Gunderson Amazing Fireworks, LLC v. Merrick Bank et al

Filing 160

MEMORANDUM & ORDER denying 109 Motion to Dismiss; For the foregoing reasons, the Movants' motion to dismiss (Docket Entry 109) is DENIED. Defendants are granted an additional ninety (90) days from the date of this Memorandum & Order to attempt to serve Sandra Kueck with process. So Ordered by Judge Joanna Seybert on 8/24/2016. C/ECF (Valle, Christine)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------X
GUNDERSON AMAZING FIREWORKS, LLC,
Plaintiff,
-againstMERRICK BANK, MERRICK BANK
MERCHANT SERVICES DIVISION,
CARDWORKS, L.P., AND PINNACLE
PROCESSING GROUP, INC.,

MEMORANDUM & ORDER
12-CV-3869(JS)(AKT)

Defendants.
---------------------------------------X
FIREWORKS UNLIMITED, LLC,
Plaintiff,
-againstMERRICK BANK, MERRICK BANK
MERCHANT SERVICES DIVISION,
CARDWORKS, L.P., AND PINNACLE
PROCESSING GROUP, INC.,

12-CV-3871
(Member case)

Defendants.
---------------------------------------X
KENACO SALES, LLC,
Plaintiff,
-againstMERRICK BANK, MERRICK BANK
MERCHANT SERVICES DIVISION,
CARDWORKS, L.P., AND PINNACLE
PROCESSING GROUP, INC.,
Defendants.
---------------------------------------X

12-CV-3872
(Member case)

---------------------------------------X
FIREWORKS CENTER 25, LLC,
Plaintiff,
-against-

12-CV-3873
(Member case)

MERRICK BANK, MERRICK BANK
MERCHANT SERVICES DIVISION,
CARDWORKS, L.P., AND PINNACLE
PROCESSING GROUP, INC.,
Defendants.
---------------------------------------X
LADY LUCKS WHOLESALE & RETAIL
FIREWORKS, LLC,
Plaintiff,
-against-

12-CV-4019
(Member case)

MERRICK BANK, MERRICK BANK
MERCHANT SERVICES DIVISION,
CARDWORKS, L.P., AND PINNACLE
PROCESSING GROUP, INC.,
Defendants.
---------------------------------------X
APPEARANCES
For Plaintiffs:
Donald E. Creadore, Esq.
The Creadore Law Firm
305 Broadway, 14th Floor
New York, NY 10007
For Defendants:

Daniel Seth Weinberger, Esq.
Mark W. Stoutenburg, Esq.
Gibbons P.C.
One Pennsylvania Plaza
New York, NY 10119

SEYBERT, District Judge:
This consolidated action was commenced by plaintiffs
Gunderson Amazing Fireworks, LLC, Fireworks Unlimited, LLC, Kenaco
Sales, LLC, Fireworks Center 25, LLC, and Lady Lucks Wholesale &
2

Retail Fireworks, LLC (“Plaintiffs”) against defendants Merrick
Bank, Merrick Bank Merchant Services Division, Cardworks, L.P.,
and Pinnacle Processing Group, Inc. (together, “Defendants”).
Plaintiffs filed their Second Amended Complaint (“SAC”) on May 8,
2015,

asserting

claims

against

Defendants

for

(1)

breach

of

contract, (2) breach of fiduciary duty, (3) indemnification, and
(4) negligent performance. (SAC, Docket Entry 82.) Pending before
the Court is a motion filed by individuals Sandra Kueck, Kent
Herzog,

and

Monty

Kapchinsky

(the

“Movants”)

to

dismiss

a

counterlcaim for breach of contract which Defendants asserted
against the Movants in their Answer to the SAC.
109.)

(Docket Entry

For the reasons that follow, the Movants’ motion is DENIED.
BACKGROUND
Plaintiffs

consumer fireworks.
entered

into

are

either

(SAC ¶ 13.)

Merchant

retailers

or

wholesalers

of

In 2010, Plaintiffs separately

Agreements

with

Defendants

Defendants process their credit card transactions.

to

have

(SAC ¶ 14.)

“For a period of time, the business relationship . . . between the
parties proceeded without incident.”

(SAC ¶ 22.)

In April 2012,

however, customers began complaining that their credit cards had
been double-charged and triple-charged for purchases.

(SAC ¶ 24.)

This unauthorized activity began to occur at the same time that
nonparty Jetpay LLC started to perform processing services on
behalf of Defendants in March 2012.
3

(SAC ¶ 23.)

Plaintiffs claim

that by allowing their customers to be repeatedly charged for
purchases, Defendants materially breached the Merchant Agreements.
(SAC ¶ 25.) In addition, Plaintiffs claim that the number of times
this occurred was “inexcusable” and “cannot be ascribed to mere
negligence.” (SAC ¶ 25.)
On May 28, 2015, Defendants filed an Answer to the SAC
and asserted counterclaims against Plaintiffs.
Entry 85, at 12.)

(Answer, Docket

Defendants explain in their Answer that when

Plaintiffs’ customers complained about unauthorized credit card
activity, the customers’ banks issued a “chargeback, or a debit,
through

the

electronic

payment

system,

causing

the

funds

constituting the Duplicative Charge to be automatically deducted
from Merrick’s (i.e. the acquiring Bank’s) account.”
15, ¶ 16.)

(Answer at

Defendants claim that, under ordinary circumstances,

“the debit would have continued to flow downstream to Plaintiffs
and the net amount of the Duplicative Charges . . . would have
been debited from the Plaintiffs’ account.”

(Answer at 15, ¶ 16.)

According to Defendants, however, Plaintiffs cut off Defendants’
access to Plaintiffs’ accounts “before the net amount of the
Duplicative Charges could be debited from Plaintiffs’ account and
given back to Merrick.”

(Answer at 15, ¶ 17.)

In other words,

Defendants claim that Plaintiffs remained in possession of the
duplicative sales charges and Defendants had to issue refunds to

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customers for the charges without being made whole by Plaintiffs.
(Answer at 15, ¶ 17.)
Based
counterclaims
enrichment.

upon

these

sounding

in

facts,
breach

(Answer at ¶¶ 19-38.)

concerns

Defendants’

second

Contract

as

Guarantors”

against

(Answer ¶¶ 24-33.)

Defendants
of

assert

three

and

unjust

contract

The Movants’ motion solely

counterclaim,
(the

styled

“Second

“Breach

of

Counterclaim”).

Defendants assert in their Second Counterclaim

that all the Movants signed documents personally guaranteeing
Plaintiffs’ performance of the Merchant Agreements and that the
Movants “breached their guarantee obligations” by not reimbursing
Defendants for monies Defendants claim is still owed to them.
(Answer ¶¶ 25-31.)
The Movants now assert in their motion to dismiss that
Defendants’

Second

Counterclaim

should

be

dismissed

because

Defendants did not properly bring the Movants into this case
pursuant to either Federal Rule of Civil Procedure 14 or 20.
(Pls.’ Br., Docket Entry 109, at 8-9.)

Movant Sandra Kueck also

claims that she was not properly served with the Answer, and seeks
to be dismissed from the case on that basis.
10-11.)

5

(See Pl.’s Br. at

DISCUSSION
I.

Joinder of Crossclaim Defendants
The Movants first assert that Defendants improperly

commenced this case against them by filing an Answer that does not
comply with either Rule 14 or Rule 20 of the Federal Rules of Civil
Procedure.
A. Rule 14
Federal Rule of Civil procedure 14(a), which governs
third-party impleader, provides that that “[a] defending party
may, as third-party plaintiff, serve a summons and complaint on a
nonparty who is or may be liable to it for all or part of the claim
against it.” FED. R. CIV. P. 14(a)(1) (emphasis added).

Thus, for

Defendants to properly assert a third-party claim against the
Movants, they must be “attempt[ing] to transfer to the third-party
defendant[s] liability that may be imposed upon [them] in the main
action.”

Broad. Music, Inc. v. Hearst/ABC Viacom Entm’t Servs.,

746 F. Supp. 320, 330–31 (S.D.N.Y. 1990) (internal quotation marks
and citation omitted).

But it is clear that Defendants are not

attempting to transfer any of their potential liability in the
main action to the Movants by asserting a counterclaim against the
Movants.

Rather, Defendants separately allege that Plaintiffs

withheld funds owed to them under the Merchant Agreement and that
the Movants guaranteed payment of those funds.

Since Defendants

are not claiming that the Movants are liable for any part of
6

Plaintiffs’ claims against Defendants, Rule 14 was not the proper
vehicle to bring the Movants into the case. The Movants objections
with respect to Defendants’ failure to comply with Rule 14 are
thus inapplicable
B. Rule 20
Defendants maintain that their Second Counterclaim was
compulsory, and thus Defendants properly brought the Movants into
the case pursuant to Rules 13 and 20.

Rule 13(h) provides that

“Rules 19 and 20 govern the addition of a person as a party to a
counterclaim or crossclaim.”

FED. R. CIV. P. 13.

And pursuant to

Rule 20, the joinder of defendants is permissible if: (1) “any
right to relief is asserted against them jointly, severally, or in
the

alternative

transaction,

with

respect

occurrence,

to

or

or

arising

series

of

out

of

the

transactions

same
or

occurrences,” and (2) “any question of law or fact common to all
defendants will arise in the action.”

FED. R. CIV. P. 20(a)(2)

(A)&(B).
Plaintiffs take issue with the fact that Defendants did
not ask permission before seeking to join the movants.
at 7.)

(Pl.’s Br.

Although “the general practice is to obtain a court order

to join an additional party,” permission from the Court is not
explicitly required by Rule 13(h). 6 CHARLES ALAN WRIGHT
PRACTICE

AND

PROCEDURE § 1434 (3d ed. 2010).

ET AL.,

FEDERAL

In practice, courts

routinely allow parties to be joined without a court order, unless
7

legitimate

objections

are

raised

regarding

the

proposed

defendants.

See, e.g., Aleynikov v. Goldman Sachs Grp., Inc., No.

12-CV-5994, 2013 WL 5816941, at *11 (D.N.J. Oct. 29, 2013) (finding
that the revised Rule 13(h) does not require leave of the court to
join a party); Raytheon Aircraft Credit Corp. v. Pal Air Int’l,
Inc., 923 F. Supp. 1408, 1413–14 (D. Kan. 1996) (treating a “crossclaim” asserted against non-parties in an Answer as a “third party
petition” under Rule 14(a)); Killington Hosp. Grp. I, LLC v.
Federated Equities, LLC, No. 15-CV-0092, 2015 WL 5243900, at *4
(D. Vt. Sept. 8, 2015) (exercising the Court’s discretion under
Rule 21 and joining non-party).

The Court therefore finds that

Defendants were not required to file a motion seeking to join the
Movants as counterclaim defendants prior to filing their Answer.
II.

Improper Service of Process
The Movants next argue that the Court lacks subject

matter jurisdiction over Movant Sandra Kueck (“Kueck”) because she
was not properly served with Defendants’ Answer and counterclaims
within 120 days of the date it was filed.
Kueck Reply Aff., Docket Entry 114-3.)

(See Pls.’ Br. at 10;
Defendants do not deny

that Kueck was only provided with a copy of a Summons and not
Defendants’ Answer.

(Defs.’ Opp. Br., Docket Entry 115, at 13-

14.)
“Federal Rule of Civil Procedure 4(m) governs both (1)
the dismissal of actions for untimely service of process and (2)
8

extensions of the time in which service may be effected.”
v. City of N.Y., 502 F.3d 192, 195 (2d Cir. 2007).

Zapata

Rule 4(m)

states in relevant part that:
[i]f a defendant is not served within 120 days
after the complaint is filed, the court . . .
must dismiss the action without prejudice
against that defendant or order that service
be made within a specified time. But if the
plaintiff shows good cause for the failure,
the court must extend the time for service for
an appropriate period.1
FED. R. CIV. P. 4(m).

The parties do not dispute that service of

only the Summons, and not the underlying Defendants’ pleading,
does not satisfy the requirements of Rule 4.

However, Defendants

argue, that good cause exists to grant an extension of Defendants’
time to serve the Answer on Kueck because Defendants did not know
“there was a deficiency in the papers served by the process server”
until the Movants filed their motion to dismiss.

(Defs.’ Opp. Br.

at 14.)
“Courts generally will find good cause only where the
failure to effect timely service was the result of circumstances
beyond [the party’s] control, and was not the result of mere
‘inadvertence, neglect, mistake or misplaced reliance.’”

Micciche

v. Kemper Nat’l Servs., 560 F. Supp. 2d 204, 209 (E.D.N.Y. 2008)

This was the rule in effect when this lawsuit was filed on
August 3, 2012. An amendment to Federal Rule of Civil Procedure
4(m) shortened the service period to 90 days, effective
December 1, 2015. See, FED. R. CIV. P. 4(m).
1

9

(quoting Beauvoir v. U.S. Secret Serv., 234 F.R.D. 55, 56 (E.D.N.Y.
2006).

Here, Defendants should have realized that their process

server did not properly serve Kueck because the process server’s
own affidavit states that he served a Summons, but the affidavit
does not mention the Answer.
Defendants’

error

was

thus

(See, Summons, Docket Entry 95.)
one

of

inadvertence,

rather

than

legitimate circumstances beyond their control.
Nevertheless,

the

Court

effect service in its discretion.

may

extend

the

deadline

to

Zapata, 502 F.3d at 195; Mares

v. United States, 627 F. App’x 21, 23–24 (2d Cir. 2015) (“a
district

court

has

wide

latitude

extensions absent good cause”).
not

identified

definitive

in

deciding

when

to

grant

Although the Second Circuit has

factors

to

consider

in

determining

whether to enlarge the deadline for service of process, Courts
have looked to the following considerations: “‘(1) whether the
applicable statute of limitations would bar the refiled action;
(2) whether the defendant had actual notice of the claims asserted
in the complaint; (3) whether the defendant [ ] attempted to
conceal the defect in service; and (4) whether the defendant would
be prejudiced by the granting of plaintiff’s request for relief
from the provision.’”

Carroll v. Certified Moving & Storage, Co.,

LLC, No. 04-CV-4446, 2005 WL 1711184, at *2 (E.D.N.Y. July 19,
2005) (quoting E. Refractories Co. v. Forty Eight Insulations,
Inc., 187 F.R.D. 503, 506 (S.D.N.Y. 1999). Applying these factors,
10

the Court finds that Defendants time to serve Kueck with process
should

be

extended.

Although,

the

applicable

statute

of

limitations has not yet expired, Kueck admits that she received a
copy of the Answer on October 17, 2015.

(Kueck Reply Aff.,

¶ 3(a).) Moreover, Kueck does not claim she suffered any prejudice
because of Defendants’ deficient service.

(Pls.’ Br. at 10-12.)

Therefore, Defendants are granted an additional ninety (90) days
from the date of this Memorandum & Order to attempt to serve Kueck.
CONCLUSION
For

the

foregoing

reasons,

dismiss (Docket Entry 109) is DENIED.

the

Movants’

motion

to

Defendants are granted an

additional ninety (90) days from the date of this Memorandum &
Order to attempt to serve Sandra Kueck with process.

SO ORDERED.
/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
Dated:

August
24 , 2016
Central Islip, New York

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