United States District Court, S.D. California
ORDER: (1) DENYING FDC'S MOTION TO DISMISS [DOC.
17]; (2) GRANTING IN PART AND DENYING IN PART FDMS'S
MOTION TO DISMISS [DOC. 18]; AND (3) DENYING WELLS
FARGO'S MOTION TO DISMISS [DOC. 21]
THOMAS J. WHELAN UNITED STATES DISTRICT JUDGE.
before the Court are Defendants' motions to dismiss for
failure to state a claim under Federal Rule of Civil
Procedure 12(b)(6). (FDC MTD [Doc. 17]; FDMS
MTD [Doc. 18]; Wells Fargo MTD [Doc. 21].) The
Court decides the matters on the papers submitted and without
oral argument. See Civ. L.R. 7.1(d)(1). For the reasons
stated below, the Court DENIES FDC's
motion [Doc. 17], GRANTS IN PART and
DENIES IN PART FDMS's Motion [Doc. 18],
and DENIES Wells Fargo's motion [Doc.
First Data Merchant Services (“FDMS”) is a
corporation under the parent company Defendant First Data
Corporation (“FDC”) and is one of the
“world's largest” payment processing
companies. (Second Amended Complaint
(“SAC”) [Doc. 15] ¶¶ 2, 11.)
FDMS contracts with financial institutions, including
Defendant Wells Fargo, to underwrite transactions processed
through FDMS. (Id. ¶ 13.) FDMS and Wells Fargo
contract with independent sales organizations
(“ISO”), including Plaintiff Commerce Point
Capital, Inc. (“CPC”), to serve as brokers for
FDMS to merchants for payment processing services.
(Id. ¶ 14.) In exchange for brokerage services,
FDMS shares a portion of its profits from merchants' use
of the payment processing services. (Id.) FDMS gains
revenue by collecting a percentage of the payments processed
by the merchants and by charging additional fees.
(Id. ¶ 12.)
1, 2006, CPC and FDMS entered into an agreement (“the
agreement”). (Id. ¶ 20; Ex. A.) The
agreement instituted a relationship between CPC, FDMS,
BancorpSouth Bank, and, later, Wells Fargo. (Id. Ex.
A, at 2.) Under section 10(b) of the agreement,
“[FDMS] may increase any of the fees, costs and charges
set forth in Schedule A . . . by an amount not to exceed the
percentage increase in the Consumer Price Index
(“CPI”) during the period described below.”
(Id. at 9) Additionally, the agreement allowed FDMS
to “pass through to [CPC] increases in the
non-controllable fees, costs and charges set forth in
Schedule A of the agreement . . . to reflect any increases in
such fees, costs and charges to [FDMS], upon ten (10) days
prior written notice to [CPC].” (Id.) The
agreement noted that in the event of a fee increase FDMS
“shall provide reasonable assistance” to pass
such fee increases through to merchants. (Id.)
2018, CPC filed its initial complaint in California state
court alleging breach of contract and various tort claims.
CPC's numerous allegations include mislabeling and
improperly applying fees, charging for nonexistent accounts,
failing to provide promised services, and interfering with
CPC's business relationships.
removed the case from state court on March 26, 2019. (See
Notice of Removal [Doc. 1].) On April 2, 2019, FDMS
filed two motions to dismiss. Both motions were denied as
moot in light of CPC filing an amended complaint. CPC
subsequently filed a second amended complaint. In response to
CPC's SAC, Defendants filed the instant three motions to
dismiss. (FDC MTD [Doc. 17]; FDMS MTD [Doc.
18]; Wells Fargo MTD [Doc. 21].)
Court must dismiss a cause of action for failure to state a
claim upon which relief can be granted. Fed.R.Civ.P.
12(b)(6). A motion to dismiss under Rule 12(b)(6) tests the
legal sufficiency of the complaint. See Parks Sch. of
Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir.
1995). A complaint may be dismissed as a matter of law either
for lack of a cognizable legal theory or for insufficient
facts under a cognizable theory. Balistreri v. Pacifica
Police Dep't., 901 F.2d 696, 699 (9th Cir. 1990). In
ruling on the motion, a court must “accept all material
allegations of fact as true and construe the complaint in a
light most favorable to the non-moving party.”
Vasquez v. L.A. Cnty., 487 F.3d 1246, 1249 (9th Cir.
must contain “a short and plain statement of the claim
showing that the pleader is entitled to relief.”
Fed.R.Civ.P. 8(a)(2). The Supreme Court has interpreted this
rule to mean that “[f]actual allegations must be enough
to rise above the speculative level.” Bell Atl.
Corp. v. Twombly, 550 U.S. 554, 555 (2007). The
allegations in the complaint must “contain sufficient
factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.'”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing
Twombly, 550 U.S. at 570).
allegations in the complaint are assumed true, but a court is
not required to accept legal conclusions couched as facts,
unwarranted deductions, or unreasonable inferences.
Papasan v. Allain, 478 U.S. 265, 286 (1986);
Sprewell v. Golden State Warriors, 266 F.3d 979, 988
(9th Cir. 2001).
to amend should be freely granted when justice so requires.
See Fed.R.Civ.P. 15(a). However, denial of leave to
amend is appropriate when such leave would be futile. See
Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 339 (9th
Cir. 1996); Plumeau v. Sch. Dist. No. 40 Cnty. of
Yamhill, 130 F.3d 432, 439 (9th Cir. 1997).
Choice of Law
parties dispute the scope and applicability of the choice of
law clause (“the clause”) contained in the 2006
agreement. The clause states, “[t]his [a]greement shall
be governed by and construed in accordance with the laws of
the State of New York without giving effect to its conflict
of law principles.” (SAC Ex. A, at 17.)
argues that pursuant to California's choice of law
principles, the scope of the clause is to be determined by
New York law. (Pl. Brief [Doc. 30] at 2-3.) CPC
further argues that New York law would interpret the clause
narrowly-to only include contractual claims-and as such,
California law would apply to non-contractual claims.
(Id.) Defendants oppose, arguing that because the
clause expressly excluded New York's conflicts of law
principles, this Court must apply California's
conflict-of-law principles to determine the scope of the
choice of law provision. (Def. Brief [Doc. 29] at
3.) Defendants contend that under California law, the clause
is interpreted broadly, encompassing all causes of action
arising from or related to their contract. (Id.)
Defendants then conduct an analysis under Nedlloyd Lines
B.V. v. Superior Court, 3 Cal.4th 459 (1992), concluding
that New York law should apply to all of CPC's claims.
(Id. at 4.) Defendants are incorrect.
The Scope of the Choice of Law Clause
California law, the scope of a choice of law clause is
governed by the parties' choice of law contained therein,
which here is New York. See Nedlloyd Lines B.V., 3
Cal.4th at 495 n. 7 (noting that “the question of
whether that [choice of law] clause is ambiguous as to its
scope . . . is a question of contract interpretation that in
the normal course should be determined pursuant to Hong Kong
law [the choice of law contained in the
New York law, in order for a choice of law provision to apply
to claims for tort arising incident to the contract, the
express language of the provision must be ‘sufficiently
broad' as to encompass the entire relationship between
the contracting parties.” Krock v. Lipsay, 97
F.3d 640, 645 (2d Cir. 1996) (citing Turtur v. Rothschild
Registry Int'l, Inc., 26 F.3d 304, 309-10 (2d Cir.
1994)). In JMP Sec. LLP v. Altair Nanotechnologies,
Inc., 880 F.Supp.2d 1029 (2012), the choice of law
clause identified New York law. Id. at 1036. The court
determined, under Nedlloyd, that New York law would
be used to determine the scope of the clause. Id.
There, the court held that New York law would exclude any
claims “arising from tortious breaches of contractual
duties.” Id. The plaintiff's “extra
contractual claims, ” including promissory estoppel,
fraud, and negligent misrepresentation were extra-contractual
and therefore covered by state law other than New
York. Id.; see also Knieriemen v.
Bache Halsey Stuart Shields, 427 N.Y.S.2d 10, 12-13
(1980) (holding “[t]hat the parties agreed that their
contract should be governed by an expressed procedure does
not bind them as to causes of action sounding in tort, and,
as to the tort causes of action, there is no reason why all
must be resolved by reference to the law of the same
jurisdiction”); Champlain Enter., Inc. v. United
States, 945 F.Supp. 468, 471 (N.D.N.Y. 1996)
(“Under New York law, a choice-of-law provision
indicating that a contract will be governed by a certain body
of law does not dictate the law that will govern non-contract
the clause was drafted narrowly. In fact, it is almost
identical the clause in JMP Sec. LLP, with one minor
and ultimately immaterial exception. The clearest reference to
the agreement's scope is the phrase “[t]his
agreement.” (SAC Ex. A, at 156.) As such, the
clause here should be narrowly interpreted to include
contractual claims and exclude non-contractual claims. This
narrow interpretation does not contravene the drafting
party's intention to exclude a New York conflict of law
analysis because this Court is not giving any effect to New
York conflict of law principles. What is more, the need for
uniformity as it relates to contractual disputes and New
York's interest in having commercial transactions
governed by its law is satisfied. The contractual disputes
will be governed entirely by New York law, subject only to
the Nedlloyd analysis.
The Enforceability of the Choice of Law
Nedlloyd, a court must first determine whether
“California would ‘be the state of the applicable
law in absence of an effective choice of law by the
parties.'” Nedlloyd, 3 Cal.4th at 459
(citing Restatment (Second) of Conflict of Laws, section
187(2)). Here, California law applies to extra-contractual
claims not covered by the clause because California is the
forum state, the alleged injury was sustained in San Diego,
and the alleged acts or omissions that caused the injury
occurred in San Diego. (SAC ¶ 9.)
follows the approach set out in the Restatement (Second) of
Conflicts of Laws § 187 to determine the law that
applies to a contract with a choice-of-law clause.”
First Intercontinental Bank v. Ahn, 798 F.3d 1149,
1153 (9th Cir. 2015); see also Nedlloyd, 3 Cal.4th
at 466. The Restatement first considers whether the chosen
state has a “substantial relationship to the parties or
their transaction, or . . . whether there is any other
reasonable basis for the parties' choice of law.”
Washington Mut. Bank, FA v. Superior Court, 24
Cal.4th 906, 916 (2001).
there is either a substantial relationship between the
transaction or parties and the chosen state or there is any
reasonable basis for applying the chosen state's law, the
court “then determines whether the relevant portion of
the chosen state's law is contrary to fundamental policy
in California law.” First Intercontinental
Bank, 798 F.3d at 1153 (quoting Washington Mut.
Bank, FA, 24 Cal.4th at 916). If there is a conflict,
the court then must ask “whether California has a
materially greater interest than the chosen state.”
Id. (citation omitted). Then, if California has a
materially greater interest than the chosen state in the
dispute, California law is applied to those issues. See
First Intercontinental Bank, 798 F.3d at 1153-54.
both parties agree there is a substantial relationship
between the parties, the transaction, and New York because
“FDMS (the contracting party) had substantial contacts
with the state of New York during all times relevant to this
litigation; FDMS entered into agreements with ISOs (such as
CPC) in New York and performed a substantial amount of its
payment-processing services from New York.” (Def.
Brief at 5.) CPC does not contest this: “New York
is the chosen state and it is where performance by one of the
parties is likely to take place.” (Pl. Brief
both parties agree that there is a reasonable basis for
applying New York as the choice of law due to the need for
uniformity and familiarity of law. (Def. Brief at 4;
Pl. Brief at 9.) The Court agrees that there is both
a substantial relationship between the parties and New York
and a reasonable basis for applying the laws of New York to
claims covered by the clause.
next issue, then, is whether an application of New York law
to the contractual claims would conflict with fundamental
California policy. See First Intercontinental Bank,
798 F.3d at 1153. In the absence of such conflict, New York
law would apply. Washington Mut. Bank, FA, 24
Cal.4th at 917. If a conflict is present, the Court must
determine whether California has a materially greater
interest than New York in the dispute. Id. Because a
conflict of New York law and California law will depend on
each claim involved in the dispute, the Court will address
the claims independently below.
Court will address each claim and determine, under New York
law, whether it is contractual or non-contractual.
Contractual claims will be controlled by New York law unless
they are contrary to fundamental California policy and
California has a materially greater interest than New York in
litigating the dispute.
Breach of Contract
of contract is clearly a contractual claim. Importantly, both
parties agree that the parties and the transaction have a
substantial relationship to New York and that there is a
reasonable basis for applying New York law. (See Def.
Brief at 5; Pl. Brief at 9.) Moreover, this
Court perceives no fundamental policy of California requiring
the application of California law to CPC's breach of
contract claim. As such, New York law will apply to
CPC's breach of contract claim.
elements of a cause of action for breach of contract under
New York law are: “(1) formation of a contract between
plaintiff and defendant, (2) performance by plaintiff, (3)
defendant's failure to perform, (4) resulting in
damage.” U.S. Nonwovens Corp. v. Pack Line
Corp., 4 N.Y.S.3d 868, 871-72 (2015). The statute of
limitations for a breach of contract under New York law is
six years. N.Y. C.P.L.R § 213(2).
alleged sufficient facts that, accepted as true, could
constitute a valid breach of contract claim. While it is
arguable that the agreement and its amendments allowed FDMS
to bill CPC for many of the fees CPC contests, a few
examples, construed in a light favorable to CPC, allege a
breach of contract that rises above mere speculation. For
example, CPC alleges that FDMS charged CPC for merchant
accounts that it repeatedly requested be closed.
(Id. ¶ 83.) CPC complained to FDMS about the
charges, but alleges that FDMS would stop billing for a
period of time and then require CPC to send a request to
remove or cancel a merchant account after CPC already
requested its removal. (Id. ¶ 85.) Under
Schedule A of the agreement FDMS charged CPC for
“[e]ach account of a Merchant of [CPC] that remains on
[CPC]'s master file at FDMS on the last ...