Tuesday, June 06, 2006

Letter to Judge John Gleeson, Re Challenge to MasterCard's Stock Reclassification (WayTooHigh.com)

BankNet 360's June 6th article, "Antitrust Suit Seeks to Unwind MasterCard IPO," reports on the MasterCard IPO and interchange litigation. As lead plaintiffs in the antitrust litigation against Visa, MasterCard and Member Banks, we believe that the new claims are well founded.

[Source: WayTooHigh.com]


Below is a copy of the May 22nd letter to Judge Gleeson from our attorney, K. Craig Wildfang, Co-Lead Counsel for Class Plaintiffs

May 22, 2006

The Honorable John Gleeson
United States Courthouse
Brooklyn, New York 11201

Re: In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation

Dear Judge Gleeson:

This letter is submitted pursuant to section 1II.B. of the Court’s rules of practice. Class Plaintiffs seek leave of Court pursuant to Rule 15(d), Fed. R. Civ. P. to file a Supplemental Complaint supplementing the claims asserted by the Class in their First Consolidated Amended Complaint. For the convenience of the Court and the parties, we attach a copy of the proposed supplemental Complaint. The basis for the request is the announcement by Defendant Mastercard, Incorporated of its intention to proceed on May 24, 2006, to sell shares of stock to the public in an initial public offering (“IPO”). Plaintiffs seek to supplement their First Consolidated Amended Complaint to challenge Agreements (as defined in the proposed Supplemental Complaint) between and among Defendant Mastercard, Incorporated and its Member Banks whose effect may be substantially to lessen competition and purportedly remove Mastercard and its Member Banks from the purview of Section 1 of the Sherman Act. The proposed supplemental claims do not change, in any way, the Class Plaintiffs claims asserted in the First Consolidated Amended Class Action Complaint dated April 24,2006.

Mastercard and its Member Banks purport to accomplish their goal of immunizing themselves from antitrust liability by the public issuance of stock for a partial interest in a New Mastercard. Specifically, the Agreements involve the purchase by Mastercard of certain of the Member Banks’ ownership and control rights in Mastercard through the redemption and reclassification of approximately 100 million shares of Mastercard common stock currently owned by the Member Banks into new Class B non-voting shares, and issuing new Class M shares to the Member Banks. In exchange for acquiring part of their interests, Mastercard will pay the Member Banks approximately $2.2 Billion. Mastercard intends to raise the money by selling to the public through an initial public offering ("IPO") of approximately 61,520,912 shares of Class A common stock, in order to raise approximately $2.83 Billion.

Mastercard has stated publicly that its purpose in effecting the Agreements is to attempt to insulate itself from antitrust liability under Section One of the Sherman Act. Contrary to Mastercard’s public statements, Class Plaintiffs do not believe that Mastercard’s Agreements and PO removes Mastercard or its Member Banks from the purview of Section One of the Sherman Act. However, if the transaction is not a sham, then it violates Section 7 of the Clayton Act and Section One of the Sherman Act. By the proposed Supplemental Complaint Class Plaintiffs seek leave to Supplement their First Consolidated Amended Complaint by adding three claims for relief. First, Class Plaintiffs seek to challenge the Agreements as a violation of Section 7 of the Clayton Act, 15 U.S.C. 9 18 in that the Agreements, including the PO, threaten substantially to lessen competition in the Relevant Market. Second, Class Plaintiffs seek to challenge the Agreements as a violation of Section One of the Sherman Act, in that the Agreements unreasonably restrain competition in the Relevant Market. Third, Class Plaintiffs seek to challenge the Agreements as a fraudulent conveyance, as the Agreements contemplate the elimination-for no consideration--of the ability of Mastercard to assess its Member Banks to satisfy the debts and liabilities of Mastercard. These claims are set forth and amplified in the proposed Amendment.

Rule 15 provides, in relevant part, that a court may, upon motion of a party and “upon such terms as are just, permit the party to serve a supplemental pleading setting forth transactions or occurrences or events which have happened since the date of the pleading sought to be supplemented.” Fed. R. Civ. P. 15(d).

Courts in this district and this circuit have liberally construed Rule 15 to permit amendments. Monahan v. New York City Dep’t of Corrections, 214 F.3d 275,283 (2d Cir. 2000) (“[Albsent evidence of undue delay, bad faith or dilatory motive on the part of the movant, undue prejudice to the opposing party, or futility, Rule 15’s mandate [that leave to amend be freely given] must be obeyed.”); Katzman v. Sessions, 156 F.R.D. 35, 39 (E.D.N.Y. 1994) (stating that Rule 15(d)’s “liberal policy favor[s] a merit-based resolution of the entire controversy between the parties.”).

Class Plaintiffs believe that this is a motion for which a pre-hearing conference may not be useful, as contemplated by Section II1.B. of the Court’s rules of practice. Therefore, we suggest that, absent the stipulation of defendants to permit the supplement (which we are seeking) the Court consider dispensing with the pre-hearing conference and set a schedule for briefing and arguing the motion. Alternatively, a status conference is set before Magistrate Judge
Orenstein for June 20,2006, and perhaps the parties could use that occasion to discuss a briefing schedule.

If the Court has any questions regarding this matter, we will make ourselves available at the Court’s convenience.


K. Craig Wildfang
Co-Lead Counsel for Class Plaintiffs

cc: Magistrate Judge James Orenstein (w/encl.)
All Counsel of Record (w/encl.)