The opinion of the court was delivered by: Barbara S. Jones, United States District Judge
Plaintiffs Discover Financial Services, DFS Services, LLC, and Discover Bank ("Discover") filed this private antitrust action pursuant to sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26, seeking damages from Visa U.S.A. Inc. and Visa International Service Association ("Visa"), and MasterCard Incorporated and MasterCard International Incorporated ("MasterCard") for various alleged violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. Pending before the Court is Discover's motion for partial summary judgment, in which it seeks the application of collateral estoppel as to certain issues determined against Visa and MasterCard in the government's antitrust action; Visa's motions for summary judgment, in which it seeks the dismissal of claims against it on various bases; and MasterCard's motions for summary judgment, in which it seeks the dismissal of various claims against it. For the reasons that follow, Discover's motion is GRANTED in part and DENIED in part; Visa's motions are GRANTED in part and DENIED in part; and MasterCard's motions are GRANTED in part and DENIED in part. Visa's and MasterCard's motions for summary judgment on the "Project Explorer" damages model will be resolved in a separate order.
This private action seeks damages based on harm to Discover allegedly caused by Visa and MasterCard through the enactment of exclusionary rules, Visa Bylaw 2.10(e) and MasterCard's Competitive Programs Policy ("CPP"), that prevented Visa and MasterCard member banks from issuing American Express and Discover cards. The history of these rules and their effects are discussed at length in this Court's decision in the Department of Justice's ("DOJ") antitrust action against Visa and MasterCard, United States v. Visa U.S.A. Inc., 163 F. Supp. 2d 322 (S.D.N.Y. 2001) ("Visa I"), and in the Second Circuit's affirmance of that decision in United States v. Visa U.S.A. Inc., 344 F.3d 229 (2d Cir. 2003) ("Visa II"); familiarity with these decisions is assumed.
Because the Court's partial grant of Discover's motion for partial summary judgment on the issue of collateral estoppel impacts Visa and MasterCard's motions, the Court addresses Discover's motion first.
Standard Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "It is the movant's burden to show that no genuine factual dispute exists." Vermont Teddy Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir. 2004). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)). Summary judgment is inappropriate if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994). "In the context of antitrust litigation the range of inferences that may be drawn from ambiguous evidence is limited; the non-moving party must set forth facts that tend to preclude an inference of permissible conduct." Capital Imaging Associates, P.C. v. Mohawk Valley Medical Associates, 996 F.2d 537, 542 (2d Cir. 1993).
Collateral estoppel "is central to the purpose for which civil courts have been established[:] the conclusive resolution of disputes within their jurisdictions." Montana v. United States, 440 U.S. 147, 153 (1979). "Under collateral estoppel, once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation." Id. "To preclude parties from contesting matters that they have had a full and fair opportunity to litigate protects their adversaries from the expense and vexation attending multiple lawsuits, conserves judicial resources, and fosters reliance on judicial action by minimizing the possibility of inconsistent decisions." Id. at 153-54.
Under the doctrine of nonmutual offensive collateral estoppel, "a litigant who was not a party to a prior judgment may nevertheless use that judgment 'offensively' to prevent a defendant from relitigating issues resolved in the earlier proceeding." Parklane Hosiery Co. v. Shore, 439 U.S. 322, 326 (1979). "Four elements must be met for collateral estoppel to apply: (1) the issues of both proceedings must be identical, (2) the relevant issues were actually litigated and decided in the prior proceeding, (3) there must have been 'full and fair opportunity' for the litigation of the issues in the prior proceeding, and (4) the issues were necessary to support a valid and final judgment on the merits." Central Hudson Gas & Elec. Corp. v. Empresa Naviera Santa S.A., 56 F.3d 359, 368 (2d Cir. 1995).
"Despite the economies achieved by use of collateral estoppel, it is not to be mechanically applied, for it is capable of producing extraordinarily harsh and unfair results." Remington Rand Corp. v. Amsterdam-Rotterdam Bank, N.V., 68 F.3d 1478, 1486 (2d Cir. 1995). Indeed, "unfair use of a prior determination against a subsequent litigant should not be permitted to stand." Id. For example, "it would be unfair to allow offensive collateral estoppel against a party that had little incentive to defend in the first action." Id. Nor should offensive collateral estoppel apply where "the judgment relied upon as a basis for the estoppel is itself inconsistent with one or more previous judgments in favor of the defendant," or "where the second action affords the defendant procedural opportunities unavailable in the first action that could readily cause a different result." Parklane Hosiery Co., 439 U.S. at 330-31.
By its motion, Discover seeks "an order establishing as undisputed the elements of Discover's § 1 claim relating to credit network services" as well as an order giving collateral estoppel effect to a variety of findings and legal conclusions it has compiled from Visa I and Visa II in its "Attachment A" to its motion. Visa and MasterCard oppose Discover's motion contending principally, inter alia, that Discover has failed to demonstrate the prerequisites for the application of collateral estoppel and that application of the doctrine would be unfair. The Court has reviewed Visa I and Visa II in light of the applicable law and the parties' arguments, and believes that a limited order giving collateral estoppel effect to certain of the findings necessary to support the judgment, described in detail below, would promote judicial efficiency while remaining fair to Defendants. However, for the reasons below, the Court declines to give collateral estoppel effect to the findings and conclusions articulated in Discover's Attachment A.
1. The Findings Given Collateral Estoppel Effect
In its antitrust action against Visa and MasterCard, the DOJ challenged their governance rules and their exclusionary rules, pursuant to § 1 of the Sherman Act. Section 1 of the Sherman Act prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States." 15 U.S.C. § 1. To succeed, the DOJ bore the burden, as an initial matter, to "demonstrate that the defendant conspirators have 'market power' in a particular market for goods and services," and "demonstrate that within the relevant market, the defendants' actions have had substantial adverse effects on competition, such as increases in price, or decreases in output or quality." Visa II, 344 F.3d at 238. "Once that initial burden is met, the burden of production shifts to the defendants, who must provide a procompetitive justification for the challenged restraint." Id. "If the defendants do so, the government must prove either that the challenged restraint is not reasonably necessary to achieve the defendants' procompetitive justifications, or that those objectives may be achieved in a manner less restrictive of free competition." Id.
Following a thirty-four day bench trial, the Court concluded, inter alia, that the DOJ failed to prove that dual governance had an adverse effect upon competition, but that Visa's Bylaw 2.10(e) and the MasterCard CPP "weaken[ed] competition and harm[ed] consumers" by "limiting output of . . . Discover cards in the United States," "restricting the competitive strength of . . . Discover by restraining their merchant acceptance levels and their ability to develop and distribute new features such as smart cards," "effectively foreclosing . . . Discover from competing to issue off-line debit cards," and "depriving consumers of the ability to obtain credit cards that combine the unique features of their preferred bank with any of four network brands, each of which has different qualities, characteristics, features, and reputations." Visa I, 163 F. Supp. 2d at 329.
To support these conclusions in light of the relevant standards, the Court necessarily had to determine that (1) general purpose credit and charge cards and general purpose credit and charge card network services were the relevant markets; (2) the United States was the appropriate geographic scope of the relevant markets; (3) Visa and MasterCard each had market power within the relevant markets; (4) the exclusionary rules harmed competition and consumers; and (5) Visa and MasterCard did not meet their burden to demonstrate a valid procompetitive justification to justify the anticompetitive effects of the exclusionary rules. Further, the Court specifically found that the harm to competition was caused by harm to Visa and MasterCard's major competitors, American Express and Discover:
First, the exclusionary rules cause an adverse effect on the issuing market by effectively preventing Visa and MasterCard member banks from issuing American Express and Discover cards, reducing overall card output and available card features. As a result, consumer welfare and consumer choice are decreased. Second and more importantly for this case, the rules restrain competition in the network market because they prevent American Express and Discover from offering network services to the consumers of those services, the members of the Visa and MasterCard associations. As a result, American Express and Discover are forced to operate as single-issuer networks, limiting their transaction and issuance volume and stunting their competitive vitality. Network services output is necessarily decreased and network price competition restrained by the exclusionary rules because banks cannot access the American Express and Discover networks; conversely American Express and Discover cannot access the issuing competencies and segmented marketing expertise of the banks, nor their more profitable relationship customers with checking accounts, attributes which cannot be provided by the smaller banks and monoline banks to which American Express and Discover do have access.
Visa I, 163 F. Supp. 2d at 379. See also Visa II, 344 F.3d at 240 ("The most persuasive evidence of harm to competition is the total exclusion of American Express and Discover from a segment of the market for network services.").
b. Discover's Claim for Relief
Discover's first claim for relief in its Second Amended Complaint ("Complaint") alleges that "Defendants, on behalf of and in collaboration with their banks, have engaged in a continuing combination and conspiracy to organize and operate their general purpose card networks in a manner that restrains competition among general purpose card networks in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, as amended." (Second Amended Compl. ¶ 94.) According to the Complaint, "[i]n furtherance of this combination and conspiracy, defendants and certain of their banks have adopted and enforced 2.10(e) and the CPP in order to disadvantage or exclude rival general purpose card networks, such as Discover's network, from the general purpose card network services market." (Id. ¶ 95.) And in this claim, Discover alleges that "[a]s a result of defendants' violations of Section 1, Discover has been substantially injured in its business and property." (Id. ¶ 99.)
c. The Applicability of Collateral Estoppel
Having identified the determinations necessary to support its judgment in the DOJ action, the Court now turns to whether collateral estoppel should apply to those determinations with respect to Discover's first claim for relief.
First, it is clear that Discover's first claim challenges the same conduct challenged by the DOJ in its action against Visa and MasterCard, and that these determinations were actually litigated and decided in the DOJ action. Defendants contend that the issue of injury to Discover was not a necessary aspect of the DOJ action because of its focus on harm to competition. However this Court specifically held -- and the Second Circuit emphasized -- that the harm to competition stemmed directly from competitive harm to the two other major competitors, American Express and Discover, in what was essentially a four-party market. It is also evident from Defendants' vigorous defense of themselves before this Court and before the Second Circuit that they have taken full advantage of every opportunity to litigate these issues, and that they had every incentive to do so. And as illustrated above in section II.B.1.a, the determinations made by the Court were required to satisfy the elements of the DOJ's antitrust action, and were thus necessary to support the judgment there.
Further, application of collateral estoppel as to these determinations would serve judicial economy while remaining fair to Defendants. With respect to judicial economy, Defendants have demonstrated clearly by their unwillingness to accept even the most basic underpinnings of this Court's decision in the DOJ action, that precluding them from relitigating those core determinations would conserve judicial resources, despite the fact that there may be substantial overlap in the evidence to support the damages model and liability. And in light of the overlapping evidence, Defendants argue that giving collateral estoppel effect to a liability finding would unfairly prejudice the jury with respect to damages. However, properly instructed, juries are capable of distinguishing between antitrust liability and damages caused thereby. See, e.g., United States Football League v. National Football League, 842 F.2d 1335, 1376-77 (2d Cir. 1988) ("U.S.F.L.") (affirming jury award of nominal damages of $1 to Plaintiff following a liability finding, in light of a jury instruction that stated, inter alia, "[j]ust because you have found the fact of some damage resulting from a given unlawful act, that does not mean that you are required to award a dollar amount of damages resulting from that act. . . . you may find that plaintiffs failed to prove an amount of damages"). See also 4 Sand et al., Modern Federal Jury Instructions ¶ 79.02. ("'Injury' differs from 'damages,' which are the means of measuring the injury in dollars and cents. The plaintiff meets its burden of showing injury if it shows some damages from the unlawful activities complained of. Injury beyond this minimum point goes only to the amount of damage and not to the question of injury.").
Most of the other challenges by the Defendants pertain to the expansive nature of the collateral estoppel grant sought by Discover. It bears emphasis that this Court's collateral estoppel ruling is limited in scope, to wit, solely to the determinations outlined in section II.B.1.a that the Court has found were necessary to support its decision, and is thus narrower than Discover's request for an order "establishing as undisputed the elements of Discover's § 1 claim relating to credit network services." Additionally, the Court declines to impose upon its determination a specific timeframe -- the issue of temporal scope pertains more to the question of damages, and Defendants should not be prevented from making arguments as to events during the relevant time period that could affect the damage calculation. Finally, the Court declines to give collateral estoppel effect to the determinations encapsulated in Discover's Attachment A, concluding that the presentation to the jury of 81 individual statements in a vacuum and without context would be unfair to Defendants.
Thus, in sum, the Court will give collateral estoppel effect to the following determinations:
* General purpose credit and charge cards is a relevant market
* General purpose credit and charge card network services is a relevant market
* The United States is the appropriate geographic scope of the relevant markets
* Visa and MasterCard each had market power within the relevant markets
* Bylaw 2.10(e) and the CPP were each unlawful restraints of trade
* Bylaw 2.10(e) and the CPP harmed competition and consumers in the relevant markets by: o limiting output of Discover cards in the U.S. o restricting Discover's competitive strength by restraining merchant acceptance levels and their ability to ...