(July 28, 2005) The lead attorney in a recently filed small-business class action against Visa, MasterCard, and a number of their member banks over interchange is optimistic his lawsuit will succeed even though a suit by some California small businesses challenging interchange on antitrust grounds was dismissed this week.

In separate statements, Visa U.S.A. and MasterCard International hailed the dismissal of the so-called Kendall suit by U.S. District Court Judge Jeffrey S. White in San Francisco. Both indicated the action bodes well for them in the June class action filed against them by small businesses represented by the Minneapolis-based antitrust law firm of Robins, Kaplan, Miller & Ciresi L.L.P. and the July lawsuit filed against Visa by seven big grocery and drugstore chains, including The Kroger Co. Both suits challenge interchange on antitrust grounds, saying the current process in which the bank card networks set interchange constitutes price fixing.

“Judge White's decision should send a strong message to class-action plaintiffs' lawyers who have recently sought to bring similar claims against MasterCard and our members,” said a statement from Noah J. Hanft, MasterCard general counsel.

But K. Craig Wildfang, a Robins, Miller partner, says the Kendall suit failed because of technical issues that his suit addresses. “I don’t think it’s going to have any impact,” he tells Digital Transactions News. “The decision in Kendall was a decision on the pleadings. The court found that the lawyers in the case had failed to adequately plead the allegations in the complaint.”

The 2004 suit was brought by beauty-salon owner Sheri L. Kendall and a restaurant owner who accused Visa and MasterCard of price fixing in setting interchange and even claimed they set merchant discount rates. It also accused three banks with big market share in California—Bank of America, Wells Fargo, and U.S. Bank, all major merchant acquirers—of acting in an uncompetitive manner in setting card-acceptance prices.

In one order dismissing the banks from the suit, White said the plaintiffs had failed to state a sufficient claim that the banks had somehow engaged in price fixing, as alleged. And in a separate dismissal order for Visa and MasterCard, White said there was no evidence they set merchant discount rates. He also said that as so-called “indirect purchasers” of Visa/MasterCard services, the merchants had no standing to bring their action. In federal antitrust law, only “direct” purchasers have standing to sue. Acquirers technically pay interchange to issuers and pass the expense on to merchants in their discount rates.

Wildfang says his complaint more carefully spells out the roles of each party in the interchange process. “I think we have more than adequately plead our case,” he says. “Ours is much more specific and much more detailed.”

An attorney in the Kroger case also said he has presented his case in a manner that would avoid the issues that sunk Kendall, according to news accounts.

The attorney in the Kendall case plans to appeal, according to press reports. White’s dismissal orders bar the plaintiffs from refiling the case.