Antitrust Law Daily Wrap Up, ANTITRUST—E.D.N.Y.: Amex fails to persuade court to reconsider partial exclusion of expert testimony about steering, (Jun 24, 2024)

By Justin Marcus Smith, J.D.

The court said it did not exclude the expert testimony based on the court's own one-sentence summary of it; rather, the court said it excluded because the analysis underlying the expert’s opinion was not reliable.

In litigation about American Express Company anti-steering rules, reconsideration of the court’s January 2024 exclusion of a portion of American Express Company (Amex) expert testimony was unwarranted, held the federal district court in Brooklyn, New York. Amex’ reconsideration motion appeared to boil down to a disagreement over what the Amex expert had actually said about whether or not small merchants were less likely to steer in the but-for world. Amex urged that its expert did not opine that Amex-accepting small merchants would not surcharge in the but-for world. However, the court found Amex’ expert had suggested that small merchants were less likely to surcharge, which the court considered a means of steering. The court accordingly affirmed the testimony was “conclusory and internally contradictory” in light of another of the Amex expert’s statements that merchants might impose surcharges, and the court denied reconsideration on that basis (Oliver v. American Express Co., No. 1:19-cv-00566-NGG-SJB (E.D.N.Y. June 21, 2024)).

On January 29, 2019, Plaintiffs filed a class action suit alleging that Amex violated the Sherman and Clayton Antitrust Acts, various state antitrust and consumer protection statutes, and unjust enrichment. They alleged that Amex's Non-Discrimination Provisions (NDPs or "Anti-Steering Rules") unreasonably restrained trade in the two-sided market for general purpose credit and charge card transactions by: (1) increasing transaction prices to supra-competitive levels; (2) reducing the number of credit card transactions; and (3) raising consumer retail prices on goods and services.

On January 9, 2024, the court certified ten classes of debit cardholders, denied the defendants American Express Company and American Express Travel Related Services Company’s (collectively, Amex) motion to exclude expert testimony, and granted the plaintiffs’ motion to exclude a portion of the Amex expert testimony. Amex moved for reconsideration of the court’s decision to partly exclude the testimony of its expert, Dr. Eric Gaier.

Amex argued the court committed clear error in excluding Dr. Gaier’s testimony, but the court concluded reconsideration was unwarranted. Much of the court’s review and discussion of the experts’ testimony turned on the court’s interpretation that Dr. Gaier had made contradictory arguments or had even corroborated the testimony of the plaintiffs’ expert, Dr. Lamb.

Per the court’s review of expert testimony, Dr. Gaier opined that Dr. Lamb failed to consider the impact of Amex’ NDPs on non-qualifying merchants. Dr. Gaier’s testimony focused on small merchants. Dr. Gaier opined that small merchants would not be able to extract pricing concessions with Amex in the but-for world without NPDs because they do not contract directly with Amex; they do not understand the cost of acceptance to be able to steer to lower-cost cards; and, their acquiring banks would be unlikely to pass on any reduced discount fee.

In support for this contention, Dr. Gaier pointed to how certain small merchants behaved when Visa and Mastercard’s prohibitions on steering and differential surcharging were lifted. Dr. Gaier contended that nearly 3 million merchants who did not then accept Amex were free to steer, but effectively none of them did, and their merchant fees did not decline as Dr. Lamb predicted. However, Dr. Gaier also opined that small merchants might nevertheless impose surcharges or engage in other forms of steering that harm consumers. The court excluded this portion of Dr. Gaier’s testimony under Fed. R. Evid. 701 because it deemed it “conclusory and internally contradictory.” The court said Dr. Gaier did not support the opinion and it was inconsistent with the evidence he presented that small merchants previously did not steer even when they were able to.

First, Amex, focusing on the court’s one-sentence summary of Dr. Gaier’s opinion, contested whether the court had understood Dr. Gaier correctly. Amex said the court erred, when it criticized as unreliable Dr. Gaier’s purported opinion that any class member savings at qualifying merchants would be fully offset by losses at non-qualifying merchants, because Dr. Gaier did not actually offer that opinion. Amex asserted that Dr. Gaier’s actual opinion was that Dr. Lamb erroneously failed to consider the impact of steering and surcharging at the millions of non-qualifying merchants, including large merchants. Second, Amex argued the court erred when it found Dr. Gaier’s statement that 3 million small merchants who did not then accept Amex were free to steer contradicted his other statement that small merchants may nevertheless impose surcharges or engage in other forms of steering, because, in Amex’ view, Dr. Gaier did not opine that Amex-accepting small merchants would not surcharge in the but-for world.

To the contrary, the court found the focus of Dr. Gaier’s testimony about non-qualifying merchants was that small merchants would be unlikely to achieve lower discount fees. Beyond Dr. Gaier’s statement that small merchants “may” steer, the court found his discussion of steering or surcharging suggested that small merchants were less likely to steer in the but-for world. The complexity of processing cost calculations meant that small merchants would be unlikely to effectively lower their costs through steering customers to lower cost payment methods. Acquirers’ leverage over small merchants meant that small merchants would be unlikely to benefit from any reduction in discount fees, minimizing the incentive to steer to begin with.

The very same argument that Dr. Gaier used to say that small merchants would not achieve lower discount fees, they did not have a credible threat to steer, meant that the risk that plaintiffs incurred losses from steering was also diminished. Therefore, the opinion underlying Dr. Gaier’s criticism of Dr. Lamb for failing to consider losses incurred in transactions at non-qualifying merchants was the result of an unreliable, incomplete analysis.

The court acknowledged that Amex was correct that steering and surcharging are distinct, albeit a surcharge could be a steering method, and broader surcharges would not necessarily cause customers to switch payment methods. Just as not all surcharges are forms of steering, the court said it was worth keeping in mind that not all surcharges would violate Amex’ NDPs. In any event, “[t]he only relevant surcharging for the present analysis is surcharging that exists in the but-for world that would otherwise not occur if Amex’ NDPs remained in force.”

As for large merchants, the court found that Amex did not point to any specific Dr. Gaier testimony that the court overlooked. The court said Dr. Gaier said little about large merchants, but one thing he did say appeared to corroborate Dr. Lamb’s opinion that the mechanism merchants could use to reduce discount fees was not limited to qualifying merchants.

In sum, the court explained, for reasons already discussed in its challenged order, that it excluded Dr. Gaier’s testimony because it found his opinion unreliable. The court said its exclusion was not based on the court’s one-sentence summary of Dr. Gaier’s opinion. For the above reasons, the court denied Amex’ motion for reconsideration.

The Case is No. 1:19-cv-00566-NGG-SJB.

Judge: Garaufis, N.

Attorneys: Daniel Cohen (Cuneo Gilbert & Laduca, LLP) and Samuel O. Patmore (Stearns Weaver Miller Alhadeff & Sitterson, P.A.) for Terry Gayle Quinton, Shawn O'Keefe and Andrew Amend. Peter T. Barbur (Cravath, Swaine & Moore LLP) for American Express Co. and American Express Travel Related Services Co., Inc.

Companies: American Express Co.; American Express Travel Related Services Co., Inc

Cases: Antitrust NewYorkNews GCNNews