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IN RE CURRENCY CONVERSION FEE

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 ...

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