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Premier Payments Online, Inc. v. Payment Systems Worldwide

January 27, 2012

PREMIER PAYMENTS ONLINE, INC. PLAINTIFF,
v.
PAYMENT SYSTEMS WORLDWIDE,
CENTERLINE INTERNATIONAL, LLC,
AMTRAK INTERNATIONAL, S.A., AND PATRIARC HOLDINGS, INC. DEFENDANTS. PAYMENT SYSTEMS WORLDWIDE, PLAINTIFF,
v.
PREMIER PAYMENTS ONLINE, INC.
DEFENDANT.



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

MEMORANDUM RE: PREMIER PAYMENT ONLINE INC.'S MOTION TO DISMISS AND FOR A MORE DEFINITE STATEMENT

I. Introduction

This case arises out of transactions between Premier Payments Online, Inc. ("PPO"), a Pennsylvania corporation that acts as an intermediary with banks to provide credit card processing services to merchants, and Payment Systems Worldwide ("PSW") and Centerline International, LLC ("Centerline"), a California corporation and a Nevada limited liability company with a common owner that resell payment processing services to merchants. Under certain purported agreements, Centerline and, subsequently, PSW referred merchants to PPO in exchange for commissions on the fees PPO earned from the merchants. In June 2009, PPO began withholding fees allegedly owed to PSW due to actual and potential chargebacks by merchants.

On May 26, 2011, PPO commenced a civil action in this Court, No. 11-CV-3429 (the "Pennsylvania Action"), by filing a complaint (the "Pennsylvania Complaint") against PSW and Centerline, among others, asserting causes of action for breach of contract, unjust enrichment, misrepresentation, and declaratory relief.*fn1 About a month later, on June 29, 2011, PSW and Centerline moved to dismiss the Pennsylvania Complaint for lack of jurisdiction and for failure to state a claim. (No. 11-CV-3429, ECF No. 7.) That same day, PSW commenced a separate civil suit in the United States District Court for the Eastern District of California, No. 11-CV-1082 (the "California Action"), by filing a complaint (the "California Complaint" or "Ca. Compl.") against PPO, asserting causes of action for willful failure to pay commissions under the California Independent Wholesale Sales Representatives Contractual Relations Act, Cal. Civ. Code § 1738.15 (the "California Act" or the "Act")(Count I), breach of contract (Count II), unjust enrichment (Count III), and declaratory relief (Count IV). Centerline is not a plaintiff in the California Action. On July 25, 2011, while PSW's and Centerline's motion to dismiss the Pennsylvania Complaint was still pending, PPO moved this Court to stay the California Action. (No. 11-CV-3429, ECF No. 13.)

On August 12, 2011, following briefing by the parties, the Court held oral argument on both the motion to dismiss and the motion to stay. The Court questioned counsel about a footnote in PSW's and Centerline's brief in response to PPO's motion to stay indicating that PSW and Centerline "have no desire to litigate in two fora" and "would stipulate to transfer the California action to Pennsylvania and consolidate it with [the Pennsylvania Action] if this Court does not grant [their] Motion to Dismiss." (No. 11-CV-3429, ECF No. 17 n.1.) The Court noted that the Pennsylvania Action and the California Action are basically mirror images of one another, and explained that it was authorized to stay the California Action under the first-filed rule. The parties discussed whether Pennsylvania's or California's choice-of-law rules would apply to the California Action if it were transferred to this Court, an issue that the Court explained did not need to be resolved at that time. Following this discussion, PSW and Centerline agreed to file a motion in the Eastern District of California to transfer the California Action to this Court and consolidate it with the Pennsylvania Action. On August 17, 2011, the parties stipulated to transfer the California Action to this Court, and it was docketed as a separate civil action (No. 11-CV-5272).

That same day, the Court issued an opinion, denying PPO's motion to stay as moot and noting that "[o]nce the California Action is transferred here, the Court anticipates realigning the parties so that the complaint in the California Action becomes a counterclaim in this action." Premier Payments Online, Inc. v. Payment Sys. Worldwide, No. 11-CV-3429, 2011 WL 3652442, at *1 & n.2 (E.D. Pa. Aug. 18, 2011). In the opinion, the Court also denied PSW's and Centerline's motion to dismiss. Id. at *4-*7.

On September 1, 2011, PSW and Centerline filed a counterclaim (the "Pennsylvania Counterclaim" or "Pa. Countercl.") in the Pennsylvania Action, asserting causes of action for breach of contract (Counterclaim Count I), unjust enrichment (Counterclaim Count II), declaratory relief (Counterclaim Count III), and conversion (Counterclaim Count IV). (No. 11-CV-3429, ECF No. 29.) The allegations supporting the causes of action for breach of contract, unjust enrichment, and declaratory relief in the Pennsylvania Counterclaim are virtually identical to the affirmative claims asserted by PSW and Centerline in the California Complaint. The table below compares the causes of action asserted in the California Complaint with those asserted in the Pennsylvania Counterclaim.

California Complaint Pennsylvania Counterclaim

Breach of Contract (Count II) Breach of Contract (Counterclaim Count I) Unjust Enrichment (Count III) Unjust Enrichment (Counterclaim Count II) Declaratory Relief (Count IV) Declaratory Relief (Counterclaim Count III) Willful Failure to Pay Commissions (Count I) Conversion (Counterclaim Count IV)

As the table indicates, the only substantive difference between the California Complaint and the Pennsylvania Counterclaim is that the former asserts a cause of action for willful failure to pay commissions, whereas the latter asserts a cause of action for conversion.

On September 26, 2011, PPO filed a motion seeking dismissal of the California Complaint and certain counts of the Pennsylvania Counterclaim, as well as a more definite statement, pursuant to Rules 12(b)(6) and 12(e) of the Federal Rules of Civil Procedure. (No. 11-CV-3429, ECF No. 31; No. 11-CV-5272, ECF No. 7). On October 20, 2011, PSW and Centerline filed a response to PPO's motion. (No. 11-CV-3429, ECF No. 34; No. 11-CV-5272, ECF No. 9.) On October 31, 2011, PPO filed a reply in further support of the motion. (No. 11-CV-3429, ECF No. 35; No. 11-CV-5272, ECF No. 11.)

II. Factual Background*fn2

PPO markets and sells credit card processing services to merchants. (Ca. Compl. ¶ 8; Pa. Countercl. ¶ 5.) The fees PPO earns from providing these services are based primarily on the volume of credit card transactions processed by merchants. (Ca. Compl. ¶ 8; Pa. Countercl. ¶ 5.) PPO pays sales agents commissions to refer merchants to it. (Ca. Compl. ¶ 8; Pa. Countercl. ¶ 5.) The commissions a particular sales agent earns from PPO are based primarily on the volume of credit card transactions processed by merchants referred to PPO by the agent. (Ca. Compl. ¶ 8; Pa. Countercl. ¶ 5.) PSW is one such sales agent for PPO. (Ca. Compl. ¶ 9; Pa. Countercl. ¶ 6.)

Originally, PPO's predecessor, CNP International Incorporated ("CNP"), and Centerline entered into a written agreement under which Centerline would refer merchants to CNP in exchange for commissions on the fees CNP earned on credit card transactions processed by those merchants. (Ca. Compl. ¶ 10; Pa. Countercl. ¶ 7.)Under the agreement, Centerline allegedly was not responsible for merchant chargebacks. (Ca. Compl. ¶ 14; Pa. Countercl. ¶ 11.) The agreement between Centerline and CNP later terminated. (Ca. Compl. ¶ 10; Pa. Countercl. ¶ 7.)

Subsequently, PPO proposed a written agreement to PSW for the provision of merchant referrals. (Ca. Compl. ¶ 10; Pa. Countercl. ¶ 7.) PSW rejected the proposal because it found the terms of the agreement unacceptable. (Ca. Compl. ¶ 10; Pa. Countercl. ¶ 7.) However, PPO and PSW entered into an oral agreement under which PSW would act as a sales agent for PPO and earn commissions in accordance with the payment structure previously in place between Centerline and CNP.(Ca. Compl. ¶¶ 11, 13; Pa. Countercl. ¶¶ 8, 10.)Under the agreement, PPO allegedly was obligated to make payments to PSW once per month. (Ca. Compl. ¶ 13; Pa. Countercl. ¶ 10.) Moreover, PPO allegedly was obligated to evaluate the risks posed by merchants referred to it by PSW and bear the risk of any potential losses from chargebacks associated with merchants PSW referred to PPO. (Ca. Compl. ¶ 18; Pa. Countercl. ¶ 15.)

As sales agent, PSW identified and solicited largely internet-based merchants in need of credit card processing services and referred them to PPO. (Ca. Compl. ¶ 12; Pa. Countercl. ¶ 9.) From approximately March 2006 to June 2009, PPO paid PSW in accordance with the oral agreement.(Ca. Compl. ¶14; Pa. Countercl. ¶ 11.)However, on or about June 2009, PPO discontinued paying PSW commissions for the merchants PSW referred to PPO. (Ca. Compl. ¶ 14; Pa. Countercl. ¶ 11.)

In response to PSW's inquiries, PPO notified PSW that it unilaterally decided to withhold commissions from PSW in an amount equal to the "potential exposure" from chargebacks associated with merchants PSW referred to PPO.(Ca. Compl. ¶¶ 15, 16; Pa. Countercl. ¶¶ 12, 13.) PPO also informed PSW that it took such action because of fraud related to certain merchant accounts. (Ca. Compl. ¶ 20; Pa. Countercl. ¶ 17; No. 11-CV-3429, ECF No. 34, at 3-4; No. 11-CV-5272, ECF No. 9, at 3-4.) As of the filing of the California Complaint, PPO had withheld $202,066.88 in commissions allegedly owed to PSW, even though PPO only incurred $2,173.63 in actual chargebacks associated with merchants PSW referred to PPO. (Ca. Compl. ¶¶ 16, 19; Pa. Countercl. ¶¶ 13, 16.)

III. Parties' Contentions*fn3

PPO contends that the California Complaint and certain counts of the Pennsylvania Counterclaim should be dismissed for several reasons. Initially, PPO contends that the California Complaint should be dismissed in its entirety pursuant to the first-filed rule and the compulsory counterclaim rule. Next, PPO contends that, even if dismissal of the entire California Complaint is not warranted, certain counts asserted therein should still be dismissed. Specifically, PPO contends the counts for unjust enrichment asserted inboth the California Complaint and the Pennsylvania Counterclaim should be dismissed because unjust enrichment cannot be plead on top of a contract claim. In addition, PPO contends that the count for conversion asserted in the Pennsylvania Counterclaim should be dismissed because it is barred by the gist-of-the-action doctrine and fails to state a claim for relief. Further, PPO contends that the count for willful failure to pay commissions under the California Act asserted in the California Complaint should be dismissed because the Act does not apply to this case, and even it did, application of the Act would violate the dormant Commerce Clause of the United States Constitution. Finally, PPO and Centerline contend that PSW should be required to file a more definite statement because the Pennsylvania Counterclaim does not specify which agreements PSW and Centerline rely on in support of their breach of contract claim, it does not distinguish between PSW and Centerline, and it does not specify the damages that PSW and Centerline respectively seek.

In response, PSW and Centerline contend that neither the first-filed rule nor the compulsory counterclaim rule is applicable, and even if they did apply, neither rule would require dismissal of the California Complaint. Rather, the appropriate remedy, PSW and Centerline argue, is for the Court to consolidate the California Action with the Pennsylvania Action.*fn4 PSW and Centerline also contend that they have properly plead unjust enrichment as an alternative theory of liability to breach of contract. Moreover, PSW and Centerline contend that the gist-ofthe-action doctrine does not bar their conversion claim because they possess a property interest in the commissions withheld by PPO and that they have properly stated a claim for conversion.Further,PSW and Centerline contend that the California Act does, indeed, apply to this case, and that PPO's dormant Commerce Clause challenge is baseless. Finally, PSW and Centerline contend that they should not be required to file a more definite statement because the Pennsylvania Counterclaim provides adequate detail for PPO to frame a response and they are unable to provide further detail at this time without the benefit of discovery.

IV. Legal Standards

A. Jurisdiction

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332 because the parties are citizens of different states and the amount in controversy exceeds the sum or value of $75,000, exclusive of interest and costs.

B. Standards of Review

1. Motion to Dismiss for Failure to State a Claim

A claim may be dismissed under Rule 12(b)(6) of the Federal Rules of Civil Procedure for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A valid complaint requires only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2).

Generally, a district court may consider only facts alleged in the complaint and its attachments on a motion to dismiss. Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir.1994). The court may also take into consideration a "document integral to or explicitly relied upon in the complaint." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (emphasis in original).

The Third Circuit has held that a district court must conduct a two-part analysis to determine whether a claim survives a motion to dismiss. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). First, the court must distinguish between the factual and legal elements of the claim. Id. at 210--11. The court must accept as true the plaintiff's well-pled allegations and construe the complaint in the light most favorable to the plaintiff, Common Cause of Pa. v. Pennsylvania, 558 F.3d 249, 253 (3d Cir.2009) (citing Lewis v. Atlas Van Lines, Inc., 542 F.3d 403, 405 (3d Cir.2008)), but not "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements," Fowler, 578 F.3d at 210 (quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)). Second, the court must inquire whether the complaint states a plausible claim to relief. Id. at 211 (citing Iqbal, 129 S. Ct. at 1950). "A claim has facial plausibility ...


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