Rockaway Beverage Inc. et al v. Wells Fargo & Company et al
Filing
34
ORDER: For the reasons stated herein, 18 Defendants' motion to dismiss the Second Amended Complaint is granted in part and denied in part. Ordered by Judge Pamela K. Chen on 3/29/2019. (Knapp, Cody)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
-------------------------------------------------------x
ROCKAWAY BEVERAGE, INC. and
MARIO A. TAPIAS,
Plaintiffs,
MEMORANDUM & ORDER
18-CV-579 (PKC) (SJB)
- against WELLS FARGO & COMPANY, WELLS
FARGO MERCHANT SERVICES, LLC,
WELLS FARGO BANK, N.A., FIRST DATA
MERCHANT SERVICES LLC f/k/a FIRST
DATA MERCHANT SERVICES
CORPORATION, ABC INC., XYZ CORP.,
JANE DOE, and JOHN DOE,
Defendants.
-------------------------------------------------------x
PAMELA K. CHEN, United States District Judge:
Plaintiffs Rockaway Beverage, Inc. (“Rockaway”) and Mario A. Tapias (“Tapias”)
(collectively, “Plaintiffs”) brought this action against Defendants Wells Fargo & Company
(“WFC”), Wells Fargo Merchant Services, LLC (“WFMS”), Wells Fargo Bank, N.A. (“WFB”),
First Data Merchant Services, LLC f/k/a First Data Merchant Services Corporation (“First Data”)
(collectively, “Defendants”), and certain unknown business entities and individuals, alleging
breach of contract, fraud, and negligence in connection with an agreement to provide credit card
processing services to Rockaway for use in its beverage sales business. Before the Court is
Defendants’ motion to dismiss Plaintiffs’ Second Amended Complaint for failure to state a claim.
For the reasons that follow, Defendants’ motion is granted in part and denied in part.
BACKGROUND
I.
Factual Allegations
Plaintiff Tapias serves as the President and CEO of Plaintiff Rockaway, a retail and
wholesale provider of beverages opened in August 2014. (Second Amended Complaint (“SAC”),
Dkt. 28, ¶ 16–17.)1 During a November 2014 visit to another beverage distributor in Yonkers,
New York, Plaintiff Tapias met an individual named Lewis Maresca (“Maresca”). (Id. ¶ 18.) At
this meeting, Maresca told Tapias that he worked as an agent for “First Data” and “Wells Fargo,”
businesses that offered credit card processing services. (Id. ¶¶ 19–20.) Tapias advised Maresca
that he had recently opened Rockaway and was interested in obtaining credit card processing
services to facilitate the business’s retail sales. (Id. ¶ 24.)
Subsequently, Tapias and Maresca met a second time at Rockaway’s place of business in
Jamaica, New York on December 12, 2014. (Id. ¶ 25.) At this second meeting, Plaintiffs allege
that Maresca, acting on Defendants’ behalf, entered into an implicit (unwritten) agreement (“the
Implied Agreement”) between Rockaway and Defendants.
(Id. ¶ 26.)
Under the Implied
Agreement, Defendants agreed to provide credit card processing services in exchange for a portion
of the revenue generated by Plaintiff Rockaway through credit card sales. (Id.) In addition to the
Implied Agreement, Plaintiffs allege that at the December 12, 2014 meeting, Tapias also signed a
written agreement (“the Written Agreement”), on Rockaway’s behalf, relating to “the use and/or
provision of credit card processing equipment and/or software.” (Id. ¶ 29.) Plaintiffs have not
produced the Written Agreement, as they never received a copy, nor can they recall its terms. (Id.
¶¶ 29–30.) According to Plaintiffs, the Written Agreement was never signed by any Defendant.
(Id. ¶ 32.)
1
Because this is a motion to dismiss, the Court must accept all well-pleaded factual
allegations in the complaint as true. Building Indus. Elec. Contractors Ass’n v. City of New
York, 678 F.3d 184, 188 (2d Cir. 2012). The Court, therefore, recites the relevant facts that are
sufficiently pled in the complaint, but does not rely on any conclusory statements from the
complaint. In re Livent, Inc. Noteholders Sec. Litig., 151 F. Supp. 2d 371, 404 (S.D.N.Y. 2001)
(court “need not credit conclusory statements unsupported by assertions of facts[,] or legal
conclusions . . . presented as factual allegations” (citing Papasan v. Allain, 478 U.S. 265, 286
(1986))).
2
Approximately one week after the December 12, 2014 meeting, Maresca returned to
Rockaway’s place of business to install credit card processing equipment. (Id. ¶ 50.) After the
equipment was installed, Plaintiffs began establishing accounts with retail customers, including
the Jabar Star Deli (“Jabar”). (Id. ¶¶ 53–55.) From December 2014 until September 2016,
Plaintiffs conducted business using the credit card processing equipment provided by Defendants
without incident. (Id. ¶ 57.)
Between September 13, 2016 and September 19, 2016, however, a frequent, large-volume
purchaser named Fareek Ali made a series of seven in-person credit card purchases on behalf of
Jabar, totaling $47,000 (“the Ali transactions”). (Id. ¶¶ 57–58.) The Ali transactions were
approved by the credit card processing system provided by Defendants. (Id. ¶ 59–61.) Despite
the apparent approval of the Ali transactions through Defendants’ system, Ali’s bank later denied
payment on the transactions, claiming that they were either erroneous or fraudulent. (Id. ¶ 65.)
Tapias then contacted Defendant First Data about the denial of payment. (Id. ¶¶ 62–67.) First
Data advised him that Rockaway would not receive payment for the Jabar transactions; rather,
First Data was going to charge Rockaway $47,000 for the fraudulent transactions. (Id. ¶ 68.) On
September 28, 2016, First Data informed Rockaway that its account would be closed and First
Data would no longer provide credit card services to Rockaway. (Id. ¶ 69.) When Tapias
attempted to dispute this termination, he was directed to contact Defendants WFMS and WFC. (Id.
¶¶ 70–71.)
As a consequence of terminating Rockaway’s account, Defendants reported Plaintiffs to
MATCH, a watchlist maintained by Mastercard and utilized by major credit card companies to
identify potentially high-risk merchants. (Id. ¶¶ 72–74.) Plaintiffs became aware of this fact when
they attempted to open up a second credit processing account with JP Morgan Chase Bank, N.A.
3
(“Chase”). (Id. ¶ 72.) Chase initially allowed Rockaway to open an account, but subsequently
closed it. (Id.) In notifying Rockaway that its new account would be closed, Chase informed
Plaintiffs that Rockaway had been placed on the MATCH list for “money laundering.” (Id. ¶¶ 72,
76.) Rockaway also applied to open a credit card processing account with Integrity Payment
Systems, LLC, but was similarly denied due to the fact that it was on the MATCH list. (Id. ¶ 79.)
In search of an explanation for why Plaintiffs were placed on the MATCH list, Tapias
contacted Defendant WFMS. (Id. ¶ 80.) In response, Joseph Claybaugh, a WFMS Merchant
Service Specialist, informed Tapias that on December 14, 2016 Plaintiffs had been placed on the
MATCH list because they had “forced through” the Ali transactions. (Id.) Claybaugh also
informed Tapias that Ali could not be contacted and that Ali’s bank was unable to confirm any
information about him. (Id. ¶ 82.)
Following this conversation, Plaintiffs filed a complaint against Ali with law enforcement,
and criminal charges were later filed. (Id. ¶ 86.) Ali eventually pleaded guilty to petit larceny in
violation of New York Penal Law § 155.25 and executed a confession of judgment in favor of
Plaintiffs in the amount of $54,105.57. (Id. ¶ 87.) Despite obtaining this confession of judgment,
Plaintiffs have not collected any funds from Ali. (Id. ¶ 89.) Plaintiffs claim they are unable to
obtain cost-effective credit card processing services so long as they appear on the MATCH list,
and their retail profits have decreased by around $5,000 per week due to an inability to process
credit card sales. (Id. ¶¶ 91–92.) Mastercard has advised Plaintiffs that only Defendants can
initiate a removal of Plaintiffs’ names from the MATCH list, but, to date, Defendants have refused
to do so. (Id. ¶¶ 97–98.)
4
II.
Procedural History
Plaintiffs filed the initial complaint in this matter in Queens County Supreme Court on
December 26, 2017. (Dkt. 1-1, Exhibit A.) Defendants filed a notice of removal on January 26,
2018, invoking this Court’s diversity jurisdiction. (Dkt. 1, ¶ 4.) Defendants filed their first motion
to dismiss on February 2, 2018. (Dkt. 5.) In response, Plaintiffs sought, and were granted, leave
to file an amended complaint, which was filed on June 26, 2018. (Dkt. 17.) Defendants filed the
instant motion to dismiss on August 2, 2018. (Defendants’ Motion (“Defs.’ Mot.”), Dkt. 18.)
In support of their motion, Defendants submitted an affidavit provided by Lewis Maresca,
a sales agent for In-Store Marketing Services, Inc. (Maresca Affidavit (“Maresca Aff.”), Dkt. 201.) Attached to the Maresca affidavit are two form contracts, both titled “Merchant Processing
Application and Agreement.” (Dkts. 20-3, 20-4.) The first form contract (“the Partial Form”) is
incomplete and lacks a signature page, but is partially filled out and indicates “Rockaway Beverage
Inc.” as the subject client. (Partial Form, Dkt. 20-3, at 1.) Maresca’s affidavit indicates that he
has been unable to locate a complete copy of the Partial Form. (Maresca Aff., ¶ 5.) The second
form contract (“the Standard Form”) is a blank copy of the same contract as the Partial Form, but
with all pages attached, including the signature page. (Standard Form, Dkt. 20-4.) Tapias
maintains that the Partial Form was not filled out or executed by him (First Tapias Declaration
(“First Tapias Decl.”), Dkt. 21-3, ¶ 2), and he states that he has never seen the Standard Form prior
to this litigation (Second Tapias Declaration (“Second Tapias Decl.”), Dkt. 25-1, ¶ 8). (See also
SAC, ¶¶ 35–36 (stating that the Partial Form is not the Written Agreement referred to in the SAC).)
The Court held oral argument on Defendants’ motion to dismiss on September 20, 2018.
Based on the discussion at oral argument, the Court granted Plaintiffs’ leave to file a second
amended complaint in order to add a claim for fraud and excise any futile claims. (Sept. 20, 2018
5
Minute Entry.) Plaintiffs’ Second Amended Complaint was filed on October 22, 2018 (SAC,
Dkt. 29), and Defendants supplemented their motion to dismiss on November 19, 2018
(Defendants’ Supplemental Brief (“Defs.’ Supp.”), Dkt. 31.) Defendants’ motion to dismiss was
fully briefed on December 24, 2018. (Dkt. 33.)
STANDARD OF REVIEW
To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), “a
complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is
plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A “claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. (quoting Twombly, 550 U.S. at 556). The “plausibility standard
is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a
defendant has acted unlawfully.” Id. (citation omitted). Determining whether a complaint states
a plausible claim for relief is “a context-specific task that requires the reviewing court to draw on
its judicial experience and common sense.” Id. at 679 (citation omitted); Rothstein v. UBS AG,
708 F.3d 82, 94 (2d Cir. 2013).
At the pleadings stage, the Court must limit its inquiry to the facts alleged in the complaint,
the documents attached to the complaint or incorporated therein by reference, and “documents
that, while not explicitly incorporated into the complaint, are ‘integral’ to plaintiff's claims and
were relied upon in drafting the complaint.” In re Livent, Inc. Noteholders Sec. Litig., 151 F. Supp.
2d at 371, 404 (citing Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 44 (2d Cir.1991)). In
addressing the sufficiency of a complaint, courts are required to accept the well-pleaded factual
allegations contained within the complaint as true, Building Indus. Elec. Contractors Ass’n, 678
F.3d at 188, but “need not credit conclusory statements unsupported by assertions of facts[,] or
6
legal conclusions . . . presented as factual allegations,” In re Livent, Inc. Noteholders Sec. Litig.,
151 F. Supp. 2d at 404 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). Additionally, a court
“need not feel constrained to accept as truth conflicting pleadings that make no sense, or that would
render a claim incoherent, or that are contradicted either by statements in the complaint itself or
by documents upon which its pleadings rely, or by facts of which the court may take judicial
notice.” Id. at 405–06 (citing Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1095 (2d Cir.1995)).
DISCUSSION
Plaintiffs’ Second Amended Complaint (“SAC”) asserts 13 counts seeking various forms
of relief for breach of contract, fraud, and negligence. (SAC, ¶¶ 102–216.) Defendants jointly
seek to dismiss the SAC in its entirety under Federal Rule of Civil Procedure 12(b)(6) for failure
to state a claim. (Dkts. 18, 20, 23, 31.) For analytic clarity, the Court addresses Plaintiffs’ claims
according to their underlying theory of liability.
I.
Plaintiffs’ Breach of Contract Claims
Counts 1, 2, 6, and 11 of the SAC seek damages against Defendants for breaches of the
Implied Agreement.
Count 1 alleges that Defendants breached the Implied Agreement by
authorizing the Ali transactions and failing to inform Plaintiffs that the Ali transactions were
fraudulent. Count 2 alleges that Defendants breached the Implied Agreement by ceasing to provide
credit card processing services following the Ali transactions based on meritless findings that
Rockaway had engaged in fraud or money laundering. Count 6 alleges that Defendants breached
the Implied Agreement by failing to provide Plaintiffs with training on how to detect and respond
to fraudulent credit card transactions. Count 11 alleges that Defendants intentionally breached the
Implied Agreement.
“To state a claim for breach of contract under New York law, a plaintiff must allege: (1)
the existence of a contract; (2) that the plaintiff has performed his or her obligations under the
7
contract; (3) that the defendant failed to perform his or her obligations thereunder; and (4) that
plaintiff was thereby damaged.”2 Crowley v. VisionMaker, LLC, 512 F. Supp. 2d 144, 151
(S.D.N.Y. 2007). For the reasons discussed below, the Court finds that, though the precise identity,
nature, and terms of the underlying contract are in dispute, Plaintiffs have sufficiently alleged
claims for breach of contract that should proceed to discovery.
A. Existence of a Contract
For a contract to exist, it need not be memorialized in a written form. Even if an express
written contract does not exist, a contract may be “implied in fact” as a result of “an inference from
the facts and circumstances of the case.” Leibowitz v. Cornell Univ., 584 F.3d 487, 506 (2d Cir.
2009) (quoting Jemzura v. Jemzura, 330 N.E.2d 414, 420 (N.Y. 1975)). “[A]lthough not formally
stated in words,” an implied-in-fact contract “is derived from the presumed intention of the parties
as indicated by their conduct.” Id. at 506–07. However, “[a] contract cannot be implied in fact
where there is an express contract covering the subject matter involved.” Saeed v. Kreutz, 606 F.
App’x 595, 597 (2d Cir. 2015) (summary order) (quoting Julien J. Studley, Inc. v. N.Y. News, Inc.,
512 N.E.2d 300, 301 (N.Y. 1987)).
“The terms of an implied-in-fact contract turn on the conduct of the parties.” Beth Israel
Med. Ctr. v. Horizon Blue Cross & Blue Shield of N.J., Inc., 448 F.3d 573, 582 (2d Cir. 2006)
(citing Watts v. Columbia Artists Mgmt. Inc., 591 N.Y.S.2d 234, 236 (3d Dep’t 1992)). In addition
to the terms evinced by the parties’ conduct, New York law imposes an implied covenant of good
faith and fair dealing in all contracts. Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 407 (2d
New York law governs Plaintiffs’ breach of contract claims because the alleged impliedin-fact or written contracts were entered into in New York, and a federal court deciding an action
based on diversity jurisdiction applies the applicable state law. U.S. Engine Prod., Inc. v. ISO
Grp., Inc., No. 12-CV-4471 (JS) (GRB), 2013 WL 4500785, at *4 (E.D.N.Y. Aug. 20, 2013).
2
8
Cir. 2006) (citing 511 West 232nd Owners Corp. v. Jennifer Realty Co., 773 N.E.2d 496, 500
(N.Y. 2002)). “This covenant embraces a pledge that ‘neither party shall do anything which will
have the effect of destroying or injuring the right of the other party to receive the fruits of the
contract.’” 511 West 232nd Owners Corp., 773 N.E.2d at 500 (quoting Dalton v. Educ. Testing
Serv., 663 N.E.2d 289, 291 (N.Y. 1995)).
Here, Plaintiffs claim that the parties operated under an implied-in-fact contract—the
Implied Agreement—pursuant to which Defendants provided credit card processing services to
Rockaway in exchange for Rockaway’s payment of certain fees. (SAC, ¶ 26.) The SAC alleges
that the parties operated under the Implied Agreement without dispute for nearly two years. (SAC,
¶¶ 50–57.) Though Defendants dispute whether an implicit or express contract governed their
relationship with Rockaway, they do not dispute that they provided credit card processing services
to Rockaway during the nearly two-year period. (Defs.’ Mot., at 1.) This alleged course of
conduct, accepted as true, suffices to establish the existence of an implied-in-fact contract. See
Brown Bros. Elec. Contractors, Inc. v. Beam Constr. Corp., 361 N.E.2d 999, 1001 (N.Y. 1977)
(holding that courts should look to “objective manifestations of the intent of the parties as gathered
by their expressed words and deeds” to determine the existence of a binding contract).
Defendants, however, appear to argue that the existence of the Standard Form and the
Partial Form vitiate Plaintiffs’ claim that there existed an implied-in-fact contract between the
parties, and that those forms, though incomplete and unsigned, constitute the only contract that
existed between the parties.3 Plaintiffs dispute this conclusion and the parties’ factual allegations,
Defendants’ supplemental briefing in response to the SAC largely ignores Plaintiffs’
breach of contract claims based on the Implied Agreement (see generally Defs.’ Supp., Dkt. 31),
which leaves the Court with Defendants’ arguments primarily addressing earlier versions of the
complaint. (See Dkts. 18, 20, 23.) The original complaint and the first amended complaint alleged
3
9
to the extent the Court has considered them, are inconclusive. Though the Partial Form suggests
that it was filled out in connection with an agreement for Defendants to provide credit card
processing services to Rockaway (Partial Form, Dkt. 20-3), the parties dispute whether Tapias ever
saw this form contract, signed it, or agreed to its terms (compare Defs.’ Br., at 2, with SAC, ¶ 36).
At the same, while Tapias acknowledges signing a document at the December 12, 2014 meeting,
he cannot specify the subject matter of the document he signed (Second Tapias Decl., ¶ 5), and
Defendants are similarly unable to produce the Written Agreement bearing Tapias’s signature.
Thus, the issue of what contract existed between the parties relating to the provision of
credit card processing services to Plaintiffs turns on issues of fact that cannot be resolved at the
pleadings stage. If the Partial Form is, indeed, the document that Tapias signed on December 12,
2014, Plaintiffs’ claims under the Implied Agreement cannot proceed. See Saeed, 606 F. App’x
at 597 (“A contract cannot be implied in fact where there is an express contract covering the subject
matter involved.”). If the Written Agreement was, as alleged in the SAC, simply an agreement
providing for Plaintiffs’ use of credit card processing equipment, i.e., a lease, then there is the
possibility that an implied-in-fact contract can be inferred from the parties’ conduct.
See
the breach of a written contract (see Dkt. 1-1, ¶ 8; Dkt. 17, ¶ 27), which Defendants have argued
is the Partial Form produced by Maresca (see Defendants’ Letter Brief (“Defs.’ Br.”), Dkt. 20, at
2). Despite maintaining throughout these proceedings that there was a written agreement, i.e., the
Written Agreement (First Tapias Decl., ¶ 2; Second Tapias Decl., ¶¶ 3–4), Plaintiffs now allege in
the SAC that the Written Agreement related only to the use of credit card equipment and that
Defendants’ provision of credit card processing services was governed by an implied-in-fact
agreement, i.e., the Implied Agreement. (Compare SAC, ¶ 26, with id., ¶ 29.) Defendants,
however, advance no new arguments regarding the Implied Agreement, but instead refer the Court
back to “the reasons set forth in the previous briefing on Defendants’ Motion and at the hearing”
(Defs.’ Supp., at 2), namely, in sum and substance, that the Partial and Standard Forms produced
by Maresca constitute the governing written contract (Defs.’ Br., at 2; Transcript, Dkt. 27, at
71:18–72:13). Accordingly, the Court construes Defendants’ supplemental letter brief as
challenging Plaintiffs’ claims for breach of an implied-in-fact contract based on the alleged
existence of a written contract governing the same subject matter. See Saeed, 606 F. App’x at 597.
10
Leibowitz, 584 F.3d at 506 (implied in fact contract may be inferred from the facts and
circumstances of the case). That these issues cannot be resolved at the pleadings stage precludes
dismissal of Plaintiffs’ breach of contract claims. See Nwachukwu v. Chem. Bank, No. 96-CV5118 (KMW), 1997 WL 441941, at *8 (S.D.N.Y. Aug. 6, 1997) (observing that, under New York
law, a “plaintiff’s assertion of a claim based upon an implied contract” may only be dismissed if
“[t]he existence of an express contract” has been definitively established).
Thus, the Court finds that Plaintiffs have sufficiently alleged the existence of a contract as
of December 12, 2014 between the parties regarding the provision of credit card processing
services.
B. Plaintiffs’ Performance of Their Contract Obligations and Defendants’ Breach
Plaintiffs further allege that they performed their obligations under the Implied Agreement
(SAC, ¶¶ 107, 116), but that Defendants breached the Implied Agreement in three ways: (1) by
authorizing the fraudulent Ali transactions and failing to alert Plaintiffs to their fraudulent nature;
(2) by failing to provide Plaintiffs with training to detect fraudulent activity; and (3) by breaching
the implied covenant of good faith and fair dealing through the termination of Rockaway’s account
and placement of Plaintiffs on the MATCH list.
(SAC, ¶¶ 102–120, 144–152.) Whether
Defendants’ actions actually constitute a breach of contract must be determined by reference to
the parties’ conduct throughout the course of their contractual relationship. Beth Israel Med. Ctr.,
448 F.3d at 582 (stating that the parties’ course of conduct defines the terms of an implied-in-fact
contract). At the pleadings stage, however, these allegations are sufficient to establish the third
element of a breach of contract claim.
C. Injury
Finally, Plaintiffs claim that, as a result of Defendants’ alleged breaches of the Implied
Agreement, they have suffered injury by (1) becoming victims of the fraudulent Ali transactions
11
and (2) being placed on the MATCH list, which has rendered cost-effective credit card processing
services inaccessible to Plaintiffs. (SAC, ¶¶ 108, 117–119.)
*
*
*
In sum, the Court finds that the allegations in the SAC suffice to state Plaintiffs’ claims for
a breach of contract as to the Implied Agreement. Counts 1, 2, 6, and 11 will proceed to discovery.
II.
Plaintiffs’ Claim for Unjust Enrichment
In Count 7, Plaintiffs allege that Defendants were unjustly enriched by obtaining fees from
Plaintiff Rockaway for the performance of credit card processing services without good faith and
in an unreasonable manner. (SAC, Dkt. 29, ¶¶ 153–159.)
Unjust enrichment is, in essence, a quasi-contract claim for relief where “one party has
received money or a benefit at the expense of another.” City of Syracuse v. R.A.C. Holding, Inc.,
685 N.Y.S.2d 381, 381 (4th Dep’t 1999). New York law allows recovery in such circumstances
“[based] upon the equitable principle that a person shall not be allowed to enrich himself unjustly
at the expense of another.” State v. Barclays Bank of N.Y., N.A., 563 N.E.2d 11, 15 (N.Y. 1990).
This principle, however, will only apply “in the absence of any agreement.” Goldman v. Metro.
Life Ins. Co., 841 N.E.2d 742, 746 (N.Y. 2005). Thus, a plaintiff may not simultaneously sue for
a breach of contract and allege unjust enrichment. See Clark-Fitzpatrick, Inc. v. Long Island R.
Co., 516 N.E.2d 190, 193 (N.Y. 1987) (finding dismissal of unjust enrichment claims appropriate
when the parties did not dispute the existence of a contract). If a contract governs the relationship
between the parties in a dispute, any unjust enrichment claims must be dismissed. See Beth Israel
Med. Ctr., 448 F.3d at 586 (affirming dismissal of unjust enrichment claims after determining that
a contractual relationship existed between the parties).
Here, Plaintiffs have specifically claimed that the parties’ relationship was governed by
one or more contracts, e.g., the Implied Agreement and the Written Agreement. (SAC, ¶¶ 26–33.)
12
Though the parties dispute the content of the Written Agreement and its relationship to the alleged
Implied Agreement, this suit arises solely from actions taken by the parties based on one agreement
or the other. Having chosen to sue Defendants for breach of an implied-in-fact contract, Plaintiffs
are precluded from seeking recovery on an unjust enrichment theory. See Jeda Capital-56, LLC
v. Lowe’s Home Ctrs., Inc., No. 5:12-CV-419 (LEK/DEP), 2013 WL 5464647, at *8 (N.D.N.Y.
Sept. 30, 2013) (citing Clark-Fitzpatrick, 516 N.E.2d at 193). Thus, Plaintiffs’ claim for unjust
enrichment is dismissed.
III.
Plaintiffs’ Negligence Claims
Counts 3, 4, 12, and 13 allege that Defendants were negligent and grossly negligent in
approving the Ali transactions, failing to inform Plaintiffs that the Ali transactions were fraudulent,
and adding Plaintiffs’ names to the MATCH list. (SAC, ¶¶ 121–135, 200–216.) The Court finds
that Plaintiffs may only proceed on their negligence and gross negligence claims relating to
Defendants’ reporting of Plaintiffs to the MATCH list.
“Under New York law, the elements of negligence are: (a) the existence of a legal duty to
the plaintiff; (b) a breach of that duty; (c) proximate causation; and (d) damages.” Jordan v.
Tucker, Albin, & Assocs., Inc., No. 13-CV-6863 (JMA) (SIL), 2017 WL 2223918, at *12
(E.D.N.Y. May 19, 2017) (citing Luina v. Katharine Gibbs Sch. N.Y., Inc., 830 N.Y.S.3d 263, 264
(2d Dep’t 2007)). “Gross negligence is defined as ‘conduct that evinces a reckless disregard for
the rights of others or smacks of intentional wrongdoing.’” Travelers Indem. Co. of Conn. v. Losco
Grp., Inc., 204 F. Supp. 2d 639, 644 (S.D.N.Y. 2002) (quoting Am. Telephone & Telegraph Co. v.
The City of New York, 83 F.3d 549, 556 (2d Cir. 1996)).
“It is well established that where ‘the basis of a party’s claim is a breach of solely
contractual obligations, such that the plaintiff is merely seeking to obtain the benefit of the
contractual bargain through an action in tort, the claim is precluded as duplicative.’” Fixed Income
13
Shares: £Series M v. Citibank N.A., 130 F. Supp. 3d 842, 857 (S.D.N.Y. 2015) (quoting Bayerische
Landesbank, N.Y. Branch v. Aladdin Capital Mgmt. LLC, 692 F.3d 42, 58 (2d Cir. 2012)); see also
In re September 11 Litig., 640 F. Supp. 2d 323, 338 (S.D.N.Y. 2009) (“A tort claim will not lie as
a means to enforce a contractual bargain.” (citing N.Y. Univ. v. Cont’l Ins. Co., 662 N.E.2d 763,
767 (N.Y. 1995))). While tort claims may be maintained if the law imposes a duty that is distinct
from a defendant’s contractual obligations, a plaintiff may not “transform a simple breach of
contract into a tort claim” merely by framing the claim in the language of tort law. Dormitory
Auth. v. Samson Constr. Co., 94 N.E.3d 456, 460 (N.Y. 2018) (quoting Clark–Fitzpatrick, 516
N.E.2d at 194). Thus, if a plaintiff’s injury stems solely from a failure to perform on the contract,
a tort claim cannot proceed. See Sommer v. Fed. Signal Corp., 593 N.E.2d 1365, 1369 (N.Y.
1992).
In this case, Plaintiffs largely fail to distinguish their negligence claims from their breach
of contract claims, as the former claims predominantly concern Defendants’ failure to detect the
fraudulent Ali transactions and termination of the Implicit Agreement. Though cloaked in the
language of negligence, Plaintiffs’ allegations of tortious conduct relating to the Ali transactions
merely restate Defendants’ contractual obligations under the Implied Agreement. Indeed, the
factual allegations set forth in Plaintiffs’ contract and negligence claims relating to the Ali
transactions are virtually identical.
(Compare SAC, ¶¶ 104–106 (stating that Defendants’
authorization of the Ali transactions and failure to alert Plaintiffs to their fraudulent nature
breached Defendants’ obligations under the Implied Agreement), with id. ¶¶ 122–124 (stating that
Defendants’ breached a duty of care owed to Plaintiff Rockaway by initially indicating that the Ali
transactions were approved and failing to alert Plaintiff Rockaway that the transactions were
fraudulent).) The gravamen of these allegations is that Defendants failed to comply with their
14
contractual obligations and that Plaintiffs were harmed by those failures.
Thus, Plaintiffs’
negligence claims relating to the Ali transactions are incompatible with an action to recover for a
breach of contract and must be dismissed.
However, Plaintiffs’ negligence claims relating to Defendants’ referral of Plaintiffs to the
MATCH list present a different situation. Plaintiffs allege that Defendants “further breached their
duty of care to Plaintiffs by . . . placing Plaintiffs on the MATCH list following their careless
investigation of the matter.” (SAC, ¶ 132.) The SAC states that Defendants took this action
intentionally in order to cast blame on Plaintiffs for the fraudulent Ali transactions and to protect
the reputation of their credit card processing services. (Id. ¶¶ 180–81.) Plaintiffs also assert that
they have been damaged through their inability to obtain affordable credit card processing services.
(Id. ¶ 101.)
With respect to the placement of Plaintiffs’ names on the MATCH list, the Court finds that
Plaintiffs have sufficiently alleged negligence and gross negligence and that these claims are not
identical to and consequently foreclosed by Plaintiffs’ breach of contract claims. Given the
uncertainty regarding the identity and terms of the contract between the parties, the Court cannot
find, at this stage, that the contract addressed Defendants’ rights and/or obligations with respect to
reporting suspected fraudulent activity by one of Defendants’ customers to the MATCH list, and
thus whether Plaintiffs’ negligence claims based on the MATCH list referral implicate a duty that
is distinct from Defendants’ contractual obligations. See Dormitory Auth., 94 N.E.3d at 460
(negligence claim must be based on a duty distinct from defendant’s contractual obligations). If
Plaintiffs can show that the Implied Agreement governed the parties’ contractual relationship, they
may well be able to show that that agreement did not allow or provide for Defendants to report
Plaintiffs to the MATCH list based on suspected fraud, and that, by doing so—especially where
15
the fraud was committed by one of Plaintiffs’ customers whose credit card transaction Defendants
were responsible for screening—Defendants violated an independent duty of care owed to
Plaintiffs.
In sum, Counts 4 and 13 of the SAC will proceed to discovery, but only on Plaintiffs’
negligence and gross negligence claims relating to the MATCH list placement. Counts 3 and 12,
which do not relate to the MATCH list placement, are dismissed.
IV.
Plaintiffs’ Fraud Claims
Following the September 20, 2018 oral argument, Plaintiffs filed their SAC to add claims
for fraudulent inducement (Count 9) and fraud (Count 10). (SAC, ¶¶ 165–186.) Defendants
subsequently supplemented their motion to dismiss, seeking to dismiss these new claims for failure
to state a claim. (Defs.’ Supp., Dkt. 31.)
A. Fraudulent Inducement
In Count 9, Plaintiffs allege that Maresca, acting as Defendants’ agent, falsely told
Plaintiffs that Defendants’ credit card processing system was secure and capable of identifying
fraudulent transactions prior to approval and that Defendants had a policy of investigating
fraudulent transactions thoroughly before assigning blame for them. (Id. ¶¶ 166–167.) Plaintiffs
assert that these misrepresentations were made for the purpose of inducing Rockaway to enter the
Implied Agreement and that Defendants are therefore liable for fraudulent inducement. (Id.
¶¶ 165–175.)
Under New York law, a plaintiff must allege four elements to state a claim for fraudulent
inducement: (1) a material misrepresentation of a presently existing or past fact; (2) an intent to
deceive; (3) reasonable reliance on the misrepresentation by the plaintiff; and (4) resulting
damages. Ipcon Collections LLC v. Costco Wholesale Corp., 698 F.3d 58, 62 (2d Cir. 2012).
Additionally, the plaintiff must satisfy Federal Rule of Civil Procedure 9(b)’s heightened pleading
16
standards, which require a plaintiff to “‘specify the time, place, speaker, and content of the alleged
misrepresentations, . . . how the misrepresentations were fraudulent’ and ‘those events which give
rise to a strong inference that the defendant had an intent to defraud, knowledge of the falsity, or
a reckless disregard for the truth.’” Janese v. Fay, 692 F.3d 221, 228 (2d Cir. 2012) (quoting
Caputo v. Pfizer, Inc., 267 F.3d 181, 193 (2d Cir. 2001)).
Plaintiffs adequately allege each element of a claim for fraudulent inducement. The first
element is satisfied by the SAC’s allegations that, at the December 12, 2014 meeting with
Plaintiffs, Maresca represented that “the credit card services provided by [Defendants] were safe
and secure, that the credit card processing system was capable of identifying fraudulent
transactions prior to being approved[,] . . . and that [Defendants] had a policy of investigating any
allegations of fraudulent transactions thoroughly . . . before drawing any conclusion about who
was responsible for that transaction.” (Id. ¶¶ 166–167.) These statements directly implicate the
nature and quality of Defendants’ services and business practices at the time of the negotiation—
information that would have been material to any potential business partner’s decision on whether
to contract with Defendants. The second element—deceptive intent—is satisfied by the SAC’s
allegations that Defendants knew that Maresca’s statements were false, but nevertheless intended
that they be made in order to induce Rockaway to contract with Defendants for credit card
processing services. (Id. ¶¶ 168–169.) The third element, reasonable reliance, is satisfied based
on Plaintiffs’ allegation that they relied on Maresca’s representations in deciding to enter into the
Implied Agreement and tailoring their retail beverage distribution business around the use and
acceptance of credit cards. (Id. ¶ 170.) Lastly, Plaintiffs adequately allege the fourth element of
injury by stating that they lost $47,000 worth of goods due to the fraudulent Ali transactions and
have been unable to acquire cost-effective credit card processing services due to the placement of
17
their names on the MATCH list without sufficient investigation. (Id. ¶¶ 93, 173.) Thus, the Court
finds that Plaintiffs have successfully pleaded facts to establish the elements of a fraudulent
inducement claim.
Furthermore, the Court finds that Plaintiffs have satisfied Rule 9(b)’s heightened pleading
requirements. Plaintiffs have “specif[ied] the time, place, speaker, and content of the alleged
misrepresentations.” Janese, 692 F.3d at 228. They state that they met with Maresca on
December 12, 2014 at Rockaway’s place of business at 153-25 Rockaway Boulevard in Jamaica,
New York, where Maresca informed Plaintiffs that Defendants’ credit card processing services
could identify fraudulent transactions and that Defendants had a policy of thoroughly investigating
fraudulent transactions prior to assigning blame to any party. (SAC, ¶ 25.) Plaintiffs have further
specified “how the [alleged] misrepresentations were fraudulent,” Janese, 692 F.3d at 228, by
stating that the Ali transactions would not have been approved if Defendants’ credit card
processing system performed as Maresca described and that Plaintiffs’ names would not have been
placed on the MATCH list if a thorough investigation of the Ali transactions had been conducted,
as Maresca had promised. (SAC, ¶¶ 59–66, 83–90.) Finally, Plaintiffs assert that Defendants’
credit card processing system approved seven fraudulent transactions totaling $47,000 over the
course of one week and that, prior to any meaningful inquiry, Defendants informed the MATCH
list that Plaintiffs were engaged in money laundering. (Id. ¶¶ 58, 72–76.) These allegations raise
a sufficiently “strong inference” that Defendants exhibited, at least, “a reckless disregard for the
truth” of Maresca’s representations to Plaintiffs. Janese, 692 F.3d at 228.
Additionally, the Court finds that Defendants may be held vicariously liable for statements
made by Maresca in negotiating the contract between Rockaway and Defendants. Whether or not
Maresca’s alleged misrepresentations were within the scope of his authority to negotiate credit
18
card processing contracts, Defendants may be liable if they later ratified an agent’s fraudulent
statements. See Dover Ltd. v. A.B. Watley, Inc., 423 F. Supp. 2d 303, 318 (S.D.N.Y. 2006) (“Even
in the absence of actual or apparent authority, a person may still be liable as a principal if he affirms
or ratifies ‘an act done by one who purports to be acting for the ratifier.’” (quoting Carte Blanche
(Singapore) PTE., Ltd. v. Diners Club Int’l, Inc., 758 F. Supp. 908, 912 (S.D.N.Y. 1991))). An
agent’s statements are ratified if the principal “retains the benefits derived from them.” Adler v.
Helman, 564 N.Y.S.2d 828, 830 (3d Dep’t 1991) (citation omitted); see also Dover, 423 F. Supp.
2d at 318 (“[R]atification is a ‘form of retroactive activity’ that occurs when the principal . . .
‘accepts the benefits of [the] agent’s action’ already made on his behalf.” (quoting Banque Arabe
et Internationale D’Investissement v. Md. Nat’l Bank, 850 F. Supp. 1199, 1213 (S.D.N.Y.1994))).
The SAC alleges that Maresca told Plaintiffs that he was Defendants’ agent authorized to contract
for credit card processing services (SAC, ¶ 20), and Maresca himself confirms that he sold such
services on behalf of Defendant First Data Merchant Services and Defendant WFB (Maresca Aff.,
¶ 2). Though discovery may confirm that Maresca acted solely on behalf of those two Defendants,
the Court finds it inappropriate to resolve this discrepancy on a motion to dismiss. Thus, Plaintiffs
have sufficiently alleged that Maresca acted as Defendants’ agent in contracting with Rockaway.
Furthermore, based on the allegations that Defendants ultimately provided credit card processing
services to Rockaway in exchange for fee payments, Defendants may be found to have ratified any
agreement negotiated by Maresca and therefore would be liable for any false statements he made
to induce Plaintiffs to enter into the agreement. See Banque Arabe, 850 F. Supp. at 1213.
Accordingly, the Court denies Defendants’ motion to dismiss Count 9 of the SAC.
B. Fraud
For their fraud claim in Count 10, Plaintiffs contend that Defendants falsely reported to the
MATCH list that Plaintiffs had engaged in fraudulent activity and money laundering. (Id. ¶¶ 176–
19
186.) Under New York law, a plaintiff must allege the following elements to state a claim for
fraud: (1) a misrepresentation or omission of material fact; (2) which the defendant knew to be
false; (3) which the defendant made with the intention of inducing reliance; (4) upon which the
plaintiff reasonably relied; and (5) which caused injury to the plaintiff. Wynn v. AC Rochester,
273 F.3d 153, 156 (2d Cir. 2001) (citing Lama Holding Co. v. Smith Barney, Inc., 668 N.E.2d
1370, 1373 (N.Y. 1996)).
Count 10 of the complaint fails to allege facts that satisfy the fourth and fifth elements of
a fraud claim, namely, that Plaintiffs reasonably relied on Defendants’ misrepresentations and
suffered injury from that reliance. See id. Instead, Plaintiffs allege that they suffered (and continue
to suffer) injury due to the MATCH list’s reliance on Defendants’ misrepresentations. (See SAC,
¶ 182 (“[T]he MATCH list was justified in relying on [Defendants’] material
misrepresentations”).) However, Plaintiffs’ theory of fraud has been expressly rejected by the
New York Court of Appeals.
In Pasternack v. Laboratory Corporation of America Holdings, 807 F.3d 14 (2d Cir. 2015),
the Second Circuit certified a question to the New York Court of Appeals, asking “whether a
plaintiff may state a fraud claim, despite the absence of reliance by the plaintiff on the alleged
misrepresentations, where a non-plaintiff third party is alleged to have relied on the
misrepresentations in a manner that caused injury to the plaintiff.” 59 N.E.3d 485, 492 (N.Y.
2016). The Court of Appeals answered no, “declin[ing] to extend the reliance element of fraud to
include a claim based on the reliance of a third party, rather than the plaintiff.” Id. at 493. Where,
as here, the relevant misrepresentations were not communicated to, or relied on, by the plaintiff,
Pasternack forecloses claims for fraud. See Amusement Indus. Inc. v. Stern, 721 F. App’x 9, 12
20
(2d Cir. 2018) (summary order) (“Pasternack holds that the reliance element of a fraud claim
cannot be proved by reference to a defendant’s misrepresentation to a third party . . . .”).
Accordingly, Count 10 of the SAC is dismissed.
V.
Plaintiffs’ Remaining Claims
Plaintiffs’ remaining claims for relief, Counts 5 and 8, are demands for injunctive relief
and punitive damages, rather than independent causes of action. Because independent causes of
action continue to exist in this case, however, the Court declines to dismiss them at this point in
the case. Cf. Porat v. Lincoln Towers Cmty. Ass’n., No. 04-CV-3199 (LAP), 2005 WL 646093, at
*7 (S.D.N.Y. Mar. 21, 2005) (dismissing a demand for relief styled as a cause of action because
no independent causes of action could support federal jurisdiction).
CONCLUSION
For the reasons stated herein, Defendants’ motion to dismiss the Second Amended
Complaint is granted in part and denied in part. The following claims will proceed:
▪
Count 1 – Breach of the Implied Agreement by approving the Ali transactions and
failing to alert Plaintiffs to their fraudulent nature
▪
Count 2 – Breach of the Implied Agreement by terminating credit card processing
services for fraud and reporting Plaintiffs to the MATCH list
▪
Count 4 – Negligence based on Defendants’ referral of Plaintiffs to the MATCH
list
▪
Count 6 – Breach of the Implied Agreement by failing to provide training on how
to detect and respond to fraudulent credit card transactions
▪
Count 9 – Fraudulent Inducement
▪
Count 11 – Intentional breach of the Implied Agreement
▪
Count 13 – Gross negligence based on Defendants’ referral of Plaintiffs to the
MATCH list
SO ORDERED.
/s/ Pamela K. Chen
Pamela K. Chen
21
United States District Judge
Dated: March 29, 2019
Brooklyn, New York
22
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?