Rainbow Business Solutions et al v. Merchant Services, Inc et al

Filing 292

ORDER by Judge Claudia Wilken ON DEFENDANTS #221 , #246 , #247 , #248 , #249 MOTIONS. (ndr, COURT STAFF) (Filed on 8/29/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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No. C 10-1993 CW
JUST FILM, INC.; RAINBOW BUSINESS
SOLUTIONS, doing business as
PRECISION TUNE AUTO CARE; BURLINGAME
MOTORS, INC.; DIETZ TOWING, INC.; THE
ROSE DRESS, INC.; VOLKER VON
GLASENAPP; JERRY SU; VERENA
BAUMGARTNER; TERRY JORDAN; LEWIS BAE;
and ERIN CAMPBELL, on behalf of
themselves, the general public and
those similarly situated,

United States District Court
For the Northern District of California

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ORDER ON DEFENDANTS’
MOTIONS
(Docket Nos. 221,
246, 247, 248 and
249)

Plaintiffs,
v.
MERCHANT SERVICES, INC.; NATIONAL
PAYMENT PROCESSING; UNIVERSAL
MERCHANT SERVICES, LLC; UNIVERSAL
CARD, INC.; JASON MOORE; NATHAN
JURCZYK; ROBERT PARISI; ERIC
MADURA; FIONA WALSHE; ALICYN ROY; MBF
LEASING, LLC; NORTHERN FUNDING, LLC;
NORTHERN LEASING SYSTEMS, INC.;
GOLDEN EAGLE LEASING, LLC; LEASE
SOURCE–LSI, LLC; LEASE FINANCE GROUP,
LLC; JAY COHEN; LEONARD MEZEI; SARA
KRIEGER; BRIAN FITZGERALD; SAM BUONO;
MBF MERCHANT CAPITAL, LLC; RBL
CAPITAL GROUP, LLC; WILLIAM HEALY;
JOSEPH I. SUSSMAN; JOSEPH I. SUSSMAN,
PC; and SKS ASSOCIATES, LLC,

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Defendants.
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/
AND ALL RELATED CROSS-CLAIMS
/

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Plaintiffs Just Film, Inc., and its owner Volker von

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Glasenapp; Rainbow Business Solutions, doing business as Precision

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Tune Auto Care, and its owner Jerry Su; Burlingame Motors, Inc.,

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and its owner Verena Baumgartner; Dietz Towing, Inc., and its owner

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Terry Jordan; The Rose Dress, Inc., and its owner Lewis Bae; and

Erin Campbell allege that twenty-eight Defendants defrauded them in

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a scheme involving credit and debit card processing services and

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equipment.

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Card, Inc.; Universal Merchant Services LLC; National Payment

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Processing; Jason Moore; Nathan Jurczyk; Eric Madura; Robert

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Parisi; and Alicyn Roy (collectively, MSI Defendants) move to

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dismiss certain claims against them for failure to state a claim.

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Separately, Universal Card, National Payment Processing and Moore

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move to compel arbitration of the claims of Just Film, Rainbow

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United States District Court
For the Northern District of California

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Business Solutions, Burlingame Motors, Dietz Towing and their

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respective owners.

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Capital, LLC, move to dismiss Plaintiffs’ claims against them for

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lack of personal jurisdiction and failure to state a claim.

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Defendants Northern Leasing Systems, Inc.; Northern Funding, LLC;

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MBF Leasing, LLC; Golden Eagle Leasing, LLC; Lease Source–LSI, LLC;

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Lease Finance Group, LLC; RBL Capital Group and Joseph I. Sussman,

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PC (collectively, Leasing Defendant Entities) move to dismiss

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certain claims against them for failure to state a claim and

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improper venue, and to compel arbitration of Campbell’s claims.

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Defendants Jay Cohen; Leonard Mezei; Sara Krieger; Sam Buono;

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Joseph I. Sussman; and Brian Fitzgerald (collectively, Leasing

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Defendant Control Persons) move to dismiss Plaintiffs’ claims

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against them for lack of personal jurisdiction, improper venue and

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failure to state a claim.

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compel arbitration of Campbell’s claims.

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Walshe joins portions of the MSI Defendants’ motion to dismiss and

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offers additional arguments why Plaintiffs’ first cause of action

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against her must be dismissed.

Defendants Merchant Services, Inc. (MSI); Universal

Defendants William Healy and MBF Merchant

These individual Defendants also move to
Finally, Defendant Fiona

Universal Card, et al.’s motion to
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compel arbitration was heard on June 2, 2011; the remaining motions

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were taken under submission on the papers.

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argument and the papers submitted by the parties, the Court GRANTS

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in part and DENIES in part MSI Defendants’ motion to dismiss;

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DENIES Universal Card, et al.’s motion to compel; GRANTS Healy and

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MBF Merchant Capital’s motion to dismiss; GRANTS in part and DENIES

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in part Leasing Defendant Entities and Leasing Defendant Control

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Persons’ motions to dismiss and to compel arbitration; and GRANTS

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in part and DENIES in part Walshe’s motion to dismiss.

United States District Court
For the Northern District of California

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Having considered oral

BACKGROUND
Plaintiffs are six individuals and five businesses.

Below,

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for brevity, each individual Plaintiff’s last name is used to refer

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to both that Plaintiff and his or her business.

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the twenty-eight Defendants into two categories: Merchant Services

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Defendants and Leasing Defendants.

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Plaintiffs divide

Merchant Services Defendants are California-based entities and

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individuals.

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Universal Card, Inc.; National Payment Processing; and Universal

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Merchant Services LLC.

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entities as the Merchant Services Companies, each of which is

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allegedly the alter ego of the others.

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following about the individual Merchant Services Defendants: Moore

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is MSI’s chief executive officer (CEO) and the majority shareholder

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of each of the Merchant Services Companies; Jurczyk is Vice

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President of Operations for National Payment Processing and a

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shareholder of an unspecified Merchant Services Company; Parisi is

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National Payment Processing’s Senior Vice President and a

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shareholder of an unspecified Merchant Services Company; Madura is

Plaintiffs allege that MSI operates under the names

Plaintiffs collectively refer to these

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Plaintiffs allege the

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National Payment Processing’s Manager of Corporate Operations;

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Walshe was a regional sales manager for the Merchant Services

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Companies; and Roy was a senior account executive for the Merchant

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Services Companies.

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Companies are alter egos of Moore, Jurczyk and Parisi.

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Plaintiffs contend that the Merchant Services

Leasing Defendants are entities and individuals based outside

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of California.

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principal place of business in New York and owns MBF Leasing,

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Golden Eagle Leasing, Lease Source–LSI, Lease Finance Group, and

Plaintiffs allege that Northern Leasing has a

United States District Court
For the Northern District of California

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Defendant SKS Associates, LLC.

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these entities as the Northern Leasing Companies, each of which is

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allegedly the alter ego of the others.

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allegedly directed and controlled the Northern Leasing Companies:

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Cohen, Northern Leasing’s president and CEO; Mezei, Northern

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Leasing’s chairman of the board; Krieger, Northern Leasing’s Vice

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President for Operations; Fitzgerald, MBF Leasing’s former

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Executive Vice President for Business Development; Buono, Northern

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Leasing’s and MBF Leasing’s former Vice President of Collections

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and Customer Service; and Sussman, an attorney.

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allegedly invest profits obtained through the alleged fraud in

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shell companies, such as Northern Funding.

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Plaintiffs collectively refer to

The following individuals

These individuals

Plaintiffs also include as Leasing Defendants MBF Merchant

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Capital, which has a principal place of business in Illinois, and

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RBL Capital Group, LLC, which has a principal place of business in

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New York.

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president and sole shareholder and RBL Capital Group’s former

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president.

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Plaintiffs allege that Healy is MBF Merchant Capital’s

Plaintiffs explain the alleged fraud as follows.
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Credit and

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debit card transactions are processed through financial networks,

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called interchanges, run by entities like Visa and Mastercard.

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Financial institutions, as members of these interchanges, can sell

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card processing services directly to merchants, or indirectly

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through companies and individuals known as Independent Sales

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Organizations and Merchant Service Providers (ISOs/MSPs).

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ISOs/MSPs must be licensed and registered with the financial

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institutions.

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These

Merchants pay a fee for each credit and debit card

United States District Court
For the Northern District of California

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transaction.

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credit or debit card to the customer, (2) the interchange, (3) the

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bank through whom the merchant is accepting the card,

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(4) the ISO/MSP that solicited the merchant and/or provides

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customer service to the merchant (if any) and (5) the third

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party-processor (if any).”

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required to pay for credit and debit card processing equipment,

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such as card terminals.

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The fee is “shared among (1) the bank that issued the

2AC ¶ 69.

Merchants may also be

In this case, Merchant Services Defendants are ISO/MSPs, and

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Leasing Defendants provided card processing equipment.

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2003, Healy and Moore executed a contract involving the Merchant

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Services Companies, Moore and Leasing Defendants.

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Under the arrangement, Merchant Services Defendants marketed

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equipment leases to merchants on behalf of MBF Leasing.

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In or about

2AC ¶ 139.

Id. ¶ 133.

When marketing card processing services, the Merchant Services

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Companies’ independent sales agents, such as Walshe, misled

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merchants about card transaction rates.

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agents used a so-called Rate Sheet, which suggested that the

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merchants would be charged a fixed rate of 1.79 percent for each
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In particular, these sales

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card transaction plus a flat monthly service fee.

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however, the rates for each transaction varied based on the type of

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credit card a consumer used.

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associated with card processing services were reflected on the Rate

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Sheet, even though sales agents represented they were.

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Sheet had a signature line for a merchant to affirm that “all fees

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have been sufficiently explained to my satisfaction.”

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If a merchant decided to seek card processing services through

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Merchant Services Defendants, the merchant generally was asked to

In fact,

Further, not all of the charges

The Rate

2AC ¶ 212.

United States District Court
For the Northern District of California

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sign an Application for Merchant Agreement.

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instructed to represent that the Application reflected “the entire

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arrangement with the Merchant Services Defendants.”

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However, sales agents did not provide the merchant with the

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Merchant Card Processing Agreement (MCPA), which provided the terms

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for card processing services.

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and instructed the merchant “to review the terms and conditions of

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a ‘Merchant Card Processing Agreement included with this

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application.’”

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Sales agents were

Id. ¶ 257.

The Application referred to the MCPA

Id. ¶ 258.

The sales agents also misrepresented the need for and value of

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leasing card processing equipment from MBF Leasing.

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Finance Leases (EFLs) governed merchants’ use of this equipment.

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Equipment

Von Glasenapp, Su, Baumgartner, Jordan and Bae sought card

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processing services through Merchant Services Defendants, relying

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on misrepresentations by sales agents or on the Rate Sheet.

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Plaintiffs’ circumstances differed.

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Rate Sheet, but there are no allegations that Von Glasenapp, Jordan

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or Bae also did so.

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Agreement, Jordan initialed the first page, and Bae was presented

These

Su and Baumgartner signed the

Su signed the Application for Merchant

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with the first page but does not appear to have signed it.

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Glasenapp allegedly never saw an Application for Merchant

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Agreement, and Baumgartner contends that someone forged her

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signature on the Application attributed to her.

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Su’s, Baumgartner’s and Jordan’s MCPAs, which they contend they

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never received, were contracts between them and non-parties

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TransFirst and Columbus Bank & Trust (CB&T),1 which performed card

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processing services.

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and forum selection clauses, requiring arbitration in Colorado of

Von

Von Glasenapp’s,

These Plaintiffs’ MCPAs contained arbitration

United States District Court
For the Northern District of California

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any dispute arising from the MCPA.

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he never received, was between him and non-party Fifth Third Bank,2

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another card processor.

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County, Ohio as the proper forum for any lawsuit arising from the

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contract, but did not require arbitration.

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Plaintiffs, although the MCPAs may have signatures acknowledging

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their terms, this is because “Merchant Services Defendants create a

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signed version using scanners and computer programs to copy the

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signature . . . onto the document.”

Bae’s MCPA, which he contends

His MCPA designated Cincinnati or Hamilton

According to

2AC ¶ 264.

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Von Glasenapp signed a one-page EFL; Su “signed the personal

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guaranty portion” of the EFL, 2AC ¶ 388; and Jordan was presented

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with only the first page of the EFL and signed it.

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agents offered Baumgartner and Bae an equipment lease, they

Although sales

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Plaintiffs originally named TransFirst Holdings, Inc.;
TransFirst, LLC; TransFirst Third Party Sales, LLC; and Columbus
Bank and Trust as Defendants in this action. However, Plaintiffs
voluntarily dismissed their claims against these entities on
January 18, 2011. (Docket No. 183.)
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Although Plaintiffs originally named Fifth Third Bank as a
Defendant, they dismissed their claims against it on December 30,
2010. (Docket No. 180.)
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declined.

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Bae, and they contend that the signatures on the EFLs attributed to

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them are forged.

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Nevertheless, EFLs were executed for Baumgartner and

Campbell did not have any interactions with Merchant Services

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Defendants and did not enter into an MCPA.

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executed an EFL with Lease Finance Group for a forty-eight-month

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lease.

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included an arbitration clause, providing,

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United States District Court
For the Northern District of California

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However, in 2002, she

The EFL required monthly payments of $79.95 per month and

Any claim or controversy including any contract or tort
claim, between or among us, you or any Guarantor related
to this Lease, shall be determined by binding arbitration
in accordance with Title 9 of the U.S. Code and the
Commercial Arbitration Rules of the American Arbitration
Association. All statutes otherwise applicable shall
apply. Judgment upon the arbitration award may be
entered in any court having jurisdiction. In event you
or Guarantor Defaults, these provisions regarding
arbitration shall not apply to our right to repossess the
Equipment. This Lease is made in interstate commerce.
Any arbitration shall take place in Chicago, Illinois.

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Krieger Decl. in Support of Mot. to Compel Arbitration (Krieger
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Arbitration Decl.), Ex. 1, at 3.3
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Plaintiffs complain about various fees they were charged.

By

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using “different bill formats to confuse customers and hide false
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charges,” Merchant Services Defendants billed merchants “for fees
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purportedly incurred when processing transactions.”

2AC ¶ 282.

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Although courts generally cannot consider documentary
evidence on a motion to dismiss, doing so is appropriate when the
pleadings refer to the documents, their authenticity is not in
question and there are no disputes over their relevance. Coto
Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010);
Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994) (holding that
courts may properly consider documents “whose contents are alleged
in a complaint and whose authenticity no party questions, but which
are not physically attached to the [plaintiff's] pleadings”).
Although Plaintiffs dispute the authenticity of portions of the
MCPAs, they do not challenge the sections that name these
Defendants as parties to the agreements.
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The billing statements were not itemized, but instead contained

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lump sums that included “fraudulent charges.”

2AC ¶ 282.

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Von Glasenapp, Jordan and other merchants also received

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“letters a couple times a year informing them of their obligation

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to pay a personal property tax on the equipment they” leased.

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¶ 274.

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debited it, along with a processing fee, from Von Glasenapp’s,

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Jordan’s and other merchants’ bank accounts.

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collected taxes “are not actually due to, nor are they remitted to,

Leasing Defendants determined the amount of this tax and

However, the

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United States District Court
For the Northern District of California

2AC

any taxing authority.”

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transferred to shell companies owned by Leasing Defendants.

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Id. ¶ 277.

Instead, the funds were

To collect on delinquent bills, Sussman, on behalf of Leasing

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Defendants, filed lawsuits in New York, with the intention to

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“obtain default judgments which can be sold to collection agencies

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and also to extort payment from Class members who wish to preserve

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their good credit ratings.”

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(hereinafter, the Sussman Law Firm) “routinely violate” provisions

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of New York Civil Practice Law and Rules.

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allegedly filed lawsuits against Bae on July 27, 2006 and March 22,

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2010.

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2AC ¶ 295.

Sussman and Sussman PC

Id. ¶ 307.

Sussman

Finally, certain Defendants engaged in unlawful conduct with

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respect to Von Glasenapp’s and Bae’s consumer credit reports.

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particular, without a permissible purpose, MBF Leasing inquired

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into Von Glasenapp’s consumer credit report on February 20, 2009

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and placed a negative notation on it in April 2009.

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permissible purpose, Universal Merchant Services inquired into Von

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Glasenapp’s consumer credit report on March 20, 2009.

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Leasing placed a negative notation on Bae’s consumer credit report
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In

Also without a

Northern

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sometime after Sussman filed the July 2006 lawsuit on its behalf.

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On September 25, 2008, December 11, 2009, and February 22, 2010,

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without a permissible purpose, MBF Leasing inquired into Bae’s

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credit report.

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Unless otherwise stated, the following claims are asserted by

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all Plaintiffs except Campbell and are against all Defendants:4

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(1) by all Plaintiffs, violation of the federal Racketeer

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Influenced and Corrupt Organizations Act (RICO), 18 U.S.C.

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§ 1962(c); (2) by all Plaintiffs, conspiracy to commit a RICO

United States District Court
For the Northern District of California

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violation, in violation of 18 U.S.C. § 1962(d); (3) intentional

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misrepresentation, against all Defendants except Healy and MBF

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Merchant Capital; (4) negligent misrepresentation, against all

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Defendants except Healy and MBF Merchant Capital; (5) violation of

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California’s False Advertising Law, Cal. & Bus Prof. Code §§ 17500,

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et seq., against all Defendants except Healy and MBF Merchant

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Capital; (6) breach of contract, against Merchant Services

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Defendants, the Northern Leasing Companies and Leasing Defendant

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Control Persons; (7) breach of the implied covenant of good faith

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and fair dealing, against all Defendants except Healy and MBF

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Merchant Capital; (8) by Von Glasenapp and Bae, violation of the

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Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681, against the

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Merchant Services Companies and the Northern Leasing Companies;

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(9) abuse of process, against Leasing Defendants except Healy and

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4

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Plaintiffs state that Campbell is a named Plaintiff with
respect to only “the two counts under Racketeer Influenced and
Corrupt Organizations Act.” Pls.’ Reply in Support of Mot. for
Prelim. Injunction at 2:24-25. Also, Plaintiffs have clarified
that their “remaining claims” against Healy and MBF Merchant
Capital are their claims under the Racketeer Influenced and Corrupt
Organizations Act and California’s Unfair Competition Law. Pls.’
Notice of May 6, 2011 at 1 n.1.
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MBF Merchant Capital; (10) conversion, against all Defendants

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except Healy and MBF Merchant Capital; and (11) violation of

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California’s Unfair Competition Law (UCL), Cal. Bus. & Prof. Code

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§§ 17200, et seq.

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On November 29, 2010, pursuant to Defendants’ motions, the

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Court dismissed with leave to amend several of Plaintiffs’ claims.

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However, Von Glasenapp’s, Su’s, Baumgartner’s and Jordan’s

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section 1962(c) claims against the Merchant Services Companies,

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Moore and Roy were deemed cognizable.

Common law fraud, section

United States District Court
For the Northern District of California

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17500 and UCL claims were found to be stated against the Merchant

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Services Companies, Moore, Roy and Walshe.

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Plaintiffs leave to conduct discovery to establish facts supporting

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the exercise of personal jurisdiction over the individual Leasing

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Defendants.

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The Court afforded

Plaintiffs filed their 2AC on March 18, 2011.

On June 13,

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2011, the Court issued a preliminary injunction against SKS

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Associates and denied its motion to compel arbitration of

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Campbell’s claims.

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Plaintiffs’ claims and did not join any of the current motions.

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SKS Associates has not moved to dismiss

DISCUSSION
I.

Motions to Compel Arbitration
The Federal Arbitration Act (FAA), 9 U.S.C. §§ 1 et seq.,

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reflects a “liberal federal policy favoring arbitration

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agreements.”

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25 (1991) (quoting Moses H. Cone Mem. Hosp. v. Mercury Constr.

26

Corp., 460 U.S. 1, 24 (1983)).

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rules of fundamental importance, including the basic precept that

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arbitration ‘is a matter of consent, not coercion.’”

Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20,

However, the FAA “imposes certain

11

Stolt-Nielsen

1

S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1773 (2010)

2

(quoting Volt Information Sciences, Inc. v. Bd. of Trustees of

3

Leland Stanford Univ., 489 U.S. 468, 479 (1989)).

4

compel arbitration stems from a contractual right,” which generally

5

“may not be invoked by one who is not a party to the agreement and

6

does not otherwise possess the right to compel arbitration.”

7

Britton v. Co-op Banking Group, 4 F.3d 742, 744 (9th Cir. 1993)

8

(citation omitted).

9

particular party is bound by the arbitration agreement,” “the

“The right to

When a question arises as to whether “a

United States District Court
For the Northern District of California

10

liberal federal policy regarding the scope of arbitrable issues is

11

inapposite.”

12

Cir. 2006) (emphasis in original; citation omitted).

13

Comer v. Micor, Inc., 436 F.3d 1098, 1104 n.11 (9th

There are limited exceptions under which an arbitration

14

agreement may be enforced by or against non-signatories.

15

e.g., Mundi v. Union Sec. Life Ins. Co., 555 F.3d 1042, 1045 (9th

16

Cir. 2009); Ross v. Am. Express Co., 547 F.3d 137, 143 (2d Cir.

17

2008).

18

estoppel, which “precludes a party from claiming the benefits of a

19

contract while simultaneously attempting to avoid the burdens that

20

contract imposes.”

21

internal quotation marks omitted).

22

See,

Among these exceptions is the doctrine of equitable

Mundi, 555 F.3d at 1045-46 (citation and

Non-signatories have been permitted to enforce an arbitration

23

clause against a signatory when it would be “‘unfair to allow the

24

party opposing arbitration to avoid its commitment to arbitrate on

25

the ground that the non-signatory was not the very entity with

26

which the party opposing arbitration had a contract.’”

27

F.3d at 145-46 (quoting Sokol Holdings, Inc. v. BMB Mumbai, Inc.,

28

542 F.3d 354, 361 (2d Cir. 2008)) (internal editing marks by Ross
12

Ross, 547

1

court omitted).

2

exist: (1) the disputed issues are “intertwined with the contract

3

providing for arbitration” and (2) there is “a relationship among

4

the parties of a nature that justifies a conclusion that the party

5

which agreed to arbitrate with another entity should be estopped

6

from denying an obligation to arbitrate a similar dispute with the

7

adversary which is not a party to the arbitration agreement.”

8

Sokol, 542 F.3d at 359, 361; see also Mundi, 555 F.3d at 1046

9

(noting the holding in Sokol).5

Such unfairness may arise when two circumstances

The Ross observed that the cases

United States District Court
For the Northern District of California

10

in which the Second Circuit has permitted a non-signatory to compel

11

arbitration against a signatory “have tended to share a common

12

feature in that the non-signatory party asserting estoppel has had

13

some sort of corporate relationship to a signatory party.”

14

F.3d at 144.

15

subsidiaries, affiliates, agents, and other related business

16

entities.”

17

A.

547

These cases, the court noted, were those “involving

Id.
Universal Card, National Payment Processing and Moore’s
Motion to Compel Arbitration

18
Universal Card, National Payment Processing and Moore move to
19
compel arbitration of Von Glasenapp’s, Su’s, Baumgartner’s and
20
21
22
23
5

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25
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27
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Citing MS Dealer Services Corporation v. Franklin, 177 F.3d
942 (11th Cir. 1999), Universal Card, National Payment Processing
and Moore argue that the relationship between a non-signatory
seeking to assert an absent signatory’s right to arbitration is not
a requirement, but instead only a factor a court may consider in
deciding whether to apply equitable estoppel. In Mundi, however,
the Ninth Circuit noted that other courts have found this
relationship to be a requirement. 555 F.3d at 1046. Further, Ross
and the cases on which it relies were decided after MS Dealer and
persuasively establish the necessity of a close relationship.
13

1

Jordan’s claims against them.6

2

to these Plaintiffs’ MCPAs, which contained a disputed arbitration

3

clause, Universal Card, National Payment Processing and Moore

4

assert that they are entitled to pursue arbitration under them

5

based on the doctrine of equitable estoppel.

Although they were not signatories

6

Even if Von Glasenapp’s, Su’s, Baumgartner’s and Jordan’s

7

claims were intertwined with their MCPAs, Universal Card, National

8

Payment Processing and Moore are not entitled to compel arbitration

9

of their claims.

These Defendants fail to establish a sufficiently

United States District Court
For the Northern District of California

10

proximate relationship with TransFirst and CB&T, the signatories to

11

the MCPAs.

12

Processing is under contract with TransFirst and CB&T to market and

13

sell TransFirst’s and CB&T’s products and services.

14

according to Moore and Jurczyk, National Payment Processing has

15

subcontracted its marketing and sales duties to Universal Card.

16

However, none of this establishes that Universal Card, National

17

Payment Processing or Moore have “some sort of corporate

18

relationship to a signatory party.”

19

Moore and Jurczyk state that National Payment

In turn,

Ross, 547 F.3d at 144.

Universal Card, National Payment Processing and Moore point to

20

allegations in the First Amended Complaint (1AC) that they were

21

engaged in a conspiracy with TransFirst and CB&T to accept

22

fraudulent MCPAs, worked in concert with TransFirst and CB&T to

23

issue deceptive billing statements and shared with TransFirst and

24

CB&T proceeds fraudulently obtained from Plaintiffs.

25

Plaintiffs previously plead these facts, which do not appear in

That

26
6

27
28

As noted above, Campbell did not enter into an MCPA at issue
in this litigation and Bae’s MCPA was with Fifth Third Bank.
Universal Card, National Payment Processing and Moore do not
contend that they have a relationship with Fifth Third.
14

1

their 2AC, does not suffice for equitable estoppel purposes.

2

Universal Card, National Payment Processing and Moore, as the

3

parties seeking to invoke estoppel, have the burden to show that it

4

applies.

5

54 Cal. 2d 773, 778 (1960) (stating that, under California law,

6

party relying on equitable estoppel doctrine has burden to show it

7

applies); see also Bridge Fund Capital Corp. v. Fastbucks Franchise

8

Corp., 622 F.3d 996, 1005 (9th Cir. 2010) (noting that party

9

seeking arbitration has burden of proving existence of arbitration

See Crestline Mobile Homes Mfg. Co. v. Pac. Fin. Corp.,

United States District Court
For the Northern District of California

10

agreement).

11

Jurczyk do not assert in their declarations that Universal Card and

12

National Payment Processing have an agency or corporate

13

relationship with TransFirst and CB&T.

14

They do not satisfy their burden.

Notably, Moore and

In Mundi, the Ninth Circuit suggested that, “in light of the

15

general principle that only those who have agreed to arbitrate are

16

obliged to do so,” courts should be cautious in extending the

17

bounds of the doctrine of equitable estoppel.

18

In Stolt-Nielsen, the Supreme Court reiterated that “it is . . .

19

clear from our precedents and the contractual nature of arbitration

20

that parties may specify with whom they choose to arbitrate their

21

disputes.”

22

these teachings, Universal Card, National Payment Processing and

23

Moore cannot avail themselves of the disputed arbitration clause in

24

Von Glasenapp’s, Su’s, Baumgartner’s and Jordan’s MCPAs.

25

B.

555 F.3d at 1046.

130 S. Ct. at 1774 (emphasis in original).

Based on

Leasing Defendant Entities and Leasing Defendant Control
Persons’ Motion to Compel Arbitration

26
Leasing Defendant Entities and Leasing Defendant Control
27
Persons move to compel arbitration of Campbell’s claims against
28
15

1

them.

2

Lease Finance Group.

3

Arbitration, Ex. 1.

4

They point to Campbell’s EFL, which was between her and
Krieger Decl. in Support of Mot. to Compel

The Leasing Defendant Entities other than Lease Finance Group,

5

and Leasing Defendant Control Persons, acknowledge they were not

6

signatories to Campbell’s lease, but assert that they may invoke

7

the doctrine of equitable estoppel to compel arbitration of her

8

claims.

9

that they have a sufficiently close relationship with Lease Finance

However, these Defendants do not meet their burden to show

United States District Court
For the Northern District of California

10

Group.

11

associated with Lease Finance Group.

12

inadequate.

13

They point only to Plaintiffs’ allegations that they are
As explained above, this is

Furthermore, as explained in the Court’s Court’s June 13, 2011

14

Order denying SKS Associates’s motion to compel arbitration,

15

arbitration of Campbell’s claims is not appropriate.

16

indicates that Campbell’s lease, which contained the arbitration

17

clause at issue, has expired.

18

there is no evidence that Campbell’s claims arise under it.

19

The record

Even if the lease were operative,

Accordingly, Leasing Defendant Entities and Leasing Defendant

20

Control Persons’ motion to compel arbitration is denied.

21

II.

22

Leasing Defendant Entities and Leasing Defendant Control
Persons’ Motion to Dismiss for Improper Venue Von Glasenapp’s,
Su’s, Baumgartner’s, Jordan’s and Bae’s Claims

23

Pursuant to Federal Rule of Civil Procedure 12(b)(3), Leasing

24

Defendant Entities and Leasing Defendant Control Persons move to

25

dismiss for improper venue Von Glasenapp’s, Su’s, Baumgartner’s

26

Jordan’s and Bae’s claims against them.

27

that the forum selection clause in these Plaintiffs’ EFLs requires

28

litigation of their claims in the state courts of New York County
16

These Defendants assert

1
2

in New York State.
In July and August 2010, Leasing Defendant Entities and

3

Leasing Defendant Control Persons moved to dismiss these

4

Plaintiffs’ claims pursuant to various Rule 12(b) defenses.

5

that time, however, they did not assert a defense of improper

6

venue, even though they could have.

7

have waived their defense of improper venue, and their Rule

8

12(b)(3) motion to dismiss must be denied.

9

12(g)(2) and (h)(1)(A).

United States District Court
For the Northern District of California

10
11

At

Accordingly, these Defendants

See Fed. R. Civ. P.

III. Motions to Dismiss for Failure to State a Claim
A complaint must contain a “short and plain statement of the

12

claim showing that the pleader is entitled to relief.”

13

Civ. P. 8(a).

14

claim is appropriate only when the complaint does not give the

15

defendant fair notice of a legally cognizable claim and the grounds

16

on which it rests.

17

(2007).

18

state a claim, the court will take all material allegations as true

19

and construe them in the light most favorable to the plaintiff.

20

Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).

21

However, this principle is inapplicable to legal conclusions;

22

“threadbare recitals of the elements of a cause of action,

23

supported by mere conclusory statements,” are not taken as true.

24

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009) (citing Twombly,

25

550 U.S. at 555).

Fed. R.

Dismissal under Rule 12(b)(6) for failure to state a

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555

In considering whether the complaint is sufficient to

26

A.

27

NL

Various Defendants assert that certain claims are barred by

28

Relevant Limitations Periods

the statute of limitations.

These arguments are considered below.
17

1
2

1.

Bae’s Claims

MSI Defendants argue that Bae’s claims against them for

3

intentional misrepresentation, negligent misrepresentation,

4

violation of section 17500, breach of contract, breach of the

5

implied covenant of good faith and fair dealing, conversion and

6

violation of the UCL are time-barred.

7

argument.

8

amend.

9

dismissed without leave to amend because she stands in a position

Bae did not respond to this

Accordingly, these claims are dismissed without leave to

His claims against Walshe for the same are likewise

United States District Court
For the Northern District of California

10

similar to that of the MSI Defendants.

11

Chem. Corp., 545 F.3d 733, 742-43 (9th Cir. 2008); Silverton v.

12

Dep’t of Treasury, 644 F.2d 1341, 1345 (9th Cir. 1981) (“A District

13

Court may properly on its own motion dismiss an action as to

14

defendants who have not moved to dismiss where such defendants are

15

in a position similar to that of moving defendants or where claims

16

against such defendants are integrally related.”).

17

See Abagninin v. AMVAC

MSI Defendants, Leasing Defendant Entities and Leasing

18

Defendant Control Persons contend that Bae’s RICO claims are barred

19

by the statute of limitations.

20

RICO actions are subject to a four-year statute of

21

limitations.

22

2001) (citation omitted).

23

Pincay v. Andrews, 238 F.3d 1106, 1108 (9th Cir.

Plaintiffs do not respond to MSI Defendants’ arguments that

24

Bae’s RICO claims against them are time-barred.

25

RICO claims against the MSI Defendants are dismissed without leave

26

to amend.

27

leave to amend because she stands in a position similar to that of

28

the MSI Defendants.

Accordingly, Bae’s

His claims against Walshe are likewise dismissed without

18

1

Plaintiffs argue that the separate accrual rule saves Bae’s

2

claims against the Leasing Defendant Entities and Leasing Defendant

3

Control Persons.

4

rule,” the limitations period can be reset by an overt act with two

5

characteristics: (1) it must be “a new and independent act that is

6

not merely a reaffirmation of a previous act;” and (2) it must

7

inflict “new and accumulating injury on the plaintiff.”

8

v. Brown, 75 F.3d 506, 513 (9th Cir. 1996) (emphasis in original);

9

see also Tanaka v. First Hawaiian Bank, 104 F. Supp. 2d 1243, 1246,

Under the Ninth Circuit’s “separate accrual

Grimmett

United States District Court
For the Northern District of California

10

1250-52 (D. Haw. 2000).

11

lawsuit against Bae, filed on July 17, 2006; the negative notation

12

Northern Leasing placed on Bae’s credit report after its lawsuit

13

was filed; and MBF Leasing’s lawsuit against Bae, filed on March

14

22, 2010.

15

injury independent from the injury Bae allegedly suffered when he

16

signed the May 2005 EFL that was allegedly procured by fraud and

17

forms the basis of his RICO claims.

18

Bae’s EFL could be used to “undertake collections

19

activities . . . and file a lawsuit in the event of default.”

20

Opp’n at 44:18-19.

21

claims against the Leasing Defendant Entities and Leasing Defendant

22

Control Persons remain viable because his injuries are based on the

23

fact that Northern Leasing attempted to collect fees from him, even

24

though his EFL was with MBF Leasing.

25

persuasive.

26

he suffered arising specifically from the fact that Northern

27

Leasing, and not MBF Leasing, took action against him.

28

Plaintiffs point to Northern Leasing’s

However, Plaintiffs do not show how these acts inflicted

Plaintiffs acknowledge that

Plaintiffs nevertheless contend that Bae’s RICO

This argument is not

Bae does not identify any new and accumulating injury

Accordingly, Bae’s RICO claims are time-barred and are
19

1

dismissed without leave to amend.

2

2.

3

Su’s and Campbell’s Claims

Leasing Defendant Entities and Leasing Defendant Control

4

Persons assert that Su’s and Campbell’s claims against them are

5

time-barred to the extent they seek relief for conduct before March

6

19, 2010.

7

Campbell’s EFLs, which states that any action arising from their

8

EFLs must be brought within one year of the date it accrues.

9

These Defendants point to a provision in Su’s and

Although contractual provisions limiting statutory periods can

United States District Court
For the Northern District of California

10

be enforceable, they may be subject to general contract defenses,

11

such as unconscionability.

12

Co., 258 F.3d 1038, 1042 (9th Cir. 2001).

13

“California cases have upheld contractual shortening of statutes of

14

limitations in different types of contracts.”

15

case law strongly indicates that [a] six-month limitation provision

16

is not substantively unconscionable.”

See, e.g., Soltani v. W. & S. Life Ins.
However, many

Id.

“California

Id. at 1043.

17

Plaintiffs assert that the provision imposing a shorter

18

limitations period is unenforceable because it is unconscionable.

19

Plaintiffs argue that the relevant provision was on pages not shown

20

to Su or Campbell.

21

The Court declines to limit Su’s and Campbell’s claims at this

22

time.

23

contractual limitations period is not unconscionable.

24

discovery, Leasing Defendant Entities and Leasing Defendant Control

25

Persons may seek summary adjudication based on the shortened

26

limitations period imposed by these Plaintiffs’ EFLs.

It is not apparent, on the current record, that the
After

27

B.

28

“To state a claim under § 1962(c), a plaintiff must allege

RICO Claims

20

1

‘(1) conduct (2) of an enterprise (3) through a pattern (4) of

2

racketeering activity.’”

3

547 (9th Cir. 2007) (quoting Sedima, S.P.R.L. v. Imrex Co., 473

4

U.S. 479, 496 (1985)).

5

necessary to assert a claim under section 1962(d) for a RICO

6

conspiracy; thus, the failure to state the former requires

7

dismissal of the latter.

8

741, 751 (9th Cir. 2000).

9

Odom v. Microsoft Corp., 486 F.3d 541,

Stating a section 1962(c) claim is

See Howard v. Am. Online Inc., 208 F.3d

As noted above, Von Glasenapp, Su, Baumgartner and Jordan have

United States District Court
For the Northern District of California

10

stated section 1962(c) claims against the Merchant Services

11

Companies, Moore and Roy.

12

Defendants’ motion to dismiss Campbell’s RICO claims against them,

13

these claims are dismissed without leave to amend.

14

claims against Walshe are likewise dismissed without leave to amend

15

because there are no allegations that Campbell had any interactions

16

with Walshe.

17
18

Campbell’s RICO

Defendants’ arguments concerning the remaining RICO claims are
considered below.

19
20

Because Plaintiffs do not oppose MSI

1.

“Conduct” of a RICO Enterprise

Walshe contends that the RICO claims brought against her fail

21

because Plaintiffs’ pleadings do not suggest that she asserted

22

sufficient control over the alleged RICO enterprise.

23

To be liable under section 1962(c), one must have

24

“participated in the operation or management of the enterprise

25

itself.”

26

so, one must demonstrate “some degree of direction.”

27

“RICO liability is not limited to those with primary responsibility

28

for the enterprise’s affairs,” nor is it limited to “those with a

Reves v. Ernst & Young, 507 U.S. 170, 183 (1993).

21

To do

Id. at 179.

1

formal position in the enterprise.”

2

“some part in directing the enterprise’s affairs.”

3

in original).

4

not rise to the level of direction.”

5

1244, 1249 (9th Cir. 2008).

6

Id.

However, one must have
Id. (emphasis

“Simply performing services for the enterprise does
Walter v. Drayson, 538 F.3d

Walshe allegedly entered into an agreement with Moore that

7

required her to relocate from Southern California to San Jose to

8

perpetrate the alleged fraud in a new location.

9

employed Moore’s “sales tactics and training programs” and hired

She then allegedly

United States District Court
For the Northern District of California

10

“independent contractors” to advance the fraudulent scheme.

11

¶ 176.

12

exercised some degree of direction over the purported RICO

13

enterprise.

14
15

2AC

These allegations sufficiently suggest that Walshe

2.

Racketeering Activity

Leasing Defendant Entities, Leasing Defendant Control Persons,

16

Healy and MBF Merchant Capital argue that Plaintiffs fail to plead

17

that they participated in racketeering activity.

18

and Madura contend that the claims against them must be dismissed

19

because Plaintiffs do not allege their roles in any fraud.

20

Parisi, Jurczyk

Plaintiffs’ RICO claims are based on alleged instances of wire

21

and mail fraud, which constitute predicate acts for a pattern of

22

racketeering activity.

23

violation consists of (1) the formation of a scheme or artifice to

24

defraud; (2) use of the United States wires or causing a use of the

25

United States wires in furtherance of the scheme; and (3) specific

26

intent to deceive or defraud.”

27

quotation marks omitted); 18 U.S.C. § 1343.

28

fraud differ only in that they involve the use of the United States

18 U.S.C. § 1961(1).

“A wire fraud

Odom, 486 F.3d at 554 (internal

22

The elements of mail

1

mail rather than wires.

2

See 18 U.S.C. § 1341.

Federal Rule of Civil Procedure 9(b) requires that wire and

3

mail fraud be plead with particularity.

4

54.

5

notice of the particular misconduct which is alleged to constitute

6

the fraud charged so that they can defend against the charge and

7

not just deny that they have done anything wrong.”

8

Weidner, 780 F.2d 727, 731 (9th Cir. 1985).

9

time, place and nature of the alleged fraudulent activities are

See Odom, 486 F.3d at 553-

The allegations must be “specific enough to give defendants

Semegen v.

Statements of the

United States District Court
For the Northern District of California

10

sufficient, id. at 735, provided the plaintiff sets forth “what is

11

false or misleading about a statement, and why it is false.”

12

GlenFed, Inc., Secs. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994).

13

Scienter may be averred generally, simply by saying that it

14

existed.

15

intent, knowledge, and other condition of mind of a person may be

16

averred generally.”).

17

the only elements of wire and mail fraud “that require

18

particularized allegations are the factual circumstances of the

19

fraud itself.”

In re

Id. at 1547; see Fed. R. Civ. Proc. 9(b) (“Malice,

Based on this heightened pleading standard,

Odom, 486 F.3d at 554.

20

In Swartz v. KPMG LLP, the Ninth Circuit addressed the effect

21

of Rule 9(b) in cases involving allegations of a fraudulent scheme

22

perpetuated by multiple defendants.

23

2007).

24
25
26
27
28

476 F.3d 756, 764 (9th Cir.

The court stated that

there is no absolute requirement that where several
defendants are sued in connection with an alleged
fraudulent scheme, the complaint must identify false
statements made by each and every defendant.
Participation by each conspirator in every detail in the
execution of the conspiracy is unnecessary to establish
liability, for each conspirator may be performing
different tasks to bring about the desired result. On
the other hand, Rule 9(b) does not allow a complaint to
23

1
2
3
4

merely lump multiple defendants together but requires
plaintiffs to differentiate their allegations when suing
more than one defendant and inform each defendant
separately of the allegations surrounding his alleged
participation in the fraud. In the context of a fraud
suit involving multiple defendants, a plaintiff must, at
a minimum, identify the role of each defendant in the
alleged fraudulent scheme.

5
Id. (citations and internal quotation and editing marks omitted;
6
emphasis in original); see also Moore v. Kayport Package Express,
7
Inc., 885 F.2d 531, 541 (9th Cir. 1989) (“Allegations of fraud
8
under section 1962(c) must identify the time, place, and manner of
9
each fraud plus the role of each defendant in each scheme.”)
United States District Court
For the Northern District of California

10
(citation and internal quotation marks omitted).
11
Here, Plaintiffs allege a fraudulent scheme perpetrated
12
through the wires and mail.

They plead with specificity the

13
Merchant Services Companies’ sales agents’ misrepresentations about
14
card processing fees and the need to obtain equipment from Leasing
15
Defendants.

Parisi and Jurczyk, among other things, allegedly

16
trained sales agents to complete the misleading Rate Sheet.

The

17
sales agents’ alleged deceptions led merchants to complete
18
applications for card processing services and enter into EFLs,
19
which required Krieger’s approval.

Krieger allegedly approved the

20
EFLs with knowledge of the sales agents’ deceptions.

Madura

21
allegedly forged signatures on merchants’ applications.

MBF

22
Leasing used the EFLs to make electronic debits from merchants’
23
bank accounts and send allegedly false letters asserting that
24
property tax was owed on card processing equipment.

Cohen, Mezei

25
and Krieger allegedly caused these letters to be sent, knowing that
26
“no such taxes and fees were due.”

2AC ¶ 154.

Based on the EFLs,

27
Buono allegedly undertook collection efforts against merchants,
28
24

1

which entailed phone calls and letters.

2

the EFLs are allegedly invested in Northern Funding.

3

allegations, among others, are sufficient to suggest that Parisi,

4

Jurczyk, Madura, MBF Leasing, Northern Funding, Cohen, Mezei,

5

Krieger, and Buono participated in racketeering activity.

6

Funds obtained based on
These

However, Plaintiffs’ allegations against Northern Leasing,

7

Golden Eagle Leasing, Lease Finance Group and Lease Source-LSI are

8

deficient.

9

Eagle Leasing, Lease Finance Group and Lease Source-LSI, and

Plaintiffs allege that Northern Leasing acquired Golden

United States District Court
For the Northern District of California

10

individuals associated with Northern Leasing represent that they

11

are also connected with Golden Eagle Leasing, Lease Finance Group

12

and Lease Source-LSI.

13

allegedly made to Plaintiffs.

14

Eagle Leasing, Lease Finance Group and Lease Source-LSI share with

15

Northern Leasing an address, “a common switchboard, staff, postage

16

meter, computer network, and server.”

17

do not suggest that Northern Leasing, Golden Eagle Leasing, Lease

18

Finance Group or Lease Source-LSI participated in the alleged wire

19

and mail fraud.

20

None of these representations, however, were
Plaintiffs also allege that Golden

2AC ¶ 85.

These allegations

Likewise, Plaintiffs’ allegations pertaining specifically to

21

MBF Merchant Capital, RBL Capital Group, Fitzgerald and Healy do

22

not suggest they engaged in racketeering activity.

23

Defendants allegedly were involved in the recruitment of ISOs/MSPs

24

that Plaintiffs contend were “unscrupulous.”

25

and RBL Capital Group allegedly provided loans to sales agents.

26

These allegations do not suggest that these Defendants participated

27

in wire or mail fraud.

28

These

MBF Merchant Capital

Finally, there are no allegations that Sussman or the Sussman
25

1

Law Firm took any action against Plaintiffs whose claims are not

2

barred by the statute of limitations.

3

The RICO claims against Parisi, Jurczyk, Madura, MBF Leasing,

4

Northern Funding, Cohen, Mezei, Krieger and Buono will not be

5

dismissed for a failure to plead racketeering activity.

6

Plaintiffs’ section 1962(c) and section 1962(d) claims against

7

Northern Leasing, Golden Eagle Leasing, Lease Finance Group, Lease

8

Source-LSI, MBF Merchant Capital, RBL Capital Group, Fitzgerald,

9

Healy, Sussman and the Sussman Law Firm are dismissed.

However,

Because

United States District Court
For the Northern District of California

10

Plaintiffs have been unable to state these claims, notwithstanding

11

the Court’s previous instructions, this dismissal is without leave

12

to amend.

13

Cir. 1996).

14
15

See, e.g., McHenry v. Renne, 84 F.3d 1172, 1177 (9th

3.

Conspiracy to Commit RICO Violations

MSI Defendants argue that Plaintiffs do not allege a RICO

16

conspiracy in violation of section 1962(d).

17

argument.7

18

Walshe joins this

As noted above, in 2006, Moore and Walshe allegedly agreed

19

that Walshe would relocate to San Jose to open an office to

20

perpetuate the fraudulent scheme on behalf of the Merchant Services

21

Companies.

22

including Von Glasenapp, the contracts associated with card

23

processing services and equipment.

Walshe then allegedly misrepresented to merchants,

These allegations, among

24
25
26
27
28

7

MBF Leasing, Northern Funding, Cohen, Mezei, Krieger and
Buono moved to dismiss Plaintiffs’ section 1962(d) claims only on
the ground that such claims cannot be stated if Plaintiffs did not
state section 1962(c) claims. However, as noted above, Plaintiffs
state their section 1962(c) claims against these Defendants. Thus,
these Defendants’ motion to dismiss Plaintiffs’ section 1962(d)
claims must be denied.
26

1

others, “raise a reasonable expectation that discovery will reveal

2

evidence of illegal agreement.”

3

the section 1962(d) claims against the MSI Defendants and Walshe

4

will not be dismissed for insufficient pleading.

Twombly, 550 U.S. at 556.

Thus,

5

C.

6

Plaintiffs bring common law claims for intentional and

7

negligent misrepresentation (collectively, common law fraud

8

claims), which are subject to the heightened pleading requirements

9

of Federal Rule of Civil Procedure 9(b).

Common Law Fraud Claims

As noted above, common

United States District Court
For the Northern District of California

10

law fraud claims against the Merchant Services Companies, Moore,

11

Roy and Walshe have been stated.

12

Defendant Entities and Leasing Defendant Control Persons move to

13

dismiss the common law fraud claims brought against them.

Parisi, Jurczyk, Madura, Leasing

14

Plaintiffs state common law fraud claims against Parisi,

15

Jurczyk, Madura, MBF Leasing, Northern Funding, Cohen, Mezei,

16

Krieger and Buono for the reasons they adequately plead that these

17

Defendants participated in racketeering activity.

18

fraud claims against Northern Leasing, Golden Eagle Leasing, Lease

19

Finance Group, Lease Source-LSI, RBL Capital Group, Fitzgerald,

20

Sussman and the Sussman Law Firm fail are dismissed for the reasons

21

stated above.

22

claims, notwithstanding the Court’s previous instructions, this

23

dismissal is without leave to amend.

24

at 1177.

25

D.

The common law

Because Plaintiffs have been unable to state these

See, e.g., McHenry, 84 F.3d

Claims for Breach of Contract and Breach of the Implied
Covenant of Good Faith and Fair Dealing

26
To assert a cause of action for breach of contract, a
27
plaintiff must plead: (1) the existence of a contract; (2) the
28
27

1

plaintiff’s performance or excuse for non-performance; (3) the

2

defendant’s breach; and (4) damages to the plaintiff as a result of

3

the breach.

4

116 Cal. App. 4th 1375, 1391 n.6 (2004).

5

contract is necessary for any claim for breach of the implied

6

covenant of good faith and fair dealing.

7

Residential Briarwood Apartments, 171 Cal. App. 4th 1004, 1033

8

(2009) (citation and internal quotation marks omitted).

9

otherwise distinguished below, the Court refers collectively to

Armstrong Petrol. Corp. v. Tri-Valley Oil & Gas Co.,
The existence of a

Spinks v. Equity

Unless

United States District Court
For the Northern District of California

10

claims for breach of contract and breach of the implied covenant of

11

good faith and fair dealing as “contract claims.”

12

1.

13

Claims Against Merchant Services Defendants

MSI Defendants and Walshe argue that Plaintiffs’ contract

14

claims based on the Rate Sheet fail because it is not a contract.

15

However, Plaintiffs allege sufficient facts to suggest that sales

16

agents represented that the Rate Sheet listed all the fees for

17

processing card transactions.

18

“by such words or conduct ‘as justifies the promisee in

19

understanding that the promisor intended to make a promise.’”

20

Horacek v. Smith, 33 Cal. 2d 186, 194 (1948).

21

contract claims based on the Rate Sheet do not fail as a matter of

22

law.

23

Contractual terms can be established

Thus, Plaintiffs’

MSI Defendants and Walshe argue that Plaintiffs do not state

24

contract claims based on an alleged oral contract that the

25

“merchants could cancel electronic payment services at any time

26

without penalty.”

27

that Plaintiffs do not allege that anyone made such a

28

representation.

2AC ¶ 641.

In particular, these Defendants note

Plaintiffs did not respond to this argument, and
28

1

no such allegation appears in the 2AC.

2

contract claims are dismissed without leave to amend to the extent

3

they are based on this purported oral contract.

4

Accordingly, Plaintiffs’

Finally, MSI Defendants and Walshe assert that they cannot be

5

held liable for breaches of the EFLs.

6

facts to suggest that MSI Defendants and Walshe were parties to the

7

EFLs, their contract claims based on this theory are dismissed.

8

This dismissal is without leave to amend because the Court’s

9

previous instructions put Plaintiffs on notice as to what is

Because Plaintiffs plead no

United States District Court
For the Northern District of California

10

necessary to state their contract claims.

11

F.3d at 1177.

12

2.

See, e.g., McHenry, 84

Claims Against Leasing Defendant Entities and
Leasing Defendant Control Persons

13
Leasing Defendant Entities and Leasing Defendant Control
14
Persons contend that Plaintiffs’ contract claims against them must
15
be dismissed because Plaintiffs do not plead a contractual
16
relationship with them.
17
Plaintiffs do not allege that Leasing Defendant Control
18
Persons, Northern Funding, RBL Capital Group or the Sussman Law
19
Firm were parties to the EFLs.

Thus, the contract claims against

20
Leasing Defendant Control Persons and the claims for breach of the
21
implied covenant of good faith and fair dealing against Northern
22
Funding, RBL Capital Group and the Sussman Law Firm must be
23
dismissed.
24
Plaintiffs allege that all Northern Leasing Companies were
25
parties to the EFLs.

However, the EFLs state that they were with

26
MBF Leasing.

Thus, Plaintiffs’ allegation must be rejected.

27
Courts “need not accept as true allegations contradicting documents
28
29

1

that are referenced in the complaint.”

2

Behrens, 546 F.3d 580, 588 (9th Cir. 2008).

3

the Northern Leasing Companies other than MBF Leasing may be held

4

liable based on an alter ego theory of liability.

5

Plaintiffs’ boilerplate alter ego allegations are not sufficient.

6

Indeed, Plaintiffs do not allege that it would be inequitable if

7

only MBF Leasing were held liable on their contract claims.

8

Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538

9

(2000).

Lazy Y Ranch Ltd. v.
Plaintiffs insist that

However,

See

United States District Court
For the Northern District of California

10

Plaintiffs state contract claims against MBF Leasing.

11

However, the Court dismisses without leave to amend Plaintiffs’

12

contract claims against Leasing Defendant Control Persons, Northern

13

Leasing, MBF Leasing, Golden Eagle Leasing, Lease Source-LSI and

14

Lease Finance Group.

15

covenant of good faith and fair dealing against Northern Funding,

16

RBL Capital Group and the Sussman Law Firm are also dismissed.

17

Because Plaintiffs have been unable to state contract claims

18

against these Defendants, notwithstanding the Court’s previous

19

instructions, these dismissals are without leave to amend.

20

e.g., McHenry, 84 F.3d at 1177.

Plaintiffs’ claims for breach of the implied

21

E.

22

See,

As noted above, claims under section 17500 against the

False Advertising Claims

23

Merchant Services Companies, Moore, Roy and Walshe have been found

24

sufficient.

25

and Leasing Defendant Control Persons move to dismiss Plaintiffs’

Parisi, Jurczyk, Madura, Leasing Defendant Entities

26
27
28
30

1
2

section 17500 claims against them.8
Section 17500 prohibits “any unlawful, unfair or fraudulent

3

business act or practice and unfair, deceptive, untrue or

4

misleading advertising.”

5

section may be brought “where the advertising complained of is not

6

actually false, but thought likely to mislead or deceive, or is in

7

fact false.”

8

Section 17500 proscribes “not only those advertisements which have

9

deceived or misled because they are untrue, but also those which

A false advertising claim under this

Day v. AT&T Corp., 63 Cal. App. 4th 325, 332 (1998).

United States District Court
For the Northern District of California

10

may be accurate on some level, but will nonetheless tend to mislead

11

or deceive.”

12

personal participation in the unlawful practices and unbridled

13

control over the practices that are found to violate” section

14

17500.

15

(2002) (citation and internal quotation marks omitted).

16

Id.

A “defendant’s liability must be based on his

Emery v. Visa Int’l Serv. Ass’n, 95 Cal. App. 4th 952, 961

A section 17500 claim is not stated against Madura.

17

Plaintiffs do not contend that he engaged in deceptive advertising

18

or that he exercised unbridled control over those who did.

19

However, section 17500 claims are stated against Parisi and Jurczyk

20

for the reasons that Plaintiffs have plead cognizable RICO and

21

common law fraud claims against them.

22

participated in training sales agents to make deceptive

23

representations.

24
25

Parisi and Jurczyk allegedly

Plaintiffs’ section 17500 claims against Leasing Defendant
Entities and Leasing Defendant Control Persons fail because

26
27
28

8

Plaintiffs incorrectly assert that Parisi, Jurczyk and
Madura do not seek dismissal of the section 17500 claims against
them. See MSI Defs.’ Mot. at 16.
31

1

Plaintiffs do not identify the roles each entity or individual

2

Defendant had in disseminating deceptive advertising.

3

they point to allegations concerning “Leasing Defendants.”

4

¶¶ 214-21.

5

satisfy Rule 9(b), which applies to Plaintiffs’ section 17500

6

claims.

7

specific allegations do not comply with Rule 9(b), their section

8

17500 claims against Leasing Defendant Entities and Leasing

9

Defendant Control Persons are dismissed without leave to amend.

United States District Court
For the Northern District of California

10

Instead,
See 2AC

As explained above, such categorical pleading does not

Because Plaintiffs have already been warned that non-

See, e.g., McHenry, 84 F.3d at 1177.

11

F.

12

As noted above, Von Glasenapp and Bae bring claims under FCRA

FCRA

13

against the Merchant Services Companies and Northern Leasing

14

Companies.

15

dismiss these claims.

16

MSI Defendants and Leasing Defendant Entities move to

The FCRA limits the purposes for which consumer reporting

17

agencies may disclose credit reports.

18

willful violations of the statute, prevailing consumers may recover

19

actual or statutory damages, punitive damages and reasonable

20

attorneys’ fees.

21

15 U.S.C. § 1681b.

For

15 U.S.C. § 1681n(a).

Von Glasenapp and Bae state FCRA claims against Universal

22

Merchant Services, Northern Leasing and MBF Leasing.

23

their FCRA claims against the Merchant Services Companies, other

24

than Universal Merchant Services; Golden Eagle Leasing; Lease

25

Source–LSI; and Lease Finance Group are dismissed because they are

26

based on Plaintiffs’ rejected alter ego theory of liability.

27

dismissal is without leave to amend because, despite the Court’s

28

warnings regarding their boilerplate alter ego allegations,
32

However,

This

1

Plaintiffs have failed to allege sufficient facts.

2

McHenry, 84 F.3d at 1177.

See, e.g.,

3

G.

4

Bae brings a claim under New York law against Leasing

Abuse of Process

5

Defendants for abuse of process.

6

three elements: “(1) regularly issued process, either civil or

7

criminal, (2) an intent to do harm without excuse or justification,

8

and (3) use of the process in a perverted manner to obtain a

9

collateral objective.”

A claim for abuse of process has

Curiano v. Suozzi, 63 N.Y.2d 113, 116

United States District Court
For the Northern District of California

10

(1984) (citation omitted).

11

unlawful interference with one's person or property.”

12

(citation and internal quotation marks omitted).

13

of a civil action by summons and complaint is not legally

14

considered process capable of being abused.”

15

The “process used must involve an
Id.

The “institution

Id.

Bae’s abuse of process claim is based on MBF Leasing’s lawsuit

16

against him, filed on March 22, 2010.9

17

cannot rest on the summons issued in conjunction with the

18

institution of MBF Leasing’s lawsuit.

19

Plaintiffs cite State v. Cohen, 473 N.Y.S.2d 98 (1983); however,

20

Cohen did not concern the tort of abuse of process or address its

21

elements.

22

Inc. v. Firemen’s Ins. Co. of Newark, NJ, 839 F.2d 42, 43-44 (2d

23

Cir. 1988) (noting change in law based on Curiano).

24

identify no other regularly issued process that interfered with

25

Bae’s person or property.

Under Curiano, Bae’s claim

To claim that he can,

Even if it did, Cohen preceded Curiano.

See PSI Metals,

Plaintiffs

26
9

27
28

Plaintiffs do not dispute that abuse of process claims are
subject to a one-year limitations period and, therefore, Bae cannot
bring a claim based on Northern Leasing’s alleged 2006 lawsuit
against him.
33

1

Plaintiffs do not suggest that Bae’s claim is based on process

2

other than the summons associated with the March 2010 lawsuit.

3

Accordingly, his abuse of process claim is futile and is dismissed

4

without leave to amend.

5

v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir.

6

1990).

See, e.g., Cook, Perkiss and Liehe, Inc.

7

H.

8

Under California law, a claim for conversion requires a

9

plaintiff to allege (1) “ownership or right to possession of

Conversion

United States District Court
For the Northern District of California

10

property;” (2) a defendant’s wrongful act toward the property,

11

causing interference with the plaintiff’s possession; and

12

(3) damage to the plaintiff.

13

Fink, Jacobs, Glaser, Weil & Shapiro, LLP, 150 Cal. App. 4th 384,

14

394 (2007).

15

PCO, Inc. v. Christensen, Miller,

Plaintiffs state a claim for conversion against MSI and MBF

16

Leasing.

17

Services Companies, other than MSI, and the individual Merchant

18

Services Defendants are based on their rejected alter ego theory of

19

liability.

20

facts supporting this theory, notwithstanding the Court’s warning;

21

thus, this dismissal is without leave to amend.

22

McHenry, 84 F.3d at 1177.

23

the Leasing Defendant Entities, other than MBF Leasing, and the

24

Leasing Defendant Control Persons are dismissed without leave to

25

amend because they do not allege that these Defendants converted

However, their conversion claims against the Merchant

As explained above, Plaintiffs have failed to allege

See, e.g.,

Plaintiffs’ conversion claims against

26
27
28
34

1

their funds within the limitations period.10

2

Perkiss and Liehe, Inc., 911 F.2d at 247.

See, e.g., Cook,

3

I.

4

The UCL prohibits any “unlawful, unfair or fraudulent business

UCL Claims

5

act or practice.”

6

incorporates other laws and treats violations of those laws as

7

unlawful business practices independently actionable under state

8

law.

9

(9th Cir. 2000).

Cal. Bus. & Prof. Code § 17200.

The UCL

Chabner v. United Omaha Life Ins. Co., 225 F.3d 1042, 1048
Violation of almost any federal, state or local

United States District Court
For the Northern District of California

10

law may serve as the basis for a UCL claim.

Saunders v. Superior

11

Court, 27 Cal. App. 4th 832, 838-39 (1994).

In addition, a

12

business practice may be “unfair or fraudulent in violation of the

13

UCL even if the practice does not violate any law.”

14

Scripps Health, 30 Cal. 4th 798, 827 (2003).

Olszewski v.

15

As noted above, Plaintiffs’ 1AC contained cognizable UCL

16

claims against Merchant Services Companies, Moore, Roy and Walshe.

17

And because Plaintiffs state claims for violations of federal and

18

state law against Parisi, Jurczyk, Madura, MBF Leasing, Northern

19

Funding, Cohen, Mezei, Krieger and Buono, they state UCL claims

20

against these Defendants.

21

claims against Northern Leasing, Golden Eagle Leasing, Lease

22

Finance Group, Lease Source-LSI, RBL Capital Group, MBF Merchant

23

Capital, Fitzgerald, Healy, Sussman and the Sussman Law Firm, their

24

UCL claims against these Defendants are dismissed.

25

Plaintiffs have been unable to state UCL claims against these

However, because Plaintiffs do not state

Because

26
27
28

10

Plaintiffs do not dispute that Lease Finance Group’s debits
of Campbell’s bank account fall outside the three-year limitations
period.
35

1

Defendants, despite the Court’s previous instructions, this

2

dismissal is without leave to amend.

3

at 1177.

4

IV.

See, e.g., McHenry, 84 F.3d

Leasing Defendant Control Persons’, MBF Merchant Capital’s and
Healy’s Motions to Dismiss for Lack of Personal Jurisdiction

5
Under Rule 12(b)(2) of the Federal Rules of Civil Procedure, a
6
defendant may move to dismiss for lack of personal jurisdiction.
7
The plaintiff then bears the burden of demonstrating that the court
8
has jurisdiction.

Schwarzenegger v. Fred Martin Motor Co., 374

9
F.3d 797, 800 (9th Cir. 2004).

The plaintiff “need only

United States District Court
For the Northern District of California

10
demonstrate facts that if true would support jurisdiction over the
11
defendant.”

Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995).

12
Uncontroverted allegations in the complaint must be taken as true.
13
AT&T v. Compagnie Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir.
14
1996).

However, the court may not assume the truth of such

15
allegations if they are contradicted by affidavit.

Data Disc, Inc.

16
v. Systems Technology Assocs., Inc., 557 F.2d 1280, 1284 (9th Cir.
17
1977).

If the plaintiff also submits admissible evidence,

18
conflicts in the evidence must be resolved in the plaintiff's
19
favor.

AT&T, 94 F.3d at 588.

20
Because Plaintiffs fail to state claims against MBF Merchant
21
Capital, Fitzgerald, Healy and Sussman, the Court need not consider
22
whether it has personal jurisdiction over them.

With respect to

23
Cohen, Mezei, Krieger and Buono, Plaintiffs assert that the Court
24
may exercise specific jurisdiction or RICO jurisdiction over them.
25
A court has specific jurisdiction over a defendant when the
26
cause of action arises out of or relates to the defendant's
27
activities within the forum.

Data Disc, Inc., 557 F.2d at 1286.

28
36

1

The “minimum contacts” required to assert specific jurisdiction are

2

analyzed using a three-prong test: (1) the non-resident defendant

3

must purposefully direct its activities towards, or consummate some

4

transaction with, the forum or a resident thereof; (2) the claim

5

must be one which arises out of or results from the defendant’s

6

forum-related activities; and (3) the exercise of jurisdiction must

7

be reasonable.

8

Each of these conditions is required for asserting jurisdiction.

9

Ins. Co. of N. Am. v. Marina Salina Cruz, 649 F.2d 1266, 1270 (9th

United States District Court
For the Northern District of California

10

Lake v. Lake, 817 F.2d 1416, 1421 (9th Cir. 1987).

Cir. 1981).

11

For a defendant’s conduct to demonstrate purposeful direction,

12

the defendant must “allegedly have (1) committed an intentional

13

act, (2) expressly aimed at the forum state, (3) causing harm that

14

the defendant knows is likely to be suffered in the forum state.”

15

Schwarzenegger, 374 F.3d at 802 (quoting Dole Food Co., Inc. v.

16

Watts, 303 F.3d 1104, 1111 (9th Cir. 2002)).

17

As noted above, Cohen and Mezei, among other things, allegedly

18

caused letters to be sent to merchants to California, such as

19

Campbell, indicating that property taxes were due even though they

20

were not.

21

due.

22

merchants, even though she allegedly knew that they were based on

23

misrepresentations.

24

collection activities against California merchants, including Von

25

Glasenapp, based on the EFLs he allegedly knew to be procured by

26

fraud.

Cohen and Mezei allegedly knew that such taxes were not

Krieger, among other things, approved EFLs of California

Buono directed employees to engage in

These allegations satisfy the purposeful direction prong.

27

Plaintiffs’ claims are based in part on these allegations and

28

there is no evidence that the exercise of jurisdiction over Cohen,
37

1

Mezei, Krieger and Buono would be unreasonable.

2

Court denies these Defendants’ motion to dismiss for lack of

3

personal jurisdiction.

4
5

Accordingly, the

CONCLUSION
For the foregoing reasons, the Court GRANTS in part and DENIES

6

in part MSI Defendants’ motion to dismiss (Docket No. 247); DENIES

7

Universal Card, et al.’s motion to compel (Docket No. 221); GRANTS

8

Healy and MBF Merchant Capital’s motion to dismiss (Docket No.

9

246); GRANTS in part and DENIES in part Leasing Defendant Entities

United States District Court
For the Northern District of California

10

and Leasing Defendant Control Persons’ motions to dismiss and to

11

compel arbitration (Docket No. 249); and GRANTS in part and DENIES

12

in part Walshe’s motion to dismiss (Docket No. 248).

13

motions are granted as follows:

14

1.

Defendants’

The following claims of Bae are dismissed without leave

15

to amend as time-barred: (1) claims under section 1962(c)

16

and (d); (2) claims for intentional and negligent

17

misrepresentation against MSI Defendants and Walshe;

18

(3) claims for breach of contract and breach of the

19

implied covenant of good faith and fair dealing against

20

MSI Defendants and Walshe; (4) claims under section 17500

21

against MSI Defendants and Walshe; and (5) claims for

22

conversion against MSI Defendants and Walshe.

23

2.

Plaintiffs assert claims for violations of sections

24

1962(c) and (d) of title 18 of the U.S. Code against

25

Defendants.

26

against Northern Leasing, Golden Eagle Leasing, Lease

27

Finance Group, Lease Source-LSI, MBF Merchant Capital,

28

RBL Capital Group, Fitzgerald, Healy, Sussman, and the

The claims under section 1962(c) and (d)

38

1
2

Sussman Law Firm are dismissed without leave to amend.
3.

All Plaintiffs except Campbell assert claims for
intentional and negligent misrepresentation against all

4

Defendants except Healy and MBF Merchant Capital.

5

intentional and negligent misrepresentation claims

6

against Northern Leasing, Golden Eagle Leasing, Lease

7

Finance Group, Lease Source-LSI, RBL Capital Group,

8

Fitzgerald, Sussman and the Sussman Law Firm are

9

dismissed without leave to amend, for failure to plead

10
United States District Court
For the Northern District of California

3

actionable misrepresentations or participation in the

11

making of actionable misrepresentations.

12

4.

The

All Plaintiffs except Campbell assert claims for breach

13

of contract against Merchant Services Defendants, the

14

Northern Leasing Companies and Leasing Defendant Control

15

Persons.

16

for breach of the implied covenant of good faith and fair

17

dealing against all Defendants except Healy and MBF

18

Merchant Capital.

19

breach of the implied covenant against MSI Defendants and

20

Walshe based on any alleged oral contract or the EFLs are

21

dismissed without leave to amend.

22

of contract and breach of the implied covenant against

23

Leasing Defendant Control Persons, Northern Leasing,

24

Golden Eagle Leasing, Lease Source-LSI and Lease Finance

25

Group are dismissed without leave to amend.

26

for breach of the implied covenant of good faith and fair

27

dealing against Northern Funding, RBL Capital Group and

28

the Sussman Law Firm are also dismissed without leave to

All Plaintiffs except Campbell assert claims

The claims for breach of contract and

39

The claims for breach

The claims

1
2

amend.
5.

All Plaintiffs except Campbell assert claims for

3

violations of California Business and Professions Code

4

section 17500 against all Defendants except Healy and MBF

5

Merchant Capital.

6

Madura are dismissed without leave to amend.

7

17500 claims against Leasing Defendant Entities and

8

Leasing Defendant Control Persons are dismissed without

9

leave to amend because Plaintiffs do not identify these

United States District Court
For the Northern District of California

10
11

The claims under section 17500 against
The section

Defendants’ roles in disseminating deceptive advertising.
6.

Von Glasenapp and Bae assert claims for violations of the

12

FCRA against the Merchant Services Companies and the

13

Northern Leasing Companies.

14

FCRA claims against the Merchant Services Companies,

15

other than Universal Merchant Services; Northern Leasing,

16

Golden Eagle Leasing, Lease Source–LSI and Lease Finance

17

Group are dismissed without leave to amend because their

18

alter ego theory of liability is unavailing.

19

7.

Von Glasenapp’s and Bae’s

Bae asserts a claim for abuse of process against all

20

Leasing Defendants except Healy and MBF Merchant Capital.

21

This claim is dismissed without leave to amend.

22

Plaintiffs do not suggest that his claim is based on

23

process other than the summons associated with the March

24

2010 lawsuit filed against him.

25

8.

All Plaintiffs except Campbell assert claims for

26

conversion against all Defendants except Healy and MBF

27

Merchant Capital.

28

Merchant Services Companies, other than MSI; the

The conversion claims against the

40

1

individual Merchant Services Defendants; Leasing

2

Defendant Entities, other than MBF Leasing; and Leasing

3

Defendant Control Persons are dismissed without leave to

4

amend because these Defendants did not allegedly convert

5

any property owned by Plaintiffs and because these claims

6

are based on Plaintiffs’ rejected alter ego theory of

7

liability.

8
9

9.

All Plaintiffs except Campbell bring claims for
violations of the UCL against all Defendants.

The UCL

United States District Court
For the Northern District of California

10

claims against Golden Eagle Leasing, Lease Finance Group,

11

Lease Source-LSI, RBL Capital Group, MBF Merchant

12

Capital, Fitzgerald, Healy, Sussman and the Sussman Law

13

Firm are dismissed without leave to amend because

14

Plaintiffs do not allege that these Defendants engaged in

15

unlawful, unfair or fraudulent conduct.

16

Based on these rulings, all claims against Golden Eagle Leasing,

17

Lease Source-LSI, Lease Finance Group, RBL Capital Group, MBF

18

Merchant Capital, Fitzgerald, Healy, Sussman and the Sussman Law

19

Firm are dismissed without leave to amend.

20

Defendants’ motions are DENIED.

21

In all other respects,

As explained above, to the extent that the Court denies leave

22

to amend, it does so because Plaintiffs have failed to state

23

claims, notwithstanding the Court’s previous instructions, or

24

because they do not suggest that the claims are not futile.

25

However, if Plaintiffs obtain evidence over the course of discovery

26

supporting any claim dismissed by the Court, they may move for

27

leave to amend their complaint.

28

Merchant Services Defendants, Northern Leasing, MBF Leasing,
41

1

Northern Funding, Cohen, Mezei, Krieger and Buono shall answer

2

within fourteen days of the date of this Order.

3

12(a)(4)(A).

4

Fed. R. Civ. P.

IT IS SO ORDERED.

5
6

Dated: 8/29/2011
CLAUDIA WILKEN
United States District Judge

7
8
9
United States District Court
For the Northern District of California

10
11
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18
19
20
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25
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27
28
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