Each time you buy something with a debit card, you and the issuer of your card pay an "interchange" fee for using the network that handles the purchase. Visa and MasterCard run the biggest networks and reap the most fees — directly from your card issuer and indirectly from you.

A new law, the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires the Federal Reserve Board of Governors to issue rules capping the fees that big card issuers can charge.

The ruling in TCF Nat'l Bank v. Bernanke, No. 11-1805 (8th Cir. June 29, 2011), upheld the new regs over a challenge by a TCF National Bank. TCF argued that the Durbin Amendment in Dodd-Frank threatened to impose a "confiscatory rate" — which Blawgletter guesses means TCF feared it would lose money on its debit card business — and gave small debit card issuers an unfair break by exempting them from the cap. The district court denied TCF's request for an order blocking the Federal Reserve fee cap. The Eighth Circuit affirmed.

TCF had a gripe because it and other card-issuing banks impose the fees on merchants. They'd love for the interchange rates to stay sky-high. Today, they average almost half a dollar (44 cents) a swipe and under the new rules would fall to around 12 cents. The cap puts billions at risk.

The Eighth Circuit pointed out that "TCF is free under the Durbin Amendment to assess [other] fees on its customers to offset any losses" from passing on lower interchange charges. Id., slip op. at 7.

You know things probably won't turn out well when the first sentence in a 5-4 U.S. Supreme Court opinion quotes from a 158 year-old novel.

Dickensian

So begins Chief Justice John Roberts's opus for the majority in Stern v. Marshall, No. 10-179 (U.S. June 23, 2011). It says:

This "suit has, in course of time, become so complicated,that . . . no two . . . lawyers can talk about it for five minutes, without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause: innumerable young people have married into it;" and, sadly, the original parties "have died out of it." A "long procession of [judges] has come in and gone out" during that time, and still the suit "drags its weary length before the Court."

 

Id. slip op. at 1 (quoting Charles Dickens, Bleak House (1853)).

The Chief Justice seems to have taken Bleak House as his starting point because the outcome in Stern v. Marshall so resembles the lawsuit that provides Dickens's backdrop. The book tells a tragic tale about Richard Jarndyce's pinning way too much hope on winning a fight in Chancery court — Jandyce and Jarndyce – over which of several wills will prove the binding one. That case ended, after many years, not on the merits but when "the whole estate is found to have been absorbed in costs" of litigation. And the end came just after Richard found a newer will that would have assured him victory.

Fight Over a Texas Fortune

Stern v. Marshall involved a long-running tussle, in multiple courts, between the son of a wealthy Texan, J. Howard Marshall, II, and the father's third bride, Anna Nicole Smith, whom the Court calls by her regular name, Vickie Lynn Marshall. The warfare over whether Ms. Smith would get half of the elder Marshall's fortune landed at length in a bankruptcy court, in which Ms. Smith filed for protection from her creditors. That court made rulings in her favor and against the son, awarding her $425 million.

The appeal, as it reached the Supreme Court, revolved around the question of whether the bankruptcy court had the power to render a final judgment. The majority held that it did not. And told the parties to start over (although Ms. Smith died awhile back).

Article III Power

The why of the decision turns on the fact that bankruptcy judges don't qualify as "Article III" judges. Article III of the U.S. Constitution allows Congress to "ordain and establish" courts "inferior" to the "supreme Court." It also specifies that "Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behavior, and shall, at stated Times, receive for their Services a Compensation which shall not be diminished during their Continuance in Office."

Bankruptcy judges serve 14-year terms. That by itself takes them outside the Article III realm.

The non-Article III status of bankruptcy judges mattered, the majority  in Stern v. Marshall held, because the battle that raged between the third wife and the son related to claims that didn't fall within the unique competency of bankruptcy courts — adjusting the bankrupt's debts and the like. The claims instead concerned the wife's claim that the son prevented the father from giving her half his estate and the son's claim that she defamed him by accusing him of interfering with such an inter vivos gift.

The dissent, by Justice Breyer, urged that Article III judge had enough power to review bankruptcy judgments such that giving final effect to the judgments didn't violate the Constitution.

Starting Over

Blawgletter won't go into the statutes — although we've always liked that the provisions that govern the most familiar kind of bankruptcy, Chapter 11, appear in Title 11 — or the details about "core" versus "non-core" proceedings in bankruptcy. But we will point out that the outcome in Stern v. Marshall will provide cause for litigants who lost certain kinds of claims in a bankruptcy court to try for a second go, asserting that the bankruptcy judge lacked the jurisdiction (per Stern v. Marshall) to issue a binding judgment. And lack of jurisdiction usually voids a judgment.

(Mr. Dickens, we suspect, might have smiled at the result.)

The outcome for living litigants may prove far better than for poor Richard Jarndyce. He lost not because his claim lacked merit but because the litigation process had consumed the estate he would have at long last won. We imagine people today will find instances in which a lot of money remains available to satisfy their claims. And they will ask for, and likely get, a second bite at the apple.

The Supreme Court today struck down a class action for 1.5 million women who claimed that Walmart Stores based employment decisions on gender. Wal-Mart Stores, Inc. v. Dukes, No. 10-277 (U.S. June 20, 2011).

The Court ruled 5-4 that no "common" questions existed under Rule 23(a)(2) because the plaintiffs didn't offer proof of a discriminatory company-wide policy. And it used a brand-new test: "[C]laims must depend upon a common contention . . . . That common contention, moreover, must be of such a nature that it is capable of classwide resolution — which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in a single stroke." Id., slip op. at 9.

But all the justices agreed that Rule 23(b)(2) didn't allow class certification on the theory that the plaintiffs sought "final injunctive relief or corresponding declaratory relief". The relief the plaintiffs wanted in Dukes — back-pay — struck the Court as hardly "incidental" to an injunction or declaration and therefore not kosher under Rule 23(b)(2). (That part of the opinion settled a split in the U.S. courts of appeals. See here.)

The decision makes clearer than before that an overlap between the merits of a case or claim and the requirements of Rule 23 for class certification doesn't excuse a court from dealing with the merits to the extent of the overlap:

Frequently that “rigorous analysis” [under Rule 23] will entail some overlap with the merits of the plaintiff’s underlying claim. That cannot be helped.

Id., slip op. at 10.

The majority's narrow view of Rule 23(a)(2)'s common questions hurdle imports into all federal class actions the tough test that many lower courts have applied to Rule 23(b)(3) cases.

The Supreme Court today halted an effort by a federal court to stop a class action in a state court.

The case involved claims against drug-maker Bayer over Baycol, which Bayer sold as a way to lower cholesterol. The plaintiffs alleged that Baycol killed and injured people.

The district court in Minneapolis ruled against class certification. It held that "common" questions didn't predominate, as Rule 23(b)(3) required, because each class member would have to show injury from taking Baycol and that proof of the injury would vary from class member to class member.

Bayer then asked the court to enjoin a similar lawsuit in a West Virginia state court. The federal court obliged, and the Eighth Circuit affirmed.

Reversing, the 9-0 Court concluded that the Anti-Injunction Act of 1793 barred the district court's order. The Act "broadly commands" that federal courts must leave state courts alone. Smith v. Bayer Corp., No. 09-12-5, slip op. at 5 (U.S. June 16, 2011). Bayer hadn't shown that the "relitigation exception" applied, the Court held.

It gave two reasons. Because West Virginia uses an easier test for class certification than federal courts do, Bayer couldn't meet the requirement that the state court case involve the "same issue" that the federal court ruled on. That almost the exact same rule language applied in both federal courts and West Virginia courts didn't matter. The differences in how the courts applied the test controlled.

Neither did Bayer prove that the plaintiff in the state court case counted as a "party" to the federal case. A member of a class that no court ever certified doesn't by virtue of that status become a "party" to a case that the plaintiffs hope to certify, much less a case in which the court denied certification.

The outcome likely won't affect a lot of class action cases. By passing the Class Action Fairness Act, Congress allowed removal of many potential class actions to federal court. That leaves fewer state court cases as possible targets of an anti-suit injunction.

But the Court's ruling did stress the toughness of meeting the "same issue" requirement. "Same" doesn't mean almost the same. It means the very same.

Bonus: The Court cited, for the first time, the American Law Institute's brand-new Principles of the Law of Aggregate Litigation (2010), in whose development Blawgletter played an astonishingly small role. Smith at 16 n.11.

Say you write a press release. It says your firm just won a beauty contest. It claims you expect the contract to increase the firm's net income by X percent.

But your note to the fourth estate doesn't mention that the deal will raise firm costs by an Awful Lot. So much in fact that you expect to lose money!

Someone then somehow buys shares in your firm, at a price that reflects the false hope, which the press release promotes, of rising profits. And then, when your firm's annual report reveals a big drop in net income and the share price plummets as a result, the buyer sues under Rule 10b-5 and section 10(b) of the Securities Exchange Act of 1934.

Did you "make" the false statement about the profits you never thought the firm would get? No, the 5-4 Supreme Court held yesterday in Janus Capital Group, Inc. v. First Derivative Traders, No. 09-525 (U.S. June 13, 2011). Your firm did, but you didn't — because you lacked "ultimate authority" over what the press release said.

Justice Clarence Thomas penned the majority opinion, which Chief Justice Roberts and Justices Alito, Kennedy, and Scalia joined; Justice Breyer dissented, as did Justices Ginsburg, Kagan, and Sotomayor.

Editors of the WSJ praised the outcome. A less bright-line standard "could implicate the innocent", they wrote.

Blawgletter notes the pregnant "could". It implies that the tough test the majority chose could exonerate the guilty. It also suggests, ever so slightly, that a truly innocent person doesn't include someone who smuggled the false statements into a public disclosure over whose content someone else had "ultimate authority". And yet that person goes free under the Court's ruling.

Blawgletter said, in the first blush of astonishment at AT&T's plan to buy T-Mobile, that we felt in our gut the deal would never go through.

But now we read that left-leaning groups like the NAACP, NEA, AFL-CIO, and GLAAD support the merger. Will wonders never cease?

No one, we suspect, would accuse any of those outfits of deep knowledge about the shortage (or not) of the wireless waves that convey cell phone calls, texts, emails, and ribald Tweets by Congressman Weiner (a chief argument by AT&T in favor of the pact; the wave shortage, not the Tweets) or the effect on competition in the wireless space of letting two of the four biggest wireless providers join in perpetual corporate matrimony.

Salon suggests that the money AT&T has given to the groups calls the "credibility" of their support into question. We beg to differ. They don't pretend to know whether the merger will help competition. Likely because to them aiding competition seems an abstract notion — unlike the concrete benefits that AT&T has persuaded them to expect from killing T-Mobile, which gives less help to the causes that the groups care about.

What do you think? Does the spectrum/wave shortage argument hold electromagnetic water? Will eliminating the fourth-largest wireless provider truly exert tiny impact on competition and consumer welfare? Does consumer welfare matter any more? Do behavioral economists have nothing to say about the practical effect on consumers of allowing a national duopoly between AT&T and Verizon?

Seven justices today rejected an attempt to make patents easier for judges and juries to find invalid. The Court held that Congress's granting patents a presumption of validity saves patents unless their foes prove a basis for invalidity with "clear and convincing" evidence. Microsoft Corp. v. i4i Ltd. Partnership, No. 10-290 (U.S. June 9, 2011).

The ruling doesn't change the law. Justice Sotomayor's opinion for the Court upheld a rule that has prevailed pretty much forever and for sure since 1952, when Congress passed the current patent statute, including section 282, which states the presumption.

The outcome turned on whether "[a] patent shall be presumed valid" in section 282 by itself implied a tougher test than the usual preponderance of the evidence standard for proving facts. The Court held that the phrase did imply the higher "clear and convincing" hurdle, not least because the Court had for a Great Many years used a common law presumption of validity and deemed the presumption immune to attacks that left the fact-finder merely "dubious" about a patent's validity.

The appeal stemmed from a verdict and judgment against Microsoft in the Eastern District of Texas for $290 million. Microsoft defended itself on the ground, among others, that i4i sold its invention more than a year before filing a patent application, rendering the patent invalid under 35 U.S.C. § 102(b).

Justice Thomas concurred only in the judgment, citing the fact that section 282 did not alter the common law presumption and therefore preserved the common law test for overcoming it. Chief Justice Roberts recused himself and didn't vote on the outcome.

If you work much on antitrust lawsuits, you learn the names of cases that inspire strong feelings on both sides of the "v." Concord Boat lives in that realm.

The Eighth Circuit ruled after a jury trial in Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039 (8th Cir. 2000), that 24 boat-makers had no antitrust claim against Brunswick, the dominant provider of boat engines. The vessel-builders alleged that Brunswick kept its top engine spot by keying discounts to how few engines boat-makers bought from Brunswick rivals. A jury agreed and found Brunswick guilty of violating the Sherman Act, awarding more than $140 million (after trebling). But the Eighth Circuit reversed and directed entry of judgment for Brunswick. Id. at 1063.

What makes Concord Boat hateful to plaintiffs and marvelous to defendants? Blawgletter senses that the total acceptance by the court of Brunswick's multitudinous arguments explains much of the passion. The panel held that:

  • Limitations barred the plaintiffs' claims under section 7 of the Clayton Act;
  • The damages findings could not stand due to the failure of the secion 7 claims;
  • The plaintiffs' expert on liability didn't account for "all relevant circumstances", and his testimony therefore carried no weight;
  • The evidence failed to show enough "foreclosure" of competition, enough exclusivity, and enough barriers to entry by competitors to make out a section 1 claim; and
  • Brunswick's "market share" discounting didn't amount to anticompetitive conduct.

You see? Something to use for almost every defendant, and something to overcome for just about every plaintiff.

Blawgletter has a reason for mentioning Concord Boat today. For on this date, in Southeast Missouri Hospital v. C.R. Bard, Inc., No. 09-3325 (8th Cir. June 8, 2011), an Eighth Circuit panel split 2-1 in favor of okaying a discount program that, Concord Boat-like, rewarded hospitals for their loyalty to a catheter-maker rather than the volumes of catheters they bought from it. And, citing Concord Boat, the majority held that the case turned mainly on the failure by a class of hospitals "to identify a relevant submarket". Id., slip op. at 16.

The duo seem to have meant by "relevant submarket" that they didn't accept the plaintiffs' product market definition, which focused on competition by catheter-makers for contracts with group purchasing organizations (GPOs). Competition at that level mattered, the plaintiff hospitals urged, because hospitals buy almost all of their catheters from the vendor — in this case, overwhelmingly C.R. Bard – that secures cathether contracts with GPOs. Hospitals suffer as a result of the winning vendors' freedom, as a result of the contracts, to sell catheters to an effectively captive group of buyers. But the panel said no to that.

The dissenting judge would have answered the opposite way. Judge Beam wrote that the hospitals

did present evidence tending to show that (1) both purchasing hospitals and medical manufacturers recognized GPO sales as separate and distinct from non-GPO sales; (2) the GPO prices were distinct from non-GPO prices; (3) a small but significant non-transitory increase in price in the GPO sales did not cause customers to switch to a different distribution channel; and (4) the GPO's were, in effect, specialized vendors.

Id. at 21-22 (discussing factors for identifying "submarkets" under Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962)). The record thus raised a fact question about the relevant market, Judge Beam concluded.

We have a few thoughts about the outcome.

First, we marvel at how anti-antitrust (and anti-jury) the Concord Boat opinion reads and feels more than a decade after its advent.

Second, we note that, for reasons we cannot fathom, the majority opinion cites and quotes the Horizontal Merger Guidelines from 1992 — despite the fact that the Department of Justice and Federal Trade Commission overhauled them last year!

Finally, Southeast Missouri reflects the courts' reluctance to treat "bundling" as anticompetitive. The Ninth Circuit last week upheld dismissal of a bundling case (on the ground that forcing cable and other TV-channel distributors to buy "must-have" and junk channels may have injured competitors and consumers but not "competition" itself). The Third Circuit in LePage's, Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003) (en banc), cert. denied, 542 U.S. 953 (2004), upheld a verdict and judgment in a case involving discounts and rebates to customers that bought 3M products other than tape. Defendants argue that granting discounts ALWAYS aids competition and favors buyers, and courts find that siren call hard to resist.

Should they? Do bundles ALWAYS promote competition?

The U.S. Supreme Court today reversed a Fifth Circuit decision that required plaintiffs in federal securities cases to prove "loss causation" at the class certification stage. Erica P. John Fund v. Halliburton, Inc., No. 09-1403 (U.S. June 6, 2011).

As Blawgletter noted a couple months ago, the Fifth and Seventh Circuit had split on the issue, with Schleicher v. Wendt, 618 F.3d 679 (7th Cir. 2010), refusing to require plaintiffs to go beyond pleading a claim element (loss causation) despite defendants’ argument that certification analysis must address plaintiffs’ ability to prove the element at trial and Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., 597 F.3d 330 (5th Cir. 2010), rev'd sub nom. Erica P. John Fund, requiring the opposite.

In Schleicher v. Wendt, Chief Judge Easterbrook criticized the "fifth circuit" for believing that it had license to "tighten" the requirements for class certification. The Court held, 9-0, that the license has now expired.