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Temple v. Circuit City Stores

September 25, 2007

FLOYD EDWARD TEMPLE, JR., ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
v.
CIRCUIT CITY STORES, INC., DEFENDANT.
ROGER BENNETT AND RICHARD ALLEN COMBS, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
WAL-MART STORES, INC., DEFENDANT.



The opinion of the court was delivered by: John Gleeson, District Judge

FOR ONLINE PUBLICATION ONLY

MEMORANDUM AND ORDER

These two cases derive from a settlement I approved in an antitrust class action against Visa U.S.A. Inc. ("Visa") and MasterCard International Inc. ("MasterCard"). See In re Visa Check/MasterMoney Antitrust Litig. ("Visa/MasterCard III"), 297 F. Supp. 2d 503 (E.D.N.Y. 2003), aff'd, 396 F.3d 96 (2d Cir. 2005) (approving settlement), cert. denied, 544 U.S. 1044 (2005). The defendants here -- Circuit City Stores, Inc. ("Circuit City") and Wal-Mart Stores Inc. ("Wal-Mart") -- were members of the plaintiff class in that action and participants in the settlement. Circuit City, Wal-Mart, and many other named plaintiffs claimed on behalf of millions of merchants in the class that Visa and MasterCard had violated the Sherman Antitrust Act, 15 U.S.C. § 1 et seq., by "us[ing] their considerable market power in the credit card market to force [the merchant-plaintiffs], through 'Honor All Cards' policies, to accept Visa and MasterCard debit cards as well." In re Visa Check/MasterMoney Antitrust Litigation ("Visa/MasterCard IV"), No. 96 CV 5238(JG), 2005 WL 2100930, at *1 (E.D.N.Y. Aug. 31, 2005). In agreeing to settle those claims, Visa and MasterCard promised the merchant-plaintiffs, among other things, that they would rescind their Honor All Cards policies and pay $3.05 billion in damages over a ten-year period. Visa/MasterCard III, 297 F. Supp. 2d at 508.

After I approved the Visa/MasterCard settlement, consumers who had purchased goods and services from the merchant-plaintiffs began to file their own antitrust actions against Visa and MasterCard.*fn1 Some of these post-settlement actions also included Visa/MasterCard merchant-plaintiffs as defendants. See Visa/MasterCard IV, 2005 WL 2100930, at *1-*2 (denying motion to enjoin Ohio indirect purchaser action against Visa, MasterCard, and Ohio merchants).

These two putative class actions, by contrast, name as defendants Visa/MasterCard merchant-plaintiffs but not Visa or MasterCard. The plaintiffs in these cases are Tennessee consumers who purchased goods from Circuit City and Wal-Mart in Tennessee. The plaintiffs claim those merchants passed on to them additional costs they incurred due to the unlawful tying practices of Visa and MasterCard. At issue are two virtually identical complaints*fn2 (differing only in the names and description of the parties) alleging violations of (1) § 1 of the Sherman Act, 15 U.S.C. § 1,*fn3 pursuant to § 4 of the Clayton Act, 15 U.S.C. § 15;*fn4 (2) the antitrust statutes of Tennessee and 23 other states; (3) the consumer-protection statutes of 20 states (not including Tennessee); and (4) the unjust enrichment and civil conspiracy laws of Tennessee and 23 other states. Circuit City and Wal-Mart have moved pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss the complaints for failure to state a claim upon which relief can be granted. The parties filed consolidated briefs on the motions, and I heard oral argument on July 11, 2007. For the reasons set forth below, the motion is granted and the complaints are dismissed without prejudice to a timely amendment.

BACKGROUND

The plaintiffs allege that the defendants illegally imposed "an extra 'sales tax'" on "every retail transaction between [the defendants] and [their] customers in the United States." Compl. ¶ 1. According to the complaints, the "tax" was initially imposed upon the defendants by Visa and MasterCard, who (and here the complaints refer to the defendants' own allegations as plaintiffs in Visa/MasterCard) "used their considerable market power in the credit card market to force [the defendants], through 'Honor All Cards' policies, to accept Visa and MasterCard debit cards as well." Id. ¶ 2. The "alleged illegal tying" of debit cards to credit cards "required [the defendants] to pay excessive interchange rates (i.e., transaction costs) for the debit card purchases they were compelled to accept." Id.

The plaintiffs allege that the defendants paid the Visa and MasterCard interchange fees "for business reasons." Id. ¶ 3. That is, the defendants sought to "protect [their] own profits" by choosing to pay the fees rather than forego accepting Visa and MasterCard credit cards. Id. ¶ 5. According to the plaintiffs, the defendants then "systematically" passed the cost of those fees on to their retail customers by overcharging them for goods and services, id. ¶ 3; see also id. ¶ 6, which constitutes the alleged "sales tax."

Ultimately, the plaintiffs claim, each defendant conspired with Visa, MasterCard, and the numerous financial institutions that are members of Visa and MasterCard, see id. ¶¶ 13-17, through "an agreement, understanding, and concerted action," id. ¶ 46, to set their retail prices high enough to pass on the costs of the interchange fees to their customers. See also id. ¶ 7 ("[The defendants] knowingly agreed to and acceded to contractual relationships and tying arrangements with Visa and MasterCard that violated federal (and state) antitrust laws and passed the resulting costs [they] incurred . . . on to the Plaintiffs and other retail customers."). The conspiracy allegedly included "discussing, forming and implementing agreements to raise and maintain at artificially-high levels the prices for consumer goods and/or services." Id. ¶ 47.

DISCUSSION

A. The Standard of Review of a Motion To Dismiss

A motion to dismiss pursuant to Rule 12(b)(6) tests the legal, not the factual, sufficiency of a complaint. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) ("When a federal court reviews the sufficiency of a complaint, before the reception of any evidence either by affidavit or admissions, its task is necessarily a limited one. The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims."); Sims v. Artuz, 230 F.3d 14, 20 (2d Cir. 2000) ("At the Rule 12(b)(6) stage, '[t]he issue is not whether a plaintiff is likely to prevail ultimately, but whether the claimant is entitled to offer evidence to support the claims.'" (quoting Chance v. Armstrong, 143 F.3d 698, 701 (2d Cir. 1998)) (prior citations omitted)). Accordingly, I must accept the factual allegations in the complaints as true, and draw all reasonable inferences in the plaintiffs' favor. See Sheppard v. Beerman, 18 F.3d 147, 150 (2d Cir. 1994), cert. denied, 513 U.S. 816 (1994).

The Supreme Court has recently generated some confusion about the standard governing the legal sufficiency of a complaint. In Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1968-69 (2007), the Court abandoned the longstanding rule of Conley v. Gibson, 355 U.S. 41, 45-46 (1957), "that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." The Court held in Twombly that an allegation of facts that could equally support findings of either parallel or concerted action is legally insufficient to state a claim under § 1 of the Sherman Act. Rather, such a complaint must include "allegations plausibly suggesting (not merely consistent with) agreement." 127 S.Ct. at 1966. At the same time, the Court in Twombly explicitly refused to adopt a blanket requirement of "heightened fact pleading of specifics" in § 1 cases, id. at 1974, and the even more recent decision in Erickson v. Pardus, 127 S.Ct. 2197, 2200 (2007) (per curiam), reaffirmed that the notice pleading standard still determines legal sufficiency as a general matter. The Second Circuit has tried to reconcile "[t]hese conflicting signals" by the Court, holding that Twombly "is not requiring a universal standard of heightened fact pleading, but is instead requiring a flexible 'plausibility standard,' which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible." Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007) (Newman, J.).

In deciding the defendants' motion, I may consider documents attached to the complaint as exhibits, or statements incorporated by reference. Chambers v. Time Warner, ...


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