Downside of business development: accusations of facilitating cartel

By Alison Frankel
March 22, 2013

Alan Kaplinsky of Ballard Spahr had a good thing going at the turn of the century. Along with a couple of partners at the firm now known as Wilmer Cutler Pickering HaleandDorr, Kaplinsky was the leading lawyer for credit card issuers considering the addition of mandatory arbitration clauses to their agreements with cardholders. Between 1999 and 2003, Kaplinsky and three Wilmer partners, Ronald GreeneChristopher Lipsett and Eric Mogilnicki, led a series of meetings with in-house lawyers for the credit card companies, virtually all of which subsequently hired Wilmer or Ballard Spahr to help them implement new cardholder agreements that mandated arbitration and foreclosed class actions.

Good business strategy or antitrust facilitation? Those long-ago meetings led by Wilmer and Ballard Spahr are now at the heart of cardholders’ claims of an illegal antitrust cartel among the credit card companies in a case that’s headed for a ruling by U.S. District Judge William Pauley of Manhattan. The long-running class action seeks an injunction forcing credit card issuers to remove mandatory arbitration clauses from cardholder agreements. Several companies have already settled, but American Express, Citigroup and Discover went to trial in January. This week, cardholders represented by Berger & Montague and Scott + Scott filed a post-trial finding of facts that portrays Ballard Spahr and Wilmer as advisors to credit card conspirators dedicated to depriving consumers of their class action rights. “The business interests of the issuing banks and their outside counsel, Lipsett, Mogilnicki and Kaplinsky, dovetailed comfortably,” the cardholder brief said. “The issuing banks desired to insulate themselves from potential class action liability, relying on (arbitration) clauses, and these outside counsel were engaged in the business of drafting (such) clauses for consumer credit businesses.”

“Wilmer and Ballard Spahr were clearly involved,” said lead class counsel Merrill Davidoff of Berger & Montague. “They were outside counsel to virtually all of the participants.”

But the firms – which, to be sure, are not named as defendants in the injunction case – maintain they did nothing but organize informational meetings with clients and potential clients. Kaplinksy told me in an interview Friday that the meetings, held between 1999 and 2003, were merely a business development effort. “I think the plaintiffs are hallucinating,” he said. “At the meetings I attended, there was no agreement made by anybody to adopt arbitration…. These were a client development initiative. We were trying to develop business, show our expertise and get clients to hire us, like we do all the time.” Kaplinsky said that outside counsel delivered standard antitrust cautions at the beginning of all of the sessions to clarify that the purpose of the meetings was to share information, not to engage in a collusive agreement. He also said that despite the plaintiffs’ portrayal of his supposedly key role in the conspiracy, he was never called as a witness by the class. “If they really thought and believed what they say is true, they would have called me,” he said.

Nor did the class depose or call as a trial witness anyone from Wilmer. The only testimony from outside counsel to the credit card companies came from former Wilmer partner Lipsett (now senior counsel at the Consumer Financial Protection Board) – and he was called as a defense witness. According to a transcript of his testimonyat trial, Lipsett was asked to respond to assertions that he and Wilmer were behind-the-scenes engineers of a collusive agreement among credit card issuers to adopt arbitration clauses. “I did not participate in any communication or other activity that I was aware of or considered to be the trading of information about business plans or the facilitation of an agreement or anything like that,” Lipsett said. (In a response to my request for comment, Wilmer sent an email statement: “Any suggestion that any WilmerHale lawyer was involved in any unlawful or inappropriate activity is absurd and untrue.”)

Like Kaplinsky, Lipsett characterized the meetings with credit card lawyers as a marketing initiative, as American Express explained in its post-trial findings of fact, filed March 19. Lipsett said his group was “under a lot of pressure from the firm to enlarge the practice,” and the meetings were an “attempt to try to expand our visibility in a substantive way as part of expanding our practice marketing…. The whole point was to try and have a meeting at which we could in substance show our stuff.”

“Plaintiffs’ allegations about the meetings make no sense,” argued American Express’s lawyers at Cravath, Swaine & Moore (who also challenged the name plaintiff’s standing to bring his claims). “Plaintiffs contend that the meetings were the center of an unlawful cartel, even though they were organized and presided over by outside counsel. A renowned firm like Wilmer would be signing its own death warrant if it were to allow itself to become the epicenter of a conspiracy such as the one alleged here. This theory is implausible on its face, and there is no evidence to overcome that implausibility.”

It will certainly be interesting to see what Judge Pauley has to say about the outside lawyers. Incidentally, Davidoff told me that his firm’s prosecution of this case proves the error of the defendants’ “venomous” attitude toward class actions. Because this is an injunction-only case, he said, Berger & Montague and Scott + Scott can recover only their expenses and hourly rates, with no chance for a multiplier. The firms’ total fees from the settlements they’ve already obtained in the litigation were $2.4 million, which Davidoff called “a fraction” of their total costs. “A lot of people were amazed that I was willing to put the time and money into these cases,” he said. “We really have the white hats here.”

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