Cobra Tactical, Inc. v. Payment Alliance Int'l Inc.Cobra Tactical, Inc. v. Payment Alliance Int'l Inc.
This сase comes before the Court on Defendants Payment Alliance International Inc. ("PAI"), Global Payments Direct, Inc. ("Global"), and Clearent, LLC ("Clearent") (collectively, "Defendants")'s Motion to Dismiss Amended Class Action Complaint [Doc. 24].
I. BACKGROUND
Plaintiffs Cobra Tactical, Inc. ("Cobra"), KAT, LLC d/b/a KA Tactical ("KA"), and Euless Armory, LLC d/b/a Armory Up ("Euless"), individually and on behalf of all others similarly situated (collectively, "Plaintiffs"), are businesses that allege that Defendants charged them unauthorized and excessive fees for merchant payment processing services. Am. Compl. [Doc. 13] ¶ 1. Merchant payment processing services allow merchants to accept payment for goods and services via credit and debit cards. Id. ¶ 2. Global is a payment processor that "processes the payment through the card network and ensures that whenever a customer pays for an item or services with a credit or debit card, the customer's aсcount is debited and the merchant's account is credited." Id. ¶ 4(c). PAI and Clearent are merchant acquirers, that "enroll merchants in payment processing services and usually provide customer support to the merchant." Id. ¶ 4(e). Plaintiffs are former customers of PAI (which has now been acquired by Clearent). Id. ¶¶ 18-20; 23. Global "serviced the vast majority of PAI's merchant customers." Id. ¶ 24.
The purported contracts consist of a merchant application ("Merchant Application") and terms and conditions ("Terms and Conditions") (collectively, "Card Services Agreements" or "CSAs"). Id. at 6 n.1; ¶¶ 8; 34. PAI provided prospective merchants with the form Merchant Application. Id. ¶ 34. The Merchant Application "states that the merchant is obligated to the Terms [and Conditions.]" Id. ¶ 57.
Plaintiffs allege that Defendants promised them "straightforward, transparent pricing" but through "separate, fine print Terms [sic] ... backtrack[ed] from the agreed-upon fees" and "implement[ed] mark-ups by inflating 'pass through' costs." Id. ¶¶ 7-8, 10. Plaintiffs argue that the contracts never became legally binding and, even if they were legally binding, the overcharges breach the terms of the contracts. Id. ¶ 13. Count I of the Amended Complaint alleges unjust enrichment. Id. ¶¶ 152-163. Count II allegеs (1) breach of contract and (2) breach of the covenant of good faith and fair dealing. Id. ¶¶ 164-176.
II. LEGAL BACKGROUND
Federal Rule of Civil Procedure 8(a)(2) requires that a pleading contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Although this pleading standard does not require "detailed factual allegations," mere " 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' " Ashcroft v. Iqbal,
When considering a Rule 12(b)(6) motion to dismiss, "all well-pleaded facts are accepted as true, and the reasonable inferences therefrom are construed in the light most favorable to the plaintiff." FindWhat Investor Group v. FindWhat.com,
Defendants contend that Plaintiff's Amended Complaint should be dismissed because binding contracts, the CSAs, exist between the parties and therefore (1) Count I, unjust enrichment, is barred as a matter of law; and (2) Count II, breach of contract and breach of the covenant of good faith and fair dealing, is barred because of applicable provisions in the CSAs. Def's Br. at 1-6. Alternatively, Defеndants contend that, if the CSAs are not valid, Plaintiff's unjust enrichment claim fails because the entire basis of that claim-that customers were charged fees different than those in the CSAs-is based on the CSAs. Id. at 4. Under this theory, Defendants assert that Plaintiffs were not bound by any contract, voluntarily paid the fees, and were free to "walk away at any time without penalty." Id. at 6.
A. Validity of the Contracts
Plaintiffs admit to signing the contracts, but argue these contracts were never binding because Defendants did not sign them. Pls.' Resp. in Opp'n to Defs.' Mot. to Dismiss Am. Class Action Compl. ("Pls.' Br.") [Doc. 31] at 7-9. Plaintiffs point to Section 24 of the Terms and Conditions, entitled "Effective Date" which states: "This Card Services Agreement shall become effective only upon acceptance by Global Direct, Member, and PAI, or upon delivery of indebtedness at such locations as designated by Global Direct for purchase, whichever event shall first occur." Terms and Conditions § 24. Under the plain language of this section, there are two ways for the contracts to become effective; the Court will examine each.
1. Effective Upon Acceptance
The Terms and Conditions state that the CSAs may become effective upon "acceptance." Id. Plaintiffs state, without citation, that "the only prescribed method for 'acceptance' is signature." Pls.' Br. at 8. They point to (1) the signature blocks on the Merchant Agreements, (2) the clause in the Merchant Agreements stating that "[t]he Bank must be a princiрal (signer) to the Merchant Agreement,"
As to the first contention, the mere fact that a contract contains signature blocks does not mean that signature is required to make the contract effective. "Georgia law has long recognized that '[a]ssent to the terms of a contract may be given other than by signatures.' " Weinberg, Wheeler, Hudgins, Gunn & Dial, LLC v. Teledyne Techs., Inc., No. 1:12-CV-0686-JEC,
As to the second contention, the phrase "The Bank [or Visa Merchant] must be a principal (signer) to the Merchant Agreement" does not vitiate the formation of the CSAs even if the Bank or Visa Merchant fаiled to sign the Merchant Agreements. There appear to be two slightly different versions of the Merchant Agreement. In the Euless Merchant Agreement, the above clause is part of a section entitled "Important Member Bank (Acquirer) Responsibilities." Euless Merchant Agreement at 9. Below that section it states "[t]he responsibilities above do not replace the terms of the Merchant Agreement and are provided to ensure the Merchant understands some important obligations оf each party and that the Bank is the ultimate authority should the Merchant experience any problems."
With respect to the Merchant Agreements for KA and Cobra, both agreements state "[a] Visa Member must be a principal (signer) to the Merchant Agreement." Cobra Merchant Agreement at 2, 3, 14, 15; KA Merchant Agreement at 2. This clause appears to be in conflict with Section 24 of the Terms and Conditions, which allows the agreement to become binding without signatures. Under Plaintiffs' reading, the validity of the CSAs entered into by Cobra and KA is conditioned upon the signature requirement of this clause and since the signature was not obtained, the agreements never became binding. But under Georgia law, it must be "manifest that the contract is to be executed by others than those who actually signed it" in order for a contract to be considered incomplete and non-binding. MacDonald,
Conditions precedent, which are not favored in interpreting contracts, are created by language such as "on condition that," "if," and "provided," or by explicit statements that certain events are to be construed as conditions precedent. In determining whether a contract contains a condition precedent, we look to the language of the agreement itself. If the language is plain and unambiguous and the intent may be clearly gathered therefrom, we need look no further.
Hall v. Ross,
As to the third contention, that the Member Agreements "incorporate the card network rules, which explicitly require the banks to sign" (Pls.' Br. at 8), this argument fails for the same reasons-it is not clear thаt the CSAs were drafted to make the signature a requirement, nor is it clear from the language of the agreement that it is a condition precedent. See
2. Effective Upon Delivery of Indebtedness
The second way the contracts can become effective is through "delivery of indebtedness at such locations as designated by Global Direct for purchase...." Terms and Conditions § 24. Plaintiffs do not dispute that they delivered indebtedness, but contend that "there is no proof of where such indebtedness was delivered." Pls.' Br. at 9. Under the CSAs, PAI and Global Direct provided imprinters, authorization terminals, printers, software and other equiрment to the Merchant. Terms and Conditions § 6. The Court reads the language "at such locations as designated by Global Direct for purchase" to mean that when the Merchant uses the equipment provided by Global Direct and/or PAI to deliver indebtedness, the contracts become effective. Indeed, Terms and Conditions Section 1 states "A MERCHANT'S SUBMISSION OF A TRANSACTION TO GLOBAL DIRECT SHALL BE DEEMED TO SIGNIFY MERCHANT'S ACCEPTANCE OF THE CARD SERVICES AGREEMENT, INCLUDING THE TERMS AND CONDITIONS HEREIN." The entire basis of Plaintiffs' lawsuit is that the indebtedness was sent to Global Direct and processed, but that they were charged higher fees than they agreed to. See, e.g., Am. Compl. ¶ 81 (stating Defendants "began to perform payment processing services on their behalf."). There are no allegations in the Amended Complaint that would support an inference that the debt was not delivered under the contractual terms. Accordingly, the contracts became effective when Plaintiffs began delivering debt to Defendants.
Where a valid contract exists, unjust enrichment claims are barred as a mаtter of law. Donchi, Inc. v. Robdol, LLC,
B. "Limitation on Liability" Clause
Defendants contend that Plaintiffs' claims in Count II for (1) breach of contract and (2) breach of the covenant of good faith and fair dealing are barred because of the "Limitation of Liability" clause found in the Terms and Conditions. The relevant portion states:
It is agreed that in no event will Global Direct, Member or PAI be liable for any claim, loss, billing error, damage, or expense аrising out of or relating in any way to this Card Services Agreement which is not reported in writing to Global Direct by Merchant within 60 days of such failure to perform or, in the event of a billing error, within 90 days of the date of the invoice or applicable statement. Merchant expressly waives any such claim that is not brought within the time periods stated herein.
Terms and Conditions § 12. Plaintiffs do not purport to have complied with the notice provision, rather, they contend this clausе is not enforceable as it is exculpatory, unconscionable, and vague. Pls.' Br. at 15-23. Finally, Plaintiffs argue that factual issues should be developed as to whether Plaintiffs' failure to provide notice is justified. Id. at 23-25.
[E]xculpatory clauses in which a business seeks to relieve itself from its own negligence are valid and binding in this State, and are not void as against public policy unless they purport to relieve liability for acts of gross negligence or wilful or wanton conduct. Nevertheless, because exculpatory clauses may amount to an accord and satisfaction of future claims and waive substantial rights, they require a meeting of the minds on the subject matter and must be explicit, prominent, clear and unambiguous.
Monitronics Int'l, Inc. v. Veasley,
Plaintiffs contend that the limitation on liability clause has the effect of "forever bar [ring] merchants that do not immediately discover and report Defendants' intentional overbilling from ever seeking relief" and is therefore exculpatory in nature and should not be enforced. Pls.' Br. at 15 (emphasis in original). Defendants contend that the provision is a notice provision, which "does not restrict the remedies available for any claim" but rather merely requires written notice of a claim within a specific timе period. Defs.' Reply Br. in Supp. of Mot. to Dismiss Am. Class Action Compl. ("Defs.' Reply") [Doc. 32] at 8-10. The clause has two requirements: (1) Plaintiffs provide written notice of the claim within a specified time, and (2) Plaintiffs bring their claim within a specified period of time or waive that claim. Terms and Conditions § 12. Both are enforceable under Georgia law.
State and federal courts in Georgia have upheld similar notice requirements that completely bar a cause of action under a contract when not fulfilled. OneBeacon Am. Ins. Co. v. Catholic Diocese of Savannah,
Geоrgia courts also allow parties to contractually shorten a statute of limitations period so long as "the period fixed be not so unreasonable as to raise a presumption of imposition or undue advantage in some way." Rabey Elec. Co. v. Hous. Auth. of Savannah,
2. Is the Clause Procedurally Valid?
Plaintiffs also contend that the CSAs were procedurally unсonscionable. Pls.' Br. at 18-22. Procedural unconscionability looks at the "age, education, intelligence, business acumen and experience of the parties, their relative bargaining power, the conspicuousness and comprehensibility of the contract language, the oppressiveness of the terms, and the presence or absence of meaningful choice." NEC Techs., Inc. v. Nelson,
Defendants are large payment processing servicers while Plaintiffs are small, "mom and pop"-type merchants. Plaintiffs must accept debit and credit cards to make themselves competitive in the marketplace and thus require payment processing services. They are thus at the mercy of companies such as Defendants that provide such services. Defendants have taken full advantage of this fact by imposing the decidedly one-sided Terms on Plaintiffs without negotiation or the ability to "opt out" of disfavored provisions.
Am. Compl. ¶ 115. Taking these allegations as true, Plaintiffs have not alleged enough facts to establish procedural unconscionability. In a factually-similar recent case issued in this district, a smaller merchant suing Home Depot contended that a one-year limitations period in a take-it-or-leave-it contract was procedurally unconscionable. NAFRA Worldwide, LLC v. Home Depot U.S.A, Inc., No. 1:12-CV-02808-AT,
3. Is the Clause Vague?
Plaintiffs also contend that it would be premature to dismiss their claims at this stage because there are issues of contract interpretation that would be "inappropriate to resolve on a motion to dismiss." Pls. Br. at 23. They argue that the limitation of liability provision is ambiguous because the clause "failure to perform" is not defined.
4. Have Plaintiffs Pled a Justification for the Delay in Notification?
Finally, Plaintiffs contend that they have pled facts that allege a justification for failure to provide timely notice. The duty to provide notice "is triggered when an insured actually knew or should have known of the possibility that a claim existed." 105 R.R. St., LLC v. Great Lakes Reinsurance (UK) SE, No. 1:15-CV-00293-ELR,
Plaintiffs state thаt their failure to give notice is justified because Plaintiffs were not given statements itemizing all charges (Am. Compl. ¶ 98), overcharges in the statements were extremely difficult to understand (Id. ¶¶ 100-04), and Defendants falsely stated that fee increases were coming from the card networks (Id. ¶¶ 109-12). However, as noted by Defendants (Defs.' Reply at 13-16), the Amended Complaint is based on the very same information that Plaintiffs allege prevented them from discovering the overbilling within the 60-90 day period, аnd they make no allegations as to why the overbilling could not have been discovered in the initial time period. Under Georgia law, whether a delay is justified generally is an issue of fact to be resolved by a jury. Eells v. State Farm Mut. Auto. Ins. Co.,
IV. CONCLUSION
For the foregoing reasons, Defendants' Motion to Dismiss Amended Class Action Cоmplaint [Doc. 24] is GRANTED . The Clerk is DIRECTED to close this case.
IT IS SO ORDERED this 4th day of January, 2018.
Notes
Plaintiffs attached the merchant applications for Cobra [Docs. 13-1, 13-2] and KA [Doc. 13-3], as well as a copy of the Terms and Conditions [Doc. 13-4] to the Amended Complaint. Defendants attached a copy of the Merchant Application for Euless to their Motion to Dismiss [Doc. 24-3]. The parties do not dispute the authenticity of these documents. Thus, although the Euless Merchant Application is not attached to the Amended Complaint, the Cоurt may consider it for purposes of the motion to dismiss because it is central to Plaintiffs' claims and is undisputed as to its authenticity. Maxcess, Inc. v. Lucent Techs., Inc.,
Defendants move to dismiss the Amended Complaint "[p]ursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(f)." Defs.' Br. in Supp. of Mot. to Dismiss Am. Class Action Compl. ("Defs.' Br.") [Doc. 24-1] at 4. Rule 12(f) states "[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). Defendants do not state specifically what they would like stricken or otherwise discuss Rule 12(f). Therefore, the Court will not address Rule 12(f).
This clause (and the similar clause "A Visa Member must be a principal (signer) to the Merchant Agreement") is found in the following places: Cobra Merchant Agreement at 2, 3, 14, 15; KA Merchant Agreement at 2; Euless Merchant Agreement at 9. The Merchant Agreements submitted by both parties are difficult to read and have confusing pagination. The Court will reference the pdf pagination as filed in the ECF system.
The Court does not reach the remaining issues of whether the class action waiver in the CSAs is valid and binding.