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Weit v. Continental Illinois National Bank and Trust Co.

decided: February 11, 1981.

JACK WEIT, ET AL., PLAINTIFFS-APPELLANTS,
v.
CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, ET AL., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois. No. 70-C-1926 -- George N. Leighton, Judge .

Before Fairchild, Chief Judge, Cudahy, Circuit Judge, and Campbell, Senior District Judge.*fn*

Author: Campbell

Plaintiffs appeal from the entry of summary judgment on their claim of a price-fixing conspiracy in violation of Sections 1 and 2 of the Sherman Act. The District Court concluded that after eight years of discovery plaintiffs had failed to produce any significant probative evidence to support the complaint.*fn1 Based on our review of the record we, too, conclude that plaintiffs are unable to point to any significant probative evidence in support of the allegations in the complaint. Accordingly, we affirm.

This class action was initiated in 1970 by three charge cardholders in the Midwest Bank Card System, Inc. and its successor the Interbank-Master Charge Card System, Inc. (Mastercharge), against five Chicago banks. The plaintiffs alleged that defendants, Continental Illinois National Bank & Trust Company of Chicago (Continental), Harris Trust and Savings Bank (Harris), Pullman Bank and Trust Company (Pullman), Central National Bank in Chicago (Central), and American National Bank and Trust Company (American), conspired to fix the interest rate paid by consumer credit cardholders on extended payments at 1.5% per month, or 18% per annum.*fn2 Plaintiffs alleged that defendants engaged in a horizontal conspiracy among themselves, and a vertical conspiracy among themselves and their respective correspondent banks in Illinois. Plaintiffs sought five hundred million dollars in damages before trebling and injunctive relief requiring renegotiation of cardholder rates on an individual basis.*fn3

This controversy arises out of the formation of the Midwest Bank Card System by the defendant banks. As the District Court noted, the circumstances surrounding the formation of Midwest and its successor, Mastercharge, are not in dispute.*fn4 Those facts are set forth in detail in the District Court's opinion. See Weit v. Continental Illinois National Bank & Trust Co., 467 F. Supp. 197, 200-205 (N.D.Ill.1978). However, a brief summary of the Midwest system is appropriate.

In early 1966, First National Bank of Chicago held a meeting attended by representatives of Continental, Harris and the Northern Trust to discuss the establishment of a compatible credit card program. The idea of establishing a credit card system was well received, and further meetings ensued. A representative of American also participated in these meetings as an observer.

The banks sought to establish a compatible credit card system. That is a system which permits a card issued by one bank to be used for purchases from participating merchants who deal with other banks. The card issuing bank provides the consumer with a plastic charge card. The cardholder agrees to pay his bank for monies advanced to cover purchases by the cardholder with the charge card. The cardholder can use the charge card to make purchases from any merchant who accepts the Midwest Charge card. The merchant simply forwards the signed charge ticket to his own bank, and is credited with the full amount of the charged purchase, less a small "discount" or fee. The merchant's bank then receives a credit from the cardholder's bank. At the end of each month the cardholder is billed by his bank for the total amount of purchases made during the period. The merchant's bank generates revenues by charging the merchant a fee or "discount" for its services. If the cardholder pays his bank the full amount due within a specified period, he incurs no finance or interest charge. If he defers payment, however, his bank charges him interest on the unpaid balance. That interest rate, and how it was arrived at, is the subject of this controversy.

The Midwest Bank Card System, Inc. is a non-profit corporation established by the defendant banks, except American,*fn5 to administer the compatible charge card system. The defendant banks established the Midwest System in 1966 to facilitate the transfer or "interchange" of funds among participating banks. The defendants maintain that compatibility and a facilitated interchange of funds is essential to a successful bank charge system. Midwest was established, they argue, solely to assure an efficient compatible system.

The defendant banks also contend that an important aspect of a compatible charge card system is the integration of correspondent banks into the system. A correspondent bank maintains a deposit balance with a larger Metropolitan bank. The Metropolitan banks, in turn, provide services to their correspondents. Since Illinois is a "unit banking" State, which limits the use of branch banks,*fn6 major Metropolitan banks, such as the defendants, establish correspondent relationships with smaller banks in lieu of opening branches in other areas. Some banks would establish several correspondent relationships with major Metropolitan banks.*fn7 Each defendant recruited its correspondent bank to participate in the Midwest System. Plaintiffs claim that in doing so the defendants also conspired with their correspondent banks to fix the rate of interest charged at 18% per annum.

The initial meetings during the Spring and Summer of 1966, attended by representatives of defendants Continental and Harris, and by representatives of First and the Northern Trust, are outlined fully by the District Court and need not be restated here. See Weit v. Continental, supra, at 200-205. Continental and Harris were joined by Central National Bank in the Fall. Northern Trust dropped out of the program in August of 1966. Representatives of Pullman, a correspondent of First, Harris and Continental, began attending meetings in August. On October 24, 1966, First, Continental, Harris, Central and Pullman executed an interim agreement establishing the Midwest System. Midwest's regulations permitted membership by any commercial bank. On March 26, 1969, American petitioned for membership and became a member on May 16, 1969.

From the outset the defendant banks were aware of the potential anti-trust problems inherent in a joint venture such as this. At an early meeting on May 26, 1966, lawyers for First raised the anti-trust issue. The group agreed at that time, on advice of counsel, to exclude from their discussion interest rates, fees, advertising, and market research. On July 25, 1966, Miles Seeley, counsel for Continental, submitted a memorandum to the group warning that discussions must be limited to planning a compatible credit card system and prohibiting any discussion of "fees, discounts, billing and extended credit terms."*fn8 Thereafter, a member of Seeley's firm was present at all meetings to assure that this policy was adhered to, and that interest rates were not discussed, "even in jest."*fn9 Initial drafts of the "Compatible Credit Card System for Chicago Area Banks" also stated that card issuing banks "will be completely and solely responsible to determine ... credit policies and interest rates."*fn10

Nevertheless, plaintiffs argue, each defendant bank arrived at the same interest rate.*fn11 The defendants had ample opportunity to discuss interest rates at meetings of the Midwest group, at annual bankers' meetings, and even on social occasions. Plaintiffs point to several instances in the record where representatives of the defendant banks did discuss interest rates, though in the context of Illinois usury regulations. Plaintiffs further rely on an affidavit submitted by their expert, Bernard Shull, to the effect that "conscious cooperation" on the part of the members of the Midwest System was the likely cause of the 18% interest rate.

Plaintiffs argue that in addition to these factors which were considered by the District Judge, the lobbying efforts by the defendant banks also suggest the existence of a price fixing conspiracy. Those lobbying efforts were expressly not considered by the District Court.*fn12

When the Illinois General Assembly convened in 1967, several bills were introduced regulating interest charged on consumer credit cards. The general interest rate limit under the Illinois Usury Statute was 7% per annum. The Chief Counsel to the Illinois Comptroller*fn13 had, however, issued separate opinion letters to First and Continental indicating that National Banks could, under the Consumer Finance Act, charge 3% interest per month on balances up to $150, 2% on balances between $150 and $300, and 1% on the remaining balance above $300. There was no Illinois precedent in accord with that conclusion. Several of the bills pending in the Legislature would have limited charge card interest to 1% per month. The defendant banks engaged a lobbyist, William R. Dillon, to seek passage of a bill which would permit monthly credit card interest of 1.5%. Dillon's efforts were successful, as the Legislature approved House Bill 2071 which contained the 1.5% limit.

Plaintiffs contend that this evidence, provided by sworn affidavit or deposition, should at least create a genuine issue of material fact sufficient to defeat a defense motion for summary judgment under Rule 56, F.R.C.P.

The District Court found that the defendant's parallel interest rate; the opportunity to conspire to fix those rates; the specific references to interest rates in the record; and the opinion of Professor Shull did not create a reasonable inference of the conspiracy which plaintiffs alleged. 467 F. Supp. at 210-211. In support of their motion for summary judgment, defendants, as they must, came forward with testimony under oath refuting plaintiffs' allegations. This evidence showed that each defendant had independently projected the costs and early losses from the credit card system, and independently arrived at 1.5% per month as the minimum interest rate they could charge. The Court below noted that every employee of the defendant banks who participated in the formation of Midwest denied, under oath, that there had been any discussion relating to a fixed or agreed interest rate. The Court found that the parallel rates were not surprising since each defendant faced the "identical problems of fraud, credit losses, and large initial expense, to which reasonable businessmen would react in the same fashion." 467 F. Supp. at 210-211.

Also, the Court noted that 1.5% per month was the rate then charged on other consumer credit cards and by retail establishments offering their own credit.

The Court found that defendants had shifted the burden to the plaintiffs to come forward with "significant probative evidence to support the complaint," citing First National Bank of Arizona v. Cities Service, 391 U.S. 253, 88 S. Ct. 1575, 20 L. Ed. 2d 569 (1968). The District Court concluded that, after more than eight years of discovery,

... plaintiffs have confronted every person who attended those meetings, examined the minutes of and documents generated by each meeting, and found no evidence which affirmatively supports their theory. 467 F. Supp. at 211.

SUMMARY JUDGMENT

Rule 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to material fact ..." Rule 56(e) provides that when a motion for summary judgment is supported by sworn denials, as is the case here, the burden shifts to the plaintiff to "set forth specific facts showing that there is a genuine issue for trial."

By entering summary judgment the Court is, in effect, concluding that based on the evidence upon which the plaintiff intends to rely at trial, no reasonable jury could return a verdict for the plaintiff.*fn14

In the instant case the District Judge reviewed the evidence in the record at the conclusion of a lengthy period of discovery and found no significant probative evidence of a conspiracy to fix interest rates. Based on our independent review of the record, we, too, are unable to uncover any such evidence, and conclude that further proceedings in this case would result in a waste of limited judicial time and resources.*fn15

THE ALLEGED HORIZONTAL CONSPIRACY

Plaintiffs contend that circumstantial evidence in the record parallel rates and the opportunity to conspire are sufficient to meet their burden under Rule 56(e). Clearly, circumstantial evidence can be sufficient to support a finding of a price-fixing conspiracy. Interstate Circuit v. United States, 306 U.S. 208, 59 S. Ct. 467, 83 L. Ed. 610 (1939). Parallel business behavior or "conscious parallelism" is the type of circumstantial evidence which, absent more direct evidence, will be relied on in inferring unlawful agreement. Theatre Enterprises v. Paramount Film Distributing Corp., 346 U.S. 537, 540, 74 S. Ct. 257, 259, 98 L. Ed. 273 (1954). However, when defendants come forward with denials sufficient to shift the burden under Rule 56(e), plaintiffs must come forward with some significant probative evidence which suggests that conscious parallelism is the result of an unlawful agreement. First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 289-90, 88 S. Ct. 1575, 1592-1593, 20 L. Ed. 2d 569 (1962); Modern Home Institute, Inc. v. Hartford Accident and Indemnity Co., 513 F.2d 102 (2d Cir. 1975). Parallel behavior and the hope that something further can be developed at trial is not sufficient to warrant a trial on the merits. Cities Service at 290, 88 S. Ct. at 1593; Perma Research and Development Co. v. Singer Co., 410 F.2d 572, 578 (2d Cir. 1969). Conscious parallelism in the instant case could support a wide range of inferences. One logical inference is that the 1 1/2 per month interest rate reflected a business decision as to what rate the market for consumer credit would bear, and eventually prove profitable as well. An equally plausible inference, and one supported in the record, is that the already established rate of consumer credit was 1 1/2 per month, as reflected by Bank Americard and retail outlets offering installment credit.*fn16 If plaintiffs are to proceed to trial, they must be able to point to some probative evidence that parallel interest rates resulted from unlawful agreement rather than lawful business reasons.

Plaintiffs rely heavily on the opportunity to conspire as probative evidence of unlawful conspiracy. The dissent also attaches significance to the close personal ties among the members of the Chicago banking community. Yet, the mere opportunity to conspire,*fn17 even in the context of parallel business conduct, is not necessarily probative evidence. See Venzie Corporation v. United States Mineral Products Co., 521 F.2d 1309 (3rd Cir. 1975); Overseas Motors, Inc. v. Import Motors Ltd., 375 F. Supp. 499, 535 (E.D.Mich.1974), aff'd 519 F.2d 119 (6th Cir. 1975). This is especially the case when the need to set up a compatible card system requires a degree of cooperation. The only rational inference here is that the need to set up a compatible system mandated that defendants work together. Given the need for some degree of cooperation in a venture of this nature, the opportunity to conspire evidence lacks significant probative value. Of greater significance is the sworn testimony compiled during eight years of depositions which uniformly denies discussion of any agreement or understanding as to the interest rate to be charged.

It is suggested that while parallel pricing alone is not sufficient to establish a price-fixing conspiracy, such evidence together with an opportunity to conspire is sufficient to rebut defendants' denials and require a trial on the merits. See C-O-Two Fire Equipment Co. v. United States, 197 F.2d 489 (9th Cir. 1952), cert. denied 344 U.S. 892, 73 S. Ct. 211, 97 L. Ed. 690 (1952); Esco Corporation v. United States, 340 F.2d 1000 (9th Cir. 1965).*fn18 However, when the plaintiff or prosecution relies on circumstantial evidence alone, the inference of unlawful agreement rather than individual business judgment must be the compelling, if not exclusive, rational inference. Pevely Dairy Co. v. United States, 178 F.2d 363 (8th Cir. 1949). Indeed, the Court in Pevely stated:

Where circumstantial evidence is relied upon to establish the conspiracy or any other essential facts, it is not only necessary that all the circumstances concur to show the existence of such conspiracy and facts sought to be proved, but such circumstantial evidence must be inconsistent with any other rational conclusion.*fn19

Pevely, as well as C-O-Two and Esco were criminal cases with differing standards of proof. Nevertheless, it is interesting that the court in C-O-Two distinguished Pevely on the basis of the product in question. The Court stated the milk (the alleged price-fixed product) "approaches fungibility."*fn20 The defendants did business in the same area, paid a fixed regulated price for the product and incurred virtually identical labor costs. Similarly, in civil anti-trust cases, Courts have noted that parallel pricing or conduct lacks probative significance when the product in question is standardized or fungible. Bendix Corporation v. Balax, Inc., 471 F.2d 149, 160 (7th Cir. 1972); Independent Iron Works, Inc. v. United States Steel Corp., 322 F.2d 656 (9th Cir. 1963).*fn21

In the instant case, the product in question is consumer credit, or more fundamentally, the cost of borrowing money for a given period. The underlying product money is not only fungible, it is by definition an interchangeable medium of exchange. The defendants' own cost of money is highly regulated and, on a given day and specified amount, the cost is uniform. Thus, it is hardly surprising, or significant, that the defendants charged a parallel interest rate*fn22 given their parallel costs. We agree with the District Court's conclusion as to the only rational inference to be drawn from parallel pricing in this case:

The showing of parallel behavior under these circumstances, where each bank faced identical problems of fraud, credit losses, and large initial expense to which reasonable businessmen would react in the same fashion, does not provide a basis for the inference of the conspiracy which plaintiffs allege.*fn23

Thus, parallel interest rates, together with evidence that the opportunity to conspire existed when measured against defendants' denials, parallel economic cost factors, and the need for a compatible charge card system does not support a rational inference of an unlawful conspiracy.

Plaintiffs suggest that summary judgment should rarely be entered in anti-trust cases due to the central role of motive and intent issues. See Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S. Ct. 486, 491, 7 L. Ed. 2d 458 (1962). However, no greater caution or concern for litigants' rights is required in the anti-trust context than in other substantive areas of Federal Court litigation. Lupia v. Stella D'Oro Biscuit Company, Inc., 586 F.2d 1163, 1167 (7th Cir. 1978), cert. denied 440 U.S. 982, 99 S. Ct. 1791, 60 L. Ed. 2d 242 (1979).

This Circuit has recognized that "the very nature of anti-trust litigation would encourage summary disposition ... when permissible." Lupia v. Stella D'Oro, 586 F.2d at 1167. The statutory remedy of treble damages creates a "special temptation for the institution of vexatious litigation." Id., citing Poller, 368 U.S. at 478, 82 S. Ct. at 493 (Harlan, J., dissenting). Also, anti-trust actions have proven to be especially protracted, and difficult for jury consideration. See United States v. United Gypsum Co., 438 U.S. 422, 465-469, 98 S. Ct. 2864, 2887-2889, 57 L. Ed. 2d 854 (1978); ILC Peripherals Leasing Corporation v. International Business Machines Corporation, 458 F. Supp. 423, 445-448 (N.D.Cal.1978). Indeed, in the ILC case the District Judge, after a five ...


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