International Cards Company, Ltd. v. Mastercard International Inc.

Filing 347

MEMORANDUM AND OPINION re: 293 MOTION for Attorney Fees and Costs in the Amount of $4,664,331.38 filed by International Cards Company, Ltd., 322 AMENDED MOTION for Attorney Fees and Costs filed by International Ca rds Company, Ltd: Plaintiff International Cards Company, Ltd. ("ICC") sued Defendant MasterCard International Inc. ("MasterCard") for breach of contract, among other claims. On the eve of trial, and almost four years after ICC br ought suit, MasterCard filed its third motion for summary judgment on the contract claim based on an interpretation of the contract MasterCard had not previously advanced. The Court granted the motion. ICC moves for sanctions pursuant to the Court� 39;s inherent authority and 28 U.S.C. § 1927, arguing that MasterCard must pay more than $4.6 million in attorneys' fees and expenses that ICC allegedly incurred because MasterCard did not raise the dispositive contract interpretation earlier. For the foregoing reasons, ICC's motion for sanctions is DENIED. The Clerk of Court is respectfully directed to close the motions at Docket Numbers 293 and 322. (Signed by Judge Lorna G. Schofield on 8/17/2017) (jwh)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------------ X
:
INTERNATIONAL CARDS COMPANY, LTD., :
:
Plaintiff,
:
:
-against:
:
MASTERCARD INTERNATIONAL INC.,
Defendant. :
------------------------------------------------------------ X

08/17/17

13 Civ. 2576 (LGS)
OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge:
Plaintiff International Cards Company, Ltd. (“ICC”) sued Defendant MasterCard
International Inc. (“MasterCard”) for breach of contract, among other claims. On the eve of trial,
and almost four years after ICC brought suit, MasterCard filed its third motion for summary
judgment on the contract claim based on an interpretation of the contract MasterCard had not
previously advanced. The Court granted the motion. ICC moves for sanctions pursuant to the
Court’s inherent authority and 28 U.S.C. § 1927, arguing that MasterCard must pay more than
$4.6 million in attorneys’ fees and expenses that ICC allegedly incurred because MasterCard did
not raise the dispositive contract interpretation earlier. For the following reasons, the motion is
denied.
BACKGROUND
Familiarity with the facts, the parties’ underlying contract and the procedural history is
assumed. See Int’l Cards Co. v. MasterCard Int’l Inc., No. 13 Civ. 2576, 2017 WL 1133425, at
*1 (S.D.N.Y. Mar. 24, 2017). Only the facts pertinent to the instant motion are recounted.
In April 2013, MasterCard terminated ICC’s Membership in the MasterCard payment
network and related brand licenses (the “contract”) that allowed ICC to acquire MasterCardbranded payment card transactions from merchants. The termination letter states that ICC had

“continued to delay payments to [m]erchants for transactions ICC acquired from those
[m]erchants” in breach of the parties’ contract.
Sixteen days after termination, ICC filed suit, asserting six causes of actions. Count One
alleges a breach-of-contract claim arising under New York law based on MasterCard terminating
the contract without first giving ICC notice and an opportunity to cure any alleged breach.
MasterCard sent a letter to ICC in June 2013, stating its intent to move to dismiss the
claims other than the contract claim and providing the reasons for such a motion. In July 2013,
ICC filed an Amended Complaint. MasterCard again sent a letter providing the reasons it would
move to dismiss all claims but the contract claim. The parties then stipulated that ICC would
amend its pleading to drop three of the six claims and MasterCard would file an answer and
counterclaims, if any, rather than move to dismiss. In its Answer, MasterCard asserted
counterclaims, including one breach-of-contract claim alleging that ICC breached the contract by
failing to pay merchants on a timely basis.
In November 2015, MasterCard moved for summary judgment on ICC’s remaining
claims, which were the contract claim, a claim for conversion and a claim for breach of the
implied covenant of good faith and fair dealing. As to ICC’s contract claim, MasterCard argued
that the contract authorized MasterCard to terminate without providing notice or opportunity to
cure because ICC had breached the contract by failing to make timely payments to merchants.
The Court denied summary judgment as to the contract claim and the conversion claim but
granted it as to the other claim. The Court held that summary judgment on the contract claim
was inappropriate because there was a genuine factual dispute about whether ICC’s alleged late
payments constituted a material breach of ICC’s contractual obligations. The Court also denied
as premature MasterCard’s motion for summary judgment as to damages on ICC’s contract

2

claim, explaining that this argument would be addressed along with any motion to exclude expert
testimony pursuant to Federal Rule of Evidence 702. MasterCard moved for reconsideration on
the contract claim, which the Court denied without requesting a response from ICC.
Both parties moved to exclude the other’s experts, and MasterCard moved for summary
judgment as to damages on ICC’s contract claim. The Court denied the motions to exclude, and
granted in part and denied in part MasterCard’s motion for summary judgment as to damages. A
jury trial was scheduled for April 3, 2017, on ICC’s breach-of-contract claim and conversion
claim and MasterCard’s breach-of-contract counterclaims.
A final pretrial conference was held on March 15, 2017. At the conference, MasterCard
asked for leave to move for summary judgment based on a new interpretation of the contract. In
contrast to its previous interpretation, i.e., MasterCard had the right to terminate without giving
notice or an opportunity to cure because ICC had failed to make timely payments to merchants,
MasterCard asserted the contract gave it an unconditional right to terminate without cause. The
parties briefed the question. Less than two weeks before the trial, the Court granted summary
judgment in MasterCard’s favor on the contract claim. It held that the contract authorized
MasterCard to terminate ICC’s membership without limitation as to time or cause and, as a
result, MasterCard had a valid legal defense. The Court also held that, under the circumstances,
MasterCard was not estopped or otherwise barred from asserting the legally correct interpretation
of a contract. In light of MasterCard’s failure to raise the interpretation earlier, the Court
provided ICC the opportunity to move for attorneys’ fees and costs that ICC would not have
incurred if the defense had been raised at an appropriate time. The Court explained that any such
motion must cite the specific legal and factual bases for any requested relief.

3

ICC moves for an award of it attorneys’ fees and costs as sanctions imposed pursuant to
the Court’s inherent authority, 28 U.S.C. § 1927 or both. ICC seeks an award of $4,086,815 in
attorneys’ fees, and $560,990.38 in costs, which it asserts ICC would not have incurred if
MasterCard had moved to dismiss ICC’s contract claim under Federal Rule of Civil Procedure
12(b)(6) based on MasterCard’s unconditional right of termination.
STANDARD
A district court possesses inherent authority “to fashion an appropriate sanction for
conduct which abuses the judicial process,” which includes an “assessment of attorney’s fees.”
Goodyear Tire & Rubber Co. v. Haeger, 137 S. Ct. 1178, 1186 (2017) (internal quotation marks
omitted). A court may not impose a sanction of attorney’s fees and costs pursuant to its inherent
power absent “clear evidence” that the challenged conduct is (1) “entirely without color,” Wilson
v. Citigroup, N.A., 702 F.3d 720, 724 (2d Cir. 2012), and (2) taken in bad faith, Goodyear, 137 S.
Ct. at 1184 (sanction awarding attorney’s fees under the court’s inherent authority must be
“limited to the fees the innocent party . . . would not have incurred but for the bad faith”); accord
Virginia Props., LLC v. T-Mobile Ne. LLC, --- F.3d ----, No. 16-2973, 2017 WL 3197539, at *2
(2d Cir. July 28, 2017). Bad faith is conduct “motivated by improper purposes such as
harassment or delay.” Enmon v. Prospect Capital Corp., 675 F.3d 138, 143 (2d Cir. 2012).
Under 28 U.S.C. § 1927, “[a]ny attorney . . . who so multiplies the proceedings in any
case unreasonably and vexatiously may be required by the court to satisfy personally the excess
costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” 28 U.S.C. §
1927. “The showing of bad faith required to support sanctions under 28 U.S.C. § 1927 is similar
to that necessary to invoke the court’s inherent power.” Enmon, 675 F.3d at 143 (internal
quotation marks omitted). Accordingly, the attorney’s actions must be “so completely without

4

merit as to require the conclusion that they must have been undertaken for some improper
purpose such as delay.” Id.; accord Zurich Am. Ins. Co. v. Team Tankers A.S., 811 F.3d 584,
591 (2d Cir. 2016). Whether acting under its inherent authority or § 1927, a court “focus[es] on
the purpose rather than the effect of the sanctioned attorney’s activities,” Enmon, 675 F.3d at
145, and any finding of bad faith requires “a high degree of specificity in the factual findings,”
Virginia Props., 2017 WL 3197539, at *2.
DISCUSSION
Although the Court is mindful that it invited the instant motion, and finds the conduct of
MasterCard’s counsel reproachable, ICC’s motion is denied because it fails to show that the
belated timing of the defense is “entirely without color” or that MasterCard acted in bad faith.
ICC cites no legal authority to support its proposition that the prevailing party must pay
the loser’s fees and costs if that party fails to alert the loser of a facial deficiency in its claim at
the earliest possible stage. Nor would this outcome be justified in these circumstances. This is
not the case where the prevailing party concealed or falsified evidence or other pertinent facts.
ICC could have ascertained the unambiguous meaning of the contract prior to filing suit or any
time thereafter. Further, ICC’s assertion of blamelessness is belied by the fact that it brought the
contract claim at issue and vigorously litigated it until its dismissal. See Almodovar v. N.Y.C.
Candy Store Shop Corp., No. 16 Civ. 3795, 2017 WL 2874467, at *4 (S.D.N.Y. July 5, 2017)
(denying motion for sanctions under a court’s inherent authority and 28 U.S.C. § 1927, reasoning
in part that the plaintiffs contributed to the delay at issue).
ICC adduces no evidence that MasterCard, or its counsel, intentionally concealed or
disclaimed the dispositive interpretation prior to raising it in its motion in limine in October

5

2016, and then at the final pre-trial conference in March 2017. The contract’s terms were
available for scrutiny by both parties throughout the litigation.
ICC also does not adduce any circumstantial evidence that adequately supports a finding
that MasterCard intentionally failed to raise its argument to delay or harass ICC. ICC does not
cite any other examples in which MasterCard or its counsel proceeded in bad faith, nor did the
Court observe such behavior during the course of the litigation. See Enmon, 675 F.3d at 148–49
(“[R]elevant to our [sanctions] inquiry is the fact that [a party’s] behavior is repetitive.” (internal
quotation marks omitted)). MasterCard repeatedly attempted to eliminate ICC’s claims,
beginning with its letters early in the litigation, the parties’ stipulation dismissing three of the six
causes of action and MasterCard’s initial motion for summary judgment on all of ICC’s
remaining claims. Lastly, the contention that MasterCard deliberately chose to wait almost four
years to raise its dispositive argument is undercut by the substantial risk that MasterCard could
have been barred from raising its interpretation as a result of its delay. On this record, the Court
attributes MasterCard’s conduct to neglect, not intentional misconduct.
ICC’s contrary arguments are unavailing. ICC’s theory that MasterCard’s conduct was a
deliberate attempt to punish ICC for bringing this lawsuit and to deter other licensees from doing
the same is mere speculation. There is sparse evidence that would support any such theory, let
alone evidence that would be sufficient to support factual findings with “a high degree of
specificity” that MasterCard engaged in this conduct in bad faith. Virginia Props., 2017 WL
3197539, at *2. ICC’s declaration by a law professor who specializes in legal ethics and
professional responsibility is unconvincing on this issue. The professor attests that although the
“economic incentives” of a large company, which presumably includes MasterCard, “usually
incentivize” the company to make a winning argument early in a case, that company “may have

6

more to gain in the long run by engaging in prolonged and intense litigation” against small
companies, which presumably includes ICC. This assumption is insufficient to show bad faith or
misconduct in this case.
ICC’s alternative argument that the Court need not find bad faith is rejected. In support,
ICC cites United States v. Seltzer, 227 F.3d 36 (2d Cir. 2000), which held that a finding of bad
faith is not required for a court to impose certain sanctions for an “attorney’s violation of a court
order or other misconduct that is not undertaken for the client’s benefit” but instead is “a
lawyer’s negligent or reckless failure to perform his or her responsibility as an officer of the
court.” Id. at 41–42. This exception to the bad faith requirement is inapplicable where, as here,
the sanction is the imposition of attorneys’ fees and costs for actions on behalf of a client in the
litigation. As the Second Circuit in Seltzer held, “[w]hen a district court invokes its inherent
power to impose attorney’s fees or to punish behavior by an attorney in the . . . conduct of the
litigation, which actions are taken on behalf of a client, the district court must make an explicit
finding of bad faith.” Id. at 41–42 (internal quotation marks, alterations and citation omitted);
see also Wilson, 702 F.3d at 724 (the “case law is clear that a district court may not impose
attorney’s fees as a sanction without first making an explicit finding that the sanctioned party,
whether a party or a party’s counsel, acted in bad faith in engaging in the sanctionable conduct”
(citing, e.g., Seltzer, 227 F.3d at 41–42)). MasterCard’s conduct -- namely, changing its legal
argument prior to trial -- constitutes “conduct of the litigation” that is “taken on behalf of a
client” and does not fit within the Seltzer exception to the bad faith requirement. 227 F.3d at 40–
42 (holding bad faith is not required for $350 sanction against attorney based on her tardiness in
returning to court for the jury verdict).

7

In sum, while the Court finds that the course of this litigation has been regrettable, ICC
has failed to demonstrate that MasterCard acted in bad faith or that an award of attorneys’ fees
and costs is otherwise warranted.
CONCLUSION
For the foregoing reasons, ICC’s motion for sanctions is DENIED. The Clerk of Court is
respectfully directed to close the motions at Docket Numbers 293 and 322.
Dated: August 17, 2017
New York, New York

8