UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

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IN RE VISA CHECK/MASTERMONEY	)

ANTITRUST LITIGATION	)

)	MASTER FILE NO. CV-96-5238

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)	(Gleeson, J.) (Orenstein, M.J.)

This Document Relates To:	)

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ALL ACTIONS	)

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UNITED STATES' REPLY MEMORANDUM

IN SUPPORT OF	GOVERNMENT MERCHANTS' PARTICIPATION

IN THE DISTRIBUTION OF NET SETTLEMENT FUNDS

In their Opposition Memorandum, Plaintiffs' Lead Counsel Constantine Cannon, P.C. concede most of the facts necessary to grant the United States equitable relief. Lead Counsel do not dispute that the Government Merchants suffered the same type of harm as other merchants. They do not dispute that, as a factual matter, Government Merchants fall within the literal Class Definition and were understood to be part of the Class by Defendants. They acknowledge that they did not share the Civil Division Letter of November 14, 2002 with the Claims Administrator, Defendants or Court. The record unequivocally establishes, and Lead Counsel admit, that even after receiving that Letter, they continued to treat Government Merchants, substantively as well as procedurally, as part of the plaintiff Class right through the mailing of claims forms.

Nor do Lead Counsel dispute most of the other points made by the United States. They do not question that Defendants were seeking "total peace" through the settlements and would be prejudiced if the Government Merchants cannot participate now in the settlements. They do not take issue with the fact that considerations of judicial economy and the public interest favor inclusion of the Government Merchants' claims in this action. Instead, they assert without support that the inclusion of the billions of dollars in Government Merchant credit and debit card transactions in the Class Damages conferred no benefit on the Class.

The United States' Memorandum outlined the reasons why the Government Merchant claims did, in fact, increase the size of the Net Settlement Funds and why this Court both can and should permit as a matter of equity the Government Merchants to participate in the Net Settlement Funds' distribution. Lead Counsel's only real argument is that this Court cannot grant such relief. From the premise that the United States, under United States v. Cooper, 312 U.S. 600 (1941), is not a "person" that can sue for damages under Section 4 of the Clayton Act, Lead Counsel argue that the Court is stripped of its traditional equity power over the settlement funds, and cannot grant the relief sought by the United States. In this they are wrong. The conclusion does not follow from the premise. There is ample authority, none of it discussed by Lead Counsel, that this Court can reach the equities. Thus, the Court can, and for the six equitable factors cited in the United States' Memorandum should, exercise its discretion to remedy a problem and allow the Government Merchants to receive their share of the Net Settlement Funds.

ARGUMENT

I.	This Court Has the Power to Grant Equitable Relief.

Citing Cooper, Lead Counsel argue that this Court, as a matter of "well settled black letter law," cannot allow the Government Merchants to participate in the class action settlement. (Pls.' Opp'n at 1, 2, 15.) But Cooper does not address, much less impact, this Court's broad equity powers under Fed. R. Civ. P. 23.1 In focusing on Cooper, Lead Counsel ignore that: (i) class actions are grounded in equity2; (ii) in class action settlements, this Court retains special responsibility to see to the administration of justice3; (iii) this Court "retains its traditional equity powers" until the settlement funds are actually distributed4; (iv) they earlier represented that this Court has broad equitable powers over the Net Settlement Funds5; and (v) the January 23, 2004 Order and Final Judgment–which reserves to this Court exclusive jurisdiction over the Settlements' administration and consummation–also vests this Court with the legal authority to grant the requested relief.

A.	Cooper Does Not Impact this Court's Equitable Powers.

Instead of addressing this authority, Lead Counsel assert that this Court cannot grant such equitable relief because under Cooper the United States is not a "person" as that word is used under Section 4 of the Clayton Act, 15 U.S.C. § 15, and (i) the Amended Complaint sought damages solely under 15 U.S.C. § 15 and (ii) the Class Action was brought on behalf of "persons and business entities."6

Lead Counsel fail to establish the necessary predicates for their hard and fast rule that Cooper trumps this Court's equity power and precludes as a matter of law the Government Merchants from recovering.7 In arguing that the Amended Complaint sought damages only under 15 U.S.C. § 15, and not Section 15a, Lead Counsel ignore: first, that the Settlement Agreements, not the complaint, are the starting point of this Court's equitable power,8 and permitting the Government Merchants to receive their share of the settlement funds would effectuate the parties' understanding of the settlements (U.S. Mem. at 30); and second, even if relevant, the Amended Complaint did not seek damages solely under Section 15, but put the Defendants on notice that Plaintiffs sought broader relief including damages to redress violations of federal and state law.9

Lead Counsel's second predicate–that the definition of "person" in the Settlement Agreements and Class Definition must have the same meaning as in Cooper–is contrary to Supreme Court precedent.10 Whether "all persons and business entities" in the Settlement Agreements and Class Definition includes Government Merchants is determined under rules of contract interpretation, not statutory construction.11 Morever, the Class Definition is broader than "persons" and includes all "business entities." In this context, as a factual matter, "business entities" would include the Government Merchants, who are seeking only to recover the harm suffered in their business capacity as sellers of goods and services. Consequently, Lead Counsel and Defendants proceeded to treat the Government Merchants as though they were included within the Class Definition and the settlements.12

B.	Even When Viewed Favorably, Lead Counsel's Objections Are Technical Defects, Which this Court Can Readily Cure.

Even if the Amended Complaint could be construed to exclude damages under Section 15a, this is at most a technical defect, which, as Lead Counsel ultimately concede, the Court can readily cure. (U.S. Mem. at 33-34; Pls.' Opp'n at 18-19.) Lead Counsel argue the Court should not, because this request comes "almost seven years after the filing of the Amended Complaint and over six years after the Class was certified," and "would achieve no purpose other than to dilute class members' recoveries."13 Thus, it is undisputed that whatever technical defects exist, this Court can cure them under its broad equitable powers over the class settlement funds.

In addition to curing any technical defects in the pleadings, this Court has the broad equity power to permit entities to participate in a class action settlement, even where they could not, as a matter of law, assert their claims in that action. As the United States' Memorandum discusses and Lead Counsel ignore, the Fifth Circuit upheld in In re Chicken Antitrust Litig. Am. Poultry, 669 F.2d 228, 238 (5th Cir. 1982) the district court's use of its broad equitable powers to permit victims of an antitrust violation to participate in the class action settlement, notwithstanding their being unable, as a matter of law, to assert their claims in federal court. (U.S. Mem. at 31-33.) Like the Government Merchants here, the indirect purchasers in In re Chicken had "colorable" claims, they conferred a benefit on the class, and defendants were interested in achieving total peace.14 In In re Agent Orange Product Liability Litig., both the Second Circuit and Judge Weinstein relied on In re Chicken to allow persons who could not meet the legal requirements for proving causation and injury to participate in the settlement, because the settlement was intended to buy peace, not generate further litigation. 611 F. Supp. 1396, 1411(E.D.N.Y. 1985), aff'd, 818 F.2d 179, 184 (2d Cir. 1987). In all of these cases, the courts could and did exercise their traditional equity power to permit the claimants to recover their share of the settlement funds.

II.	Court Should Grant the Equitable Relief Here.

Ultimately then the issue is whether this Court should permit, as a matter of equity, the Government Merchants to receive their share of the settlement funds. Lead Counsel do not contest five of the United States' six equitable factors that favor the Government Merchants' participation in the Net Settlement Funds' distribution:

(1)	at all relevant times, Lead Counsel treated substantively and procedurally the Government Merchants as Class Members15;

(2)	Defendants were seeking "total peace" through the Settlement Agreements and would be prejudiced if the Government Merchants cannot participate16;

(3)	the Government Merchants have "colorable" claims (U.S. Mem. at 31-33);

(4)	permitting the Government Merchants to participate will not prejudice the non-
governmental Class Members, as they could have no reasonable expectation of partaking in the Government Merchants' share (U.S. Mem. at 22-23); and

(5)	considerations of judicial economy and the public interest favor inclusion of the Government Merchants' claims in this action (U.S. Mem. at 24-25).

Lead Counsel now contest only the sixth equitable factor: namely, that the Class benefitted from the inclusion of the Government Merchants' transactions in the estimates of Class Damages and in the negotiated settlements. (U.S. Mem. at 19-20.) Lead Counsel do not dispute that the amount of Visa and MasterCard credit and debit card transactions attributable to the Government Merchants was large. In 2004, for example, the Treasury Department's PCN alone processed 48.9 million transactions worth $4.4 billion on behalf of approximately 60 federal agencies. (Middlebrook Decl. ¶ 3.) Lead Counsel concede that their expert consistently included the billions of dollars of the Government Merchants' annual Visa and MasterCard transactions in his calculations (Pls.' Opp'n at 8-9), which increased the amount of the Class Damages. Lead Counsel now assert, without offering any supporting data, that the "United States did not add any increment to the In re Visa Check settlement funds." (Pls.' Opp'n at 22.) But the undisputed fact remains that Lead Counsel courted the Government Merchants to increase the size of the Class and amount of Class Damages.17 Defendants undeniably relied on those damages calculations in "deciding whether or not to settle and, if so, at what amount."18 Defendants relied on Lead Counsel's earlier Class Damages and the filed opt-out list to arrive at their settlement amount. Lead Counsel's post hoc assertions cannot change what was agreed upon in the settlements.

Lead Counsel and their agents consistently told the Government Merchants that they could participate in the settlements,19 and Mr. Constantine recognized the same in his 2005 and 2006 communications with Division attorneys. As recently as mid-January 2006, Lead Counsel took the position that the Government Merchants were not barred as a matter of law or equity from participating in the Net Settlement Funds' distribution. Lead Counsel discussed with the United States a Stipulation and Order to assure such payments to Government Merchants (other than the USPS) from the Net Settlement Funds.20 Only on January 23, 2006 did Mr. Constantine for the first time argue that the Government Merchants could not receive their share of the settlements. Grunes Suppl. Decl. ¶ 7; see also Read Decl. ¶ 11.

III.	Lead Counsel's Statement of Facts Contains Several Errors and Omissions.

Before filing its Memorandum, the United States provided a copy to Lead Counsel with a request that Lead Counsel correct any material errors of fact. Lead Counsel responded with a promise to correct "any egregious errors" and thereafter offered one correction, which the United States incorporated. See Grunes Suppl. Decl. ¶ 21 and Exs. J & K thereto.

On the other hand, Lead Counsel's Statement of Facts contains several errors and omissions. Rather than address the merits of the United States' equitable claims, Lead Counsel suggest that the United States has unclean hands. Lead Counsel's contentions about the conduct of the United States, which they characterize as "beyond dispute" and part of a "disturbing course of action" (Pls.' Opp'n at 14), are contradicted by the evidence.

A.	Lead Counsel's Explanation for Their Failure to Disclose the Civil Division Letter Is Unconvincing.

Lead Counsel acknowledge that they did not file the November 14, 2002 Civil Division Letter with the Court, forward it to the Claims Administrator, or provide a copy to Defendants. (U.S. Mem. at 9; Pls.' Opp'n at 4-5, 7-8.) Lead Counsel justify their inaction, inter alia, by claiming that they were complying with a request by the USPS, which was then a defendant in Flamingo, not to be treated as an opt-out.21 The evidence contradicts this assertion. First, as Lead Counsel acknowledge, the USPS sent its own letter to the Claims Administrator on November 14, 2002, asking that it be excluded from the Class.22 Indeed, it is the only federal government entity to appear on the opt-out list.23 Second, after receiving the Civil Division Letter, Lead Counsel continued to treat the Government Merchants as Class Members.24 Third, Lead Counsel do not explain why the USPS's putative desire to preserve its litigation posture was appropriately treated as a request by other government entities, including the Treasury Department, the Smithsonian, and the military, not to have the Civil Division Letter disclosed to the Court or Defendants. Regardless, Lead Counsel's obligation was to the Court and Defendants to notify them of excluded entities, not to follow the perceived desire of the USPS.

B.	Lead Counsel's Explanation for Their Failure to Extract Government Merchants from the Visa Transactional Database Is Unconvincing.

Lead Counsel admit sending notices of settlement and claim forms to the Government Merchants, but argue that the Claims Administrator "could not systematically block the mailing of those forms . . . without receiving data such as merchant identification numbers and addresses from the government" and that although "thousands of merchants have provided such data to consolidate their claim forms, the United States was unwilling or unable to provide it in 2005 when it was asked to do so by Lead Counsel." (Pls.' Opp'n at 2-3; see also 22-23.)

The evidence, however, contradicts their explanation. First, it is undisputed that for three years–from 2002 (when the notices of pendency were mailed) until late 2005–Lead Counsel never asked the United States for any information to help them identify the Government Merchants nor did they alert the Defendants or Court of any issues with the Visa Transactional Database25 or any other database.26 Only in late 2005, after the Department of Justice contacted Lead Counsel about the claim forms that the Government Merchants had received, and after the Department requested that the Claims Administrator not pay these claims yet,27 did Lead Counsel ask the United States for the data it now complains about.28

Third, Lead Counsel's assertions that the United States was "unwilling or unable" to provide merchant identification data when asked to do so, see Pls.' Opp'n at 3, and "did not provide" such data until January 27, 2006, see Roth Decl. ¶ 10, are incorrect. The United States, at all times, sought to cooperate in getting information to Lead Counsel, and the record shows that merchant identification data was provided to Lead Counsel on an ongoing basis.29

C.	USPS Is Not Before the Court.

Lead Counsel question why the United States submitted claims on USPS's behalf only to withdraw them later. (Pls.' Opp'n at 14.) The answer is simple: Not all of the relevant facts about the USPS were known or apparent on January 27, 2006, when government claims had to be filed under the extension granted by Lead Counsel. The United States submitted the USPS claims as a protective measure so as to not inadvertently waive the USPS's rights and promptly withdrew these claims upon learning additional facts. The Division withdrew the USPS claim against the Visa Settlement Fund less than a week after the USPS brought the existence of the 2003 USPS/Visa agreement to the Division's attention. The Division withdrew the remaining USPS claims based on information the Division obtained from Lead Counsel and MasterCard that suggested the USPS also did not have a basis to participate in the MasterCard Settlement Fund. See Grunes Suppl. Decl. at ¶ 9.

Moreover, the USPS is differently situated from the other Government Merchants. The USPS (i) sent its own letter to the Claims Administrator, which Lead Counsel transmitted to Defendants; (ii) was included on the opt-out list filed with the Court; (iii) negotiated its own settlement with Visa that contained a release of any claims related to complaint in this action; and (iv) was regarded by MasterCard as outside of the scope of the settlement agreement. For these reasons, the United States concluded that the USPS did not have a basis on which to participate in the distribution, and, with the USPS's consent, withdrew its claims.30

CONCLUSION

Lead Counsel's arguments are, to use their phrase, "red herrings." Their principal argument–really their only argument–is based on Cooper, where the Court held that the United States could not bring a damages action under then-Section 7 of the Sherman Act. But Cooper does not strip this Court of its traditional equity powers. Lead Counsel ignore In re Chicken and its progeny and assert that the Government Merchants, which were continually treated substantively and procedurally as Class Members, should bring a separate action. Such a suggestion ignores the equitable issue before the Court: the conduct of Lead Counsel combined with the understanding of the Defendants resulted in settlements that are larger because of the Government Merchant claims. Further, additional litigation would disrupt the finality of this settlement and the total peace expected by Defendants. Consequently, the Government Merchants (other than the USPS) should be permitted to participate in the Net Settlement Funds' distribution on the same terms and to the same extent as Class Members generally.

Dated: 4 May 2006

Washington, D.C.

Respectfully submitted,

FOR UNITED STATES OF AMERICA:

___________/s/__________________

ALLEN P. GRUNES (AG 4775)

___________/s/__________________

MAURICE E. STUCKE (MS 9414)

JOAN HOGAN

ROBERT FAULKNER

JAMES FELLERS

United States Department of Justice,	Antitrust Division

Litigation III Section

325 7th Street, N.W., Suite 300

Washington, D.C. 20530

CERTIFICATE OF SERVICE

I hereby certify that on Thursday, May 4, 2006, the foregoing Reply Memorandum, Supplemental Declaration of Allen P. Grunes, and Declaration of John Read were filed with the Clerk of the Court and served in accordance with the Federal Rules of Civil Procedure, and/or the Eastern District's Local Rules, and/or the Eastern District's Rules on Electronic Service upon the following parties and participants:

For Plaintiffs

Lloyd Constantine, Esq.

Constantine Cannon

450 Lexington Ave.

New York, New York 10017

For Defendant Visa USA, Inc.

Stephen V. Bomse, Esq.

Heller Ehrman LLP

333 Bush St.
San Francisco, California 94104-2878

For Defendant MasterCard International, Inc.

Joseph F. Tringali, Esq.

Simpson Thacher & Bartlett LLP

425 Lexington Ave.
New York, New York 10017

/s/

Maurice E. Stucke
United States Department of Justice

Antitrust Division

Litigation III Section

325 7th St., N.W., Suite 300

Washington, D.C. 20530