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

Filing 348

OPINION AND ORDER re: 326 MOTION for Judgment as a Matter of Law . filed by Mastercard International Inc.. For the foregoing reasons, MasterCard's motion for judgment as a matter of law is DENIED, and its counterclaim seeking declaratory judgment is dismissed. The Clerk of Court is respectfully directed to close the motion at Docket Number 326. (Signed by Judge Lorna G. Schofield on 8/21/2017) (kgo)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
INTERNATIONAL CARDS COMPANY, LTD., :
:
Plaintiff,
:
:
-against:
:
MASTERCARD INTERNATIONAL INC.,
Defendant. :
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08/21/17

13 Civ. 2576 (LGS)
OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge:
A jury found for Plaintiff International Cards Company, Ltd. (“ICC”) on its conversion
claim against Defendant MasterCard International Inc. (“MasterCard”) and awarded ICC $2.78
million in damages. MasterCard moves for judgment as a matter of law under Federal Rule of
Civil Procedure 50(b) on ICC’s claim. For the following reasons, the motion is denied.
BACKGROUND
A.

Factual Background

Familiarity with the allegations and procedural history is assumed. See Int’l Cards Co. v.
MasterCard Int’l Inc., No. 13 Civ. 2576, 2016 WL 3039891, at *1–3 (S.D.N.Y. May 26, 2016).
The facts below are taken from undisputed evidence presented at trial.
ICC is a financial services company based in Jordan. MasterCard is a technology
company that maintains a payment network to facilitate the processing of debit and credit card
payment transactions. MasterCard’s payment network is based on the “four-party system.” The
four parties are: (1) cardholders that use MasterCard-branded cards to purchase goods or
services; (2) merchants that accept MasterCard-branded cards as payment for goods or services;
(3) issuers, the financial institutions that issue the MasterCard-branded payment cards to
cardholders; and (4) acquirers, the financial institutions that contract with merchants to acquire

the payment-card transactions. Cardholders pay issuers for their payment card transactions.
Acquirers pay merchants for the cardholder purchases in exchange for a fee. From December
23, 1999, until April 2, 2013, MasterCard granted ICC a Membership in MasterCard’s payment
network and related brand licenses that allowed ICC to act as both an issuer and acquirer. In
exchange, ICC paid MasterCard an annual licensing fee and other fees.
In its capacity as an acquirer, ICC’s standard agreement with merchants provides that
ICC “shall pay [merchants] the total value of the valid sales receipts submitted for collection,
when produced, after deducting and paying the agreed upon commission of (_)% and shall do so
within (_) business days of the date of receipt.” In almost all instances, ICC’s merchant
agreements state that the payment term is “within five business days of the date of receipt.”
In 2010, ICC provided MasterCard with collateral in the form of a letter of credit for
$1.72 million. In February 2012, MasterCard required ICC to provide additional collateral of
approximately $2.78 million. According to MasterCard’s February 2012 notification to ICC, the
additional collateral was needed to cover “ICC’s estimated MasterCard settlement exposure” of
$4.5 million. Settlement is the process by which an issuer pays funds to acquirers, or by which
an acquirer, like ICC, pays funds to merchants.
ICC posted the additional collateral in the form of a Standby Letter of Credit in the
amount of $2.78 million (the “Letter of Credit”). The Letter of Credit permits MasterCard to
“demand payment” for any amount that “represent[s] funds either (i) paid by . . . MasterCard . . .
to MasterCard . . . Merchants, or (ii) due and payable to MasterCard . . . Merchants.” It states
that “partial drawings are permitted.”
On March 28, 2013, MasterCard employees exchanged emails regarding drawing down
on the Letter of Credit on April 1, 2013, “in advance of officially terminating [ICC’s] licenses[.]”

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MasterCard employee Dharma Bajpai wrote that MasterCard has “evidence of [ICC’s] non[]payment to merchants, currently and in the past.” Another MasterCard employee, Ian Webb,
replied, “We have until the middle of the month to draw on the [Letter of Credit]. We could wait
until after the termination notice and decide after seeing post-termination behavior. Grounds for
drawing may be more robust then.” Bajpai responded in part:
There may be claims against [M]aster[C]ard and[/or] we may decide to make
some or all merchants whole. Having cash on hand and potentially returning it if
not used is a better course of action I feel . . . . We do not know the extent of
merchant non[-]payment. Onl[y] when we have drawn will we have leverage for
[I]CC to open up its books and conduct some form of audit. Again if we want to.
On April 1, 2013, MasterCard drew down on the Letter of Credit in the full amount of
$2.78 million.

MasterCard’s drawing statement, signed by Webb, states that the $2.78 million

“represent[s] funds either (i) paid by . . . MasterCard . . . to MasterCard . . . Merchants, or (ii)
[d]ue and payable to MasterCard . . . Merchants.” MasterCard did not pay, either before or after
the drawdown, any funds owed by ICC to any merchants, nor did MasterCard return any of the
funds to ICC until more than four years later, after the jury verdict. MasterCard did not draw
down on the $1.72 million letter of credit, which also provides that MasterCard could draw down
for funds paid by MasterCard to merchants or due and payable to merchants.
On April 2, 2013, MasterCard sent a letter to ICC terminating ICC’s Membership in
MasterCard’s network and related licenses effective as of that date. The letter provides that
“[d]espite MasterCard’s notice, ICC has continued to delay payments to [m]erchants for
transactions ICC acquired from those [m]erchants.”
B.

Procedural History

On April 18, 2013, ICC sued MasterCard asserting six causes of action. Count Three, the
only surviving claim at the time of trial, alleges conversion under New York law based on the

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$2.78 million drawdown on the Letter of Credit. MasterCard asserted three counterclaims -- two
claims for breach of contract and one claim for a declaratory judgment that MasterCard had a
right to draw down on the Letter of Credit.
On April 3, 2017, a six-day jury trial commenced on ICC’s conversion claim and
MasterCard’s contract counterclaims. The parties agreed before trial that judgment should be
entered on MasterCard’s declaratory judgment counterclaim in a manner consistent with the
jury’s finding on ICC’s conversion claim. The jury found for ICC on the conversion claim and
awarded ICC $2.78 million, in effect reversing MasterCard’s drawdown on the letter of credit.
The jury found for MasterCard on one of the two contract claims, concluding that ICC had
breached its contract with MasterCard “by failing to pay merchants on a timely basis or by
failing to provide information MasterCard requested.” The jury awarded no damages to
MasterCard. On April 24, 2017, MasterCard returned $2.78 million to ICC.
STANDARD
Judgment as a matter of law is appropriate “only if the court, viewing the evidence in the
light most favorable to the non-movant, concludes that a reasonable juror would have been
compelled to accept the view of the moving party.” MacDermid Printing Sols. LLC v. Cortron
Corp., 833 F.3d 172, 180 (2d Cir. 2016) (internal quotation marks omitted). “The court cannot
assess the weight of conflicting evidence, pass on the credibility of witnesses, or substitute its
judgment for that of the jury.” Wiercinski v. Mangia 57, Inc., 787 F.3d 106, 113 (2d Cir. 2015)
(internal quotation marks omitted). A Rule 50 motion may be granted only if “there exists such a
complete absence of evidence supporting the verdict that the jury’s findings could only have
been the result of sheer surmise and conjecture, or the evidence in favor of the movant is so
overwhelming that reasonable and fair minded [persons] could not arrive at a verdict against

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[it].” Warren v. Pataki, 823 F.3d 125, 139 (2d Cir. 2016) (internal quotation marks omitted),
cert. denied sub nom. Brooks v. Pataki, 137 S. Ct. 380 (2016).
DISCUSSION
MasterCard argues that no reasonable jury could have found in favor of ICC on the
conversion claim. This argument is rejected.
“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.” Colavito v. N.Y. Organ Donor Network, Inc., 860 N.E.2d 713, 717
(N.Y. 2006). In certain circumstances, a defendant commits conversion if she obtains possession
by making a knowingly false statement. See, e.g., Hyosung Am., Inc. v. Sumagh Textile Co., 25
F. Supp. 2d 376, 384 (S.D.N.Y. 1998) (applying New York law; “letter of credit applicant may
state a claim for conversion against party drawing down letter of credit using fraudulent
documents . . . .” (citing Emery-Waterhouse Co. v. R.I. Hosp. Tr. Nat’l Bank, 757 F.2d 399, 406
(1st Cir. 1985) (Breyer, J.))), aff’d, 189 F.3d 461 (2d Cir. 1999); City of Amsterdam v. Daniel
Goldreyer, Ltd., 882 F. Supp. 1273, 1280 (E.D.N.Y. 1995) (applying New York law; “the
commission of fraud may also be sufficient interference to support a claim of conversion”);
Merrill Lynch, Pierce, Fenner & Smith Inc. v. Arcturus Builders Inc., 552 N.Y.S.2d 287, 288
(1st Dep’t 1990) (conversion claim based on the defendants’ withdrawing funds from a bank to
which the defendants were not entitled); 23 N.Y. Jur. 2d Conversion, Etc. § 22 (2d ed., May
2017 update) (“A defendant who obtains possession of property under a false representation and
who retains the property is liable for conversion conducted with a clear intent designed to
victimize the owner.”); see generally Connaughton v. Chipotle Mexican Grill, Inc., 29 N.Y.3d
137, 142 (N.Y. 2017) (“To allege a cause of action based on fraud, plaintiff must assert a

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misrepresentation or a material omission of fact which was false and known to be false by
defendant . . . .” (internal quotation marks omitted)). “The usual measure of damages for
conversion is the value of the property at the time and place of conversion . . . .” Fantis Foods,
Inc. v. Standard Importing Co., 402 N.E.2d 122, 125 (N.Y. 1980); accord Overton v. Art Fin.
Partners LLC, 166 F. Supp. 3d 388, 402 (S.D.N.Y. 2016) (applying New York law).
The trial record contains ample evidence from which a reasonable jury could conclude
that MasterCard, intentionally and without authority, interfered with ICC’s right of possession in
$2.78 million by making a knowingly false statement in order to draw down on the Letter of
Credit. MasterCard made the representation necessary to obtain the funds -- that the $2.78
million MasterCard sought to draw down comprised either (1) amounts MasterCard paid to
merchants or (2) amounts due and payable to merchants. A reasonable jury could conclude that
MasterCard knew that neither of the two conditions was met. As to the first condition, it is
undisputed that MasterCard did not pay any amount to any ICC merchant. As to the second
condition, a reasonable jury could conclude that MasterCard knew that it was false to represent
that $2.78 million was due and payable to merchants at the time of the drawdown based on the
following evidence:
First, the evidence was sufficient for the jury to conclude that it was false to say that
$2.78 million was due and payable to merchants in April 2013. A December 2012 email from
ICC’s CEO Khalil Alami to MasterCard states that over 80% of ICC’s merchants, which
represented over 90% of its volume, were “up to date and paid daily.” At trial, Alami confirmed
that ICC was “striving” to pay every merchant “on a daily basis” rather than within the five-day
period contemplated by ICC’s standard merchant agreement. A reasonable jury could conclude
that ICC had accomplished its goal, and thus $2.78 million was not due and payable as of the

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drawdown on April 1, 2013. This conclusion is bolstered by the evidence that ICC’s acquiring
volume had been declining since 2008, meaning that ICC had fewer transactions to process with
fewer possibilities for late payment.
Second, the evidence was sufficient for the jury to conclude that MasterCard knew it was
false to represent that $2.78 million was due and payable to merchants. The evidence is
overwhelming that MasterCard had no idea how much, if anything, was owed to merchants. The
jury heard from multiple MasterCard witnesses who testified that they did not know of any
amounts due and payable to merchants at the time of the drawdown. For example, one employee
testified that MasterCard “did not have the specific amounts that [ICC] owed to merchants,” and
another employee answered in the negative when asked if she had “any personal knowledge of
specific amounts which were due to any specific merchants.” Three days before the drawdown,
one MasterCard employee conceded that MasterCard did not “know the extent of merchant non[]payment” and another wrote that, if MasterCard waited to draw down, its grounds for doing so
could become “more robust.” One employee suggests that only by drawing down could
MasterCard gain the “leverage” needed to “open up [ICC’s] books.” A reasonable jury could
infer that MasterCard was attempting to exert pressure on ICC by drawing down on the Letter of
Credit, despite knowing that $2.78 million was not due and payable to merchants.
MasterCard also never paid any funds to any ICC merchants, even though the March 28
email suggests that it planned to use the funds from the Letter of Credit to compensate merchants
for amounts ICC failed to pay them. A reasonable jury could conclude that MasterCard never
paid any merchant because no amounts were due and payable to any of them. MasterCard
argues that the jury was instructed that any post-drawdown conduct is irrelevant, but this
argument misapprehends the instruction. In its final jury instruction, the Court told the jurors:

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“You should consider only whether MasterCard’s drawdown was without authority. The [L]etter
of [C]redit does not create an obligation for MasterCard to use the funds for any particular
purposes after the drawdown.” This instruction makes clear that the alleged conversion was
based on the drawdown, not MasterCard’s subsequent retention of funds. MasterCard’s postdrawdown conduct is relevant to the extent it supports the inference that there were no merchants
to pay.
The evidence in the record is far from “so overwhelming that reasonable and fair minded
[persons] could not arrive at a verdict against [MasterCard].” Warren, 823 F.3d at 139.
MasterCard cites trial testimony and exhibits suggesting (to a greater or lesser extent) that ICC
continued to pay merchants for some months following ICC’s termination. None of that
evidence compels the conclusion that at least $2.78 million or more was due and payable on
April 1, 2013, or that MasterCard had any basis to believe that ICC owed at least $2.78 million
to merchants. The jury was entitled to conclude, as it apparently did, that even if some amount
was due and payable to merchants on April 1, 2013, MasterCard’s statement that $2.78 million
was due and payable was false, and MasterCard knew it was false as to the entire $2.78 million
because it had no idea what, if any, amount was owing.
MasterCard’s reliance on ICC’s failure to produce, either before or after the drawdown, a
list containing any outstanding payables is misplaced. At trial, the Court provided an adverse
inference instruction advising the jurors that they “may, but are not required to, conclude that the
documents ICC failed to produce were unfavorable to ICC on the issue of whether ICC timely
paid its merchants.” MasterCard does not show that ICC’s failure to produce documents
compels a reasonable jury to infer that $2.78 million was due and payable to merchants as of
April 1, 2013.

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MasterCard’s challenge as to damages also fails. First, MasterCard waived any objection
to the amount of the damages by raising it for the first time in its reply brief. See, e.g., Schlosser
v. Time Warner Cable Inc., No. 14 Civ. 9349, 2017 WL 2468975, at *6 (S.D.N.Y. June 7, 2017)
(challenge raised for the first time in a reply brief was waived).
Second, even assuming MasterCard had not waived its challenge, it has failed to show
that no reasonable jury could find ICC’s damages to be $2.78 million. The Court instructed the
jury, “The damages should equal the $2.78 million or any portion of that amount that you find
MasterCard intentionally and without authority drew down on ICC’s letter of credit.” Accord
Fantis Foods, 402 N.E.2d at 125 (noting the “usual measure” of damages is the value of the
converted property at the time and place of conversion). The “calculation of damages is the
province of the jury” and “considerable deference” should be given to the jury’s award, Restivo
v. Hessemann, 846 F.3d 547, 587 (2d Cir. 2017), including in the context of conversion claims,
see 23 N.Y. Jur. 2d Conversion, Etc. § 63 (2d ed., May 2017 update) (“It is for the jury to fix the
damages in an action for conversion, and it is improper for the court to direct a verdict.”). As
explained above, a reasonable jury could find that MasterCard’s drawdown as to every dollar of
the $2.78 million was unauthorized because its statement that $2.78 million “represent[ed] funds
. . . [d]ue and payable” to merchants was knowingly false. The Court cannot disturb the jury’s
damages calculation.
In sum, MasterCard has failed to show that, viewing the evidence in the light most
favorable to ICC, a reasonable juror would have been compelled to accept MasterCard’s view
that it did not convert $2.78 million when it drew down on the Letter of Credit.

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CONCLUSION
For the foregoing reasons, MasterCard’s motion for judgment as a matter of law is
DENIED, and its counterclaim seeking declaratory judgment is dismissed. The Clerk of Court is
respectfully directed to close the motion at Docket Number 326.
Dated: August 21, 2017
New York, New York

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