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

Filing 721

ORDER DENYING UNIVERSAL CARD, INC.S MOTION TO ENFORCE SETTLEMENT AGREEMENT AND TO PERMANENTLY ENJOIN STATE COURT COUNTERCLAIMS by Judge Claudia Wilken. (dtmS, COURT STAFF) (Filed on 10/24/2017)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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RAINBOW BUSINESS SOLUTIONS,
d/b/a PRECISION TUNE AUTO
CARE, et al.,

v.

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United States District Court
Northern District of California

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ORDER DENYING UNIVERSAL CARD,
INC.’S MOTION TO ENFORCE
SETTLEMENT AGREEMENT AND TO
PERMANENTLY ENJOIN STATE
COURT COUNTERCLAIMS

Plaintiffs,

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Case No. 10-cv-01993-CW

MERCHANT SERVICES, INC., et
al.,

(Dkt. No. 694, 695)

Defendants.

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Former Defendant Universal Card, Inc., moves to enforce a
settlement agreement and permanently enjoin counterclaims brought
in a New York state court lawsuit by an individual named Michael
A. Han.

Han and Plaintiffs oppose the motion.

Defendants

Northern Leasing Systems, Inc., MBF Leasing, LLC (MBF), Northern
Funding, LLC, SKS Associates, LLC, Jay Cohen, Sara Krieger,
Leonard Mezei and Sam Buono (Leasing Defendants) filed a
memorandum in support of the motion.
reply.

Universal Card filed a

Universal Card, Han, Plaintiffs, and Leasing Defendants

also filed supplemental briefs on a jurisdictional question posed
by the Court.

Having considered the parties’ papers, the record

and applicable authority, the Court denies Universal Card’s
motion.

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BACKGROUND
In this action, Plaintiffs allege that Merchant Services
Defendants, including Universal Card, Inc., conspired with
Leasing Defendants, including MBF, to enroll small businesses in

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long term, unconscionable lease agreements for payment card

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processing equipment and services.

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that, when merchants stopped making payments under those leases,

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MBF filed debt collection lawsuits in New York, without regard to

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the merchant’s location.

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Plaintiffs further allege

Merchant Services Defendants reached a settlement with
See Settlement Agreement, Dkt. No. 519, Ex. 1.1

Plaintiffs.

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December 11, 2013, the Court granted final approval of the

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United States District Court
Northern District of California

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settlement.

On

The settlement included a release of claims between

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the settlement class members and Merchant Services Defendants,

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which provided, in relevant part:

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Release Regarding Settlement Class Members and Released
Parties. Upon Final Approval, the members of the
Settlement Class (except any such person who has filed
a proper and timely request for exclusion from the
Settlement Class) shall release and forever discharge
the Released Parties from and shall be forever barred
from instituting, maintaining, or prosecuting:
(a) any and all claims, liens, demands, actions, causes
of action, obligations, damages or liabilities of any
nature whatsoever, known or unknown, whether arising
under any international, federal, state or local
statute, ordinance, common law, regulation, principle
of equity or otherwise, that actually were, or could
have been, asserted in the Litigation related in any
manner to the allegations set forth in the Complaint,
which are summarized in section 1.4; . . .
(e) No release is given by Plaintiffs or Settlement
Class Members to the Non-Released Parties.
Id. § 8.3 (emphasis added).

The parties agreed that the release

would be binding upon their respective “successors and personal
representatives.”

Id. § 8.3(c).

The settlement agreement

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In this order, except where otherwise indicated, references
to the settlement agreement relate to the 2013 Merchant Services
Settlement Agreement, Dkt. No. 519, Ex. 1. References to the
2017 Leasing Defendants Settlement Agreement, Dkt. No. 684-3, are
specifically noted.
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United States District Court
Northern District of California

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further included the following definitions:
“Non-Released Parties” means the Northern Leasing
Parties, RBL Capital Group, LLC; William Healy;
TransFirst Holdings, Inc.; TransFirst, LLC; TransFirst
Third Party Sales, LLC; Columbus Bank And Trust Co.;
Fifth Third Bank; Merrick Bank; and all of their past
and present officers, directors, parents, subsidiaries,
successors, predecessors, assigns and legal
representatives. . . .
“Northern Leasing Parties” means Northern Leasing
Systems, Inc.; MBF Leasing LLC; Northern Funding LLC;
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; Joseph I. Sussman; Joseph I. Sussman,
P.C.; SKS Associates, LLC; Pushpin Holdings, LLC; and
Cucumber Holdings, LLC. . . .
“Released Parties” means all of the Settling
Defendants, and all of Settling Defendants’ past and
present officers, directors, parents, subsidiaries,
successors, predecessors, agents, assigns, and legal
representatives. However, even if they would otherwise
be included in the above definition, “Released Parties”
excludes the Non-Released Parties.
Id. §§ 2.17, 2.20, 2.27 (emphasis added).
Plaintiffs continue to pursue claims in this action against
the non-released parties.

The Court granted a motion for

preliminary approval of a settlement between Plaintiffs and
Leasing Defendants on August 3, 2017, and a final approval
hearing is scheduled for November 28, 2017.
One of the 2013 settlement class members was a company
called WRS, Inc. dba The Wedding Ring Shop (WRS).

In August

2009, MBF filed an action in the Civil Court of the City of New
York, County of New York against Han.

MBF alleged that it had

entered into an equipment finance lease agreement with WRS,
“payment on which was personally guaranteed by” Han.

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Universal

Card RJN ¶ 2 & Ex. C, ¶ 2.2

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make its required monthly payments and Han therefore owed the

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balance, with interest, by reason of his personal guarantee.

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Neither Universal Card nor WRS was a party to the action.

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filed a verified answer and counterclaims, raising claims similar

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to those in this action.

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MBF filed a third party complaint in the same court against

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Universal Card and its alleged employee Tina Marie Shorter,

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United States District Court
Northern District of California

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seeking indemnification with regard to Han’s counterclaims

It alleged that WRS had failed to

Han

Almost eight years later, in June 2017,

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against MBF.

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not aware of the dispute between Han and MBF until MBF demanded

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indemnification.

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Universal Card has submitted evidence that it was

Nathan Jurczyk Decl. ¶ 5.
DISCUSSION

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In its motion, Universal Card contends that, even though MBF

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is a non-released party in the 2013 Merchant Services settlement,

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Han’s New York counterclaims are premised on Universal Card’s

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alleged misconduct in procuring the WRS lease.

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the 2013 release in this action extended not only to the released

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parties such as Universal Card, but to all claims, against

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anyone, that could have been or actually were brought in this

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action and are related in any way to the settled claims.

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it argues, Han’s claims are barred by the release and by the

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doctrine of claim preclusion.

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permanently enjoin Han from pursuing his state court

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counterclaims.

It contends that

Thus,

It requests that this Court

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The Court grants Universal Card’s request for judicial
notice of various documents filed in New York state court.
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United States District Court
Northern District of California

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I.

The Court Has Jurisdiction over the Motion to Enforce.
Universal Card contends that this Court has jurisdiction to

grant its requested relief because the Court expressly retained
jurisdiction over enforcement of the settlement.

See Kokkonen v.

Guardian Life Ins. Co. of Am., 511 U.S. 375, 381-82 (1994)
(holding that federal court may not enforce settlement agreement
absent language in agreement retaining jurisdiction or
independent basis for federal jurisdiction).

Two paragraphs of

the Court’s December 11, 2013 Order Granting Motion for Final
Approval of Class Action Settlement and Judgment are relevant to
the Court’s continuing jurisdiction.

Paragraph 14 provides,

“Nothing herein shall bar any action or claim to enforce the
terms of the Settlement Agreement.”

Paragraph 18 provides,

“Without affecting the finality of the judgment hereby entered,
the Court reserves jurisdiction over the implementation of the
Settlement Agreement.”

In the settlement agreement, the parties

agreed that the “Court shall retain jurisdiction to enforce,
interpret, and implement this Agreement.”

Settlement Agreement

§ 9.13.
The Court directed the parties to file simultaneous
supplemental briefs addressing whether the language of the
settlement agreement and final approval order preserved this
Court’s jurisdiction to enforce the release in the agreement.

In

particular, the Court ordered that the supplemental briefs should
address whether the provision reserving jurisdiction over
“implementation” of the settlement agreement also extends to
“enforcement,” in light of the separate provision that the
agreement does not bar (rather than reserves jurisdiction over),

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actions to “enforce” the agreement.
The authority submitted by the parties does not squarely
address the language of the settlement agreement here, although

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it suggests that some courts have used the words “implement” and

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“enforce” interchangeably.

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of Am. Sales Practice Litig., 261 F.3d 355, 367 (3d Cir. 2001)

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(appellate court held that “district court expressly retained

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exclusive jurisdiction to oversee the implementation of the

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United States District Court
Northern District of California

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settlement and the judgment” but district court order actually

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retained “exclusive jurisdiction as to all matters relating to

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administration, consummation, enforcement and interpretation”)

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(citing In re Prudential Ins. Co. of Am. Sales Practices Litig.,

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962 F. Supp. 450, 566 (D.N.J. 1997)); California River Watch v.

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Fluor Corp., No. 10-cv-05105-WHO (JCS), 2017 WL 1208067, at *1

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(N.D. Cal. Apr. 3, 2017) (court referred to its continuing

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jurisdiction over implementation, but settlement agreement and

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order of dismissal had retained jurisdiction over enforcement).

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See, e.g., In re Prudential Ins. Co.

In its own final approval order, the Court did not intend to

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narrow the provision in the settlement agreement retaining

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jurisdiction.

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apparent narrowing of the jurisdictional provision in the

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proposed final approval order was inadvertent.

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Plaintiffs have informed the Court that any

The Court has broad discretion to determine when to

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terminate its continuing jurisdiction over a settlement agreement

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after the parties have satisfied their obligations under the

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agreement and the exercise of jurisdiction is no longer

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necessary.

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(9th Cir. 1996).

See Arata v. Nu Skin Int’l, Inc., 96 F.3d 1265, 1269
The Court finds that it is not presently
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appropriate to terminate its continuing jurisdiction over this

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settlement, because Universal Card contends that the release has

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not yet been fully implemented and enforced.3
The Court finds that the express language of the order is

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sufficient to retain the Court’s jurisdiction to enforce the

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settlement agreement, and turns to the question of Universal

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Card’s motion for enforcement.

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II.

United States District Court
Northern District of California

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The Merchant Services Settlement Agreement Does Not Bar
Han’s Counterclaims against MBF.
Universal Card argues that Han’s counterclaims against MBF

in the New York action are barred by the express language of the
Merchant Services settlement agreement, and by the doctrine of
res judicata, otherwise known as claim preclusion.

Universal

Card concedes that MBF was not a released party in the Merchant
Services settlement.

It contends, however, that “the release is

not only as to the released parties, including Universal, but
also as to all claims that could have been or were actually
brought in this action related in any way to the settled claims.”
Opp. at 14.

In other words, it argues that the class members

released claims against the entire world, including parties such
as MBF that were expressly excluded from the release.

It bases

this argument on the language of section 8.3 of the settlement
agreement, which states that the members of the settlement class
release and discharge the released parties from “and shall be
forever barred from instituting, maintaining, or prosecuting” any

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The Court notes that Universal Card provides no support for
its claim that this Court has exclusive jurisdiction to enforce
the settlement agreement. For the purpose of the present motion,
however, it is enough to find that the Court has jurisdiction,
even if other courts do as well.
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claims related to the allegations of the Complaint that were, or

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could have been, asserted in this litigation.

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Agreement § 8.3 (emphasis added).

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that the word “and” in section 8.3 means that the bar on bringing

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related claims is not limited to claims against the released

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parties.

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Settlement

Universal Card’s position is

Universal Card’s argument is contrary to the plain language
of the agreement, which expressly and repeatedly provides that no

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United States District Court
Northern District of California

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release is given to the defined non-released parties.

See, e.g.,

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Settlement Agreement §§ 2.27, 8.3(e).

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meaningless the first half of the relevant sentence in section

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8.3 of the settlement agreement, which provides that settlement

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class members “shall release and forever discharge the released

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parties from” the enumerated claims, because this narrowed

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language would be wholly subsumed in the broader language of the

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supposed release of the entire world.

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light of the fact that Plaintiffs have continued to pursue such

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claims against the non-released parties in this very action.

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See, e.g., Leasing Defendants Settlement Agreement, §§ 1.5, 8.2,

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Dkt. No. 684-3.

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It would render

It also makes no sense in

Because the Merchant Services settlement agreement did not

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release any claims against MBF, Han’s counterclaims are not

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barred by claim preclusion.

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the effect of res judicata by consent, as they did here.

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e.g., California v. Randtron, 284 F.3d 969, 975 (9th Cir. 2002)

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(quoting United States ex rel. Barajas v. Northrop Corp.,

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147 F.3d 905, 911 (9th Cir. 1998) (“A settlement can limit the

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scope of the preclusive effect of a dismissal with prejudice by

Settling parties may waive or limit

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See,

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its terms.”)); Perez v. Gordon & Wong Law Grp., P.C., No. 11-cv-

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03323-LHK, 2012 WL 1029425, at *4 (N.D. Cal. Mar. 26, 2012) (It

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“is well settled under California law in the context of consent

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decrees, stipulated judgments, and court-approved class action

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settlements that when ‘applying the doctrine of res judicata,

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courts may examine the terms of the settlement to ensure that the

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defendant did not waive res judicata as a defense.’”).

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United States District Court
Northern District of California

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Additionally, MBF and Universal Card are not in privity
either in connection with their interests in this lawsuit or in

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the New York lawsuits.

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and Universal Card, the fact that both were Defendants in this

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lawsuit and MBF’s attempt to seek indemnification from Universal

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Card are not sufficient to support a finding of privity.

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purpose of the privity analysis, “only the parties’ relationship

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with respect to the relevant lawsuits matters.”

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v. Office Depot, Inc., No. C 07-3602 PJH, 2014 WL 1813292, at *6

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(N.D. Cal. May 6, 2014) (citing Transclean Corp. v. Jiffy Lube

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Int’l, Inc., 474 F.3d 1298, 1306 (Fed. Cir. 2007) (“privity

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exists when the parties are so closely related and their

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interests so nearly identical that it is fair to treat them as

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the same parties for the purposes of determining the preclusive

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effect of the first judgment”); In re Schimmels, 127 F.3d 875,

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881 (9th Cir. 1997) (“Privity--for the purposes of applying the

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doctrine of res judicata--is a legal conclusion designating a

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person so identified in interest with a party to former

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litigation that he represents precisely the same right in respect

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to the subject matter involved.”)).

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The contractual relationship between MBF

For the

SpeedTrack, Inc.

In this action, as discussed, Merchant Services Defendants
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(including Universal Card) and Leasing Defendants (including MBF)

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negotiated separate settlement agreements expressly involving

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separate releases, and only the Merchant Services settlement has

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been granted final approval by the Court so far.
Likewise, in New York, MBF and Universal are adversaries in

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the third-party indemnity litigation.

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even notify Universal Card of Han’s counterclaims for many years,

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until it decided to sue Universal Card to enforce its alleged

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United States District Court
Northern District of California

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MBF apparently did not

right to indemnification.

Also, MBF has taken the position in

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the New York litigation that it is not in privity with Universal

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Card.

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Complaint), ¶ 16 (“As is typical in any vendor lease financing

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program agreement between an equipment lessor such as MBF and a

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Vendor such as Universal, the Program Agreement expressly states

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that Universal ‘understands that it is not an agent for MBF and

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[that] this agreement does not confer upon it any powers of an

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agent.’”) (citing MBF Program Agreement ¶ 6(d)) (alteration in

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original); Han Ex. 4 (Lina Kravic Decl. on behalf of Northern

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Leasing Systems, Inc.), ¶ 19 (Universal Merchant Services and MBF

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“are wholly unaffiliated and independent entities that do not

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share any principles [sic], directors or employees in common.

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MBF’s relationship with Merchant Services is governed strictly by

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the Program Agreement which the parties negotiated at arms-

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length.”).

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Universal are not in privity for the purpose of res judicata in

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this case.

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See, e.g., Universal Card RJN Ex. D (Third Party

This further supports the finding that MBF and

The Court also finds that Universal Card has not shown that
WRS is the real party in interest in the New York action, where
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MBF expressly alleged claims against Han as a guarantor rather

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than in his capacity as an officer or agent of WRS.
In light of the Court’s conclusion that MBF and Universal

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are not in privity, and res judicata does not apply, the Court

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need not consider whether Han and WRS are in privity.

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the New York counterclaims are brought against non-released party

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MBF rather than against Universal Card, Universal Card’s motion

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to enforce the settlement must be denied regardless of the role

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United States District Court
Northern District of California

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of WRS in the New York lawsuit.

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Because

CONCLUSION

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For the foregoing reasons, the Court DENIES Universal Card’s

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motion to enforce the settlement agreement and permanently enjoin

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Han’s state court counterclaims (Docket No. 694).

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The Court GRANTS Universal Card’s request for judicial
notice (Docket No. 695).
IT IS SO ORDERED.

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Dated: October 24, 2017
CLAUDIA WILKEN
United States District Judge

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