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

Filing 721


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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 5 RAINBOW BUSINESS SOLUTIONS, d/b/a PRECISION TUNE AUTO CARE, et al., v. 7 United States District Court Northern District of California 9 ORDER DENYING UNIVERSAL CARD, INC.’S MOTION TO ENFORCE SETTLEMENT AGREEMENT AND TO PERMANENTLY ENJOIN STATE COURT COUNTERCLAIMS Plaintiffs, 6 8 Case No. 10-cv-01993-CW MERCHANT SERVICES, INC., et al., (Dkt. No. 694, 695) Defendants. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 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. 24 25 26 27 28 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 1 long term, unconscionable lease agreements for payment card 2 processing equipment and services. 3 that, when merchants stopped making payments under those leases, 4 MBF filed debt collection lawsuits in New York, without regard to 5 the merchant’s location. 6 Plaintiffs further allege Merchant Services Defendants reached a settlement with See Settlement Agreement, Dkt. No. 519, Ex. 1.1 Plaintiffs. 8 December 11, 2013, the Court granted final approval of the 9 United States District Court Northern District of California 7 settlement. On The settlement included a release of claims between 10 the settlement class members and Merchant Services Defendants, 11 which provided, in relevant part: 12 13 14 15 16 17 18 19 20 21 22 23 24 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 25 26 27 28 1 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. 2 1 2 3 4 5 6 7 8 United States District Court Northern District of California 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 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. 27 28 3 Universal Card RJN ¶ 2 & Ex. C, ¶ 2.2 2 make its required monthly payments and Han therefore owed the 3 balance, with interest, by reason of his personal guarantee. 4 Neither Universal Card nor WRS was a party to the action. 5 filed a verified answer and counterclaims, raising claims similar 6 to those in this action. 7 MBF filed a third party complaint in the same court against 8 Universal Card and its alleged employee Tina Marie Shorter, 9 United States District Court Northern District of California 1 seeking indemnification with regard to Han’s counterclaims It alleged that WRS had failed to Han Almost eight years later, in June 2017, 10 against MBF. 11 not aware of the dispute between Han and MBF until MBF demanded 12 indemnification. 13 Universal Card has submitted evidence that it was Nathan Jurczyk Decl. ¶ 5. DISCUSSION 14 In its motion, Universal Card contends that, even though MBF 15 is a non-released party in the 2013 Merchant Services settlement, 16 Han’s New York counterclaims are premised on Universal Card’s 17 alleged misconduct in procuring the WRS lease. 18 the 2013 release in this action extended not only to the released 19 parties such as Universal Card, but to all claims, against 20 anyone, that could have been or actually were brought in this 21 action and are related in any way to the settled claims. 22 it argues, Han’s claims are barred by the release and by the 23 doctrine of claim preclusion. 24 permanently enjoin Han from pursuing his state court 25 counterclaims. It contends that Thus, It requests that this Court 26 27 2 28 The Court grants Universal Card’s request for judicial notice of various documents filed in New York state court. 4 1 2 3 4 5 6 7 8 United States District Court Northern District of California 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 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), 28 5 1 2 actions to “enforce” the agreement. The authority submitted by the parties does not squarely address the language of the settlement agreement here, although 4 it suggests that some courts have used the words “implement” and 5 “enforce” interchangeably. 6 of Am. Sales Practice Litig., 261 F.3d 355, 367 (3d Cir. 2001) 7 (appellate court held that “district court expressly retained 8 exclusive jurisdiction to oversee the implementation of the 9 United States District Court Northern District of California 3 settlement and the judgment” but district court order actually 10 retained “exclusive jurisdiction as to all matters relating to 11 administration, consummation, enforcement and interpretation”) 12 (citing In re Prudential Ins. Co. of Am. Sales Practices Litig., 13 962 F. Supp. 450, 566 (D.N.J. 1997)); California River Watch v. 14 Fluor Corp., No. 10-cv-05105-WHO (JCS), 2017 WL 1208067, at *1 15 (N.D. Cal. Apr. 3, 2017) (court referred to its continuing 16 jurisdiction over implementation, but settlement agreement and 17 order of dismissal had retained jurisdiction over enforcement). 18 See, e.g., In re Prudential Ins. Co. In its own final approval order, the Court did not intend to 19 narrow the provision in the settlement agreement retaining 20 jurisdiction. 21 apparent narrowing of the jurisdictional provision in the 22 proposed final approval order was inadvertent. 23 Plaintiffs have informed the Court that any The Court has broad discretion to determine when to 24 terminate its continuing jurisdiction over a settlement agreement 25 after the parties have satisfied their obligations under the 26 agreement and the exercise of jurisdiction is no longer 27 necessary. 28 (9th Cir. 1996). See Arata v. Nu Skin Int’l, Inc., 96 F.3d 1265, 1269 The Court finds that it is not presently 6 1 appropriate to terminate its continuing jurisdiction over this 2 settlement, because Universal Card contends that the release has 3 not yet been fully implemented and enforced.3 The Court finds that the express language of the order is 4 5 sufficient to retain the Court’s jurisdiction to enforce the 6 settlement agreement, and turns to the question of Universal 7 Card’s motion for enforcement. 8 II. United States District Court Northern District of California 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 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 25 26 27 28 3 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. 7 1 claims related to the allegations of the Complaint that were, or 2 could have been, asserted in this litigation. 3 Agreement § 8.3 (emphasis added). 4 that the word “and” in section 8.3 means that the bar on bringing 5 related claims is not limited to claims against the released 6 parties. 7 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 9 United States District Court Northern District of California 8 release is given to the defined non-released parties. See, e.g., 10 Settlement Agreement §§ 2.27, 8.3(e). 11 meaningless the first half of the relevant sentence in section 12 8.3 of the settlement agreement, which provides that settlement 13 class members “shall release and forever discharge the released 14 parties from” the enumerated claims, because this narrowed 15 language would be wholly subsumed in the broader language of the 16 supposed release of the entire world. 17 light of the fact that Plaintiffs have continued to pursue such 18 claims against the non-released parties in this very action. 19 See, e.g., Leasing Defendants Settlement Agreement, §§ 1.5, 8.2, 20 Dkt. No. 684-3. 21 It would render It also makes no sense in Because the Merchant Services settlement agreement did not 22 release any claims against MBF, Han’s counterclaims are not 23 barred by claim preclusion. 24 the effect of res judicata by consent, as they did here. 25 e.g., California v. Randtron, 284 F.3d 969, 975 (9th Cir. 2002) 26 (quoting United States ex rel. Barajas v. Northrop Corp., 27 147 F.3d 905, 911 (9th Cir. 1998) (“A settlement can limit the 28 scope of the preclusive effect of a dismissal with prejudice by Settling parties may waive or limit 8 See, 1 its terms.”)); Perez v. Gordon & Wong Law Grp., P.C., No. 11-cv- 2 03323-LHK, 2012 WL 1029425, at *4 (N.D. Cal. Mar. 26, 2012) (It 3 “is well settled under California law in the context of consent 4 decrees, stipulated judgments, and court-approved class action 5 settlements that when ‘applying the doctrine of res judicata, 6 courts may examine the terms of the settlement to ensure that the 7 defendant did not waive res judicata as a defense.’”). 8 United States District Court Northern District of California 9 Additionally, MBF and Universal Card are not in privity either in connection with their interests in this lawsuit or in 10 the New York lawsuits. 11 and Universal Card, the fact that both were Defendants in this 12 lawsuit and MBF’s attempt to seek indemnification from Universal 13 Card are not sufficient to support a finding of privity. 14 purpose of the privity analysis, “only the parties’ relationship 15 with respect to the relevant lawsuits matters.” 16 v. Office Depot, Inc., No. C 07-3602 PJH, 2014 WL 1813292, at *6 17 (N.D. Cal. May 6, 2014) (citing Transclean Corp. v. Jiffy Lube 18 Int’l, Inc., 474 F.3d 1298, 1306 (Fed. Cir. 2007) (“privity 19 exists when the parties are so closely related and their 20 interests so nearly identical that it is fair to treat them as 21 the same parties for the purposes of determining the preclusive 22 effect of the first judgment”); In re Schimmels, 127 F.3d 875, 23 881 (9th Cir. 1997) (“Privity--for the purposes of applying the 24 doctrine of res judicata--is a legal conclusion designating a 25 person so identified in interest with a party to former 26 litigation that he represents precisely the same right in respect 27 to the subject matter involved.”)). 28 The contractual relationship between MBF For the SpeedTrack, Inc. In this action, as discussed, Merchant Services Defendants 9 1 (including Universal Card) and Leasing Defendants (including MBF) 2 negotiated separate settlement agreements expressly involving 3 separate releases, and only the Merchant Services settlement has 4 been granted final approval by the Court so far. Likewise, in New York, MBF and Universal are adversaries in 5 the third-party indemnity litigation. 7 even notify Universal Card of Han’s counterclaims for many years, 8 until it decided to sue Universal Card to enforce its alleged 9 United States District Court Northern District of California 6 MBF apparently did not right to indemnification. Also, MBF has taken the position in 10 the New York litigation that it is not in privity with Universal 11 Card. 12 Complaint), ¶ 16 (“As is typical in any vendor lease financing 13 program agreement between an equipment lessor such as MBF and a 14 Vendor such as Universal, the Program Agreement expressly states 15 that Universal ‘understands that it is not an agent for MBF and 16 [that] this agreement does not confer upon it any powers of an 17 agent.’”) (citing MBF Program Agreement ¶ 6(d)) (alteration in 18 original); Han Ex. 4 (Lina Kravic Decl. on behalf of Northern 19 Leasing Systems, Inc.), ¶ 19 (Universal Merchant Services and MBF 20 “are wholly unaffiliated and independent entities that do not 21 share any principles [sic], directors or employees in common. 22 MBF’s relationship with Merchant Services is governed strictly by 23 the Program Agreement which the parties negotiated at arms- 24 length.”). 25 Universal are not in privity for the purpose of res judicata in 26 this case. 27 28 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 10 1 MBF expressly alleged claims against Han as a guarantor rather 2 than in his capacity as an officer or agent of WRS. In light of the Court’s conclusion that MBF and Universal 4 are not in privity, and res judicata does not apply, the Court 5 need not consider whether Han and WRS are in privity. 6 the New York counterclaims are brought against non-released party 7 MBF rather than against Universal Card, Universal Card’s motion 8 to enforce the settlement must be denied regardless of the role 9 United States District Court Northern District of California 3 of WRS in the New York lawsuit. 10 Because CONCLUSION 11 For the foregoing reasons, the Court DENIES Universal Card’s 12 motion to enforce the settlement agreement and permanently enjoin 13 Han’s state court counterclaims (Docket No. 694). 14 15 16 The Court GRANTS Universal Card’s request for judicial notice (Docket No. 695). IT IS SO ORDERED. 17 18 Dated: October 24, 2017 CLAUDIA WILKEN United States District Judge 19 20 21 22 23 24 25 26 27 28 11

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