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Premier Payments Online, Inc. v. Payment Systems Worldwide

August 18, 2011


The opinion of the court was delivered by: Baylson, J.


I. Introduction

This case arises out of transactions between Plaintiff Premier Payments Online, Inc. ("PPO" or "Plaintiff"), a corporation that acts as an intermediary with banks to provide credit card processing services to merchants, and Defendants Centerline International, LLC ("Centerline") and Payment Systems Worldwide ("PSW") (collectively, "Defendants"), companies that resell payment processing services to merchants. Plaintiff and Defendants had an agreement by which Defendants referred customers to Plaintiff in exchange for a commission on the fees Plaintiff earned. In June 2009, Plaintiff began withholding fees owed to Defendants due to actual and potential chargebacks by customers.

On May 26, 2011, Plaintiff filed this civil action against Defendants for breach of contract (Count I), unjust enrichment (Count II), misrepresentation (Count III), and declaratory judgment (Count IV).*fn1 On June 29, 2011, Defendant PSW filed a civil action in the United States District Court for the Eastern District of California against Plaintiff PPO, case no. 11-1082, alleging willful failure to pay commission, breach of contract, unjust enrichment, and declaratory relief (the "California Action").

Currently pending before the Court are two motions. First, Defendants filed a Motion to Dismiss the Complaint (ECF No. 7) for lack of jurisdiction and failure to state a claim. Second, Plaintiff filed a Motion to Stay the "Second-filed" California Action ("Motion to Stay") while the Motion to Dismiss is pending. (ECF No. 13)

The Court held oral argument on these motions on August 12, 2011. With respect to the Motion to Stay, the Court highlighted a footnote in Defendants' Response indicating that "Defendants have no desire to litigate in two fora" and "would stipulate to transfer the California action to Pennsylvania and consolidate it with this case if this Court does not grant Defendants' Motion to Dismiss." (ECF No. 17 n.1) The Court noted the mirror-image similarity of the California Action to this case, and explained its authorization to stay Defendants from prosecuting the California Action under the "first-filed" rule. The parties discussed whether Pennsylvania or California choice of law rules would apply to the California Action if transferred to this Court, an issue not here ripe for decision. Following this discussion, Defendants agreed to file a motion to transfer and consolidate the California Action with this action. Therefore, the Motion to Stay is moot.*fn2

With respect to the Motion to Dismiss, the Court asked Defendants if it should hold an evidentiary hearing on their contention that the Court lacked subject matter jurisdiction because Plaintiff did not properly plead the citizenship of Defendant Centerline, a limited liability company ("LLC").*fn3 Defendants declined to schedule a hearing. Defendants agreed with the Court that in light of the affidavit filed by Plaintiff's president, Janet Conway, clarifying that Centerline is a citizen of California because its only known member, Curtis Bayne ("Bayne"), is a citizen of California, there was no longer any live dispute concerning subject matter jurisdiction.

Following oral argument, it remains for this Court to evaluate the parties' contentions with respect to Defendants' Motion to Dismiss for failure to state a claim. For the following reasons, the Court finds that Defendants' arguments are not meritorious and will deny the Motion to Dismiss.

II. Factual Background

In October 2006, Centerline and Plaintiff agreed that Centerline would refer merchants to Plaintiff to assist in establishing credit card processing agreements with banks, in exchange for a a commission on the earned fees Plaintiff received from the banks. Compl. ¶¶ 16-17. The agreement did not entitle Centerline to receive commissions on transactions that resulted in a chargeback to the bank or a refund to the customer. Compl. ¶ 18.

In November 2007, Plaintiff sent Centerline an "updated written agreement"*fn4 ("the Agreement"), which provided that Centerline would defend against and hold Plaintiff harmless from any loss, liability, damage, penalty, or expense (including attorney fees and cost of defense) resulting from any warranty or false or misleading representation made to Plaintiff. Compl. ¶¶ 19-20.*fn5 In June 2009, PSW succeeded to Centerline's rights and responsibilities under the Agreement. Compl. ¶ 21. Curtis Bayne operated and controlled both Centerline and PSW. Compl. ¶ 15. Plaintiff paid Centerline and PSW in accordance with the terms of the Agreement. Compl. ¶ 22.

On November 2, 2007, Plaintiff entered an agreement to refer merchants to Credicorp Bank of Panama ("Credicorp") in exchange for a percentage of the fees Credicorp collected, and to indemnify Credicorp on claims arising from the referred merchants' violations of credit card association rules. Compl. ¶¶ 24-25. In 2008, Centerline and PSW referred Amtrak, which had established a Panamanian company, Patriarc, to Plaintiff to establish business with Credicorp. Compl. ¶¶ 26-28. Centerline and PSW made representations to Plaintiff that Amtrak was an online pharmaceutical retailer licensed to do business in Florida, properly formed and in good standing under Costa Rican law, and owned and managed by Roy Vargas ("Vargas"). Compl. ¶¶ 30-31. Centerline, PSW, and Bayne also represented to Plaintiff that Patriarc was a legitimate and properly formed company under Panamanian law with three named directors. Compl. ¶¶ 33- 34. Plaintiff believes these representations were false, because Vargas was a "front" for Bayne and Adam Gallegos ("Gallegos"), a California citizen and convicted felon, and Patriarc was owned and controlled by Bayne and/or Gallegos . Compl. ¶¶ 7, 32, 34.

Plaintiff relied upon these representations and referred Amtrak/Patriarc to Credicorp, and Credicorp began processing its transactions in late 2008. Compl. ¶¶ 35-36, 38. In early 2010, Amtrak/Patriarc made a large number of sales resulted in customer chargebacks of credit card charges. Compl. ¶¶ 39-40. Credicorp terminated its business with Patriarc/Amtrak in April 2010. Compl. ¶ 41. Plaintiff alleges that upon information and belief, Bayne and Gallegos took the revenue for their use, and conspired and acted in concert with the other Defendants to commit fraud. Compl. ¶¶ 42-43. Credicorp suffered losses of $600,000 as a result of these actions, and Plaintiff may be obligated to indemnify Credicorp. Compl. ¶¶ 44-45.

In June 2009, Plaintiff stopped forwarding commissions for Patriarc/Amtrak and three other companies due to concern about chargebacks. Compl. ¶¶ 46-47. Plaintiff withheld approximately $200,000 as of the filing of the Complaint. Compl. ¶ 49. In April 2011, Credicorp withheld $60,000 in payments due Plaintiff based upon Credicorp's losses related to ...

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