Did banks collude to fix ATM access fees?

|The Volokh Conspiracy |

Yesterday, I blogged the first part of an antitrust professors' amicus brief I joined in Visa Inc. v. Osborn, which will be argued before the Supreme Court sometime this Term. This case is about what it takes to make a "conspiracy" within the meaning of antitrust law, and in particular, whether it's a conspiracy when "members of a business association agreed to adhere to the association's rules and possess governance rights in the association."

Today, I'll give you the last part of that amicus brief.

II. The Complaint Here Does Not Allege Facts Plausibly Suggesting Collusion Among the Defendant Banks

A. A proper application of Twombly and the other cases cited above makes clear that the court of appeals erred in reversing the dismissal of respondents' complaint.

Respondents allege a horizontal conspiracy among all Visa and MasterCard member banks to adhere to contractual provisions-known as the "Access Fee Rules"-prohibiting ATM operators from charging higher access fees to cardholders for transactions routed over Visa and MasterCard than for transactions routed over another network. Pet. App. 54a-55a, 65a. To support its conclusion that the complaint plausibly stated a section 1 claim based on this alleged conduct, the court of appeals pointed to respondents' allegations that the Access Fee Rules "originated in the rules of the former bankcard associations agreed to by the banks themselves," and that representatives of the member banks served on the bankcard associations' boards of directors at the time the Access Fee Rules were adopted. Id. 20a. From this alone, the court concluded that the plaintiffs had sufficiently alleged that "the member banks used the bankcard associations to adopt and enforce a supracompetitive pricing regime for ATM access fees." Id.

But these allegations do not plausibly suggest that the member banks entered into any agreement among themselves to establish and adhere to the Access Fee Rules. There is no suggestion, for example, that the banks discussed or agreed among themselves how to vote on the Access Fee Rules, or even that they all voted the same way. Indeed, the allegations here-that "members of a business association agreed to adhere to the association's rules and possess governance rights in the association," Pet. i-indicate simply that the member banks unilaterally decided to participate in the associations, contribute to the governance of the association as they saw fit in their individual business judgment, and unilaterally agreed to the Access Fee Rules.

At the petition stage, respondents contended (Opp. 16-17) that they have alleged "more" than mere membership in a trade association. But they never identified what that "more" is. All that respondents have alleged is that individual association members participated in the association's governance structure and have decided to adhere to the association's rules. Put differently, although respondents argue that the banks "agreed to th[e] rule and apply it in setting their prices," id. 10, they never alleged facts plausibly suggesting that the banks agreed with one another to implement the rule. If allegations like those made by respondents suffice to allege a section 1 agreement, then any plaintiff could plausibly plead conspiracy merely by alleging that more than one member of a trade association adhered to an association rule.

Respondents also claimed at the petition stage (Opp. 17) that the approach amici urge "would effectively immunize all trade associations from the antitrust laws." That is wrong. The lower-court cases discussed above provide a clear roadmap for distinguishing claims that rest solely on membership in an association from those that plausibly allege collusion. It is respondents' theory that would have far-reaching deleterious consequences, effectively subjecting any trade association member to section 1 liability, expensive discovery, and exposure to treble damages merely for following a rule of the association.

Disputing this, respondents argued (Opp. 16-17) that the requisite agreement can properly be inferred from their complaint because member banks' continued assent to the Access Fee Rules does not make economic sense absent agreement among the banks. Respondents never explained why that is so, instead attempting (id. 16) to shift the burden to petitioners to offer a "legitimate reason for the banks[']" adherence to the rules. Twombly is clear, however, that in asking a court to infer agreement, the plaintiff bears the burden of alleging facts "plausibly suggesting (not merely consistent with) agreement." 550 U.S. at 556. In any event, a plausible explanation for why member banks' would adhere to the Access Fee Rules absent a conspiracy is plain from respondents' own complaint.

Respondents acknowledge that ATM owners receive a benefit from participating in networks with nationwide coverage. See Pet. App. 72a-73a. An ATM owner may therefore find it in its independent interest to participate in such a network, even though that owner is obliged to adhere to a rule that it cannot impose a fee on Visa and MasterCard transactions that is higher than transactions over other networks. Indeed, non-bank ATM owners-who are respondents here-found it in their interest to participate in the networks and adhere to the Access Fee Rules, and there are no allegations that they participated in any conspiracy. That straightforward economic explanation alone rebuts respondents' claim that the banks' adherence to the rules would make no business sense but for a horizontal agreement.

The Ninth Circuit's decision in Kendall illustrates how claims like respondents' are properly evaluated under this Court's precedent. Kendall involved allegations similar to those here: that by joining and owning a proprietary interest in a credit card association, participating in its governance, and agreeing to abide by credit card consortium rules, banks had conspired with each other to fix fees charged to merchants for accepting credit cards. See 518 F.3d at 1048. The court of appeals held that the plaintiffs did "not allege any facts to support their theory that the Banks conspired or agreed with each other or with the Consortiums to restrain trade," and that the allegations were "insufficient as a matter of law to constitute a violation of Section 1." Id. Relying on Twombly, the court concluded that the plaintiffs "failed to allege any evidentiary facts beyond parallel conduct to prove their allegations of conspiracy," and thus that the complaint was rightly dismissed. Id.

The district court here properly relied on Kendall in dismissing the complaint. Pet. App. 199a-200a. In fact, the court explained, although respondents claimed that "they have alleged much more than what was asserted in Kendall," they actually "allege less." Id. 200a. Specifically, the court noted, in Kendall the "bankcard associations were still in existence" and the "banks still belonged to the associations." Id. Here, by contrast, respondents "can only allege that banks previously belonged to the associations, and membership in . . . a defunct association . . . is not enough to establish agreement or conspiracy." Id.; see also SD3, 801 F.3d at 423-426 (allegations of a membership and governance role in a business association do not sufficiently plead an antitrust conspiracy). As the Third Circuit has explained, neither defendants' membership in a business association "nor their common adoption of the trade group's suggestions[] plausibly suggest[s] conspiracy." In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 349 (3d Cir. 2010).

Respondents argued at the petition stage (Opp. 13) that this Third Circuit decision is distinguishable because they "have identified an agreement and quoted its relevant language." But respondents fail to specify any such "agreement," much less any horizontal agreement among the member banks.

B. In concluding that respondents' allegations "describe the sort of concerted action necessary to make out a Section 1 claim," Pet. App. 19a, the court of appeals here relied on this Court's decision in National Society of Professional Engineers v. United States, 435 U.S. 679 (1978). National Society is inapposite because there was no dispute in that case that the association's members had agreed to restrain price competition among one another. See 435 U.S. at 684-685 (defendant association admitted the essential facts alleged by the United States). Thus, the only issue was whether the agreement was justified by safety concerns. Id. at 685. Here, by contrast, there are no plausible factual allegations that members of the Visa or MasterCard networks agreed among one another to use the network to effectuate any common unlawful objective, see Monsanto, 465 U.S. at 764, and the existence of an illegal agreement is certainly not conceded.

Conclusion

The judgment of the court of appeals should be reversed.

Advertisement