Visa, AmEx, MasterCard Class Action Survives Motion to Dismiss

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A federal judge will allow a chip card reader antitrust class action lawsuit to continue against four major credit card networks and their related entities.

U.S. District Judge William Alsup denied motions for dismissal by defendants Visa, MasterCard, American Express and Discover, finding the plaintiffs had sufficiently alleged a plausible conspiracy on their part.

However, Judge Alsup dismissed claims against card-issuing banks.

Plaintiffs B&R Supermarket Inc. and Grove Liquors LLC are two Florida-based businesses taking on a slew of major credit card networks and issuing banks.

They allege these members of the credit card industry conspired to shift liabilities for fraudulent transactions onto merchants’ shoulders simultaneous with the changeover from magnetic-stripe card technology to EMV chip technology in Oct. 2015.

In denying defendants’ motion to dismiss, Judge Alsup noted the plaintiffs had made sufficient and plausible allegations of a possible EMV chip technology conspiracy among defendants Visa, MasterCard, and American Express.

The judge separately determined the plaintiffs had successfully pled their case against defendant Discover.

As for claims against the issuing banks, Judge Alsup found the plaintiffs had not shown those banks exercised enough control over the network defendants. He found the plaintiffs’ allegations would require too much speculation to pin liability on the banks.

Judge Alsup also dismissed a motion by defendant American Express to compel arbitration and to transfer the claims against it to a federal court in New York.

The plaintiffs will be joined by merchants Monsieur Marcel and Fine Fare, whose motions to intervene Judge Alsup granted. The judge denied a similar motion by rue21, which he described as “duplicative and unduly complicated.”

In their March 2016 credit card EMV chip class action lawsuit, the plaintiffs allege that they and the proposed Class suffered billions of dollars’ worth of harm resulting from the credit card industry’s requirement of new EMV chip-reading credit and debit card terminals.

Plaintiffs claim the industry members conspired to shift liability for “fraudulent, faulty and otherwise rejected consumer credit card transactions” from themselves to the plaintiffs and other Class Members.

This conspiracy violates the federal Sherman Antitrust Act, the California Cartwright Act, and provisions of state common law, the plaintiffs claim.

The EMV chip at the core of this antitrust class action lawsuit is a recent technological upgrade designed to improve card security.

Unlike older cards, which can store only static account information on a magnetic strip, cards equipped with the newer EMV chips dynamically create a unique electronic signature for each transaction.

According to the plaintiffs, the switch from magnetic strip to EMV chip technology on Oct. 1, 2015 brought with it a corresponding shift in liability for fraudulent transactions.

This liability shift is the supposed result of an agreement among the four credit card networks – Visa, MasterCard, American Express and Discover – and implemented via EMVCo LLC, the Smart Card Alliance, and the EMV Migration Forum.

The networks allegedly agreed to implement the liability shift on the same date to prevent merchants from steering customers to use cards with more merchant-friendly terms, the plaintiffs allege.

Plaintiffs say that agreement is a form of unlawful price-fixing. They say it calls to mind previous enforcement actions brought by the Justice Department in opposition to similar anti-steering efforts.

The agreement is also not consistent with the Durbin Amendment, which effectively authorizes merchants to steer customers, according to the plaintiffs.

The plaintiffs are proposing to represent a Class of merchants who have been subject to the alleged liability shift resulting from MasterCard, Visa, Discover and American Express chargebacks from Oct. 1, 2015 through the present, despite having purchased EMV chip-reading card readers under the networks and issuing banks’ direction.

Plaintiffs seek an award of damages, costs of litigation, and an order stopping the defendants from engaging in any further alleged violations of law.

The plaintiffs are represented by attorneys Patrick J. Coughlin, David W. Mitchell, Alexandra S. Bernay, Carmen A. Medici, Angel P. Lau and Lonnie A. Browne of Robbins Geller Rudman & Dowd LLP, and John W. Devine, Lawrence D. Goodman and Robert J. Kuntz Jr. of Devine Goodman Rasco & Watts-FitzGerald LLP.

The Credit Card EMV Chip Antitrust Class Action Lawsuit is B&R Supermarket Inc., et al. v. Visa Inc., et al., Case No. 3:16-cv-01150, in the U.S. District Court for the Northern District of California.