The Ninth Circuit recently affirmed the decision of the United States District Court for the Northern District of California and held that automated teller machine (“ATM”) cardholders lacked standing to bring an antitrust class action against banks and former and current corporate owner-operators of the ATM network for horizontal price fixing of certain fees paid when cardholders retrieved cash from ATMs not owned by their banks. In re ATM Fee Antitrust Litigation, 686 F.3d 741 (9th Cir. 2012). The Ninth Circuit agreed with the district court that the cardholders were indirect purchasers and that therefore the Supreme Court decision of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), barred the suit because the cardholders’ banks directly paid the fees at issue (which were then passed to the cardholders). The court additionally determined that the cardholders did not satisfy an exception to the Illinois Brick rule to allow for standing.

Background

A foreign ATM transaction occurs when ATM cardholders withdraw money from an ATM that is not owned by their bank. A foreign ATM transaction has four parties: (1) the ATM cardholder; (2) the bank that issued the ATM card to the cardholder (the “card-issuing bank”); (3) the entity that owns the ATM; and (4) the ATM network. The ATM network connects the ATM owner to the card-issuing bank so to allow cardholders to withdraw money from ATMs not owned by their banks.

A foreign ATM transaction generates four fees. Two of the fees are paid by the ATM cardholder and two are paid by the card-issuing bank. Specifically, the ATM cardholder pays a fee to the ATM owner for the use of the ATM and a fee to the card-issuing bank (the “foreign ATM fee”). The individual card-issuing bank determines their foreign ATM fee. The cardissuing bank pays a fee to the ATM network and a fee to the ATM owner (the “interchange fee”). The interchange fee is set by the ATM network. The interchange fee and the foreign ATM fee were at issue in the litigation. The interchange fee is passed on to the cardholders as part of the foreign ATM fee.

Up until February 1, 2001, STAR Network, the ATM network at issue, was a member-owned network and the member banks (including the bank defendants in the case) controlled STAR and set the interchange fee. On February 1, 2001, defendant Concord acquired STAR. After the acquisition the banks lacked control of STAR because Concord was not owned by the member banks. In February 2004, First Data Corporation acquired Concord.

The Litigation

On July 2, 2004, the cardholders filed a complaint in the district court alleging that the defendants engaged in horizontal price fixing in violation of § 1 of the Sherman Act and that the defendants colluded to fix the interchange fee that is passed on to the cardholders as part of the foreign ATM fee. On October 19, 2009, the cardholders filed their third amended complaint. The defendants moved for summary judgment arguing that the Supreme Court’s decision in Illinois Brick barred the cardholders’ suit because the cardholders were indirect purchasers. On September 16, 2010, the district court granted the defendants’ motion for summary judgment and dismissed the complaint on the grounds that the cardholders lack standing under Illinois Brick. The district court further determined that there was no exception to Illinois Brick that applied. On appeal, the Ninth Circuit affirmed the district court’s decision.

Indirect Purchasers

Under § 4 of the Clayton Act, “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue . . . and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. § 15(a). The court explained that the Illinois Brick rule established that indirect purchasers do not suffer an injury under § 4. Specifically, the court explained that the Supreme Court has held that a direct purchaser has suffered an injury under § 4 even if it passes on “claimed illegal overcharge[s] to” its customers. (citing Illinois Brick (discussing Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481 (1968))). Similarly, citing to Illinois Brick, the court noted that § 4 does not “permit offensive use of a pass-on theory against an alleged violator that could not use the same theory as a defense in an action by direct purchasers.” Thus, the Court explained, “[i]n sum, a bright line rule emerged from Illinois Brick: only direct purchasers have standing under § 4 of the Clayton Act to seek damages for antitrust violations.” (citing Del. Valley Surgical Supply Inc. v. Johnson & Johnson, 523 F.3d 1116, 1120-21 (9th Cir. 2008)).

In this case, the cardholders conceded that they did not directly pay the interchange fee. Rather, the card-issuing banks pay the interchange fee and then pass on the cost of the interchange fee to the cardholders through the foreign ATM fee. The district court found that because the cardholders did not directly pay the interchange fee they were indirect purchasers. The district court also found it important that the cardholders did not allege that the defendants conspired to fix the foreign ATM fee. The Ninth Circuit agreed with the district court that the cardholders were indirect purchasers. Thus, the cardholders lack standing under Illinois Brick.

Exceptions to Illinois Brick

The court explained that “[w]hile the Supreme Court has expressed reluctance in carving out exceptions to the Illinois Brick rule, limited exceptions do exist.” Specifically, standing has been recognized for indirect purchasers (i) when there is a pre-existing cost-plus contract with the direct purchaser; (ii) under a “co-conspirator” exception; and (iii) when customers of the direct purchaser own or control the direct purchaser or when a conspiring seller owns or controls the direct purchaser. The court additionally explained that the Ninth Circuit in Freeman v. San Diego Ass’n of Realtors, 322 F.3d 1133 (9th Cir. 2003), may have outlined a fourth exception that “‘indirect purchasers can sue for damages if there is no realistic possibility that the direct purchaser will sue,’ relying on the seller’s control of the direct purchaser.” First, the court determined that as the cardholders do not contend they had a preexisting cost-plus contract with defendants, the first exception does not apply.

Second, with respect to the co-conspirator exception, the court explained that the co-conspirator exception allows indirect purchasers to sue when the co-conspirators set the price paid by plaintiffs. The court pointed to State of Arizona v. Shamrock Foods Company, 729 F.2d 1208 (9th Cir. 1984), as recognizing the exception when direct purchasers conspire to fix the price paid by plaintiffs. The court agreed with the district court that the exception is not really an exception because if the direct purchaser conspires to fix the price paid by the plaintiffs and then the plaintiffs pay the price directly they are not indirect purchasers. Thus, the court agreed with the district court that Shamrock Foods was inapplicable because the cardholders do not allege that the defendants conspired to fix the price they paid. Rather, the cardholders alleged that the defendants fixed the interchange fee that was then passed on to the cardholders.

In addition, the court pointed to Kendall v. Visa U.S.A., Inc., 518 F.3d 1042 (9th Cir. 2008), for the proposition that the coconspirator exception only applies when the co-conspirators set the price paid by the consumer. The court also pointed to the Fourth Circuit decision of Dickson v. Microsoft Corp., 309 F.3d 193 (4th Cir. 2002), for the proposition that the exception requires a conspiracy to pay the price paid by the plaintiffs. Here, the cardholders allege only a conspiracy to set the interchange fees (and not the foreign ATM fees paid by the cardholders). The court agreed with the Fourth Circuit and declined to extend the co-conspirator exception beyond the situation where the co-conspirators set the price paid by the plaintiffs.

The cardholders next argued that they have standing because the defendants conspired to fix the interchange fees for the purpose and effect of fixing the foreign ATM fees. Specifically, the court explained that the cardholders argue that conspiring to set a price for the purpose and effect of raising the price equals to fixing the price and makes the payers of the heightened price direct purchasers. The court explained that this argument “misses the mark” because Illinois Brick rejected this argument when it rejected “mark up” claims. The court rejected the cardholders’ arguments that the foreign ATM fees were fixed, because, among other reasons, the bank defendants independently set their own foreign ATM fee (in an amount that varied among defendants). Finally, the court also rejected the cardholders’ argument that they have standing because they “purchased directly from price-fixing Defendants.” While the court acknowledged that other courts have expanded the co-conspirator exception, the court stated “[b]ased on our precedent in Kendall and Shamrock Foods, we recognize the co-conspirator exception only when the conspiracy involves setting the price paid by the plaintiffs.” Thus, the court concluded, as did the district court, that the co-conspirator exception does not apply because recovery depends on pass-through damages.

Finally, with respect to the ownership and control exception to Illinois Brick discussed in Royal Printing Co. v. Kimberly– Clark Corp., 621 F.2d 323 (9th Cir.1980), and the possible exception noted in Freeman v. San Diego Ass’n of Realtors, 322 F.3d 1133 (9th Cir. 2003), when there is no realistic possibility that the direct purchasers will sue, the court explained that neither the bank defendants nor STAR are divisions or subsidiaries of each other and there is no allegation that STAR owns or controls the bank defendants or that the bank defendants own or control each other. The court further explained that this case involves whether there is a possibility of suit when a direct purchaser conspires with the seller to set a cost that is passed on to the plaintiffs, not a situation where the seller is prohibiting the direct purchasers from suing because of ownership and control. The court declined to extend the exceptions noted in Royal Printing and Freeman to situations where the seller does not own or control the direct purchaser.

Thus, the court concluded “none of the exceptions allow Plaintiffs to avoid ‘run[ning] squarely into the Illinois Brick wall.’” (citing Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1049 (9th Cir.2008)). Therefore, the court affirmed the district court’s conclusion that no exception of Illinois Brick applies to allow the cardholders to have standing.