BROWNING et al v. DATA ACCESS SYSTEMS, INC. et al
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE EDUARDO C. ROBRENO ON 6/5/2012. 6/7/2012 ENTERED AND COPIES E-MAILED; AND MAILED TO PRO SE AND UNREP. (ems)
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
BILLY BROWNING, et al.,
DATA ACCESS SYSTEMS, INC., et al., :
M E M O R A N D U M
EDUARDO C. ROBRENO, J.
JUNE 5, 2012
TABLE OF CONTENTS
STANDARD OF REVIEW........................................6
Whether the Delaware Superior Court Dismissal was
a Final Adjudication...........................11
Plain meaning of Rule 41(b)...............12
Whether Judge Silverman specified that
dismissal was not an adjudication on the
Whether the Parties in the Delaware Action and
the Instant Case are the Same or in Privity....23
Failure to State a Claim............................30
Tortious Interference Claims...................33
Third-party Beneficiary Breach of Contract.....35
Plaintiffs Billy Browning, B&B Brown, Inc., Onek,
L.L.C., Korwit L.L.C, Eagle Visions Corp., Electronic Finance
Transfer Corp., and American Cash Machine, L.L.C. (collectively,
“Plaintiffs”) bring this class action on behalf of themselves
and all other similarly situated persons against Defendants-Data
Access Systems, Inc., First Bank of Delaware, and Alonzo Primus
Plaintiffs’ Complaint pleads five
counts: (1) conversion; (2) tortious interference with
contractual relations; (3) breach of a third-party beneficiary
contract; (4) tortious interference with prospective economic
advantage; and (5) breach of contract.
Defendants-First Bank of
Delaware and Alonzo Primus filed a motion to dismiss Plaintiffs’
complaint alleging that res judicata bars Plaintiffs’ claims,
or, in the alternative, that Plaintiffs’ Complaint fails to
state a claim for which relief can be granted.
For the reasons that follow, the Court will grant
Defendants’ Motion to Dismiss and dismiss Plaintiffs’ claims
with prejudice as to Plaintiffs-Billy Browning, B&B Brown, Inc.,
Onek, L.L.C., Korwit L.L.C, and Eagle Visions Corp, and without
prejudice as to Plaintiffs-Electronic Finance Transfer Corp. and
American Cash Machine, L.L.C., with leave to re-file.
Plaintiffs-Browning, B & Brown (“B&B”), Onek, Korwit,
and proposed class members (“Merchant Plaintiffs”) are a group
of merchants that either own or operate automatic teller
machines (“ATMs”) located in their businesses.
Access Systems (“DAS”) provides the actual ATM system.
particular ATMs do not directly dispense cash, but print out a
receipt that the consumer then presents to Merchant Plaintiffs
who then gives the consumer the money withdrawn from Merchant
Plaintiffs’ own cash-on-hand.
Merchant Plaintiffs operate the
ATMs for profit by using their own cash and then receiving, at a
later time, reimbursement of this cash and a portion of the ATM
Merchant Plaintiffs contracted with Defendant-DAS to
provide for this payment mechanism.
Corp, Electronic Finance Transfer Corp. (“EFTC”), American Cash
Machine, L.L.P. (“ACM”), and proposed class members function as
distributors of Defendant-DAS’s ATM systems (“Distributor
Distributor Plaintiffs contacted Merchant
Plaintiffs to effectuate the sale of Defendant-DAS’s ATM
Distributor Plaintiffs were paid a fee for each ATM
transaction that occurred on Merchant Plaintiff’s ATMs.
In accordance with the appropriate standard of review,
see infra Part III, the Court takes the facts in this section
from Plaintiffs’ Complaint, accepts their truth, and construes
them in the light most favorable to Plaintiffs.
To effectuate the reimbursement to Plaintiffs,
Defendant-DAS contracted with nonparty TranSend, L.L.C.
(“TranSend”) to gain access to the Visa and Mastercard networks
to complete the ATM transactions.
TranSend, in turn, had a
contract with Defendant-First Bank of Delaware (“First Bank”) to
deposit the funds into Defendant-DAS’s account with DefendantFirst Bank.
Defendant-First Bank housed the funds for
Plaintiffs’ ATM transactions and sent those funds to nonparty
Great Northern Bank (“Great Northern”).
Great Northern to distribute funds pursuant to Defendant-DAS’s
contracts with Plaintiffs.
This system of middlemen and
reimbursement worked without incident for several years.
2009, however, Visa and Mastercard discovered security breaches
on Defendant-DAS’s ATM system.
As a result, Defendant-First
Bank (not Defendant-DAS) was required to pay fines to atone for
Thereafter, Defendant-First Bank, by its then-
president and CEO Defendant-Alonzo Primus, terminated its
relationship with Defendant-DAS.
Defendant-First Bank then
froze all funds held in connection with Defendant-DAS’s ATM
services thereby preventing the reimbursement of Merchant
Plaintiffs and fee payment to Distributor Plaintiffs.
Defendant-DAS eventually filed an action against
Defendant-First Bank in the Delaware Court of Chancery.
Merchant Plaintiffs moved to intervene in that suit.
Chancellor Strine presided and ordered Defendant-First Bank to
pay the frozen money to Merchant Plaintiffs.
payment, Merchant Plaintiffs’ action against Defendants-DAS and
First Bank was transferred to the Delaware Superior Court.
the Superior Court case, Distributor Plaintiff-Eagle Visions
joined Merchant Plaintiffs.
These Plaintiffs filed three
Amended Complaints in the Delaware Superior Court.
Third Amended Complaint alleged five counts against DefendantsFirst Bank and DAS: (1) conversion; (2) negligence; (3) tortious
interference with contractual relations; (4) breach of a third
party beneficiary contract; and (5) tortious interference with
prospective economic advantage.
Defendant-First Bank filed a
motion to dismiss the Third Amended Complaint for failure to
state a claim upon which relief could be granted.
On January 31, 2011, Judge Fred S. Silverman granted
Defendant-First Bank’s motion and dismissed all counts of
Plaintiffs’ Third Amended Complaint against Defendant-First
See Browning v. Data Access Sys., Inc., No. 09C-10-248,
2011 WL 2163555, at *1 (Del. Super. Ct. Jan. 31, 2011).
Eventually, Plaintiffs stipulated to dismissal of Defendant-DAS
in the Delaware action.
After this dismissal, Plaintiffs filed a
complaint in the Court of Common Pleas of Philadelphia
County against Defendants.
Defendants timely removed to
ECF No. 1.
Defendants-First Bank and Primus
(who was not a defendant in the Delaware action) then filed
the instant motion to dismiss pursuant to Federal Rule of
Civil Procedure 12(b)(6) arguing that res judicata bars
Plaintiffs’ claims, or, in the alternative, that
Plaintiffs’ Complaint fails to state a claim upon which
relief can be granted.
ECF No. 5.
ECF No. 3.
Defendants filed a motion for
leave to file a reply brief.
ECF No. 8.
The Court held
The motion is now ripe for disposition.
III. STANDARD OF REVIEW
A party may move to dismiss a complaint for failure to
state a claim upon which relief can be granted.
Fed. R. Civ. P.
When considering such a motion, the Court must
“accept as true all allegations in the complaint and all
reasonable inferences that can be drawn therefrom, and view them
in the light most favorable to the non-moving party.”
DeBenedictis v. Merrill Lynch & Co., Inc., 492 F.3d 209, 215 (3d
Cir. 2007) (internal quotation marks omitted).
To withstand a
motion to dismiss, the complaint’s “[f]actual allegations must
be enough to raise a right to relief above the speculative
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
This “requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.”
Although a plaintiff is entitled to all reasonable
inferences from the facts alleged, a plaintiff’s legal
conclusions are not entitled to deference and the Court is “not
bound to accept as true a legal conclusion couched as a factual
Papasan v. Allain, 478 U.S. 265, 286 (1986).
The pleadings must contain sufficient factual
allegations so as to state a facially plausible claim for
See, e.g., Gelman v. State Farm Mut. Auto. Ins. Co.,
583 F.3d 187, 190 (3d Cir. 2009).
“‘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.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
In deciding a
Rule 12(b)(6) motion, the Court is to limit its inquiry to the
facts alleged in the complaint and its attachments, matters of
public record, and undisputedly authentic documents if the
complainant’s claims are based upon these documents.
v. Fox, Rothschild, O’Brien & Frankel, 20 F.3d 1250, 1261 (3d
Cir. 1994); Pension Benefit Guar. Corp. v. White Consol. Indus.,
Inc., 998 F.2d 1192, 1196 (3d Cir. 1993).
Defendants-First Bank and Primus (also referred to
herein as “Defendants”) filed the instant motion to dismiss
arguing that res judicata bars Plaintiffs’ claims, or, in the
alternative, that Plaintiffs’ Complaint fails to state a claim
for which relief can be granted.
Defendants-First Bank and Primus contend that
Plaintiffs’ Complaint must be dismissed because it was dismissed
on the merits in the Delaware Superior Court and, therefore,
Plaintiffs are now precluded from filing suit alleging the same
claims in this case.
Plaintiffs, on the other hand, contend
that Judge Silverman, though he dismissed Plaintiffs’ claims,
did not dismiss their claims with prejudice.
Delaware case did not result in a final adjudication on the
merits and res judicata does not bar Plaintiffs’ claims.
As a threshold matter, the parties agree that Delaware
law applies to the issue of res judicata.2
Under Delaware law,
The issue of which state law a federal court sitting
in diversity applies in ruling on a res judicata claim has been
the source of recent confusion. In Semtek International Inc. v.
Lockheed Martin Corp., the Supreme Court held that when sitting
in diversity a federal court is to apply the preclusion law of
“the State in which the federal diversity court sits.” 531 U.S.
497, 508 (2001). In Nationwide Mutual Fire Insurance Co. v.
George V. Hamilton, Inc., the Third Circuit cited Semtek and
res judicata bars a party “bringing a second suit based on the
same cause of action after a judgment has been entered in a
prior suit involving the same parties.”
Inc., 765 A.2d 531, 534 (Del. 2000).
Betts v. Townsends,
Specifically, the party
explained that because the district court was in Pennsylvania
and siting in diversity, Pennsylvania’s preclusion law applied
when deciding whether a Pennsylvania state court’s judgment
barred the district court case. 571 F.3d 299, 310 (2009). The
Third Circuit’s decision in Nationwide Mutual is true under the
facts of that case — a state court issuing the judgment in the
same state as the district court sits — it is not true when the
state where the judgment rendered is different from the state in
which the district court sits. Semtek was a case about a
dismissal from a federal court sitting in diversity and that
dismissal’s preclusive effect in a state court. See Semtek, 531
U.S. at 506. The language from Semtek that the preclusion law
to apply is “the law that would be applied by state courts in
the State in which the federal diversity court sits” refers to
the federal diversity court that issued the underlying judgment
that allegedly has preclusive effect in the second law suit, not
the diversity court enforcing a state court judgment. Id. at
508. This rule unifies the preclusion law for judgments issued
in state courts and federal courts siting in diversity. Id.
That is so because when there is a state court judgment, like in
this case, the Full Faith and Credit Clause, U.S. Const. art.
IV, § 1, as implemented by the Full Faith and Credit Act,
requires “all federal courts to give preclusive effect to statecourt judgments whenever the courts of the State from which the
judgments emerged would do so.” Allen v. McCurry, 449 U.S. 90,
96 (1980) (citing 28 U.S.C. § 1738); see also Migra v. Warren
City Sch. Dist. Bd. of Educ., 465 U.S. 75, 81 (1984). Thus, it
seems, aside from the parties’ agreement, Delaware law is the
correct choice of law in this case. See In re Diet Drugs, 282
F.3d 220, 239-40 (3d Cir. 2002) (applying Texas law to
collateral estoppel claim despite district court sitting in
Pennsylvania); see also Rick v. Wyeth, 662 F.3d 1067, 1069 (8th
Cir. 2011) (comparing rule in Semtek to when there is state
court judgment and noting that Full Faith and Credit Clause
requires application of state law in which underlying judgment
arguing that res judicata applies must prove the following five
(1) the original court had jurisdiction over the
subject matter and the parties; (2) the parties to the
original action were the same as those parties, or in
privity, in the case at bar; (3) the original cause of
action or the issues decided was the same as the case
at bar; (4) the issues in the prior action must have
been decided adversely to the appellants in the case
at bar; and (5) the decree in the prior action was a
Dover Historical Soc’y, Inc. v. City of Dover Planning Comm’n,
902 A.2d 1084, 1092 (Del. 2006).
With respect to Defendants-
First Bank and Primus’s res judicata argument, Plaintiffs only
argue that the second and fifth elements are not met here.
Indeed, it is beyond dispute that elements one, three, and four
are met in this case.3
Accordingly, the Court turns first to
whether there was a final adjudication on the merits in the
Delaware action, if there was not, this is the end of the
inquiry as to all parties.4
If, on the other hand, there was a
Although Plaintiffs brought the new claim of breach of
contract in this case, they only asserted this claim against
Defendant-DAS. Otherwise, there is a continuity of claims
asserted against Defendants-First Bank and Primus between the
Delaware action and this case.
The fifth element under Delaware law requires a final
decree. Under Delaware law, such a decree is “generally defined
as one that determines the merits of the controversy or defines
the rights of the parties and leaves nothing for future
determination or consideration.” Tyson Foods, Inc. v. Aetos
Corp., 809 A.2d 575, 579 (Del. 2002). In other words, whether
there was a final adjudication on the merits.
final adjudication, the Court then considers whether the parties
in the Delaware action and the instant case are the same or in
Whether the Delaware Superior Court Dismissal was
a Final Adjudication
Defendants argue that Judge Silverman’s dismissal was
a final adjudication for res judicata purposes.
In making this
argument, Defendants rely on Delaware Superior Court Rule of
Civil Procedure 41(b).
In doing so, Defendants argue that Judge
Silverman, in dismissing Plaintiffs’ Third Amended Complaint,
did not indicate in the opinion or otherwise that the dismissal
was without prejudice.
Therefore, it must be an adjudication on
Plaintiffs, conversely, argue that Judge
Silverman’s opinion only dismissed their claims for “failure to
state a claim” and such a pleading deficiency is not an
adjudication on the merits for purposes of res judicata.
Delaware Superior Court Rule of Civil Procedure 41(b),
which tracks the language of its federal counterpart, provides,
in pertinent part:
Unless the Court in its order for dismissal otherwise
specifies, a dismissal under this subdivision and any
dismissal not provided for in this Rule, other than a
dismissal for lack of jurisdiction, for improper
venue, or for failure to join a party under Rule 19,
operates as an adjudication upon the merits.
Del. Super. Ct. R. Civ. P. 41(b).
In attempting to defeat
Defendants’ Motion, Plaintiffs argue that under the plain
meaning of Rule 41(b) Judge Silverman’s dismissal was not an
adjudication on the merits.
In the alternative, Plaintiffs
argue that Judge Silverman “otherwise specifi[ed]” in his
opinion that dismissal was not an adjudication on the merits.
The Court finds both arguments unpersuasive.
Plain meaning of Rule 41(b)
In relying upon Rule 41(b), Defendants contend that
Judge Silverman’s dismissal of Plaintiffs’ Third Amended
Complaint was with prejudice because on its face Judge Silverman
did not include in his opinion or order that dismissal was
Plaintiffs counter that Rule 41(b) does not
have this effect, even if Judge Silverman did not indicate that
dismissal was without prejudice because Judge Silverman’s
dismissal was for a defect in the pleadings — failure to allege
sufficient facts to state a claim — and was not a valid and
final personal judgment that would bar a subsequent suit for the
In making this argument, Plaintiffs rely upon the
decision of the Delaware Chancery Court in Trans World Airlines,
Inc. v. Hughes, 317 A.2d 114 (Del. Ch. 1974) [hereinafter Trans
See Pls.’ Br. in Opp’n to Defs.’ Mot. to Dismiss 14,
ECF No. 5 [hereinafter Pls.’ Br.].
Trans World, involved litigation between the airline
and its controlling shareholder, the defendant, Howard R.
317 A.2d at 116.
The underlying suit for res judicata
purposes was an action in the Southern District of New York
alleging federal antitrust violations and a state law claim for
breach of fiduciary duty.
Id. at 116-17.
Eventually, the case
proceeded to the United States Supreme Court.
Supreme Court held that the defendants were immune from suit for
antitrust violations under the Civil Aeronautics Act.
118 (citing Hughes Tool Co. v. Trans World Airlines, Inc., 409
U.S. 363 (1973)).
On remand, the district court dismissed the
plaintiff’s suit in its entirety.
The plaintiff then filed suit
in Delaware Chancery Court alleging the same breach of fiduciary
duty by Hughes as it alleged in the federal suit.
Id. at 118.
The Chancery Court held that for res judicata to apply, the
previous suit must have resulted in a “valid and final personal
judgment” in favor of the party invoking its application.
That is, the dismissal of the underlying suit was not
for a “defect of pleadings, or parties, or a misconception of
the form of proceeding, or the want of jurisdiction, or was
disposed of on any ground which did not go to the merits of the
Id. (internal quotation marks omitted).
And, as the
Supreme Court and other federal rulings only considered the
plaintiff’s federal antitrust claims, res judicata did not bar
the plaintiff’s state law claims.
Id. at 120.
The Chancery Court also considered the effect of Rule
With respect to this rule, the court stated, even though
the district judge did not indicate the dismissal of the state
law claim was without prejudice, for such a dismissal to have
res judicata effect the plaintiff must have “completed the
presentation of his evidence.”
Id. at 121 (emphasis in
In the federal case the plaintiff never introduced
Thus, Rule 41(b) did not act as an
adjudication on the merits to bar the plaintiff’s state claim.
Relying on Trans World, Plaintiffs argue that in order for
Judge Silverman’s dismissal to have preclusive effect,
Plaintiffs must have presented evidence in the Delaware action.
Thus, because Judge Silverman dismissed their Third Amended
Complaint before such presentation of evidence, Plaintiffs argue
that Judge Silverman’s dismissal cannot be on the merits for
purposes of res judicata.
Plaintiffs’ argument fails in the face of the Delaware
Supreme Court’s opinion affirming Trans World in Hughes v. Trans
World Airlines, Inc., 336 A.2d 572, 576 (Del. 1975) [hereinafter
In Hughes, the Delaware Supreme Court examined whether
the decision of the federal district court was an adjudication
on the merits under Rule 41(b).
The Delaware Supreme Court
stated that the opinion of the court entering the dismissal
order “is particularly significant since Rule 41(b) attaches
consequences to a dismissal (u)nless the Court . . . otherwise
Id. at 576 (omission in original) (internal
quotation marks omitted).
The court noted, “[t]he dismissal [in
the federal action] was upon the merits as far as the federal
claims [were] concerned,” such was not the result for the state
Id. (internal quotation marks omitted).
In making this
determination, the court focused on the language of the district
court’s opinion where the judge wrote, “[I]t does not follow
that such a dismissal (in the Federal Court) would be a bar to
the nonfederal claims.”
Id. (internal quotation marks omitted).
The court concluded that under Rule 41(b), the district court’s
dismissal did not operate as an adjudication on the merits of
the state claim because the district court judge had so
specified in his opinion.
The court did not consider, as
the Chancery Court did, whether at the time of the dismissal the
plaintiff had completed the presentation of evidence.
Read properly, Hughes stands for the proposition that
under Rule 41(b) a dismissal is to be deemed “with prejudice”
unless, as in Hughes, the dismissing court otherwise stated in
the dismissal order or opinion.5
Other Delaware court holdings
Under the terms of Rule 41(b), a dismissal “for lack
of jurisdiction, for improper venue, or for failure to join a
are consistent with this conclusion.
See City of Wilmington ex
rel. Water Dep’t v. Lord, No. 5388, 1981 WL 383083, at *11 (Del.
Super. Ct. 1981) (“[T]he dismissal of the complaint in the first
condemnation action for failure to state a claim on which relief
could be granted without specification of whether the dismissal
was ‘without prejudice’ should, according to Rule 41(b), be
deemed a judgment on the merits.”); see also Ward v. Indian
River Sch. Dist., No. 205, 1990, 1991 WL 12100, at *1 (Del. Jan.
4, 1991) (“A dismissal for failure to comply with Superior Court
rules in this case operates as an adjudication on the merits
because the Superior Court did not specify otherwise.” (citing
Del. Super. Ct. R. Civ. P. 41(b))).
Under Hughes therefore,
there is no requirement, as suggested by the Chancery Court’s
decision in Trans World and relied upon by Plaintiffs, that a
dismissal must be without prejudice unless a plaintiff has
completed presentation of its evidence.6
party under Rule 19” would not be an adjudication on the merits.
See Del. Super. Ct. R. Civ. P. 41(b).
The federal courts’ interpretation of identical
language under Federal Rule of Civil Procedure 41(b) is
consistent with the Delaware courts’ interpretation of Delaware
Superior Court Rule of Civil Procedure 41(b). See Paganis v.
Blonstien, 3 F.3d 1067, 1071 (7th Cir. 1993); see also 9 Charles
Alan Wright & Arthur R. Miller, Federal Practice and Procedure,
§ 2373 n.47 (3d ed. 2008) (collecting cases).
Plaintiffs also point to Costello v. United States,
365 U.S. 265, 285 (1961).
In that case, the defendant had been
convicted of fraudulently obtaining a certificate of
Id. at 267.
The defendant, Costello, had
already been the subject of a previous denaturalization
complaint, but it was dismissed because the Government did not
submit an affidavit of good cause, which was a prerequisite to
bringing a denaturalization proceeding.
In affirming the lower court’s denaturalization, the
Supreme Court addressed the defendant’s argument that because
his previous denaturalization suit was dismissed, his second
suit was barred by res judicata.
Id. at 384.
The Supreme Court
rejected this argument and held that the defendant’s dismissal
in his initial denaturalization suit was for “lack of
jurisdiction” because it was dismissed for failure to file an
affidavit of good cause.
And, therefore, the defendant’s
initial suit did not have preclusive effect.
Id. at 285.
particular, Costello held that “lack of jurisdiction” under Rule
41(b) is not a narrow inquiry of personal or subject matter
Id. at 285.
Lack of jurisdiction “encompass[es]
those dismissals which are based on a plaintiff’s failure to
comply with a precondition requisite to the Court’s going
forward to determine the merits of his substantive claim.”7
Costello is not helpful to Plaintiffs.
In the instant
case, unlike Costello and as explained more thoroughly below,
Judge Silverman dismissed Plaintiffs’ Third Amended Complaint
for failure to state a claim, which is an adjudication on the
merits and not a defect in the pleadings.
Moreover, there is no
argument, nor could there be, that Judge Silverman’s opinion
fits any of the three exceptions listed in Rule 41(b) — “lack of
jurisdiction, improper venue, or failure to join a party under
Del. Super. Ct. R. Civ. P. 41(b).
Under the circumstances here, the Court holds that,
under a plain reading of Rule 41(b), because Judge Silverman did
not specify that the dismissal was without prejudice, the
dismissal of Plaintiffs’ Third Amended Complaint in the Delaware
action was an adjudication on the merits.
Costello also explained that Rule 41(b) did not alter
the common law view of an adjudication on the merits. That is,
if a suit was “dismissed for defect of pleadings, or parties, or
a misconception of the form of proceeding, or the want of
jurisdiction, or was disposed of on any ground which did not go
to the merits of the action, the judgment rendered will prove no
bar to another suit.” Costello, 365 U.S. at 286 (internal
quotation marks omitted).
Whether Judge Silverman specified that
dismissal was not an adjudication on the
Plaintiffs also argue that, despite the absence of the
express reference to the dismissal being “without prejudice,”
Judge Silverman otherwise specified within his opinion that the
dismissal was without prejudice within the meaning of Rule
Judge Silverman dismissed Plaintiffs’ Third Amended
Complaint concluding that Plaintiffs’ claims did not meet
Delaware’s standard for stating a cognizable claim — that “no
circumstances exist under which Plaintiffs could recover.”
Browning, 2011 WL 2163555, at *2.
In so holding, Judge
[T]he conversion claim is dismissed because the money
was not Plaintiffs and the bank was not holding the
money for them. . . .
The negligence claim is
Plaintiffs. The breach of contract claim is dismissed
because it is too vague.
Finally, the tortious
interference claims are dismissed because Plaintiffs
have not pleaded any facts suggesting First Bank was
even aware they existed.
Id. at *1.
The Court will consider Plaintiffs’ argument
that Judge Silverman otherwise specified that his dismissal
of Plaintiffs’ Third Amended Complaint in the Delaware
action was without prejudice on a claim-by-claim basis:
first considering Plaintiffs’ conversion claim, then their
tortious interference claims, and finally Plaintiffs’ claim
for breach of a third-party beneficiary contract.
Plaintiffs’ conversion claim is easiest to
Judge Silverman is explicit in his opinion that
Plaintiffs had no claim for the money held by DefendantFirst Bank.
Id. at *2.
interest to the money.
All they had was an expectation
An expectation to money does
not state a claim under either Delaware or Pennsylvania
See infra Part IV.B.1.
There is nothing in his
opinion that suggests this was not an adjudication on the
merits or that additional facts would cure this legal
Thus, Judge Silverman considered Plaintiffs’
Third Amended Complaint and found the claim for conversion
legally deficient and dismissed it with prejudice.
As for Plaintiffs’ tortious interference claims,
Judge Silverman held that because Plaintiffs did not allege
that Defendant-First Bank was even aware of Plaintiffs’
existence, Defendant-First Bank could not have
intentionally interfered with Plaintiffs’ current contracts
or prospective business opportunities.
Id. at *4.
the Court cannot divine any intent of Judge Silverman to
otherwise specify that dismissal of this claim was not on
Finally, Judge Silverman dismissed Plaintiffs’
claim for breach of a third-party beneficiary contract
because Plaintiffs’ claim was “too vague to put First Bank
Id. at *3.
Although at first glance this
language appears to be an invitation for further
specificity, examined carefully, it is not.
Silverman stated that Plaintiffs failed to indicate that
Defendant-First Bank intended to benefit Plaintiffs.
Indeed, Judge Silverman states that Plaintiffs requested
discovery to plead such facts, yet “Plaintiffs may not use
discovery to search for new causes of action.”
Judge Silverman’s rejection of Plaintiffs’ plea for further
discovery, and in light of the fact that Judge Silverman
dismissed Plaintiffs’ Third Amended Complaint, see infra
note 7, it follows, therefore, that Judge Silverman
intended for the dismissal to be on the merits.8
The Court also notes the procedural posture and case
history of the Delaware action. Plaintiffs amended their
complaint three times. After the second amendment, DefendantFirst Bank moved to dismiss. Plaintiffs then moved for leave to
file a Third Amended Complaint. See Browning, 2011 WL 2163555,
at *2. Judge Silverman, instead of ruling on Defendant-First
Bank’s motion to dismiss Plaintiffs’ Second Amended Complaint,
required the parties to consider dismissal of Plaintiffs’ Third
Amended Complaint. Id. Moreover, the Delaware case docket
reflects that after Judge Silverman’s opinion, Plaintiffs never
sought leave to amend or reconsideration. Nor did Plaintiffs
appeal. Indeed, there was no action in the case for almost five
months. After the Third Amended Complaint, and by requiring the
parties to consider dismissal of this Complaint rather than
Accordingly, as Judge Silverman did not otherwise
specify within his dismissal of Plaintiffs’ Third Amended
Complaint, Rule 41(b) operates to make this dismissal on
the merits and is a final judgment within the meaning of
Delaware res judicata law.9
dismissal of Plaintiffs’ Second Amended Complaint, Judge
Silverman’s dismissal was understandably with prejudice.
To be sure, there is language from Semtek interpreting
Federal Rule 41(b) that states a dismissal with prejudice under
Rule 41(b) is a “necessary condition, but it is not a sufficient
one, for claim-preclusive effect in other courts.” Semtek Int’l
Inc. v. Lockheed Martin Corp., 531 U.S. 497, 506 (2001). This
language is not applicable here. Under Delaware law, a
dismissal for failure to state a claim is a final judgment with
preclusive effect. See Duffy v. Kent Cnty. Levy Ct., Inc., No.
09-817, 2011 WL 748487, at *4 (D. Del. Feb. 23, 2011) (finding
Superior Court dismissal for failure to state claim was final
judgment on the merits for res judicata purposes); Braddock v.
Zimmerman, 906 A.2d 776, 783-84 (Del. 2006) (holding final
judgment results in Delaware regardless if complaint is
dismissed with or without prejudice unless plaintiff is granted
leave to amend and indicating that without prejudice means only
that final judgment does not operate as res judicata); see also
Xu Hong Bin v. Heckmann Corp., No. 4802, 2010 WL 187018, at *4
(Del. Ch. Jan. 8, 2010) (holding in context of indemnification
rights of corporate director under Delaware law that “Xu
prevailed on the merits of Count III when I dismissed it for
failure to state a claim”); cf. N. Am. Catholic Educ.
Programming Found., Inc. v. Gheewalla, 930 A.2d 92, 93 (Del.
2007) (ruling on appeal for dismissal for failure to state claim
and calling such dismissal final judgment). The same result is
true under Federal Rule of Civil Procedure 12(b)(6). Federated
Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 399 n.3 (1981); see
also 5B Wright & Miller, supra, § 1357 n.101 (collecting cases).
Whether the Parties in the Delaware Action and
the Instant Case are the Same or in Privity
Having found that Judge Silverman’s dismissal was on
the merits and has preclusive effect, the Court turns to whether
the parties in this action are the same or in privity with the
parties in the Delaware action.
As an initial matter, with
respect to named Plaintiffs-Browning, B&B, Onek, Korwit, and
Eagle Visions, it is clear that they are the same Plaintiffs as
in the Delaware action.
Compare Pls.’ Compl. 2, ECF No. 1, with
Pls.’ Third Amend. Compl. 1, Defs.’ Br. in Supp. of Mot. to
Dismiss Ex. 2, ECF No. 3-3 [hereinafter Defs.’ Br.].
Moreover, the addition of Defendant-Primus in this
case does not prevent res judicata from barring Plaintiffs’
claims under the theory that all defendants must be the same or
in privity with each other in the subsequent action.
Primus was at all times the agent of Defendant-First Bank as its
Chief Operating Officer and the person responsible for
Defendant-DAS’s account that held Plaintiffs’ alleged
It was Defendant-Primus who allegedly made
the decision to freeze Defendant-DAS’s account — and thus froze
the money to reimburse Plaintiffs — and also to terminate
Defendant-First Bank’s contract with Defendant-DAS.
cannot now, after suing the principal (Defendant-First Bank) and
having their claims dismissed, sue the agent on the same theory
in hopes of obtaining a more favorable outcome.
See Turner v.
Crawford Square Apartments III, L.P., 449 F.3d 542, 549 n.11 (3d
Cir. 2006); see also Restatement (Second) of Judgments § 51
Indeed, Plaintiffs do not provide any argument to the
Accordingly, res judicata bars those Plaintiffs from
pursuing their claims in this Court individually or as a member
of any future class of Plaintiffs.
The closer question, however, is whether PlaintiffsEFTC and ACM are in privity with the previously named Delaware
Plaintiff-Eagle Visions was a named class
representative in the Delaware action purportedly representing a
class of distributors.
In this case, Plaintiffs-EFTC and ACM
are the purported class representatives of different classes of
See Pls.’ Compl. ¶¶ 2-4 (stating that Plaintiff-
Eagle Visions represents a class of “approximately 600
merchants” referred to as distributors, that Plaintiff-EFTC
represents a class of “approximately 650 merchants” referred to
as distributors, and that Plaintiff-ACM represents a class of
“approximately 450 merchants” referred to as distributors).
Thus, Plaintiffs-EFTC and ACM are both purposed class
representatives of similar, if not the same, class of Plaintiffs
that Plaintiff-Eagle Visions purportedly represented in the
Under Delaware law, “[p]arties are in privity for res
judicata when their interests are identical or closely aligned
such that they were actively and adequately represented in the
Aveta Inc. v. Cavallieri, 23 A.3d 157, 180 (Del.
Yet, “prudence dictates caution when applying this
“Preclusion can properly be imposed when
the claimant’s conduct induces the opposing party reasonably to
suppose that the litigation will firmly stabilize the latter’s
Id. (emphasis in original) (internal
quotation marks omitted).
Defendants argue that by just naming new class
representative plaintiffs, here Plaintiffs-EFTC and ACM,
Plaintiffs cannot escape res judicata’s bar to subsequent
suit for the same claims.
In support, Defendants rely
heavily on a California case, Alvarez v. May Department
Stores Co., 49 Cal. Rptr. 3d 892 (Cal. Ct. App. 2006).
that case, the court held that collateral estoppel
prevented the plaintiffs from seeking class certification
in a claim for failure to pay overtime wages where such
class certification was previously denied, despite the fact
that the new representative plaintiff did not receive
notice of the prior suit.
Id. at 900.
In balancing the
due process interests of the plaintiffs and the purposes of
collateral estoppel, the court held, “When a prevailing
party seeks to enforce a ruling denying class certification
against an absent putative class member, the general
principles of collateral estoppel apply.”
plaintiffs’ interests, when litigating the issue of class
certification that was already litigated, were adequately
represented by the previous plaintiffs.
Alvarez is distinguishable from this case for
three important reasons.
First, the court in Alvarez
relied explicitly on the “virtual representation” theory of
privity when it held that the previous proposed class
representative adequately represented the new plaintiff’s
See id. at 901 (“[W]e conclude the Duran
plaintiffs were the ‘virtual representatives’ of
The only difference we can discern between the
parties is the name of the representative plaintiff.
interested parties, their claims, and their counsel are the
The Supreme Court in Taylor v. Sturgell, 553 U.S.
880, 904 (2008), rejected this theory.
Second, this case is not about re-litigating
class certification, as the parties never moved for or
litigated class certification in the Delaware action.
case is about the merits of the underlying claims, a more
individualized issue than class certification.10
Third, and most persuasively, the Supreme Court
recently held under similar facts to Alvarez that
“[n]either a proposed class action nor a rejected class
action may bind nonparties.”
Ct. 2368, 2380 (2011).
Smith v. Bayer Corp., 131 S.
Bayer involved proposed class
actions for breach of warranties and violations of consumer
protection laws for the defendant’s allegedly harmful drug
Id. at 2373.
In that case a proposed class
representative plaintiff McCollins brought suit against the
defendant in West Virginia state court.
removed to the Southern District of West Virginia and
eventually, after consolidation pursuant to the Judicial
Panel on Multi-District Litigation, the District of
Minnesota denied class certification.
McCollins filed suit in West Virginia state court, another
plaintiff, Smith, also filed a proposed class action
against the defendant asserting similar claims in West
Virginia state court.
After the district court denied
class certification in McCollins’s case, the defendant
The Court also notes that Alvarez was a case on issue
preclusion, which is a somewhat farther reaching type of
moved for the district court to enjoin class certification
in Smith’s state court case.
The district court
granted the defendant’s motion and enjoined Smith’s class
Id. at 2374.
Eighth Circuit affirmed.
The Court of Appeals for the
The Supreme Court reversed.
The Supreme Court held that not only was the
district court’s injunction a violation of the AntiInjunction Act, 28 U.S.C. § 2283 (2006), but the district
court’s denial of class certification had no preclusive
effect on Smith’s state court class certification because
Smith was not a party in McCollins’s class.
Id. at 2380.
The Court explained that without a class certification,
Smith could not be bound by the district court’s class
See id. at 2381 n.11 (citing list
of scholarly sources that all agree that uncertified class
action cannot bind proposed class member).
Notably, Bayer also addressed the concerns that
Defendants have here over the possibility of repeated
litigation by substituted class representatives.
Defs.’ Br. 12-13.
While the Supreme Court acknowledged the
problem, it held that it flew “in the face of the rule
against nonparty preclusion.”
Bayer, 131 S. Ct. at 2381.
To assuage such concerns, the Supreme Court explained,
“[O]ur legal system generally relies on principles of stare
decisis and comity among courts to mitigate the sometimes
substantial costs of similar litigation brought by
But see Thorogood v. Sears,
Roebuck & Co., Nos. 10-2407, 11-2133, --- F.3d ----, 2012
WL 1508226, at *5 (7th Cir. May 1, 2012) (explaining that
policy concerns rejected in Bayer are “acute” in subsequent
class actions with new class representatives).
In addition, the Court located a Delaware
Chancery Court opinion that is entirely consistent with
In Kohls v. Kenetech Corp., Vice
Chancellor Lamb explained, in a discussion of privity under
Delaware law, that proper notice to a nonparty in a class
action will bind that nonparty.
791 A.2d 763, 769-70 (Del.
Ch. 2000), aff’d, 794 A.2d 1160 (Del. 2002).
Yet, it is
“self-evident that if a litigant never seeks to and is
never compelled to act in a representative capacity, the
class of people that theoretically could have been
represented by that litigation is in no way precluded from
asserting their own claims in a subsequent proceeding.”
Id. (emphasis in original) (citing Restatement (Second) of
Judgments § 42, illus. 5).
Given the authority from the
Supreme Court in Bayer, as well as the Delaware Chancery
opinion in Kohls, the Court finds that because PlaintiffsEFTC and ACM were non-parties to the Delaware action, and
the Delaware court never certified that class action,
Plaintiffs-EFTC and ACM are not in privity with the
Delaware action Plaintiffs.
and ACM’s claims are not barred by res judicata.11
Failure to State a Claim
In the alternative, Defendants also move to
dismiss Plaintiffs’ Complaint pursuant to Federal Rule of
Civil Procedure 12(b)(6).
Defendants argue that
Plaintiffs’ Complaint fails to state a claim upon which
relief may be granted for each of Plaintiffs’ following
claims asserted against Defendant-First Bank and Primus:
In the alternative, the Court finds that notions
of due process would necessitate the same result. In a
class action for money damages, due process requires some
notice for res judicata to bar the nonparty plaintiffs.
See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2559
(2011) (“In the context of a class action predominantly for
money damages we have held that absence of notice and optout violates due process.”); Beer v. United States, 671
F.3d 1299, 1308 (Fed. Cir. 2012) (holding that notice was
required for plaintiffs in Rule 23(b)(2) class action who
were not previously members of certified class when they
primarily sought money damages); Bittinger v. Tecumseh
Prods. Co., 123 F.3d 877, 882 (6th Cir. 1997) (holding that
class plaintiff in Rule 23(b)(3) class action was not
barred from re-litigating same claims litigated by previous
class action because previous class was not certified).
Accordingly, Plaintiffs-EFTC and ACM’s claims are not bared
by res judicata because, under the facts pleaded,
Plaintiffs-EFTC and ACM never received notice of the
(1) conversion; (2) tortious interference with existing
contracts and prospective economic advantage; and (3)
breach of contract as a third-party beneficiary.12
Plaintiffs aver that Defendants converted their
money by freezing Defendant-DAS’s account that allegedly
contained Plaintiffs’ money for reimbursement.
Pennsylvania law, “conversion is the deprivation of
another’s right of property in, or use or possession of, a
chattel, or other interference therewith, without the
owner’s consent and without lawful justification.”
Stevenson v. Econ. Bank of Ambridge, 197 A.2d 721, 726 (Pa.
1964) (internal quotation marks omitted).
While money may
be the subject of conversion, the failure to pay a debt is
Pittsburgh Constr. Co. v. Griffith, 834
A.2d 572, 581 (Pa. Super. Ct. 2003); see Sterrett v. Royal
As an initial matter, neither party performs a choice
of law analysis. Defendants initially cite to both Delaware and
Pennsylvania law. Plaintiffs responded to Defendants’ Motion to
Dismiss citing Pennsylvania law, and Defendants reply also
citing Pennsylvania law. Judge Silverman concluded that under
either Delaware or Pennsylvania law Plaintiffs’ claims failed.
The Court agrees. But, as the parties’ briefing mostly relies
upon Pennsylvania law, at this stage of the proceedings the
Court will apply Pennsylvania law. And indeed, Pennsylvania law
appears even more favorable to Plaintiffs than Delaware law.
See infra notes 13-15.
Indem., Co., 26 Pa. D. & C. 254, 258 (Ct. Com. Pl. Phila.
1936) (holding that to maintain claim for conversion of
money, defendant must have had “an obligation . . . to
deliver specific money to plaintiff, or  the money was
wrongfully received by defendant” (internal quotation marks
A claim for conversion may only lie if the
plaintiff had a property right to the money, not merely a
right based upon a contract.
See Kia v. Imaging Scis.
Int’l, Inc., 735 F. Supp. 2d 256, 270 (E.D. Pa. 2010).
The key aspect to Plaintiffs’ claims here is
that, as the Court has already held that PlaintiffsBrowning, B&B, Onek, Korwit, and Eagle Visions’s claims are
barred by res judicata, the only Plaintiffs left in suit
are Plaintiffs-EFTC and ACM, both distributors of ATMs.
These distributors sold Defendant-DAS’s ATM system and then
received a fee for each ATM transaction.
compensation was not directly related to the money Merchant
Plaintiffs provided to consumers, but was some percentage
of the ATM fee that a consumer’s bank would send to
In this case, there are simply no facts to show
how these Distributor Plaintiffs had any property right to
money held by Defendants.
They may have had an expectation
to be paid a fee for a transaction, but this was
contractual in nature between, presumably, Defendant-DAS
and Plaintiffs-EFTC and ACM.
Thus, their claim for
conversion fails as a matter of law.13
Tortious Interference Claims
Plaintiffs also aver that Defendants tortuously
interfered with their existing contracts and prospective
economic advantage by freezing their reimbursement funds.
Under Pennsylvania law, a claim for tortious
interference with current business contracts or prospective
economic advantage requires proof of the following
(1) the existence of a contractual, or prospective
contractual relation between the complainant and a
(2) purposeful action on the part of the defendant,
specifically intended to harm the existing relation,
or to prevent a prospective relation from occurring;
(3) the absence of privilege or justification on the
part of the defendant; and
(4) the occasioning of actual legal
result of the defendant’s conduct.
Delaware law is less favorable to Plaintiffs. To
state a claim for conversion of money under Delaware law, there
must be an “obligation to return the identical money delivered
by the plaintiff to the defendant.” Kuroda v. SPJS Holdings,
L.L.C., 971 A.2d 872, 890 (Del. Ch. 2009).
Ira G. Steffy & Son, Inc. v. Citizens Bank of Pa., 7 A.3d
278, 288-89 (Pa. Super. Ct. 2010) (footnote omitted); see
also U.S. Healthcare, Inc. v. Blue Cross of Greater Phila.,
898 F.3d 914, 925 (3d Cir. 1990).
With respect to the
second element, to survive a motion to dismiss Plaintiffs
must plead some affirmative facts not mere conclusory or
speculative allegations that Defendants intended to
interfere with Plaintiffs’ contracts or business
See Bioquell, Inc. v. Feinstien, No. 10-2205,
2010 WL 4751709, at *7 (E.D. Pa. Nov. 23, 2010).
In this case, Plaintiffs’ Complaint fails to meet
Plaintiffs’ Complaint pleads the conclusory
allegation that “Primus and First Bank knew of the
contractual obligations owed by DAS to Named Plaintiffs”
and that “Primus and First Bank . . . knew their continued
freezing and/or conversion of the money of Named Plaintiffs
. . . would deter customers from using the businesses of
Pls.’ Compl. ¶¶ 74, 84.
to Distributor Plaintiffs-EFTC and ACM, the only Plaintiffs
not barred by res judicata, Plaintiffs seem to argue that
because Defendants contracted with TranSend to be the
sponsor bank, and TranSend in turn had a contract with
Defendant-DAS, and then Defendant-DAS had contracts with
Distributor Plaintiffs, that Defendants knew of the
existence of Distributor Plaintiffs’ contracts and alleged
Such an inference does not support a plausible
At best, Defendants may have known about Merchant
Plaintiffs, whose money was to be reimbursed, but there are
no facts to support a plausible claim that Defendants had
any knowledge of Distributor Plaintiffs, let alone
knowledge of contracts between Distributor Plaintiffs and
Defendant-DAS or other merchants, or any business
expectancies, to intentionally interfere with either.
Accordingly, Distributor Plaintiffs-EFTC and ACM’s claims
for tortious interference with existing and prospective
contracts must fail.14
Third-Party Beneficiary Breach of Contract
Plaintiffs aver that they are third-party
beneficiaries to the contract between Defendants and TranSend.
And, by freezing the funds in Defendant-DAS’s account,
Defendants breached this contract as to Plaintiffs.
Delaware law requires a plaintiff to show knowledge of
the contract or business expectancy and an intentional
interference. See Lipson v. Anesthesia Servs., P.A., 790 A.2d
1261, 1285 (Del. Super. Ct. 2001); Wallace ex rel. Cencom Cable
Income Partners II, Inc. v. Wood, 752 A.2d 1175, 1182 (Del. Ch.
Under Pennsylvania law:
[A] party becomes a third party beneficiary only where
both parties to the contract express an intention to
benefit the third party in the contract itself, . . .
unless, the circumstances are so compelling that
recognition of the beneficiary’s right is appropriate
to effectuate the intention of the parties, and the
performance satisfies an obligation of the promisee to
pay money to the beneficiary or the circumstances
indicate that the promisee intends to give the
beneficiary the benefit of the promised performance.
Scarpitti v. Weborg, 609 A.2d 147, 150-51 (Pa. 1992)
(emphasis in original).
This well-settled Pennsylvania law
allows a third party to recover under breach of contract
even “though the actual parties to the contract did not
express an intent to benefit the third party.”
Bank v. BJ’s Wholesale Club, Inc., 533 F.3d 162, 168 (3d
Under this more flexible standard, Plaintiffs’
breach of contract claim depends on whether “recognition of
the right to performance in [Plaintiffs] is appropriate to
effectuate the intentions of both [Defendants and TranSend]
in entering into their [contract] and whether the
circumstances indicat[ed] that [Defendants] intended to
give [Plaintiffs] the benefits of the promised
Id. (internal quotation marks omitted)
Plaintiffs fail to plead enough facts to make
such a claim plausible.
The only non-conclusory fact that
Plaintiffs plead is that Defendants, in contracting with
TranSend, maintained an “escrow account” to reimburse
As explained above, the chain of money and
middlemen in this case is summarized thus: a consumer uses
Merchant Plaintiffs’ ATM, Merchant Plaintiffs provide the
consumer with cash from their own cash-on-hand, the Visa
and MasterCard networks then deposit the funds from the
consumer’s bank into Defendant-DAS’s account with
Defendant-First State pursuant to the agreement between
Defendant-First State and TranSend, Defendant-First Bank
then forwarded these funds to Great Northern Bank,
Defendant-DAS then directed Great Northern Bank to
Other than this description of
events and the bald claim that the money held by DefendantFirst Bank contained the ATM fees to be paid to Distributor
Plaintiffs, Plaintiffs plead no facts to suggest that
Defendants even knew about Distributor Plaintiffs.
such knowledge, there can be no plausible claim that
Defendants intended to confer a benefit upon Distributor
The conclusion from the pleaded facts is that
Defendants had no intent, and indeed no control, over
whether Distributor Plaintiffs received their contracted
Thus, Distributor Plaintiffs-EFTC and ACM cannot be
viewed as third-party beneficiaries to Defendants and
For the reasons stated above, the Court will grant
Defendants’ motion to dismiss.
The Court will dismiss with
prejudice Plaintiffs-Browning, B&B, Onek, Korwit, and Eagle
Visions’s claims as barred by res judicata, and will dismiss
without prejudice Plaintiffs-EFTC and ACM’s claims for failure
to state a claim upon which relief may be granted.
EFTC and ACM may file an amended complaint.
Delaware law requires a showing that the parties
intended to benefit the third-party beneficiary, but Delaware
law also requires this benefit to be a material part of the
contract’s purpose. Insituform of N. Am., Inc. v. Chandler, 534
A.2d 257, 270 (Del. Ch. 1987).
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