Several million merchants have settled their class action against Visa U.S.A. and MasterCard International over debit card fees, but the matter still has not been put to rest.
At least five large retailers, with more than $89 billion of combined annual sales, have opted out of the class and are thus free to file their own suits over the same issues. One of them, Best Buy Co. Inc., did so last week. The question is, will this strategy produce bigger settlements, or will it just rack up legal fees while getting the merchants less than they would have received from the class action?
On June 10 the Minneapolis retailer filed a complaint against Visa and MasterCard in the U.S. District Court for Minnesota that covers much of the same ground as the massive class action, known as the Wal-Mart suit, after its lead plaintiff. The settlements in that suit brought the merchants a promise from Visa and MasterCard to pay them $3 over the next 10 years, as well as a five-month debit interchange break and an end to the "honor all cards" rules that forced retailers to accept debit cards if they took credit cards.
Dawn Bryant, a Best Buy spokeswoman, said it felt its case was different from that of the merchant class. "We have alleged certain acts and violations not included in the Wal-Mart case, and we believe each retailer may have unique claims." Best Buy's decision to opt out was "in our best interest."
Visa and MasterCard would not discuss the Best Buy suit, citing the presence of open litigation. But lawyers familiar with the Wal-Mart suit said Best Buy is gambling that Visa and MasterCard will again shy away from a court fight. Because the Wal-Mart case was settled without going to trial, the card brands are not bound by any testimony or trial history and could decide to play hardball with this plaintiff, the lawyers said.
The complaint appears similar to one raised in the class action. Best Buy claims that Visa "forced" it to "pay supra-competitive exorbitant and fixed prices for acceptance of these involuntary payment systems."
The suit charts how much it costs Best Buy to accept Visa and MasterCard offline debit transactions versus those processed through the regional PIN networks. In 1996 "the lowest MasterMoney interchange fee was more than 17 times the rate of NYCE and more than 20 times the rate of MAC," according to the complaint. "Were retailers free to reject Visa Check and MasterMoney or even free to request a different form of payment, there is virtually no possibility that they would lose the sale."
The plaintiffs in the Wal-Mart case made the same two complaints, and the settlements address both by giving the merchants an interchange break and more choice in what types of cards to accept.
"As a matter of litigation strategy, the first time around Visa and MasterCard had to think seriously about compromising," said Michael Malloy, a professor at the University of the Pacific's McGeorge School of Law in Sacramento. "The second time it may be that they are less tolerant. I would put odds of a fight to the end in this round two somewhat higher" than in the Wal-Mart case.
Best Buy's motivation for sitting out the first round might have been partly psychological, Mr. Malloy said - the Fortune 100 company may not have wanted to participate in a suit in which Wal-Mart called a lot of the shots. "Essentially, they would have to sign on to whatever Wal-Mart wanted to do. There is also a certain kind of wait-and-see attitude."
Other large retailers that sat out the Wal-Mart case include Home Depot Inc., Toys R Us Inc., Meijer Inc., and Giant Eagle Inc. So far only Best Buy has filed its own suit. A spokesperson for Giant Eagle, a Pittsburgh grocery store chain, would not talk about its plans, other than to say that it had not yet filed a complaint. Spokespeople for the other retailers did not return phone calls asking for comment.
Though the class action's "stunning success" may have spurred Best Buy to file its own suit, the others may now wait to see how Best Buy does, Mr. Malloy said.
Mark Ostrau, the chairman of the antitrust group at the law firm Fenwick & West LLP in Washington, said that, whatever Visa and MasterCard do in response to the Best Buy suit, they would have a strong motivation to make sure Best Buy did not do as well as the class members. "That would encourage more follow-ons, if they can get the same terms. It is a little mercenary. It is not a bad strategy."