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IN RE CURRENCY CONVERSION FEE

United States District Court, S.D. New York


December 7, 2005.

IN RE CURRENCY CONVERSION FEE ANTITRUST LITIGATION.

The opinion of the court was delivered by: WILLIAM PAULEY III, District Judge

MEMORANDUM AND ORDER

These class actions are consolidated for pretrial proceedings. Plaintiffs allege violations of the Sherman Act, 15 U.S.C. § 1 et seq., the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., and the South Dakota Deceptive Trade Practices Act ("DTPA") arising from an alleged price-fixing conspiracy among VISA, MasterCard and their member banks and Citicorp Diners Club, Inc. ("Diners Club") (collectively, "Defendants") concerning foreign currency conversion fees. Plaintiffs move to designate class representatives for the claims of Diners Club cardholders. Defendants move to stay the claims of Diners Club cardholders in favor of arbitration pursuant to Section 3 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 3. For the reasons set forth below, Plaintiffs' motion is granted and Defendants' motion is granted in part and denied in part.

BACKGROUND

  The factual background of this multi-district litigation is set forth in this Court's prior memoranda and orders. See In re Currency Conversion Fee Antitrust Litig., 2005 WL 1871012 (S.D.N.Y. Aug. 9, 2005) ("Currency Conversion V"); In re Currency Conversion Fee Antitrust Litig., 229 F.R.D. 57 (S.D.N.Y. 2005) ("Currency Conversion IV"); In re Currency Conversion Fee Antitrust Litig., 361 F. Supp. 2d 237 (S.D.N.Y. 2005) ("Currency Conversion III"); In re Currency Conversion Fee Antitrust Litig., 224 F.R.D. 555 (S.D.N.Y. 2004) ("Currency Conversion II"); In re Currency Conversion Fee Antitrust Litig., 265 F.Supp.2d 385 (S.D.N.Y. 2003) ("Currency Conversion I").

  PROCEDURAL HISTORY

  In their Second Consolidated Amended Class Action Complaint (the "Complaint"), Plaintiffs assert claims against Diners Club, a wholly owned subsidiary of Citibank (South Dakota), N.A. that, in turn, is wholly owned by Citigroup, Inc. (Second Consolidated Amended Class Action Complaint, dated Aug. 14, 2003 ("Compl.") ¶¶ 45-46.) Diners Club owns and operates a general purpose card network whereby Diners Club cards are issued to cardholders by Citibank (South Dakota), N.A. (Compl. ¶ 46; see Currency Conversion I, 265 F.Supp.2d at 395-96; see also Currency Conversion III, 361 F.Supp. 2d at 243-44.)

  Like VISA and MasterCard, Diners Club assesses a currency conversion fee on its cardholders' transactions in foreign currencies. Plaintiffs allege that Diners Club charged a one percent currency conversion fee initially and later increased it to two percent to match the second tier fees assessed by the VISA and MasterCard issuing banks. (Compl. ¶ 120; see Currency Conversion I, 265 F.Supp.2d at 395.) Based on such allegations, Plaintiffs contend that Diners Club played an integral role in the conspiracy to impose currency conversion fees. (Compl. ¶ 121; see Currency Conversion I, 265 F.Supp.2d at 395-96.)

  On October 15, 2004, this Court certified: (1) a damages class divided into three subclasses of MasterCard, VISA and Citibank (South Dakota), N.A. cardholders, respectively; (2) an antitrust injunctive relief class of all MasterCard, VISA and Diners Club cardholders; and (3) a TILA class of MasterCard, VISA and Diners Club cardholders divided into subclasses for each issuing bank. Currency Conversion II, 224 F.R.D. at 570-71. Each of these classes included Diners Club cardholders.*fn1 Currency Conversion II, 224 F.R.D. at 560, 570-71. With respect to Diners Club's argument that the claims of its cardholders must be arbitrated pursuant to the terms of their cardholder agreement, this Court held that Diners Club could not enforce its arbitration clause because like Citibank and Chase, Diners Club amended its cardholder agreement following the commencement of this proceeding. Currency Conversion II, 224 F.R.D. at 569 (noting "that some defendant banks added arbitration clauses to their cardholder agreements after this putative class action was filed"). Invoking its authority to protect the integrity of the class and supervise communications with putative class members under Rule 23(d), this Court determined that "[r]egardless of any cardholders' knowledge of this action, Defendants' communication with putative class members was improper because they sought to alter the status of this litigation and the available remedies." Currency Conversion II, 224 F.R.D. at 569-71.

  Defendants moved for reconsideration arguing that the TILA class cannot extend to Diners Club cardholders because no named plaintiff held a Diners Club card. Citibank also requested that this Court vacate the Citibank damages subclass. Plaintiffs countered that the claims of Diners Club cardholders were included in the Citibank subclass and therefore, it was immaterial that no named plaintiff held a Diners Club card. This Court agreed with Defendants that "the claims of the Diners Club cardholders are not subsumed in the Citibank TILA class" because of the different factual allegations asserted against Diners Club and Citibank. Currency Conversion III, 361 F.Supp.2d at 247. In particular, this Court noted distinctions between the single fee assessed by Diners Club and the two-tiered fee charged by Citibank in the VISA and MasterCard networks. This Court also recognized that while Citibank owned Diners Club, it was merely a member of the VISA and MasterCard networks. Currency Conversion III, 361 F.Supp. 2d at 247. Thus, on reconsideration, this Court concluded that Plaintiffs' claims against Diners Club were "atypical of those against the other card issuing banks" and that the named Citibank plaintiffs could not adequately represent Diners Club cardholders. Currency Conversion III, 361 F.Supp.2d at 247. Finally, because Plaintiffs did not oppose Defendants' request regarding the Citibank damages subclass, this Court vacated that subclass. Currency Conversion III, 361 F. Supp. 2d at 246 n. 4.

  Due to the mature stage of the proceedings and the resulting prejudice to Defendants, this Court denied Plaintiffs' application to name a Diners Club representative. In denying that request, however, it noted that "[i]f the trial is postponed, this Court will entertain a motion to amend the Complaint to add new plaintiffs or replace the withdrawn plaintiffs." Currency Conversion III, 361 F.Supp. 2d at 247 n. 5. Because this Court found class certification with respect to Diners Club inappropriate, it did not revisit the enforceability of Diners Club's arbitration agreements. Currency Conversion III, 361 F.Supp. 2d at 249 n. 6. The Citibank and Chase Defendants appealed this Court's decision on other grounds.

  Thereafter, Plaintiffs moved for reconsideration seeking to clarify whether the existing class representatives could adequately represent Diners Club cardholders in connection with their antitrust claims. Again acknowledging the different fee structure and relationship with the VISA and MasterCard networks, this Court held that "Diners Club's involvement in the alleged conspiracy was markedly different than the rest of the defendants." Currency Conversion IV, 229 F.R.D. at 64 (internal quotation omitted). Similar to its ruling concerning the TILA class, this Court declined to certify a Diners Club damages subclass and injunctive relief class because no named plaintiff held a Diners Club card. Currency Conversion IV, 229 F.R.D. at 64.

  In the wake of this Court's decisions on the successive motions for reconsideration, Plaintiffs filed a Rule 23(f) petition for leave to appeal and also moved this Court to certify an interlocutory appeal under 28 U.S.C. § 1292(b). On August 9, 2005, this Court granted Plaintiffs' motion. Currency Conversion V, 2005 WL 1871012, at *3-5. In light of the appeals by Plaintiffs and the Citibank and Chase Defendants, this Court postponed the trial date and allowed Plaintiffs to designate a representative for the Diners Club cardholders. (Transcript of Telephone Conference on July 14, 2005 ("July Conf. Tr.") at 13:10-24; see also Scheduling Order No. 19, dated July 20, 2005 ("Sched. Order 19").)

  Plaintiffs now move to name Pamela Meyerson ("Meyerson") and Woodrow Wilson Clark ("Clark") as the lead plaintiffs for the following Diners Club subclasses:

1. A Damages Subclass pursuant to Rule 23(b)(3) comprised of all Diners Club general purpose cardholders who were assessed a foreign transaction fee or surcharge for using such cards to purchase goods and/or services in foreign currencies.
2. An Antitrust Injunctive Relief Subclass pursuant to Rule 23(b)(2) comprised of all cardholders of Diners Club general purpose cards.
3. A TILA Subclass pursuant to Rule 23(b)(2) comprised of all consumer cardholders of Diners Club general purpose cards.
  Diners Club argues that these subclasses cannot be certified because its cardholders must arbitrate their claims and the named representatives cannot adequately represent the putative class members. Alternatively, Diners Club contends that the subclasses must be tailored to reflect Plaintiffs' claims and the exclusions previously adopted by this Court. DISCUSSION

  I. Arbitration

  Diners Club contends that its cardholders must arbitrate their claims pursuant to the arbitration provision in their cardholder agreements. According to Diners Club, this Court's Rule 23(d) determination that the Diners Club arbitration clauses may not be enforced does not apply here. Because this Court eventually withdrew certification with respect to Diners Club cardholders, Diners Club argues that this Court cannot wield its Rule 23(d) power retroactively to safeguard putative class members who were never adequately represented. Thus, with the benefit of hindsight, Diners Club maintains that it did not modify its cardholder agreement improperly and that the arbitration provision should be enforced. This Court disagrees.

  "The putative class members' rights in this litigation were protected as of the filing date of the complaint." Currency Conversion III, 361 F.Supp. 2d at 251. Indeed, a class has a legal status separate from the named plaintiff, thus, should the class representative become inadequate, substitution of an adequate representative is appropriate to protect the interests of the class. See Birmingham Steel Corp. v. Tenn. Valley Auth., 353 F.3d 1331, 1339 (11th Cir. 2003); see generally Sosna v. Iowa, 419 U.S. 393, 399 (1975) ("When the District Court certified the propriety of the class action, the class of unnamed persons . . . acquired a legal status separate from the . . . [representative]."); accord Hargrave v. State of Vt., 340 F.3d 27, 34 n. 6 (2d Cir. 2003); Diduck v. Kaszycki & Sons Contractors, Inc., 149 F.R.D. 55, 58 n. 2 (S.D.N.Y. 1993). Moreover, where it appears that a named plaintiff "is unable adequately to represent the class, [the court has] ample power under Rule 23(c) and (d) to replace him." Billet v. Storage Tech. Corp. 72 F.R.D. 583, 587 (S.D.N.Y. 1976); see e.g., In re Indep. Energy Holdings PLC Sec. Litig., 210 F.R.D. 476, 484 (S.D.N.Y. 2002) (noting that representative issues "may be resolved by appointment of replacement class representatives"); In re Avon Sec. Litig., No. 91 Civ. 2287 (LMM), 1998 WL 834366, at *2-3, 9-10 (S.D.N.Y. Nov. 30, 1998) (granting request to substitute class representatives); In re Copley Pharm., Inc., 158 F.R.D. 485, 490 (D. Wyo. 1994) ("[N]amed plaintiffs may be replaced by others at any stage of the litigation.").

  Citing no law, Diners Club contends that because this Court declined to certify any Diners Club class or subclass on reconsideration, it cannot exercise its Rule 23(d) supervisory authority retroactively to safeguard these Diners Club cardholders. This argument is not persuasive. The propriety of a class certification cannot be judged by hindsight. Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 160 (1982). "Even after a certification order is entered, the judge remains free to modify it in the light of subsequent developments in the litigation. For such an order, particularly during the period before any notice is sent to members of the class, is inherently tentative." Falcon, 457 U.S. at 160 (internal quotation and citation omitted); Doe v. Karadzic, 192 F.R.D. 133, 136 (S.D.N.Y. 2000) ("[P]rior to the point at which notice is sent to members of the class, a certification order `is inherently tentative.'") (quoting Falcon, 457 U.S. at 160). When this Court withdrew certification on reconsideration, it noted that should the pretrial schedule relax, it would revisit the question of permitting a replacement Diners Club representative. Currency Conversion III, 361 F. Supp. 2d at 247 & n. 4. In light of the appeals lodged with the Second Circuit, this Court adjourned any trial and permitted Plaintiffs to name new Diners Club representatives. (July Conf. Tr. at 13:10-24; see Sched. Order 19.)

  Based on the "inherently tentative" nature of certification prior to notice and this Court's acknowledgement on reconsideration that subsequent developments may afford Plaintiffs the opportunity to designate a replacement Diners Club representative, this Court concludes that its reconsideration rulings did not impinge on its power to supervise a defendant's communications with putative class members. See Falcon, 457 U.S. at 160; see also Currency Conversion III, 361 F. Supp. 2d at 249-57; Currency Conversion II, 224 F.R.D. at 569-70; see generally Berse v. Berman, 60 F.R.D. 414, 416 (S.D.N.Y. 1973) (explaining that if absent class members "learned of the class suit and have decided to entrust the protection of their rights to the class representative, they might be prejudiced as a practical matter by the dismissal of the suit as a class action"). Diners Club's communication with putative class members without judicial authorization "was improper because [it] sought to alter the status of this litigation and the available remedies." See Currency Conversion II, 224 F.R.D. at 570; see also Currency Conversion III, 361 F.Supp. 2d at 249-57. The subsequent developments in this litigation do not eviscerate the impropriety of these communications. Accordingly, this Court reaffirms that the Diners Club arbitration clauses "engrafted on cardholder agreements after this litigation commenced are not enforceable." Currency Conversion II, 224 F.R.D. at 570; see also Currency Conversion III, 361 F. Supp. 2d at 249-57.*fn2

  Further, consistent with prior rulings concerning the Chase and Citibank Defendants, three categories of Diners Club cardholders are excluded: (1) cardholders who opened new credit card accounts after this suit began; (2) cardholders who first became cardholders due to account acquisitions after this litigation began; and (3) cardholders whose first foreign exchange transaction on their credit card occurred after the addition of the arbitration clause to their card agreement. See Currency Conversion III, 361 F. Supp. 2d at 258; see also Currency Conversion IV, 229 F.R.D. at 62-63. Because these cardholders must arbitrate their claims, this Court addresses whether they are estopped from litigating their claims against the other Defendants.*fn3

  In Denney v. BDO Seidman, L.L.P., the Second Circuit held that allegations of concerted misconduct between a signatory and a nonsignatory could establish the close relationship required to establish estoppel. 412 F.3d 58, 70 (2d Cir. 2005) (citing Grigson v. Creative Artists Agency, L.L.C., 210 F.3d 524, 527 (5th Cir. 2000); MS Dealer Serv. Corp. v. Franklin, 117 F.3d 942, 947 (11th Cir. 1999)); see also Ross, 2005 WL 2364969, at *5; Vaughn v. Leeds, Morelli & Brown, P.C., No. 04 Civ. 8391 (DLC), 2005 WL 1949468, at *5 (S.D.N.Y. Aug. 12, 2005) (holding that under the rule in Denney, plaintiff's "basic premise that Second Circuit precedent requires . . . a close relationship independent of the alleged conspiracy is . . . incorrect"); Currency Conversion V, 2005 WL 1871012, at *5. Plaintiffs allege that Diners Club imposed its currency conversion fee "under the price-fixed `umbrella' created by [its] participation in the conspiracy with the VISA and MasterCard Associations and other member banks." (Compl. ¶¶ 120-22.) Having alleged that Diners Club acted in concert with the other Defendants, Plaintiffs "cannot now escape the consequences of those allegations" by arguing that Diners Club and the Defendants "lack the requisite close relationship" or that their claims against Diners Club "are not connected to" that relationship. Denney, 412 F.3d at 70; see also Ross, 2005 WL 2364969, at *5; Vaughn, 2005 WL 1949468, at *5 (holding plaintiff estopped from avoiding arbitration based on conspiracy allegations). In addition, application of the equitable estoppel doctrine in this case turns on this Court's previous intertwined-ness ruling. See Currency Conversion III, 361 F. Supp. 2d at 262-65. However, as this Court observed in Currency Conversion V, the Second Circuit has "not had occasion to `specify the minimum quantum of intertwined-ness required to support a finding of estoppel.'" Currency Conversion V, 2005 WL 1871012, at *5 (quoting JLM Indus., Inc. v. Stolt-Nielsen, S.A., 387 F.3d 163, 178 (2d Cir. 2004)). Because of that uncertainty, this Court certified interlocutory appeals from Currency Conversion III and IV to consider the application of the equitable estoppel doctrine to this action. See Currency Conversion V, 2005 WL 1871012, at *3-5 ("[R]esolution of the equitable estoppel issue is critical to the progress of this multi-district litigation . . . [and] appellate guidance on the threshold issue of class composition would materially advance the ultimate resolution of this litigation, particularly if the Court's interpretation of the law is incorrect."). Section 1292(b) certification is likewise appropriate here.

  II. Class Certification — Adequacy of Representation

  Diners Club acknowledges that this Court rejected its arguments against class certification in Currency Conversion II and only incorporates those arguments by reference here to preserve them. (Citigroup Defendants' Opposition Memorandum of Law, dated Sept. 9, 2005 at 14 n. 8.) Thus, for the same reasons articulated in Currency Conversion II, this Court finds that Plaintiffs have met their burden under Rule 23 in all respects other than adequacy of representation and, therefore, limits its discussion to the adequacy requirement. See Currency Conversion II, 224 F.R.D. at 555. Plaintiffs propose Meyerson and Clark as representatives for the Diners Club subclasses. Rule 23(a)(4) requires that "the representative parties will fairly and adequately protect the interests of the class." Fed.R.Civ.P. 23(a)(4); see also Currency Conversion IV, 229 F.R.D. at 64-65; Currency Conversion III, 361 F. Supp. 2d at 247. As this Court has noted, "[t]he requirement of adequate representation is essential to due process, because a final judgment in a class action is binding on all class members." Currency Conversion IV, 229 F.R.D. at 64 (internal quotation omitted).

  Diners Club does not attack Meyerson and Clark individually. (Transcript of Oral Argument on Sept. 26, 2005 at 22:13-17 ("We did not launch attacks on these individual plaintiffs because they don't merit the attacks based on what we were able to find out.").) Rather, Diners Club argues that these individuals cannot adequately protect the interests of the putative class members because no Diners Club cardholder has monitored or participated in the litigation of this action. This Court disagrees. On reconsideration, this Court determined that the Citibank named plaintiffs were inadequate to represent the Diners Club cardholders and noted that should the trial be postponed, it would allow Plaintiffs to name a replacement representative. Pursuant to this Court's instruction, Plaintiffs now endeavor to substitute Diners Club cardholders as named plaintiffs. Courts routinely allow the replacement of class representatives. See e.g., Birmingham Steel, 353 F.3d at 1342 (substitution advances the efficient administration of justice and serves the interests of the class even after discovery was completed and case was ready for trial); Avon, 1998 WL 834366, at *2-3, 9-10; Carter v. Newsday, Inc., 528 F. Supp. 1187, 1201 (S.D.N.Y. 1981); see generally Indep. Energy, 210 F.R.D. at 484; Billet, 72 F.R.D. at 587. Further, although Meyerson and Clark have not been previously involved in this litigation, "in complex litigations . . . a plaintiff need not have expert knowledge of all aspects of the case to qualify as a class representative, and a great deal of reliance on the expertise of counsel is to be expected." In re AM Int'l, Inc. Sec. Litig., 108 F.R.D. 190, 196-97 (S.D.N.Y. 1985); see also Avon, 1998 WL 834366, at *9 ("[P]laintiffs' lack of knowledge concerning the details of the litigation is not a ground to deny class certification; plaintiffs are entitled to rely on their counsel."); Trautz v. Weisman, 846 F. Supp. 1160, 1168 (S.D.N.Y. 1994); Diduck v. Kaszycki & Sons Contractors, Inc., 149 F.R.D. 55, 60 (S.D.N.Y. 1993) ("Although class representatives should be knowledgeable, they are not required to know all of the facts relating to an action."). This litigation is far from over. With class notice, summary judgment and a trial on the horizon, this Court concludes that allowing Meyerson and Clark to represent the subclasses of Diners Club cardholders is appropriate. CONCLUSION

  For the foregoing reasons, Plaintiffs' motion to appoint lead plaintiffs to represent the Diners Club cardholders is granted. Subject to the three exclusions below, this Court certifies the following Diners Club subclasses:

1. A damages subclass comprised of all Diners Club general purpose cardholders who were assessed a foreign transaction fee or surcharge for using such cards to purchase goods and/or services in foreign currencies.
2. An antitrust injunctive relief subclass comprised of all Diners Club general purpose cardholders.
3. A TILA injunctive relief subclass comprised of all Diners Club general purpose consumer cardholders.
  Defendants' motion to stay the claims of Diners Club cardholders in favor of arbitration pursuant to Section 3 of the FAA is granted in part. The following cardholders are excluded from the above subclasses and must arbitrate their claims pursuant to the arbitration clauses of their cardholder agreements:

 

1. Cardholders who opened new credit card accounts after this suit began.
2. Cardholders who first became cardholders due to account acquisitions after this litigation began.
  3. Cardholders whose first foreign exchange transaction on their credit card occurred after the addition of the arbitration clause to their card agreement. With respect to the equitable estoppel doctrine, this Court certifies an interlocutory appeal pursuant to 28 U.S.C. § 1292(b) for the reasons set forth in Currency Conversion V, 2005 WL 1871012.

  SO ORDERED.

20051207

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