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Commerce Point Capital, Inc. v. First Data Corp.

United States District Court, S.D. California

December 20, 2019

Commerce Point Capital, Inc., Plaintiff,
v.
First Data Corporation, et al., Defendants.

          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]

          HON. THOMAS J. WHELAN UNITED STATES DISTRICT JUDGE.

         Pending 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. 21].

         I. Background

         Defendant 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.)

         On July 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.)[1] 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.)

         In July 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.

         Defendants 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].)

         II. Legal Standard

         The 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. 2007).

         Complaints 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).

         Well-pleaded 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).

         Leave 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).

         III. Discussion

         A. Choice of Law

         The 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.)

         CPC 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.

         1. The Scope of the Choice of Law Clause

         Under 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 clause]”).[2]

         “Under 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.[3] 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.[4] 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”[5]); 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 based claims”).

         Here, the clause was drafted narrowly. In fact, it is almost identical the clause in JMP Sec. LLP, with one minor and ultimately immaterial exception.[6] 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.

         2. The Enforceability of the Choice of Law Clause

         Under 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.)

         “California 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).

         If 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.

         Here, 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 at 9.)

         Additionally, 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.

         The 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.

         The 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.

         B. Breach of Contract

         Breach 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.[7] As such, New York law will apply to CPC's breach of contract claim.

         The 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).

         CPC has 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 ...


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