For many years antitrust litigation in the financial services and securities industries was relatively rare.
Except for bank mergers, antitrust cases seemed to focus principally on other businesses-tangible merchandise, franchises, or medical care, to name a few.
That has now changed in a big way. Government enforcers are taking a closer look at these areas of the economy, and plaintiffs (and plaintiffs' lawyers) are increasingly viewing private antitrust litigation as an attractive investment opportunity.
The pending lawsuits by the Department of Justice and various retailers against the card associations are just the latest in a series of antitrust actions that have emerged from the financial services and securities sectors.
The government's 1992 case against Salomon Brothers was perhaps the first indication that antitrust law was poised to play a more active role in this arena. In that case, the Department of Justice and the Securities and Exchange Commission asserted that Salomon had conspired to control the supply of certain Treasury securities. Salomon settled those claims by agreeing to pay $290 million, including $100 million to establish a fund to compensate private claimants.
More recently, a government lawsuit against Steinhardt Management and Caxton Corp. charged a similar conspiracy to restrain competition with regard to certain Treasury issues. That case resulted in a settlement requiring the two companies to pay a total of $76 million.
Another price-fixing claim arose in the banking sector in 1993. Southtrust Corp. sued Plus System, challenging its rule prohibiting a member from imposing surcharges on noncustomers. The district court dismissed this action. It held that the no-surcharge rule enhances consumer welfare by limiting prices for ATM services, and that, in any event, ATM services compete in a broad market including credit cards, debit cards, cash, checks, and all other payment devices.
In a case named for Bank of Bartlett in Tennessee, several banks were accused of conspiring to fix penalty fees for checks written with insufficient funds and for deposited checks returned uncollected. The Sixth Circuit Court of Appeals refused to infer a conspiracy to fix prices. It stated that the banks have an interest in providing customers with information regarding checking account fees and in publishing prices to attract or deter consumers from opening accounts.
In 1996, the Department of Justice sued 24 Nasdaq market makers, alleging that they had "reached a common understanding" to follow a "quoting convention" with regard to certain stocks traded on Nasdaq. Private plaintiffs had previously asserted price-fixing claims relating to the Nasdaq market.
The parties in both cases have entered into settlements. Under the private settlements-subject to final judicial approval-payments with interest would exceed $1 billion by the end of July 1999. The district court has awarded over $143 million of that settlement fund as fees to the lawyers representing the plaintiff class.
Plaintiffs also have brought antitrust claims against industry participants that allegedly excluded others from market opportunities.
In one such case, a subsidiary of Sears, Roebuck and Co. challenged a bylaw that denied it membership in Visa. Though the jury decided in favor of the plaintiff, the 10th Circuit reversed the decision. It found insufficient evidence from which a jury could reasonably conclude that Visa possessed market power in the stipulated market for general purpose charge cards.
The court also concluded that the bylaw was reasonably designed to prevent free-riding by competitors.
In another case involving an alleged concerted refusal to deal, an investor accused several securities firms of unlawfully adopting customer agreements with a uniform provision requiring the arbitration of certain disputes. The appellate court allowed the case to proceed to trial to determine whether the firms has indeed unlawfully conspired.
The government and private parties also have brought cases alleging unlawful tying arrangements with regard to financial services.
For example, in 1994, the Department of Justice sued Electronic Payment Services, the owner of an ATM network, claiming that it had illegally required member institutions to purchase ATM processing from EPS.
In a consent decree, EPS agreed not to tie access to the ATM network to the acceptance of its data processing, and the network agreed to make itself open to independent ATM processors on a nondiscriminatory basis.
This survey should confirm that antitrust enforcement is alive and well in the financial services and securities industries. These fields- literally, "where the money is"-have become a magnet for antitrust scrutiny, providing potentially great returns from ongoing compliance efforts. Mr. Fastow is a partner in Weil, Gotshal & Manges LLP, a law firm in New York.
