Visa and MasterCard will argue in court today that the group of merchants collectively challenging the associations’ debit card acceptance rules is so diverse — encompassing all four million U.S. retailers that accept bank cards — that it should not qualify as a single class.

The hearing in the U.S. Second Circuit Court of Appeals in New York is expected to mark the beginning of round two of the associations’ efforts to fend off their critics.

Round one took place last summer in U.S. District Court for the Southern District of New York, in Manhattan, when the Justice Department prosecuted an antitrust case against Visa and MasterCard. Judge Barbara S. Jones has not yet issued a decision, and it is possible, observers say, that since the case involves some overlapping issues with the retailers’ suit, Judge John Gleeson, who is presiding over the upcoming case, may wait to hear Judge Jones’ ruling.

At today’s hearing, an appeals court judge will hear oral arguments in the appeal by Visa U.S.A. and MasterCard International of the class-action status of the so-called Wal-Mart lawsuit.

The retailers who sued over debit card rules were certified as a class in February of 2000 by Judge Gleeson of U.S. District Court for the Eastern District of New York, in Brooklyn.

The class includes the nation’s largest merchandisers — such as Wal-Mart Stores Inc. and Sears Roebuck & Co. — as well as mom-and-pop stores.

“Their interests are completely different,” Noah Hanft, general counsel for MasterCard, said in a telephone interview.

But the retailers, in their original complaint filed in 1997, said they were seeking class-action status partly because smaller merchants could not afford to fight the debit card rules on their own, and “the damages suffered by certain members of the class are small in relation to the expense and burden of individual litigation.” The retailers say there are no conflicts of interest within the class, and that all of them suffer to some degree from the higher rates that Visa and MasterCard charge for their signature-based debit cards.

The merchants are challenging the “honor all cards” rule that requires stores that take Visa and MasterCard brand credit cards to accept those brands of debit cards as well. The Visa and MasterCard debit cards — also known as offline debit cards, or signature-based cards — are more expensive for retailers than online, or PIN-based debit cards, which are processed by the regional electronic funds transfer networks.

Merchant fees on PIN-based debit cards run around 10 to 12 cents per transaction. The fee for the signature-based Visa check card is 1.25% of the transaction cost plus 10 cents. For the signature-based MasterCard debit product, it is 1.36% of the transaction cost plus 10 cents.

The retailers say PIN-based debit cards work faster and produce fewer chargebacks and less fraud. “No one is saying offline debit should not exist,” said Lloyd Constantine, lead counsel for the plaintiffs. “They’d probably take it at lower prices. They don’t want offline debit at these prices, and it’s being shoved down their throats.”

Mr. Constantine declined to comment specifically on Visa’s and MasterCard’s appeal of the class certification.

The outcome of the decision on the class certification will determine how quickly a trial will move forward. If the class certification stands, it will take some months for the litigants to contact all the retailers who would be eligible to participate as part of the class, which would put the trial date off into the future.

Last week, MasterCard released a legal draft to the press, titled “A Case for Reversal,” summarizing its appeals arguments. MasterCard will argue that merchants in the class cannot prove common economic harm resulting from the alleged tying-in practice between debit and credit cards.

“Some merchants can take online debit with PIN capabilities, and some can only take offline debit cards,” Mr. Hanft said. “A merchant who can only take offline debit is going to be very happy to take more transactions.”

While merchants are obliged to accept signature-based debit cards, nothing is stopping them from encouraging people to use the cheaper PIN-based cards, which many of them do. “Merchants are free under our rules — many, in fact, do prompt for a PIN,” he said.

Kelly Presta, a spokesman for Visa, said that today’s procedure is “only one stop on the road to determining who will decide what form of payment consumers can use at the checkout counter.”

He accused “Wal-Mart and the trial lawyers” of “trying to take away the choice of how consumers pay at the checkout counter. We believe the decision to use cash, check, credit cards or debit cards, should be made by the customer, not the trial lawyers.”

Debit cards are also an issue in the Justice Department antitrust case. In that case, Judge Jones will have to decide on the specific issue of whether debit cards and credit cards are in the same product market or not. If Judge Jones decides they are not, that ruling will support the retailers’ argument that the card associations are tying two separate products together by linking credit card acceptance with debit card acceptance.

The central issues in the Justice Department case, however, are the governing structures of Visa and MasterCard and whether collaboration between the two companies has stifled competition and innovation in the cards business.

The plaintiffs in the Wal-Mart case are asking for the right to accept Visa and MasterCard debit cards but to reject signature-based debit cards. They are also seeking monetary damages, including interest and attorneys’ fees.

John C. Coffee, a Columbia law professor with expertise in class-action suits, said that classes seeking damages have to prove the commonality of their case under more rigorous standards than a class seeking only an injunction.

“The defendants will say that individual issues predominate over the common issues, because this is a very diverse or heterogeneous class,” Mr. Coffee said.

Last November the associations tried unsuccessfully to have Wal-Mart dismissed from the case. Visa and MasterCard argued that Wal-Mart had suppressed a piece of evidence, an employee-training videotape that instructed cashiers to prompt debit card users to use personal identification numbers.

While Judge Gleeson denied the associations’ motion for dismissal, the tape was submitted to the court as evidence. The associations argue that the tape is proof that merchants have ample leeway in payment card choices. “That training film is relevant to the case,” Mr. Hanft said. The tape demonstrated “how to move people to pay with a PIN card.”

Wal-Mart argued that it did not suppress the tape, but mislabeled and misplaced it. Mr. Hanft said the tape “materialized only after we sought a sanction.”

MasterCard said it also plans to argue that the size of the class would be unprecedented for an antitrust case, and to protest “the unmanageability of such an enormous class.”

Mr. Coffee said the major obstacle to class certification is not the size of the class, but whether there are internal divisions. “This is essentially an antitrust claim that you’re tying one product that’s less desirable to the product where you have great market power, your credit card,” Mr. Coffee said. “I don’t see internal divisions within the class from that perspective.”

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