Oliver v. Am. Express Co.

ANTHONY OLIVER, TERRY GAYLE QUINTON, SHAWN O'KEEFE,ANDREW AMEND, SUSAN BURDETTE, GIANNA VALDES, DAVID MOSKOWITZ,ZACHARY DRAPER, NATE THAYER and MICHAEL THOMAS REIDon behalf of themselves and all others similarly situated, Plaintiffs, v. AMERICAN EXPRESS COMPANYand AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY, INC., Defendants.

19-CV-566 (NGG) (SMG)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

April 30, 2020

MEMORANDUM & ORDER

NICHOLAS G. GARAUFIS, United States District Judge.

This is a putative class action brought against Defendants American Express Company and American Express Travel Related Services Company, Inc. (together, "Amex"). Plaintiffs, consumers who made purchases using a non-Amex electronic form of payment, challenge the non-discrimination provisions contained in Amex's contracts with merchants who accept its cards (the "Anti-Steering Rules"). (Compl. (Dkt. 1) ¶ 1.) Currently before the court is Amex's motion to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). (Mot. to Dismiss ("Mot.") (Dkt. 37).) For the following reasons, Amex's motion is GRANTED IN PART and DENIED IN PART.

I. BACKGROUND

This action challenges Amex's Anti-Steering Rules. (Compl. ¶ 1.) Plaintiffs allege that Amex's Anti-Steering Rules unreasonably restrain trade in the two-sided market for credit- and charge-card transactions ("credit card transactions") because they: "(i) increase two-sided credit card transaction prices to supra-competitive levels; (ii) result in fewer credit card transactions than would occur but-for the restraints; and (iii) raise consumer retail prices on goods and services purchased throughout the country by Plaintiffs and the Class." (Id. ¶ 3.)

The Anti-Steering Rules have been the subject of much litigation. That background—including the procedural history of relevant cases, the workings of the credit-card market in general, and Amex's platform in particular, etc.—has been discussed at great length in this court's previous opinions. See In re Am. Exp. Anti-Steering Rules Antitrust Litig., --- F. Supp. 3d ---, 2020 WL 227425, at *2-4 (E.D.N.Y. Jan 15. 2020) ("Non-Amex Merchants");¹ In re Am. Exp. Anti-Steering Rules Antitrust Litig., 361 F. Supp. 3d 324, 331-33 (E.D.N.Y. 2019); In re Am. Exp. Anti-Steering Rules Antitrust Litig., No. 11-MD-2221 (NGG), 2016 WL 748089, at *1-4 (E.D.N.Y. Jan. 7, 2016); United States v. Am. Exp. Co. ("U.S. v. Amex"), 88 F. Supp. 3d 143, 149-67 (E.D.N.Y. 2015), rev'd 838 F.3d 179 (2d Cir. 2016), aff'd sub nom. Ohio v. Am. Exp. Co. ("Ohio"), 138 S. Ct. 2274 (2017). The background necessary to introduce and decide the instant motion is laid out below.

A. The Parties

This action is brought by ten named Plaintiffs: (1) Anthony Oliver, a resident of California; (2) Terry Gayle Quinton, a resident of Tennessee; (3) Shawn O'Keefe, a resident of North Carolina; (4) Andrew Amend, a resident of Kansas; (5) Susan Burdette, a resident of New Mexico; (6) Gianna Valdes, a resident of New York; (7) David Moskowitz, a resident of Oregon; (8) Zachary Draper, a resident of Nevada; (9) Nate Thayer, a resident of Massachusetts; and (10) Michael Thomas Reid, a resident of Florida(collectively, "Plaintiffs"). Plaintiffs bring this action on their own behalf and, pursuant to Federal Rule of Civil Procedure 23(b)(2), on behalf of a proposed "Nationwide Class" defined as:

All persons or entities residing in the United States that do not have an Amex card and who use an electronic form of payment to purchase goods or services from merchants which accept Amex, Visa, Mastercard and/or Discover credit or charge cards.

Excluded from the Class are Defendants, their parent companies, subsidiaries, agents and affiliates, all governmental entities, and any judges or justices assigned to hear any aspect of this action.

(Compl. ¶ 137.) Plaintiffs also bring this action pursuant to Rule 23(a) and 23(b)(3) on behalf of thirty-two separate statewide damage classes asserting claims for damages under the antitrust statutes or consumer protection statutes and the law of unjust enrichment of thirty-two jurisdictions: Alabama, Arizona, California, District of Columbia, Florida, Hawaii, Illinois, Iowa, Kansas, Maine, Massachusetts, Maryland, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Rhode Island, South Dakota, Tennessee, Utah, Vermont, West Virginia, and Wisconsin (collectively, the "State Damages Classes"). (Id. ¶ 138.) Like the Nationwide Class, the State Damages Classes are made up of individual consumers who do not have an Amex card and who used any electronic form of payment to purchase a product from a merchant that accepted Amex, Visa, Mastercard, or Discover credit or charge cards. (Id. ¶ 139.)

Defendant American Express Company is a New York Corporation. (Id. ¶ 22.) Defendant American Express Travel Related Services Company, Inc. is a New York Corporation, with its principal place of business in New York, New York. (Id. ¶ 23.) It is a wholly owned subsidiary of American Express Company. (Id.)

B. The Relevant Market

Plaintiffs assert that the relevant geographic market is "the United States, including each of the States." (Id. ¶ 71.) The relevant product market is "the market for two-sided general purpose credit and charge card transactions." (Id. ¶ 72.)

C. Factual Allegations

1. The Credit Card Industry

Amex is one of four significant competitors in the nationwide credit card market. (Id. ¶ 36.) The others are Visa, Mastercard, and Discover. (Id.) According to Plaintiffs, the market shares of these four companies as of 2013 were Visa 45%, Amex 26.4%, MasterCard 23.3%, and Discover 5.3%. (Id.; see Ohio, 138 S. Ct. at 2282.) The market is also constrained by high barriers to entry; in fact, there has not been a successful entry into the market since Discover in 1985. (Id. ¶ 38.)

Credit card companies provide services both to cardholders, who use the cards to purchase goods and services, and to merchants, who accept those cards as payment in exchange for goods and services. These credit card companies thus operate a two-sided platform, offering services to two, distinct groups (merchants and consumers) and facilitating transactions between them. See Ohio, 138 S. Ct. at 2280. Credit card companies need to make a sale to both sides of the market to succeed; after all, "no credit-card transaction can occur unless both the merchant and the cardholder agree to use the same credit-card network." Id.; (see also Compl. ¶¶ 45-47). Amex offers services directly to both merchants and consumers. (Compl. ¶ 40.)

As Plaintiffs allege, "when a consumer uses a credit or charge card, the merchant's point of sale terminal relays a record of the transaction to the card's network." (Id. ¶ 48.) The network then pays, or facilitates the payment of, money for that transaction tothe merchant, consisting of the purchase price charged to the customer minus the fee that network or bank charges merchants (the "merchant fee"). (Id.) Consumers may also pay fees to use their credit cards and get rewards for making purchases with a particular card. (Id. ¶ 49.) Unlike its competitors, who charge variable merchant fees depending on the particular card the individual consumer is using, Amex "charg[es] a single merchant fee for all of [its] various credit and charge cards." (Id. ¶ 52.) Amex sets its merchant fee pricing by industry segments, and, in general, its merchant fees are higher than those of its competitors. (Id. ¶¶ 53, 69.) Plaintiffs further allege that, in contrast to its competitors, "the vast majority of Amex's revenue comes from merchant fees." (Id.¶ 55.)

2. The Anti-Steering Rules

The target of this litigation is a provision in the Card Acceptance Agreement ("CAA"), known as the Anti-Steering Rules, to which all merchants who accept Amex cards must agree. Pursuant to the Anti-Steering Rules, Merchants may not:

• indicate or imply that they prefer, directly or indirectly, any Other Payment Products over [Amex] Card[s];

• try to dissuade cardholders from using [their Amex] Card;

• criticize or mischaracterize [the Amex] Card or any of [Amex's] services or programs;

• try to persuade or prompt cardholders to use any Other Payment Products or any other method of payment (e.g., payment by check);

• impose any restriction, conditions, or disadvantages when the Card is accepted that are not imposed equally on all Other Payment Products, except for ACH funds transfer, cash, and checks;

• engage in activities that harm [Amex's] business or the American Express Brand (or both);• or promote any Other Payment Products (except the Merchant's own private label card that they issue for use solely at their establishments) more actively than the Merchant promotes [Amex's] Card.

(Id. ¶ 78.)

3. Harm to Plaintiffs

Plaintiffs allege that the "intended and actual result of Amex's Anti-Steering Rules is near-total insulation from price competition amongst Amex, Visa, Mastercard, and Discover in the fees charged to merchants." (Id. ¶ 83.) This is because the Anti-Steering Rules prevent merchants from encouraging customers to use non-Amex cards, even where another card is less expensive for the merchant to accept. (Id.) In turn, any incentive for Visa, Mastercard, and Discover "to compete with Amex or with one another on the level of merchant fees" is removed. (Id.) Absent the Anti-Steering Rules, merchants could—and would—use "a number of different procompetitive steering devices to encourage cardholders to use a lower- cost credit card." (Id. ¶ 84.) This steering, Plaintiffs allege, would have many procompetitive virtues, including: "fostering horizontal competition between the four [credit card] networks; driving supra-competitive prices to merchants and two-sided [credit card] transaction prices down to a competitive level by letting market forces, not Amex's restraints, determine the price; and increasing the number of...