equivalent of money, but because of the issuer's promise to refund or replace lost or stolen checks, they are safer.

 The issuer's gain from the sale of travelers checks derives from two sources. One is a "commission," as much as one percent of the face amount of the check, charged to the purchaser, a portion of which the selling agent retains. *fn9" The other is the "float," which is the money paid for the checks which remains at the disposal of the issuer until the purchaser negotiates them. *fn10" An established issuer doing a steady business can expect a steady "float," and thus will have a fairly constant amount of money available for investment. According to one estimate, American Express had a $ 1.9 billion float at the end of 1977. *fn11"

 The market in United States dollar travelers checks is highly concentrated. Estimates vary, and, of course, ultimate proof on this question must await trial, but many sources suggest that 90% To 95% Of the United States dollar travelers checks sold are issued by three companies: American Express, with approximately 55% To 60% Of sales; Citicorp, with approximately 20%; and BankAmerica Corp., with approximately 15%. Other issuers with small market shares are Thos. Cook & Son (Bankers) Ltd., Barclays Bank, and Republic Money Orders, Inc.

 Citicorp and CSI filed the complaint in this case on April 12, 1978, charging that the defendants' plan to issue and market Master Charge Travelers Cheques violates sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and section 7 of the Clayton Act, 15 U.S.C. § 18. Plaintiffs allege that purchasers of travelers checks ordinarily do not express a strong preference for a particular brand, and that the vast majority of purchasers will actually accept whatever check a selling agent offers them. Since most selling agents are banks that are also members of Interbank, plaintiffs contend that Interbank would be in a unique position to determine the brand purchased by most purchasers of travelers checks. No other issuer would have such power at the "point of sale." According to plaintiffs, the members of Interbank would be able to foreclose competition because 90% Of a bank's customers who wish to purchase travelers checks will buy whatever brand the bank favors.

 The defendants have counterclaimed against the plaintiffs, and have joined as additional counter-defendants Citibank, N.A., its Senior Vice President David M. Phillips, Citicorp Credit Services, Inc., and Citibank (New York State), N.A. (Hereinafter these parties and the plaintiffs will be referred to collectively as the "Citicorp parties.") Phillips, in addition to being Senior Vice President of Citibank, N.A., has been, at all pertinent times, a director of Interbank.

 The counterclaim is divided into three counts. Counts One and Two charge the Citicorp parties with conspiracy "among themselves and with others" to prevent Interbank's and MCTC's entry into the travelers check market. Aside from conclusory allegations, the particular conduct alleged as constituting this conspiracy consists essentially of only six acts or practices: (1) from 1969 through 1977, cooperating with Interbank in the development of Master Charge Travelers Cheques, in the hope of protecting their own "interests in the travelers check field"; *fn12" (2) when cooperation failed, threatening to sue; *fn13" (3) publicizing a legal opinion letter that Interbank's and MCTC's proposed entry violated antitrust law; *fn14" (4) disclosing to a trade publication controlled by American Express a confidential contrary opinion prepared by Interbank's counsel; *fn15" (5) bringing this suit; *fn16" and (6) making with CSI's selling agents, which, as noted above, are mostly banks, "discriminatory arrangements and contracts . . . (,) the effect of which is to impede or prevent other financial institutions from entering the travelers check market through the Master Charge Travelers Cheque program." *fn17" The defendants also allege that Phillips breached his contractual and fiduciary obligations to Interbank by disclosing the confidential legal opinion.

 Count Three of the counterclaim alleges that the Citicorp parties have violated antitrust law also by arranging to acquire Carte Blanche Corporation ("Carte Blanche"). Carte Blanche's principal business is allegedly the issuance of "general purpose credit cards" bearing the "Carte Blanche" service mark and logo, and the provision of services to cardholders and to the merchants who honor the cards. The defendants assert that the acquisition will substantially reduce competition in the general purpose credit card market, as well as the travelers check market, and is therefore prohibited by section 7 of the Clayton Act, 15 U.S.C. § 18.

 "General purpose credit cards," according to the counterclaim, are "credentials which provide (their holders) with the right to purchase goods or services on credit at a wide variety of business establishments," as distinguished from credit cards issued by individual companies, such as oil companies, airlines, and large retail chains. Allegedly, "(t)here are only five domestic general purpose credit cards accepted on a national scale by merchants and available to consumers": Master ...


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