The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
ANTHONY OLIVER, TERRY GAYLE QUINTON,
SHAWN O’KEEFE, ANDREW AMEND, SUSAN vO -CV-B66 (NGG. (Sh).
BURDETTE, GIANNA VALDES, DAVID ( )
MOSKOWITZ, ZACHARY DRAPER, NATE
THAYER, MICHAEL THOMAS REID, ALLIE
STEWART, ANGELA CLARK, JOSEPH
REALDINE, RICKY AMARO, ABIGAIL BAKER,
JAMES ROBBINS IV, EMILY COUNTS, DEBBIE
TINGLE, NANCI-TAYLOR MADDUX, SHERIE
MCCAFFREY, MARILYN BAKER, WYATT
COOPER, ELLEN MAHER, SARAH GRANT and
GARY ACCORD, on behalf of themselves and .
all others similarly situated,
Plaintiffs,
-against-
AMERICAN EXPRESS COMPANY and
AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC.,
Defendants,
NICHOLAS G. GARAUFIS, United States District Judge.
On January 9, 2024, this court issued a Memorandum and Order
that certified ten classes of debit cardholders, denied Defendants
American Express Company and American Express Travel Re-
lated Services Company's (collectively, “Amex”) motion to
exclude expert testimony, and granted in part Plaintiffs’ motion
to exclude expert testimony. (See generally Class Cert. and Daub-
ert Mem. & Order (“M&O”) (Dkt. 220).) Amex now moves for
reconsideration of the court’s decision to exclude part of the tes-
timony of its expert, Dr. Eric Gaier. (See Notice of Defs.”’ Motion
(Dkt. 225); Mem. in Support of Defs.’ Mot. for Reconsideration
(“Mot.”) (Dkt. 225-1); see also M&O at 22-24.) For the reasons
that follow, the motion is DENIED.
I. BACKGROUND
The court presumes familiarity with the background facts and
procedural history of this matter, as set forth in the January 9,
2024 M&O, and only reviews the aspects of the case that are rel-
evant for this motion. See Oliver v. Am. Express Co., No. 19-CV-
566 (NGG), 2024 WL 100848 (E.D.N.Y. Jan. 9, 2024), amended
in part, No. 19-CV-566 (NGG), 2024 WL 217711 (E.D.N.Y. Jan.
19, 2024).
In brief, Amex provides a payment service to merchants that al-
lows customers to purchase goods or services with an Amex
charge or credit card. Amex charges the merchant a fee for use
of the payment service. As a condition for allowing a merchant
to process payments over the Amex payment network, Amex in-
cludes a provision that prohibits the merchant from steering the
customer to a different card payment method. This provision is
called an anti-steering rule or a non-discrimination provision
(“NDP”). Plaintiffs, credit and debit card users that do not own
Amex cards, allege that NDPs are illegal restraints on trade, in
violation of various state antitrust and consumer protection laws,
because the NDPs prevent merchants from steering customers to
lower cost payment processing methods. As a result, merchants
are required to raise prices for all customers, including those
without Amex cards, causing harm to Plaintiffs who must pay
higher prices than they would but for the existence of NDPs.
In support of their motion for class certification, Plaintiffs relied
on the economics expert Dr. Russell Lamb. To model how Amex
would behave in the but-for world, Dr. Lamb looked to Amex’s
response to an Australian regulation that permitted merchants to
differentially surcharge. (See M&O at 39-40 (citing Lamb Report
(Dkt. 138-4) | 254-57, 259, 261, 263; Gaier Report (Dkt. 137-
17) § 42-43).) Amex’s strategy in the face of surcharging was to
preempt any surcharging before it could take effect by offering
pricing concessions on the discount rate! in exchange for an
agreement with the merchant to not surcharge. Dr. Lamb relied
on Amex’s internal documents at the time of the implementation
of the regulations and internal presentations made years later in
which Amex looked to its experience in Australia as strategic
guidance for how to mitigate the threat of differential surcharg-
ing in the United States. Dr. Lamb opined that Amex’s response
to the Australian regulations indicated that Amex would move to
lower discount rates in the but-for world.
Relevant to this motion is that Plaintiffs seek damages based only
on class member purchases at any of 38 Qualifying Merchants,
which are mostly large nationwide retailers, rather than from all
potential merchants that accept Amex cards. (See M&O at 16-
17.} Opposing class certification, Amex argued that the Supreme
Court’s decision in Comcast Corp. v. Behrend, 569 U.S. 27 (2013)
required Plaintiffs’ model of damages to consider the effects that
NDPs would have on purchases at non-Qualifying Merchants.
(M&O at 16-17.) The court rejected the argument that Comcast
required Plaintiffs’ model to incorporate purchases at non-Quali-
fying Merchants, noting that the Second Circuit interpreted
Comcast to require only that plaintiffs “show that their damages
stemmed from the defendant’s actions that created the legal lia-
bility.” (See M&O at 17 (quoting Sykes v. Mel S. Harris & Assocs.
LLC, 780 £.3d 70, 90 & n.3 (2d Cir. 2015).) Because the damages
based on purchases at the Qualifying Merchants stemmed from
Amex’s agreement that allegedly restrained trade, Comcast was
satisfied.
In making its Comcast argument, Amex relied on the expert tes-
timony of Dr. Gaier, who opined that Dr. Lamb failed to consider
1 “Discount rate” is the term that Amex uses for the percentage fee that the
company charges merchants for each transaction.
the impact of Amex’s NDPs on non-Qualifying Merchants. (See
Gaier Report {| 91-98; Amex Opp. to Class Cert. (Dkt. 139-1) at
31-33.) The focus of Dr, Gaier’s testimony was on small mer-
chants: Dr. Gaier opined that small merchants would not be able
to extract pricing concessions with Amex in the but-for world
without NDPs because they do not contract directly with Amex,
they do not understand the cost of acceptance to be able to steer
to lower-cost cards, and their acquiring banks would be unlikely
to pass on any reduced discount fee. Ud. {| 92-95.) As support
for this argument, Dr. Gaier pointed to how certain small mer-
chants behaved when Visa and Mastercard’s prohibitions on .
steering and differential surcharging were lifted: “nearly 3 mil-
lion small merchants who did not then accept Amex were free to
steer. Yet, effectively none did so and their merchant fees did not
decline as Dr. Lamb predicts.” Gd. { 96.) Dr. Gaier then opined
that “small merchants may nevertheless impose surcharges or en-
gage in other forms of steering that harm consumers.” Ud. § 97.)
The court found this portion of Dr. Gaier’s testimony to be “con-
clusory and internally contradictory,” and therefore excluded it
under Federal Rule of Evidence 702, (M&O at 24.) In doing so,
the court noted that Dr. Gaier did not provide support for this
opinion and that the opinion was inconsistent with the evidence
that he presented that small merchants previously did not steer
even when they were able to. Amex now moves the court to re-
consider the exclusion of this portion of Dr. Gaier’s testimony.
Il. LEGAL STANDARD
A motion for reconsideration is an “an extraordinary remedy to
be employed sparingly in the interests of finality and conserva-
tion of scarce judicial resources.” In re Initial Public Offering Sec.
Litig., 399 F. Supp. 2d 298, 300 (S.D.N.Y. 2005).? It is properly
2 When quoting cases, unless otherwise noted, all citations and internal
quotation marks are omitted, and all alterations are adopted.
granted only “where a court has overlooked controlling decisions
or factual matters that were put before it on the underlying mo-
tion and which, if examined, might reasonably have led to a
different result.” Drapkin v. Mafco Consol. Grp., Inc., 818 F. Supp.
2d 678, 695 (S.D.N.Y. 2011) (citing Fisemann v. Greene, 204 F.3d
393, 395 n.2 (2d Cir. 2000)). “[A] motion to reconsider should
not be granted where the moving party seeks solely to relitigate
an issue already decided.” Shrader v. CSX Transp., Inc., 70 F.3d
255, 257 (2d Cir. 1995),
Tl. AMEX’S MOTION FOR RECONSIDERATION
Rule 702 of the Federal Rules of Evidence governs admissibility
of expert testimony. Fed. R. Evid. 702. The Supreme Court “made
clear that the district court has a ‘gatekeeping’ function under
Rule 702—it is charged with the task of ensuring that an expert’s
testimony both rests on a reliable foundation and is relevant to
the task at hand.” Amorgianos v. Nat'l R.R. Passenger Corp., 303
F.3d 256, 265 (2d Cir. 2002) (citing Daubert v. Merrell Dow
Pharms., Inc, 509 U.S. 579, 597 (1993))}. The Daubert inquiry is
“flexible,” depending on the facts of each case. Id. at 266; see also
Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141-42 (1999). “In
deciding whether a step in an expert’s analysis is unreliable, the
district court should undertake a rigorous examination of the
facts on which the expert relies, the method by which the expert
draws an opinion from those facts, and how the expert applies
the facts and methods to the case at hand.” Amorgianos, 303 F.3d
at 267.
Amex moves for reconsideration, arguing that the court commit-
ted clear error in its Order excluding Dr. Gaier’s testimony. First,
Amex contends that the court erred when it “criticized as unreli-
able Dr. Gaier’s purported opinion that any class member savings
at Qualifying Merchants would be fully offset by losses at non-
Qualifying Merchants,” because Dr. Gaier “never offered any
such opinion.” (Mot. at 2.) Instead, Amex asserts that “Dr. Gaier’s
actual opinion is that Dr. Lamb erroneously failed to consider the
impact of steering and surcharging at the millions of non-Quali-
fying Merchants,” including large merchants. (fd. at 5.) And
second, Amex argues that the court erred when it found Dr.
Gaier’s statements that “3 million small merchants who did not
then accept Amex were free to steer”, “[y]et effectively none did”
contradicted Dr. Gaier’s statement that “small merchants may
nevertheless impose surcharges or engage in other forms of steer-
ing,” because Dr. Gaier did not opine that Amex-accepting small
merchants would not surcharge in the but-for world. (id. at 3-4.)
In its motion, Amex focuses on the court’s one sentence summary
of Dr. Gaier’s opinion to argue that the court committed an error
that warrants reconsideration. Ud. at 2 (citing M&O at 23) (“Dr.
Gaier’s opinion that any benefits that Plaintiffs accrue in the but-
for world would be offset by losses at non-Qualifying Merchants
' ...”),) But for the reasons discussed in the M&O and expanded
upon below, Dr. Gaier’s testimony was not excluded based on the
court’s summary of his opinion; it was excluded because the anal-
ysis underlying the opinion was not reliable.
In his testimony, Dr. Gaier provided four reasons to support his
proffered opinion that “[he] would not expect small merchants
to pay lower merchant discount fees absent Amex’s NDPs.”
(Gaier Report 4 92.)
First, many small merchants that accept Amex cards do so
through Amex’s OptBlue program, which serves merchants with
less than one million dollars in annual Amex charge volume. Cd.
{ 93.) An OptBlue merchant does not directly contract with
Amex; instead, the merchant interacts with a “third-party ac-
quirer” that offers a blended rate for all credit card networks.
(id.) Therefore, OptBlue merchants have no incentive to steer or
differentially surcharge; they do not directly interact with pay-
ment networks or face different costs if customers use different
payment cards, and so they are indifferent to which payment
method their customers use. (Id.)
Second, the calculation of the discount fee is complex and de-
pends on a variety of factors, including credit card network, type
of credit card, type of transaction, and transaction size. (Id. 494.)
Dr. Gaier noted that one store had 28 total different fee catego-
ries for processing various versions of Visa, Mastercard, Amex,
and Discover cards. (Id. 494 & n.169.) Because of the complexity
of the cost of acceptance, many merchants “simply do not under-
stand their costs of acceptance sufficiently to steer customers to
lower-cost credit cards.” (id. { 94.)
Third, Dr. Gaier opined that the third-party acquirers often act
opportunistically with small merchants. (id. { 95.) With large
merchants, acquirers normally charge a processing fee that is di-
rectly tied to the interchange fee rate that payment networks
charge. (id. (95 & n.171.) Small merchants, on the other hand,
often pay “bundled” fees that are less transparent and allow ac-
quirers to extract the majority of savings from reduced
interchange fees, (fd.) In the simplest form of bundling, mer-
chants pay a flat rate for all types of credit card fees charged,
regardless of card brand. (fd.) Therefore, small merchants are
unlikely to benefit from any reduction in interchange fees.
Finally, Dr. Gaier pointed to small merchant behavior after Visa
and Mastercard’s consent decrees and settlements, which permit-
ted merchants that only accepted Visa or Mastercard to engage
in steering and differential surcharging. (id. { 96.) Looking at
small merchants that did not accept Amex cards in 2011 and
2013 (and were therefore not bound by Amex’s still-binding
NDPs), Dr. Gaier noted that despite being free to steer, “effec-
tively none did so and their merchant fees did not decline.” (fd.)
Dr. Gaier then summed up the relevance of these four observa-
tions: “small merchants are unlikely to achieve lower merchant
discount fees absent Amex’s NDPs in the way that Dr. Lamb pre-
dicts for Qualifying Merchants.” Ud. 97.)> Unlike Qualifying
Merchants, small merchants would be unlikely to be able to cred-
ibly threaten to steer customers to lower cost payment
methods—they would have no incentive to steer because of the
complexity of the fee schedule and fee bundling. Therefore, ac-
cording to Dr. Gaier, “many putative class members likely benefit
from Amex’s NDPs for their transactions with small merchants,
which Dr. Lamb does not consider.” (Gaier Report 4 97.) This
proffered consequence formed the basis for Dr. Gaier’s opinion
that “Dr. Lamb’s damages methodology is disconnected from his
theory of anticompetitive harm” because he “ignores the impact
of Amex’s NDPs on merchants other than Qualifying Merchants.”
(id.)*
But the focus of Dr, Gaier’s testimony concerning non-Qualifying
Merchants was that small merchants would be unlikely to
achieve lower discount fees (Gaier Report | 97 (“The relevance of
these observations is that small merchants are unlikely to achieve
lower merchant discount fees absent Amex’s NDPs in the way
that Dr. Lamb predicts for Qualifying Merchants”)); beyond a
statement that small merchants “may” steer, the discussion of
steering or surcharging suggests that small merchants were less
likely to steer in the but-for world. OptBlue merchants faced a
blended rate and so steering would not affect their costs. The
complexity of how processing costs are calculated meant that
3 Dr. Lamb’s prediction, as a reminder, was that Qualifying Merchants
would use a credible threat of steering absent Amex’s NDPs to negotiate
lower discount fees. (Lamb Report □ 149-51, 178, 209-12, 259-69.)
4+ Tn its motion for reconsideration, Amex also summarizes Dr. Gaier’s opin- .
ion to be that “Dr. Lamb erroneously failed to consider the impact of
steering and surcharging at the miilions of non-Qualifying Merchants.”
(Mot. at 5; see also Reply in Support of Reconsideration (“Reply”) (Dkt.
231) at 1 (stating that Dr. Gaier opined that Dr. Lamb failed “to consider
losses incurred in transactions at non-Qualifying Merchants.”).)
small merchants—even if they did not pay a blended rate—
would be unlikely to effectively lower their costs through steering
customers to lower cost payment methods. And acquirers’ rela-
tive leverage over small merchants meant that small merchants
would be unlikely to benefit from any reduction in discount fees,
minimizing the incentive to steer to begin with. The very same
argument that Dr. Gaier used to say that small merchants would
not achieve lower discount fees—they did not have a credible
threat to steer—meant that the risk that Plaintiffs incurred losses
from steering was also diminished. Therefore, the opinion under-
lying Dr. Gaier’s criticism of “Dr. Lamb for failing to consider
losses incurred in transactions at non-Qualifying Merchants’—
that Plaintiffs would incur losses from steering at non-Qualifying
Merchants—itself was the result of an unreliable, incomplete
analysis. (Reply at 1.)
Amex tries to salvage Dr. Gaier’s testimony with two points, First,
Amex argues that the court conflates steering and surcharging,
and “it is undisputed that some merchants would engage in sur-
charging in Plaintiffs’ but-for world.” (Mot. at 4.) Second, “Dr.
Gaier’s criticisms of Dr. Lamb’s opinions on this issue do not hinge
on the behavior of small merchants alone because the universe
of non-Qualifying Merchants includes many large merchants.”
Cid. at 5.)
Amex is correct that steering and surcharging, while in some in-
stances overlapping, are distinct. A merchant may steer—-
incentivize a customer to use a lower cost payment method—
using a variety of methods, including a differential surcharge. But
there are other surcharges that apply more broadly that do not
provide customers with an incentive to switch between payment
methods. Just as not all surcharges are forms of steering, it is
worth keeping in mind that not all surcharges are violative of
Amex’s NDPs—merchants may incentivize payment via cash,
check or electronic funds transfer and still comply with the anti-
steering restrictions that Amex places on their conduct. (Lamb
Report 4 87.)
Amex points to Dr. Gaier’s testimony that surcharging occurs for
reasons beyond steering, including “profit reasons,” to argue that
small merchants would surcharge in the but-for world.° But Dr.
Gaier discussed non-steering “profit reasons” for surcharging in
the context of “compliant surcharges,” in which debit card and
credit cards are surcharged at the same level. (Daubert Hearing
Tr. at 222:9-14.} These surcharges are “compliant” because mer-
chants are permitted to impose them under the terms of Amex’s
NDPs. Surcharges that would exist whether or not the NDPs were
in place are not relevant for calculating Plaintiffs’ damages in the
but-for world, and Amex cannot point to these as evidence of
small merchant surcharging or class member losses in the but-for
world. The only relevant surcharging for the present analysis is
surcharging that exists in the but-for world that would otherwise
not occur if Amex’s NDPs remained in force.
Finally, Amex argues that the court should reconsider its exclu-
sion of Dr. Gaier’s testimony because non-Qualifying Merchants
include large merchants and “Dr. Gaier’s criticisms of Dr. Lamb’s
opinions on this issue do not hinge on behavior of small mer-
chants alone.” (Mot. at 5.) While of course true that the definition
of non-Qualifying Merchants includes large merchants, Dr.
Gaier’s criticism that Dr. Lamb failed to consider the impact of
5 Dr. Gaier opined that “surcharges don’t occur just for steering; rather,
there can be profit reasons and so forth to have surcharges.” (Daubert
Hearing Tr. at 222:16-18.} But of course, merchants are interested in steer-
ing customers to lower cost payment methods for “profit reasons” as well.
(See, e.g., Lamb Report {4 303-08 (discussing management of payment
costs as a profit consideration}.) The court understands “profit reasons” to
mean non-steering reasons that merchants surcharge.
10
Amex’s NDPs on non-Qualifying Merchants focused primarily on
small merchants. (See Gaier Report {{ 92-97.)°
In its motion for reconsideration, Amex does not point to any
specific testimony of Dr. Gaier’s concerning large merchants the
court overlooked. That could be because Dr. Gaier had little to
say about large merchants. One thing that Dr. Gaier did say about
large merchants was that they individually negotiate with Amex
in the same way that Qualifying Merchants do.’ If the mechanism
by which Qualifying Merchants and large non-Qualifying Mer-
chants reduce their discount fees is the same, then that undercuts
Dr. Gaier’s opinion that “Dr. Lamb acknowledges that Amex’s
NDPs would be rescinded for all merchants but ignores the im-
pact of Amex’s NDPs on merchants other than Qualifying
Merchants.” (Gaier Report { 97.) According to Dr. Lamb’s dam-
ages methodology, merchants that have a credible threat to steer
are able to negotiate with Amex to lower the discount rate and
incur savings. Dr. Lamb opined that his damages model applies
6 When summarizing this issue, Gaier noted: that the “relevance of these
observations is that small merchants are unlikely to achieve lower mer-
chant discount fees absent Amex’s NDPs in the way that Dr. Lamb predicts
...”: that “small merchants may nevertheless impose surcharges . . .”; and
that “many putative class members likely benefit from Amex’s NDPs for
their transactions with small merchants, which Dr. Lamb does not con-
sider.” (id. | 97.)
? Dr, Gaier testified at the evidentiary hearing: “The networks also have
decisions to make. They are going to look at individual negotiations that
they engage in with some of the larger merchants, including many of the
qualifying merchants and they're going to decide how much they're willing
to reduce interchange or wholesale rates, if at ali, in response to the mer-
chants’ credible threats to steer or actual steering. My point[] here is that
these—particularly for the qualifying merchants, or any really large mer- .
chant, these are individually negotiated agreements.” (Daubert Hearing Tr.
at 145:5-14,)
11
equally to Qualifying Merchants and non-Qualifying Merchants.®
If anything, Dr. Gaier’s statement here about large non-Qualify-
ing Merchants seems to corroborate Dr. Lamb’s opinion that the
mechanism through which merchants would reduce discount
fees is not limited to Qualifying Merchants.
Dr. Gaier also opined that Plaintiffs “signalfed]” the differences
between Qualifying and non-Qualifying merchants by seeking
damages only for the Qualifying Merchants related to pass
through:
[T]he classes seek damages for transactions at qualify-
ing merchants only. This is because qualifying
merchants, because of their ultra thin profit margins, are
certain to reliably pass through inflated GPCC merchant
acceptance cost into retail prices. Plaintiffs do not seek
damages for transactions at nonqualifying merchants.
So the significance of this to me is that it’s an acknowl-
edgment or even a concession that there’s something
particularly unique about the qualifying merchants that
because, at least in plaintiffs—under plaintiffs’ logic, be-
cause of their ultra thin profit margins, that they are
certain to reliably pass through, which, of course, to me,
signals that for nonqualifying merchants, they under-
stand that that’s likely not the case. (Daubert Hearing Tr.
at 201:15-202:5.)
8 Dr. Lamb, in his deposition, opined that his methodology would apply
broadly, not just to the Qualifying Merchants: “I note that the qualified
merchants cover a broad set of products and services, and I expect that the
changes that occur in the marketplace for GPCC card transactions apply to
non-qualified merchants, as well as the qualified merchants. And I believe
that the passing on of the cost savings that would arise from the decline in
the merchant discount or the interchange fees at non-qualified merchants
would be like the passing on that happens to qualified merchants. And I
think therefore there's injury on those transactions as well.” (Gaier Report
191 &n.165 (quoting Deposition of Dr. Lamb).)
12
Dr. Gaier’s testimony that Plaintiffs acknowledged or conceded
that Qualifying Merchants are distinct from other non-Qualifying
Merchants is unsupported. He did not provide analysis to show
that Qualifying Merchants have different profit margins than
non-Qualifying Merchants? or otherwise indicate that the Quali-
fying Merchants are unique. Amex has not demonstrated that
reconsideration is warranted, '°
? In its motion for reconsideration, Amex points to its summary judgment
briefing in which it lists Dollar Tree, among others, as an example of a large
non-Qualifying Merchant that Dr. Lamb did not consider. GMot. at 5.)
Though not relevant for the motion to reconsider exclusion of Dr. Gaier’s
testimony because Dr. Gaier did not opine on it, even if he had, a store that
is known for selling things for a dollar is not a good foil to the Qualifying
Merchants’ “ultra thin profit margins.”
10 One final note: Amex references two of the court’s findings in its motion.
First, Amex states that “the Court criticized as unreliable Dr. Gaier’s pur-
ported opinion that any class member savings at Qualifying Merchants
would be fully offset by losses at non-Qualifying Merchants,” (Mot. at 2.)
And second, “Dr. Gaier’s actuai opinion is that Dr. Lamb erroneously failed
to consider the impact of steering and surcharging at the millions of non-
Qualifying Merchants. As the Court found, these kinds of potential losses
are legally relevant and important to consider,” (Mot. at 5 (citing M&O at
24),}
Both of these statements misunderstand or misconstrue the courts M&O.
To clarify, the court did not state that Dr. Gaier’s opinion was that losses
at non-Qualifying Merchants would “fully offset” class member savings at
the Qualifying Merchants. That phrase appears only in Amex’s briefing,
And the court did not find steering and surcharging at non-Qualifying Mer-
chants to be “legally relevant and important to consider.” It found only that
Dr. Gaier’s opinion about steering in the context of Qualifying Merchants
was relevant. (See M&O at 24.)
13
IV. CONCLUSION
For the foregoing reasons, Amex’s motion is DENIED.
SO ORDERED.
Dated: Brooklyn, New York
June Bj, 2024
/Nicholas G. Garaufis
NICHOLAS G. GARAUFIS
United States District Judge
14