Tigrent Group Inc. v. Process America, Inc.
MEMORANDUM DECISION AND ORDER. Tigrent's 15 motion to dismiss is denied. Ordered by Judge Brian M. Cogan on 6/5/2012. (Siegfried, Evan)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
TIGRENT GROUP, INC.,
DECISION AND ORDER
12 Civ. 1314 (BMC)
-againstPROCESS AMERICA, INC.,
COGAN, District Judge.
This case is before me on plaintiffs motion to dismiss defendant's counterclaim under
Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the following reasons, the motion is
This is a diversity action in which plaintiff Tigrent Group, Inc. ("Tigrent") brought a
breach of contract claim against defendant Process America, Inc. Process America solicits and
refers merchants to bank card processors. Process America then provides the merchants with
customer service and card application processing services under the contracts between Process
America and the merchants. Tigrent is a merchant who entered into such a contract with Process
America (the "Merchant Processing Agreement," or "MPA").
Tigrent alleges that the parties also signed a separate contract - the "Merchant Reserve
Acknowledgment," or "MRA"- which established a reserve account to provide security for the
payment of refunds to Tigrent's customers. The relationship between the MPA and the MRA is
unclear from the parties' pleadings; according to Tigrent, the parties' agreement about the
reserve account is governed by terms from each contract. Tigrent also alleges that it was
required to sign the MRA "pursuant to the MPA," which required Tigrent to establish a reserve
account as a condition of processing bank card transactions. Tigrent claims that the MRA
required Process America to return the reserve funds within 180 days after the contract's
termination. Although the MRA was terminated more than 180 days ago, Process America has
yet to return the funds.
Process America asserted a counterclaim against Tigrent for breach of contract. Process
America alleges that Tigrent breached the MRA by engaging in sales practices that permitted the
delivery of goods and services two and three years from the time customers' credit cards were
swiped. According to Process America, it has suffered damages because it is exposed to a longer
window of risk than Process America initially anticipated. The counterclaim alleges that Tigrent
made "repeated oral representations" that its services were delivered to its customers within a 30to 90-day window of when the customers' credit cards were swiped. The counterclaim also
alleges that Tigrent filled out a Mail and Telephone Order Merchant Addendum ("MOTO") in
which Tigrent represented that its goods were shipped "immediately." According to the
counterclaim, the MOTO was attached to the "Merchant Application," which incorporated the
terms of the MPA.
Tigrent moved to dismiss this counterclaim. Tigrent argues that the counterclaim is
deficient because it does not specify which provision of the MRA has been breached. Tigrent
also argues that the counterclaim must be dismissed because Process America has failed to allege
that it has suffered any damages.
To survive a motion to dismiss under Rule 12(b)(6), a p1aintiffmust provide enough
factual allegations to "raise a right to relief above the speculative level." Bell Atlantic Com. v.
Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955 (2007). On a Rule 12(b)(6) motion, this Court
accepts the material facts alleged in the complaint as true and draws "all reasonable inferences"
in favor of the party opposing the motion. Hartford Courant Co. v. Pellegrino, 380 F.3d 83, 8990 (2d Cir. 2004). In general, the parties' pleadings and their briefing on the instant motion do
not provide a clear picture of the documents that form the operative contract in this dispute.
Since neither party has provided the Court with these documents, however, the Court will
envision the MPA; MRA; "Merchant Application"; and MOTO in a light most favorable to
Process America. See id.
With respect to Tigrent's first argument, Process America acknowledges that the MRA
does not contain a provision requiring the delivery of goods or services within any particular
time period. Instead, Process America urges that the MRA did not fully integrate the parties'
contractual relationship and that the "full understanding" between the parties includes the MRA;
MPA; MOTO; and oral communications. 1
An agreement is integrated if it "represents the entire understanding of the parties to the
transaction." Investors Ins. Co. v. Dorinco Reins. Co., 917 F.2d 100, 104 (2d Cir. 1990). When
a contract is found to be not fully integrated, the parol evidence rule does not apply and the court
Tigrent argues that Process America's opposition to its motion should be struck because it "injects new factual
allegations." Tigrent does not specify exactly which "factual allegations" are supposedly new, but it seems that
Tigrent is referring to Process America's argument that Tigrent orally promised that its goods and services would be
delivered immediately. But page 14, paragraph 13 of the counterclaim alleges the following: "in addition to the
MOTO, Tigrent made repeated oral representations to Process America that it was delivering its goods and services
within the acceptable time period." Process America's opposition papers add color to this allegation by claiming
that the oral representation was part of the contract, but this is a legal argument rather than a factual allegation.
There is thus no reason to strike Process America's opposition papers.
may consider extrinsic evidence of separate oral agreements to determine the full nature of the
parties' agreements. See Starter Com. v. Converse. Inc., 170 F .3d 286, 295 (2d Cir. 1999). A
contract is fully integrated if it includes a "merger clause"- a recitation that the written
document reflects the parties' entire agreement. See Mfrs. Hanover Trust Co. v. Yanakas, 7 F.3d
310, 315 (2d Cir. 1993). Since neither party has provided this Court with the MRA or
represented to the Court that the MRA does or does not contain a merger clause, this Court has
no way to know. Drawing all inferences in a light most favorable to Process America, which
argues that the MRA was not fully integrated, this Court will assume that there was no merger
clause. When there is no merger clause, a court must look to "surrounding circumstances to see
if the parties would ordinarily be expected to embody the agreement in a writing based upon the
type of transaction involved, the scope of the written contract and the content of any other
agreements." Starter Corp., 170 F .3d at 295.
Without seeing the agreements signed by the parties, it is nearly impossible to do this
analysis. However, construing the facts in a light most favorable to Process America, it is
plausible that the parties' agreement was comprised of a number of different writings that were
not fully integrated. Process America argues that it was implicit in the parties' agreement that
the reserve funds would not be returned to Tigrent until Process America no longer needed the
reserve funds to protect against losses suffered as a result of customer returns. This makes sense.
Considering the counterclaim's allegation that Tigrent orally represented that it was delivering its
goods and services immediately, it is plausible that the parties mutually understood this to be a
term of the agreement. Dismissal under Rule 12(b)( 6) is therefore unwarranted based on Process
America's failure to specify a particular written contract provision. This is especially true
because Process America argues that the MOTO, which contained a written representation that
Tigrent would deliver its goods and services immediately, was part of the parties' agreement.
Tigrent argues that any oral agreement would be void for violating the statute of frauds.
According to N.Y. Gen. Oblig. Law§ 5-701(a)(l), any agreement that "by its terms is not to be
performed within one year from the making thereof' is void if not in writing. However, it is well
settled that for a contract to fall within the statute of frauds, there must be absolutely no
possibility that the contract could be performed within one year. See Ohanian v. Avis Rent A
Car Sys., Inc., 779 F.2d 101, 106 (2d Cir. 1985). Tigrent argues that, under New York law, "a
service contract of indefinite duration, in which one party agrees to procure customers or
accounts or orders on behalf of a second party," falls within the statute of frauds. This is
generally true. See Gersten-Hillman Agency, Inc. v. Heyman, 68 A.D.3d 1284, 892 N.Y.S.2d
209, 212 (3d Dep't 2009). However, the rationale for this rule is that performance of those types
of service contracts is "dependent, not upon the will of the parties to the contract, but upon that
of a third party." Id. at 212. If either party is able to terminate the contract, for example, New
York courts hold that the contract is able to be completed within one year and is thus outside the
statute of frauds. N. Shore Bottling Co. v. C. Schmidt & Sons, Inc., 22 N.Y.2d 171, 176-77, 239
N .E.2d 189 ( 1968). Again, this Court does not know whether the parties could terminate their
contract, because the Court has not read the contract. However, since the Court is construing the
contract in a light most favorable to Process America- and because Tigrent raised its statute of
frauds argument in its reply brief, thus affording Process America no chance to respond to this
argument- the Court will assume that both parties had the right to terminate the contract.
In response to Tigrent' s assertion that the counterclaim should be dismissed because
Process America has not suffered any damages, Process America concedes that no damages have
been suffered yet. Under New York law, one element of a prima facie case for breach of
contract is "damages resulting from the breach." Nat' I Market Share. Inc. v. Sterling Nat' I Bank,
392 F.3d 520, 525 (2d Cir. 2004). However, the fact that Process America has not yet suffered
damages is not fatal to its claim. New York law provides that "since nominal damages are
always available in breach of contract actions, all of the elements necessary to maintain a lawsuit
and obtain relief in court [are] present at the time of the alleged breach." Ely-Cruikshank Co. v.
Bank of Montreal, 81 N.Y.2d 399,402,599 N.Y.S.2d 501 (1993). "A breach of contract case,
therefore, is ripe immediately upon the breach, even where damages remain uncertain."
Argonaut P'shp., L.P. v. Bankers Trustee Co., No. 96-CV-1970, 1997 U.S. Dist. LEXIS 1092, at
*14 (S.D.N.Y. Feb. 4, 1997); see also LNC Invs., Inc. v. First Fidelity Bank, No. 92-CV-7584,
1994 WL 73648, at *5 (S.D.N.Y. Mar. 3, 1994).
Tigrent' s [ 15] motion to dismiss is denied.
Dated: Brooklyn, New York
June 5, 2012
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