Antitrust Law Daily Wrap Up, ANTITRUST—E.D.N.Y.: Payment cardholder putative class action tossed for lack of antitrust standing, (Jan 3, 2025)

By Seth Abrams, J.D., M.A.

No antitrust injury for cardholders who did not participate in market where anticompetitive conduct allegedly occurred.

The federal district court in Brooklyn dismissed a putative antitrust class action brought by cardholder plaintiffs John Palladino, Garib Karapetyan, Steve Palladino, and John Nyl against Visa, MasterCard, and their member banks. The cardholders had alleged that the defendants, and all the retail merchants who accept Visa or Mastercard payment cards, conspired to fix the price of the interchange fees charged when a consumer uses a Visa or Mastercard to purchase a retail good or service, harming competition and increasing prices. The court held that the consumers lacked antitrust standing because the alleged injury took place in a separate, albeit related, market in which the cardholders did not participate (Palladino v. JPMorgan Chase & Co., No. 1:23-cv-01215-MKB-JAM (E.D.N.Y. Dec. 30, 2024)).

Background. In December 2022, the plaintiffs, who are California citizens and Visa or Mastercard cardholders, filed a complaint in California Superior Court alleging violation by defendants of California’s Cartwright Act and California’s Unfair Competition Law (“UCL”). The defendants removed the action to federal court and transferred the action to the Eastern District of New York for consolidation with In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation.

The cardholders alleged that defendants have engaged in a “vast price-fixing conspiracy to fix the fees charged on Visa and Mastercard transactions in violation of the Cartwright Act and UCL.” These “interchange fees” are set by Visa and Mastercard, charged to the merchant’s acquiring bank, and collected by the cardholder’s issuing bank. The cardholders allege that these interchange fees are purposely not disclosed to the cardholders, with part of the payment going directly to their card-issuing bank. The cardholders allege injury in three ways. First, as an indirect purchaser, because interchange is built into prices. Second, as a direct purchaser, because the cardholder is damaged “the moment a merchant rings the sale.” The cardholders allege “direct injury with each retail purchase.” Third, injury occurs because of concealment, because it is alleged to be undisclosed that all the money spent did not go to the merchant.

In January 2024, the cardholders filed an amended complaint. In February 2024, the defendants moved to dismiss the amended complaint, and the court referred the motion to a magistrate judge for a report and recommendation.

Report and recommendation. In July 2024, the magistrate judge delivered the report and recommendation, including recommending dismissal of the cardholders’ Cartwright Act and UCL claims. The magistrate judge found that the cardholders did not establish antitrust standing because “the factors identified in Associated General Contractors v. California State Council of Carpenters (AGC), 459 U.S. 519 (1983), weigh against finding the Plaintiffs have antitrust standing as indirect purchasers,” and the cardholders do not have antitrust standing as “direct joint purchasers” because cardholders do not directly pay interchange fees. In addition, and as an alternative ruling, the magistrate judge also recommended that the district court dismiss the Cartwright and UCL claims as time-barred by the four-year statute of limitations.

Antitrust standing under the Cartwright Act. The court first concluded that the “efficient enforcer” factors from federal law apply to standing analysis under the Cartwright Act. The court concluded that that the cardholders did not sufficiently allege injury as either direct or indirect purchasers under the Cartwright Act and, accordingly, did not have the requisite antitrust standing.

Defendants’ alleged conspiracy was per se unlawful horizontal price fixing. The cardholders’ allegations, however, did not identify an injury “of the type the antitrust laws were intended to prevent.” The cardholders must show that they participated in the relevant market where anticompetitive behavior occurred; “participating in a ’separate, albeit related” market is not sufficient.”

Under the Cartwright Act, the cardholders must be a “market participant.” The court noted that “[p]laintiffs fail to establish antitrust injury as either direct or indirect purchasers because they do not allege cardholder participation in the market where the anticompetitive conduct occurs.” The pertinent rules and fees schedules are set in a General Purpose Card Network Services Market, which is separate from the market where cardholders engage in transactions. Because the cardholders are neither consumers nor competitors in General Purpose Card Network Services, they cannot satisfy the market participant rule and “fail to establish antitrust injury as either direct or indirect purchasers.” In addition, the UCL claim was dismissed because the Cartwright claim failed.

The Case is No. 1:23-cv-01215-MKB-JAM.

Judge: Brodie, M.

Attorneys: Joseph M. Alioto, Sr. (Alioto Law Firm) for John Palladino and Steve Palladino. Boris Bershteyn (Skadden, Arps, Slate, Meagher & Flom LLP) for JPMorgan Chase & Co. Michael B. Miller (Morrison & Foerster LLP) for Bank of America Corp. Amy Neda Vegari (Patterson Belknap Webb & Tyler LLP) for Wells Fargo & Co.

Companies: JPMorgan Chase & Co.; Bank of America Corp.; Wells Fargo & Co.

Cases: Antitrust StateUnfairTradePractices NewYorkNews