58 F.4th 877
6th Cir.2023Background
- EMS (payment processor) and Procom (merchant owned by Peter Gaal) executed a 2014 merchant agreement drafted by EMS; Gaal signed a personal guaranty in that 2014 Agreement.
- In 2019 EMS and Procom executed a new, EMS‑drafted merchant agreement with an explicit integration/supersession clause; the 2019 guaranty was signed by a different Procom employee (Watkins), not Gaal.
- During COVID‑19 many Procom customers canceled transactions, producing >$10M in chargebacks; some chargebacks related to transactions that occurred before June 10, 2019, but the chargebacks themselves were processed after that date.
- Procom filed Chapter 7 bankruptcy; EMS filed a proof of claim. EMS sued Gaal in federal court for breach of guaranty (and other claims the district court dismissed unchallenged on appeal).
- The district court dismissed EMS’s complaint under Rule 12(b)(6), finding the 2019 Agreement superseded the 2014 Agreement and that all chargebacks occurred after the 2019 Agreement, so Gaal wasn’t liable.
- The Sixth Circuit affirmed some procedural rulings, reversed as to liability for chargebacks tied to pre‑2019 transactions, and remanded for further proceedings (including personal jurisdiction).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district court properly considered Procom bankruptcy filing and excluded Moenich affidavit on Rule 12(b)(6) review | District court should not have judicially noticed the bankruptcy filing without converting to summary judgment and should have allowed EMS to present Moenich affidavit under Rule 56 | Court properly took judicial notice of a public record and properly excluded an affidavit not pled or central to the complaint | Affirmed: taking judicial notice of the bankruptcy filing was permissible; exclusion of the affidavit was not an abuse of discretion and any error was harmless |
| Whether dismissal should have been without prejudice and EMS given leave to amend | EMS argued dismissal with prejudice was improper and it should have an opportunity to amend | Gaal argued dismissal was proper (and that amendment would be futile) | Not addressed by the Sixth Circuit on appeal; remanded issues remain for district court |
| Whether the 2019 Agreement superseded/terminated the 2014 Agreement (and thus Gaal’s guaranty going forward) | EMS: 2019 merely supplemented 2014 and did not revoke Gaal’s guaranty | Gaal: 2019’s integration/supersession clause replaced the 2014 Agreement and its guaranty | Affirmed: 2019 Agreement unambiguously superseded the 2014 Agreement going forward; Gaal not guarantor of obligations arising under the 2019 Agreement |
| When chargeback debt "accrued" — at original transaction/crediting date (so under 2014) or at later chargeback date (so under 2019) | EMS: debt arose when EMS initially credited Procom for transactions (pre‑2019 transactions therefore gave rise to obligations under the 2014 Agreement) | Gaal/district court: debt arose when chargebacks were processed (after 2019), so obligations fall under 2019 Agreement | Reversed as to pre‑2019 transactions: chargeback liability tied to transactions that occurred before the 2019 Agreement arose under the 2014 Agreement, so Gaal may be liable for those amounts; case remanded (including for personal jurisdiction and novation questions) |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (establishes pleading standard for plausibility)
- Rondigo, L.L.C. v. Twp. of Richmond, 641 F.3d 673 (6th Cir.) (when courts may consider materials outside the complaint on 12(b)(6))
- Golf Vill. North, LLC v. City of Powell, 14 F.4th 611 (6th Cir.) (public records and certain outside materials are permissible on 12(b)(6))
- In re United Sciences of America, Inc., 893 F.2d 720 (5th Cir.) (chargebacks related to prepetition transactions may be deemed to have arisen prepetition)
- In re Southmark Corp., 62 F.3d 104 (5th Cir.) (a debt arises when the debtor becomes legally obligated to pay it)
- New Lansing Gardens Hous. LP v. Columbus Metro. Hous. Auth., 46 F.4th 514 (6th Cir.) (contract interpretation under Ohio law: unambiguous terms are questions of law)
- Wilkerson v. Am. Family Ins. Co., 997 F.3d 666 (6th Cir.) (if contract terms are clear, interpretation is a legal question)
- CBS Personnel Servs., LLC v. Canadian Am. Trans, Inc., 290 F. Supp. 2d 879 (S.D. Ohio) (termination of later agreement does not automatically extinguish accrued liabilities under earlier agreement)