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. In an Opinion and Order dated August 20, 2008, the Court resolved various motions for summary judgment; this Order addresses Visa's and MasterCard's motions seeking to preclude Discover from alleging any damages attributable to the failure of "Project Explorer." For the reasons that follow, Defendants' motions are DENIED.
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 and the Court's August 20, 2008 Opinion and Order is assumed.
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).
II. The Challenge to Damages Attributable to Project Explorer
A. Requirements for Damages Models in Antitrust Cases
"Causation in fact is, of course, a necessary element of any claim for relief under Section 4 of the Clayton Act." Argus Inc. v. Eastman Kodak Co., 801 F.2d 38, 41 (2d Cir. 1986). The Plaintiff bears the burden to show that "the injuries alleged would not have occurred but for" a Defendant's antitrust violation. Id. To show causation, a Plaintiff must show that a Defendant's conduct was a "substantial or materially contributing factor" to the damages alleged. Litton Systems, Inc. v. American Telephone & Telegraph Co., 700 F.2d 785, 823 n.49 (2d Cir. 1983). "[O]nce proof of injury causation has been established, courts have allowed antitrust plaintiffs considerable latitude in proving the amount of damages. Proof of amount of damages thus need not conform to a particular theory or model, and exact proof of the amount of damages is not required." United States Football League v. National Football League, 842 F.2d 1335, 1378 (2d Cir. 1988) ("U.S.F.L.") (internal citation omitted). "An antitrust plaintiff must thus provide only sufficient evidence to support a 'just and reasonable estimate' of damages." Id. The "willingness to accept a degree of uncertainty in these cases rests in part on the difficulty of ascertaining business damages as compared, for example, to damages resulting from a personal injury or from condemnation of a parcel of land. The vagaries of the marketplace usually deny . . . sure knowledge of what plaintiff's situation would have been in the absence of the defendant's antitrust violation." J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557, 567 (1981).
The Supreme Court has noted that "[t]he most elementary conceptions of justice and public policy require that the wrongdoer shall bear the risk of the uncertainty which his own wrong has created." Bigelow v. RKO Radio Pictures, 327 U.S. 251, 265 (1946). However, "[w]hatever latitude is afforded antitrust plaintiffs as to proof of damages, however, is limited by the requirement that the damages awarded must be traced to some degree to unlawful acts. That latitude is thus circumscribed by the need for proof of causation." U.S.F.L., 842 F.2d at 1378 (internal citation omitted).
"The [Supreme] Court has repeatedly held that in the absence of more precise proof, the factfinder may conclude as a matter of just and reasonable inference from the proof of defendants' wrongful acts and their tendency to injure plaintiffs' business, and from the evidence of the decline in prices, profits and values, not shown to be attributable to other causes, that defendants' wrongful acts had caused damage to the plaintiffs." Zenith, 395 U.S. at 123-24 (internal quotation marks omitted; emphasis added). Thus, courts have rejected damage models that inadequately demonstrate a causal link between the allegedly unlawful activity and the losses caused, by, inter alia, failing to take into account losses attributable to market forces and lawful competition. See, e.g., Intimate Bookshop v. Barnes & Noble, Inc., No. 98 Civ. 5564 (WHP), 2003 WL 22251312, at *8 (S.D.N.Y. Sept. 30, 2003) ("As noted, [plaintiff]'s unsupported assumption of causation and supposition that all of its losses were caused by defendants' allegedly unlawful conduct, and failure to account for defendants' lawful conduct and intervening market factors are fatal to its claim."); Litton Systems, Inc. v. Honeywell, Inc., No. CV 90-4823 MRP, 1996 WL 634213, at *3 (C.D. Cal. July 24, 1996) ("Because [plaintiff]'s damage model did not attribute an amount of damages to particular [defendant] conduct, but rather attributed a single estimate of damages to all of the challenged conduct taken together -- even conduct that was excluded from consideration by the jury -- the jury had no rational basis to determine an appropriate damage award.").
B. Overview of Discover's Damages Model
Under Discover's alternative damages model, also known as the "Project Explorer" model, "Discover enters into a joint venture deal with Citibank, a prospective deal discussed between the parties in the actual world." (Decl. of Jerry Hausman, Ex. A (Expert Report of Jerry Hausman) ("Hausman Report") ¶ 151.) "Discover's discussions with Citibank involved a range of possible options, centering on a joint venture that would have combined Discover's network with Citibank's Diners network, and the movement of Citibank's issuing volumes over to the combined network." (Id. ¶ 262.) "The primary options discussed [to move the issuing volumes] were 'Big Bang' and 'Cross Sell.' Big Bang would have involved a rapid movement and conversion of Citibank's issuing volumes to the network; Cross Sell would have involved a more gradual movement of Citibank card volumes." (Id.) "There is evidence that Citibank would have preferred the Cross Sell option because it would have largely avoided $2 billion in attrition costs that were built into estimates for the Big Bang option to account for Citibank having to convert rapidly its card base to the Explorer network under that scenario." (Id. ¶ ...