International Cards Company, Ltd. v. Mastercard International Inc.
OPINION AND ORDER re: 122 MOTION for Summary Judgment filed by Mastercard International Inc. For the foregoing reasons, Defendant's motion for summary judgment is GRANTED with respect to ICC's claim for breach of the implied covenant of good faith and fair dealing, but DENIED as to all other claims. The Clerk of Court is directed to close the motion at Docket No. 122. (Signed by Judge Lorna G. Schofield on 5/26/2016) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
INTERNATIONAL CARDS COMPANY, LTD., :
MASTERCARD INTERNATIONAL INC.,
DATE FILED: 5/26/2016
13 Civ. 2576 (LGS)
OPINION AND ORDER
LORNA G. SCHOFIELD, District Judge:
Plaintiff International Cards Company, Ltd. (“ICC”) sues MasterCard International Inc.
(“MasterCard”) over MasterCard’s April 2, 2013, termination of ICC’s license to issue, acquire
and process credit cards in Jordan. MasterCard moved for summary judgment against ICC’s
claims for breach of contract, breach of the implied covenant of good faith and fair dealing and
conversion, and on MasterCard’s counterclaims for breach of contract and for a declaratory
judgment that its drawdown of ICC’s collateral was proper. For the following reasons,
MasterCard’s motion is granted as to ICC’s claim for breach of the implied covenant of good
faith and fair dealing, but denied as to all other claims.
The following facts are taken from the parties’ submissions, and are undisputed unless
MasterCard operates a global electronic payments network through a “four-party model”
involving (1) cardholders that use MasterCard-branded cards for purchases, payments and cash
withdrawals; (2) merchants that accept MasterCard-branded cards, (3) issuers -- the financial
institutions that issue payment cards to cardholders and (4) acquirers -- the Members that
contract with merchants to accept payment cards.
From 1999 to 2013, ICC was a MasterCard Principal Member, licensed in Jordan and
Palestine as an issuer and an acquirer. The relationship between ICC and MasterCard was
governed by MasterCard’s “Rules” and the terms of licenses governing ICC’s use of
MasterCard’s “Marks,” which include MasterCard’s red and yellow interlocking circles logo.
New York law governs both the Rules and license agreements.
MasterCard’s Rules provide as follows:
Rule 1.6.2(3): The Corporation may, at its sole discretion, effect such termination
forthwith and without prior notice if . . . The Customer fails or refuses to make payments
in the ordinary course of business or becomes insolvent . . . .
Rule 3.6.1: Upon request by the Corporation, and subject to applicable law or regulation,
a Customer must provide Customer Reports to the Corporation, or to the Corporation’s
designee; provided, compliance with the foregoing obligation does not require a
Customer to furnish any information, the disclosure of which, in the opinion of this
Corporation’s legal, counsel, is likely to create a significant potential legal risk to this
Corporation and/or its Customer(s).
Rule 5.1: Each Customer in its capacity as an Acquirer must directly enter into a written
Merchant Agreement with each Merchant from which it acquires Transactions . . . .
Rule 5.2.4: Each Acquirer must pay each merchant for all Transactions the Acquirer
acquires from the Merchant in accordance with the Merchant Agreement and the
Standards. This obligation is not discharged with regard to a Transaction until the
Merchant receives payment from the Acquirer that acquired the Transaction,
notwithstanding any Acquirer payment arrangement, including any such arrangement
between an Affiliate and a Principal or Association.
MasterCard claims that starting in 2010 it began receiving complaints from ICC’s
merchants that ICC was not timely paying them for acquired transactions. MasterCard asserts
that, between 2010 and 2013, it was forwarded numerous “complaints” from ICC’s merchants
regarding untimely payments.
MasterCard has introduced emails that show that by the end of 2011, it had begun
forwarding a number of these complaints to ICC. For example, on September 8, 2011, Youssef
Amin, an Associate Vice President of MasterCard, forwarded a letter from an ICC merchant that
states: “Concerning fund withdrawals made at our shop via MasterCard credit cards, as always
there has been delay in [withdrawal] processing and transactions. Checques are delayed and are
not transferred to our account unless after numerous communications and complaints . . . .”
Amin’s email to ICC’s CEO, Khalil Alami, informed him that “late payment and poor support”
was “negatively affecting our image in the market.” On February 16, 2012, Basel El Tell,
MasterCard’s Vice President - Region Manager - Levant, wrote ICC’s Alami: “As discussed
with you and Hani during your visit on December 11, 2011 and in previous occasions, we are
still getting merchant complaints by phone, emails, and mail, and the MasterCard Global
website, about ICC delays in settlement.”
On April 22, 2012, Lucas Sork, MasterCard’s Vice President and Regional Counsel, sent
Alami a letter entitled “Merchant complaints,” which described “complaints [MasterCard had]
received and continue[s] to receive from ICC Merchants.” The letter requested ICC to list and
describe complaints it had received from merchants, and stated that MasterCard “reserve[d] its
right to take action against ICC in response to any future Complaints, which may include audits,
assessments, or the termination of ICC’s license and membership.”
In the summer of 2012, MasterCard commissioned a third-party survey to investigate, in
part, Jordanian merchants’ relative experiences with MasterCard’s two main Jordanian acquirers,
ICC and Middle East Payment Services (“MEPS”). A questionnaire was distributed to 197
merchants in Jordan, and the results were compiled into a document entitled “Merchant
Satisfaction Survey.” ICC claims that the survey was biased and disagrees with MasterCard’s
characterization of the results.
Based on what MasterCard claims was negative feedback from ICC’s merchants, a
“cross-functional team” was commissioned to assess how MasterCard should respond to ICC’s
ongoing late payments. On November 20, 2012, MasterCard personnel, including the President
of the Middle East North Africa Region, Raghu Malhotra, met with ICC representatives in
Amman, Jordan. ICC’s CEO, Alami, made a presentation, which MasterCard claims was a “plan
to prevent further delays in payments to merchants,” but which ICC claims was just an “action
plan to move forward.”
On November 22, 2012, MasterCard sent ICC a “notice of assessment” stating:
“MasterCard has determined that ICC has failed to pay a number of Merchants for transactions
ICC acquired from those Merchants and, therefore, has violated Rule 5.2.4 (the Breach). Please
be advised that MasterCard is assessing ICC USD 5,000 for the Breach.” MasterCard sent a
second letter that day, which assessed $5,000 for purported violations of “ICC’s use of
MasterCard name and trademarks (the Marks) in violation of the MasterCard Rules.”
On April 2, 2013, MasterCard sent ICC a letter terminating Plaintiff’s membership in
MasterCard’s global electronic payment system. The letter stated that “[d]espite MasterCard’s
notice, ICC has continued to delay payments to Merchants for transactions acquired from those
Merchants.” In connection with the termination (on April 1, 2013), MasterCard drew down
$2.78 million on a letter of credit that ICC had posted as collateral on May 10, 2012. These
funds are currently being held in MasterCard’s accounts.
ICC filed suit on April 18, 2013.
Summary judgment is appropriate where the record before the Court establishes that there
is no “genuine dispute as to any material fact and the movant is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56(a). A genuine dispute as to a material fact exists “if the evidence is
such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). The Court must construe the evidence in the light most
favorable to the nonmoving party and must draw all reasonable inferences in favor of the
nonmoving party. See id. at 255.
ICC’s Breach of Contract Claim and MasterCard’s Counterclaim
MasterCard moves for summary judgment on the parties’ respective claims for breach of
contract. For the following reasons, MasterCard’s motion as to these claims is denied.
Under New York law, the elements for breach of contract are “(i) the formation of a
contract between the parties; (ii) performance by the plaintiff; (iii) failure of defendant to
perform; and (iv) damages.” Orlander v. Staples, Inc., 802 F.3d 289, 294 (2d Cir. 2015)
(quoting Johnson v. Nextel Commc’ns, Inc., 660 F.3d 131, 142 (2d Cir. 2011)); accord Carione
v. Hickey, 20 N.Y.S.3d 157, 158 (2d Dep’t 2015).
MasterCard argues that summary judgment should be granted dismissing ICC’s breach of
contract claim because ICC did not perform under the contract, and because MasterCard had
express contractual authority to terminate ICC’s membership under MasterCard’s rules.
MasterCard’s contention that ICC failed to make timely payments to its merchants underpins
both of MasterCard’s arguments against ICC’s contract claim, and is also the sole basis for one
of MasterCard’s two breach of contract counterclaims. Summary judgment is inappropriate
because factual disputes remain as to whether and to what extent ICC failed to make timely
payments to its merchants.
MasterCard asserts that discovery “unequivocally confirmed the fact of ICC’s widespread
payment delays,” but cites only documents reflecting what it asserts are merchant “complaints,”
the results of the 2012 survey and emails from ICC that MasterCard claims are admissions of late
payments. ICC disputes MasterCard’s reading of each of its emails, and challenges both the
truth and admissibility of the merchants’ “complaints” and the survey results. Neither party has
produced sworn statements from ICC’s merchants to support its assertions about the timeliness
of ICC’s payment to its merchants. Likewise, no records from ICC establish when payments to
merchants were made, either because these records do not exist or because ICC failed to produce
them in discovery.
Even assuming, however, that ICC was late in paying each of the 212 merchants
identified by MasterCard as having complained of late payments, a factual dispute remains as to
whether this constitutes a material breach of ICC’s contractual obligations.
“A party’s obligation to perform under a contract is only excused where the other party’s
breach of the contract is so substantial that it defeats the object of the parties in making the
contract.” Frank Felix Assocs., Ltd. v. Austin Drugs, Inc., 111 F.3d 284, 289 (2d Cir. 1997); see
also id. (citing Restatement (Second) of Contracts § 241(a) for the proposition that “materiality
depends, in part, on ‘the extent to which the injured party will be deprived of the benefit which
he reasonably expected’”). “The issue of whether a party has substantially performed is usually
a question of fact and should be decided as a matter of law only where the inferences are
certain.” Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 186 (2d Cir. 2007);
see also Bear, Stearns Funding, Inc. v. Interface Grp.-Nev., Inc., 361 F. Supp. 2d 283, 295
(S.D.N.Y. 2005) (“[I]n most cases, the question of materiality of breach is a mixed question of
fact and law - usually more of the former and less of the latter - and thus is not properly disposed
of by summary judgment.”).
Factual disputes exist as to whether ICC substantially performed and whether any late
payments constituted a material breach. First, the 212 merchants MasterCard identifies as
having complained of ICC’s late payments represent less than 3% of the 7,000 to 8,000
merchants ICC enrolled into the MasterCard system. Even assuming that each “complaint”
identified by MasterCard was valid -- i.e. that ICC was at fault for late payment -- MasterCard
has failed to establish a “certain” inference that these late payments were representative of ICC’s
widespread practice. Absent records conclusively demonstrating when payments were made, an
equally strong (if not stronger) inference from the total number of complaints is that ICC paid the
vast majority of its merchants on time.
Second, the magnitude of transactions ICC handled for MasterCard until the date of
termination weighs in favor of ICC’s argument that it substantially performed its contractual
obligations. For example, Alami testified that at the time of the termination ICC was processing
over 600,000 merchant transactions annually for MasterCard. Given both the number of
merchants ICC enrolled into MasterCard’s system and the volume of transactions it continued to
process, a finder of fact could reasonably determine that late payments to some of ICC’s
merchants were immaterial, and did not justify MasterCard’s termination of ICC’s license or
Because questions of fact remain as to whether ICC substantially performed, and whether
any late payments to merchants constituted a material breach, MasterCard’s motion for summary
judgment is denied as to the parties’ respective breach of contract claims.
ICC’s Breach of the Covenant of Good Faith and Fair Dealing Claim
MasterCard next moves for summary judgment on ICC’s claim for breach of the
covenant of good faith and fair dealing. For the following reasons, MasterCard’s motion is
“[T]he implied covenant of good faith and fair dealing 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.” ABN AMRO Bank, N.V. v. MBIA Inc., 952 N.E.2d
463, 475 (N.Y. 2011) (internal quotation marks and citation omitted). “Under New York law, a
covenant of good faith and fair dealing is implicit in all contracts during the course of contract
performance.” Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 98 (2d Cir.
2007). But “[t]he implied covenant can only impose an obligation consistent with other mutually
agreed upon terms in the contract. It does not add to the contract a substantive provision not
included by the parties.” Broder v. Cablevision Sys. Corp., 418 F.3d 187, 198–99 (2d Cir. 2005)
(internal quotation marks, alteration and citation omitted).
ICC claims that MasterCard violated the implied covenant of good faith and fair dealing
by conspiring with another major acquirer, MEPS, to drive ICC out of the Jordanian market.
ICC’s claim for breach of the implied covenant of good faith and fair dealing turns, however, on
injuries suffered from MasterCard’s allegedly unlawful termination of the commercial
relationship with ICC. While ICC argues that MasterCard engaged in a nefarious multi-year
campaign to end the companies’ business relationship, ICC does not identify any extra duty or
obligation MasterCard owed ICC beyond those arising from the contracts themselves.
Because “the covenant of good faith and fair dealing . . . cannot be construed so broadly
as effectively . . . to create independent contractual rights,” Peter R. Friedman, Ltd. v. Tishman
Speyer Hudson Ltd. P’ship, 968 N.Y.S.2d 41, 41 (1st Dep’t 2013), ICC’s allegations of a
conspiracy to terminate ICC’s licenses and membership are subsumed in Plaintiff’s breach of
contract claims, and do not state a separate cause of action. See Harris v. Provident Life & Acc.
Ins. Co., 310 F.3d 73, 81 (2d Cir. 2002) (“New York law . . . does not recognize a separate cause
of action for breach of the implied covenant of good faith and fair dealing when a breach of
contract claim, based upon the same facts, is also pled.”); Herbert H. Landy Ins. Agency, Inc. v.
Navigators Mgmt. Co., No. 14 Civ. 6298, 2015 WL 170460, at *4 (S.D.N.Y. Jan. 13, 2015)
MasterCard’s motion for summary judgment is granted as to this claim.
ICC’s Conversion Claim and MasterCard’s Counterclaim for Declaratory
MasterCard moves for summary judgment on ICC’s conversion claim based on
MasterCard’s drawdown of $2.78 million from a letter of credit ICC had posted as collateral.
MasterCard also moves for summary judgment on its counterclaim for a declaratory judgment
that the drawdown was authorized “[i]n light of ICC’s non-payment and significant delays in
“A conversion takes place when someone, intentionally and without authority, assumes
or exercises control over personal property belonging to someone else, interfering with that
person’s right of possession. Two key elements of conversion are (1) plaintiff’s possessory right
or interest in the property and (2) defendant’s dominion over the property or interference with it,
in derogation of plaintiff’s rights.” Colavito v. N.Y. Organ Donor Network, Inc., 860 N.E.2d
713, 717 (2006) (internal citations omitted). ICC claims that MasterCard took control of funds
pledged in a $2,780,000 standby letter of credit (“standby LC”) by presenting a drawing
statement to the issuing bank falsely stating that ICC had outstanding amounts due and payable.
MasterCard’s April 1, 2013, drawing statement stated: “We hereby demand payment . . . of the
amount of USD 2,780,000 . . . representing funds either (i) paid by any one or more of
MasterCard International Incorporated, Maestro International Incorporated and each of its
regional licensors to MasterCard, Cirrus, or Maestro Merchants, or (ii) Due and payable to
MasterCard, Cirrus or Maestro Merchants.”
ICC’s conversion claim is premised on the argument that there were no outstanding debts
to warrant MasterCard’s drawing on the standby LC. MasterCard argues that its actions were
authorized because it had a “good-faith” belief that ICC owed funds to numerous merchants.
According to MasterCard, because “ICC has produced no evidence whatsoever from which it
could possibly show that no funds were due and payable to MasterCard merchants,” the Court
should grant summary judgment against ICC’s conversion claim, and in favor of Defendant’s
counterclaim for a declaratory judgment that the April 1, 2013, drawdown was proper.
As explained above with respect to the parties’ breach of contract claims, a factual issue
remains as to whether and to what extent ICC was behind in its payments to merchants.
Defendant does not identify or even claim that any portion of the $2,780,000 drawn down was
used to pay ICC merchants. Indeed, MasterCard admits that it could not have paid these funds to
ICC merchants because “ICC [has] failed and refused to provide” information concerning “the
exact extent of the amounts owed to merchants by ICC.”
Given the lack of information concerning amounts allegedly owed to ICC’s merchants,
MasterCard’s motion for summary judgment on the parties’ respective claims concerning the
drawdown of the standby LC is denied.
Finally, MasterCard argues that “the Court should grant summary judgment against
ICC’s damages claims” because the opinion of ICC’s damages expert should be excluded under
Daubert v. Merell Dow Pharmaceuticals, 509 U.S. 579 (1993). MasterCard also asks for
summary judgment against any claim for what it asserts are “consequential damages.”
As explained at the July 28, 2015, conference, any Daubert motion to exclude testimony
from ICC’s damages expert will be filed and decided after summary judgment. MasterCard’s
motion for summary judgment as to damages is therefore denied as premature.
For the foregoing reasons, Defendant’s motion for summary judgment is GRANTED
with respect to ICC’s claim for breach of the implied covenant of good faith and fair dealing, but
DENIED as to all other claims.
The Clerk of Court is directed to close the motion at Docket No. 122.
Dated: May 26, 2016
New York, New York
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