United States District Court, D. Maryland
LIPTON HOLLANDER, UNITED STATES DISTRICT JUDGE
Opinion resolves the defendants' motion to transfer this
case to the District of New Jersey.
February 1, 2016, Capitol Payment Systems, Inc.
(“Capitol” or “CPS”), plaintiff,
filed a “Complaint For Injunctive Relief” in the
Circuit Court for Anne Arundel County against defendants
Pinnacle Processing Services, LLC (“Pinnacle”)
and Salvatore Di Donato, the owner and president of Pinnacle.
ECF 4. Capitol asserts a claim for breach of contract (Count
I) (id. ¶¶ 33-40) and a claim for tortious
interference with contractual relations (Count II).
Id. ¶¶ 41-51.Pinnacle removed the case to
this Court on March 23, 2016, asserting diversity
jurisdiction. See 28 U.S.C. §§ 1332, 1441,
and 1446. ECF 3 at 1.
to a joint motion (ECF 24), this case was stayed by Order of
May 20, 2016 (ECF 26), pending mediation in a related case
initiated by Pinnacle and Di Donato on February 25, 2016, in
the District of New Jersey. See, e.g., ECF 26; ECF
40; see also Pinnacle Processing Services, LLC
et al. v. Capitol Payment Systems, Inc., et al., Case
No. 3:16-CV-01084-FLW-DEA (D. N.J.). The mediation was
unsuccessful. See ECF 39.
have moved to transfer the case to the United States District
Court for the District of New Jersey, pursuant to 28 U.S.C.
§ 1404. ECF 43. The motion is supported by a memorandum
of law (ECF 43-1) (collectively, “Motion”) and
several exhibits. ECF 43-2 through ECF 43-6. Capitol
responded in opposition (ECF 44, “Opposition), with
exhibits. ECF 44-1 through ECF 44-10. Defendants have
replied. ECF 45 (“Reply”).
Motion has been fully briefed and no hearing is necessary to
resolve it. See Local Rule 105.6. For the reasons
that follow, I shall grant the Motion.
is a Maryland corporation with its principal place of
business in Anne Arundel County. ECF 4, ¶ 3. It is a
“merchant services company” that provides payment
transaction processing services “to a wide array of
merchants including small business, regional and national
chains, associations, agent banks, fuel merchants and
government agencies along with many others.”
Id. ¶ 6. Capitol's business includes
“processing point of sale credit, debit, [and] gift
card transactions for retail merchants and banks.”
Id. ¶ 7. Robert Schoenbauer is the president of
Capitol. ECF 44-5 (Schoenbauer Affidavit), ¶ 2. He is
not a party to this case.
is a single member limited liability company formed under the
laws of New Jersey, with its principal place of business in
Red Bank, New Jersey. ECF 4, ¶ 5; ECF 43-5, ¶¶
3-5 (Di Donato Declaration of 3/31/2016), ¶¶
Di Donato is the president, owner, and operator of Pinnacle.
ECF 4, ¶ 4; ECF 43-4 (Di Donato Declaration of
3/7/2016), ¶ 3. Formed in 2008, Pinnacle operates as
“an agent in the electronic payment processing industry
. . . [that] works on behalf of Independent Sales
Organizations . . . .” ECF 43-3, ¶ 4.
to review briefly aspects of the credit card payment
processing industry that frame this case. According to
defendants, “[w]hen merchants offer debit and credit
card payment services to consumers, they generally do so with
the assistance of entities that act as intermediaries between
merchants and electronic payment
processors.” ECF 43-1 at 5. Payment
processors “often contract with entities known in the
payments industry as Independent Sales Organizations
(“ISOs”) . . ., [which] acquire merchant
relationships on behalf of the processors” and provide
various other services. Id.
in turn, commonly associate themselves with merchant-level
agents: entities or individuals that seek out new merchant
relationships on behalf of the ISOs and otherwise facilitate
the relationships between merchants and ISOs.”
Id. Agents are typically compensated through ongoing
monthly payments known as “residuals.”
about July 17, 2008, Di Donato entered into an
“Independent Marketing Agreement”
(“Agreement”) with Capitol. ECF 4, ¶¶
4, 9; ECF 44-1 at 17-26 (Agreement). Di Donato states that he
signed the Agreement in New Jersey and e-mailed the signed
copy to Schoenbauer. ECF 43-5, ¶ 10. In its Opposition,
Capitol states: “Pinnacle signed the Agreement in
Florida and returned the signed Agreement to Capitol in
Maryland.” ECF 44 at 10. Nevertheless, the disagreement
as to where Pinnacle signed the Agreement is of no
consequence, as the parties seem to agree that Pinnacle did
not sign the Agreement in Maryland.
to CPS, under the Agreement, defendants “agreed to act
as an agent of CPS and solicit prospective merchants to apply
to CPS for merchant agreements and otherwise provide various
merchant account and processing services to the
‘merchants.'” ECF 4, ¶ 10.
4(c) of the Agreement provides, ECF 44-1 at 19-20:
(c) Non-Interference So long as any Merchant Agreement of any
merchant solicited by Agent remains in effect, and for a
period not to exceed five years after such date, Agent shall
not interfere in any manner whatsoever with the contractual
rights and interests of CPS under any such Merchant
Agreement, either directly or indirectly (including without
limitation, through any partnership, joint venture as an
employee or other entity or arrangement[)] to engage in bank
card transaction processing through any person or entity
other than CPS. Agent may not contact bank or processor
directly in an effort to buy pass [sic] CPS or attempt to go
direct in any way. Agent may not develop a direct
relationship with bank or processor in any way regardless of
initiation directly or indirectly. If Agent violates the
provisions of this Subparagraph 4(c), by its own acts, or in
collusion with any other person or entity, then all payments
due to Agent hereunder shall immediately cease and CPS shall
have no further obligation to make any such payments and
shall be entitled to all other remedies it may have under
this Agreement or applicable law. The covenants of Agent and
all other provisions of this Subparagraph 4(c) shall survive
termination of this Agreement.
5 of the Agreement is titled “COMPENSATION OF
AGENT.” ECF 44-1 at 20. Paragraph 5(a), titled
“Processing Fees”, provides, inter alia,
id.: “Agent shall be entitled to a fee which
is derived from discount fees on gross sales and which is
paid to CPS for each merchant solicited by Agent and approved
by CPS. Agent shall be entitled to receive compensation . . .
for so long as CPS is receiving corresponding compensation
for such approved merchant . . . .” (Internal
13 of the Agreement pertains to the use of proprietary
information. Id. at 23-24. It defines
“proprietary information” as “all printed
and written material, application forms, contracts and other
information furnished by CPS to Agent.” Id. at
23. With respect to proprietary information, the Agreement
provides, in pertinent part, id.: “Agent shall
not use or disclose any of CPS proprietary information to any
other person or entity during the term of this Agreement and
for three (3) years thereafter.”
paragraph 17 is titled “GOVERNING LAW”.
Id. at 24. It provides, id.: “This
Agreement and all the documents referred to herein, shall in
all respects, be interpreted, enforced and governed by and
under the laws of the State of Maryland.”
around June 2012, the parties became involved in a dispute
concerning defendants' residual commission percentage.
ECF 4, ¶ 13. At the time, defendants threatened to move
to another provider the accounts that had been brought to
Capitol. Id. To retain Pinnacle as an independent
contractor, Capitol agreed to increase defendants'
commission for new business. Id.; see ECF
44-1 at 27 (Addendum to Agreement). Nevertheless, defendants
began “selling” for a competitor, Priority
Payments Local (“Priority”), and other merchant
services providers. ECF 4, ¶ 13.
around the fall of 2015, defendants allegedly “began
soliciting various CPS customers and encouraging those
customers to terminate their merchant agreements with
CPS.” Id. ¶ 15. Defendants also directed
some of CPS's customers to Priority. Id.
According to Capitol, defendants “developed a scheme by
which [they] solicit an existing CPS account, move that
account to Priority, and then approximately one month later
request that the account be closed with CPS.”
Id. ¶ 16. Capitol alleges, on information and
belief, that defendants “tell these account holders
that CPS is considering selling its portfolio of accounts,
thereby implying that CPS is no longer stable or
viable.” Id. ¶ 17. Further, Capitol
alleges, on information and belief, that defendants tell the
account holders that Capitol “is running a fraudulent
operation and is getting sued.” Id. ¶ 18.
points to a variety of businesses that had an account with
Capitol but have since moved to Priority. See Id.
¶¶ 22, 23, 25, 27, 29, 30. It also points to
several other businesses that have either left or considered
leaving Capitol. See Id. ¶¶ 24, 26, 28,
Donato avers that on January 19, 2016, he received a letter
from Capitol's counsel “purporting to terminate the
Agreement based on alleged (and unspecified) breaches by
Pinnacle.” ECF 43-4, ¶ 16; id. at 24-26.
The letter, dated January 19, 2016, stated, id. at
24 (emphasis in original):
Please be advised that it appears as though Pinnacle has
violated, and continues to violate, the Agreement in a
variety of respects which include, but upon information and
belief are not limited to, material breaches of paragraph
4(c) of the Agreement which explicitly prohibits interference
“in any manner whatsoever with the contractual rights
and interests of CPS under any such Merchant
Indeed, my client has reason to believe that Pinnacle is and
has been soliciting various CPS customers to cease doing
business with CPS and otherwise terminate their Merchant
Agreements. Some of these customers have already confirmed as
* * *
Given all of the foregoing, please be advised that, as a
result of Pinnacle's substantial and material breach of
the Agreement, the Agreement is hereby TERMINATED.
Furthermore, pursuant to paragraph 4(c) and all other
applicable provisions in the Agreement, all payments due to
Pinnacle under the Agreement shall immediately cease.
CPS reserves all rights at law, in equity and in contract
including, but not limited to, the right to immediately
institute legal proceedings against Pinnacle which action(s)
may include emergency injunctive relief prohibiting
Pinnacle's continuing violations of the Agreement and
other improper activities adverse to CPS. CPS will seek
reimbursement of it's [sic] reasonable attorney's
fees as part of any such action.
for Pinnacle responded to Capitol by letter dated January 22,
2016. ECF 43-4, ¶ 18; id. at 28-29. The letter
of January 22, 2016 stated, in pertinent part, id.
at 28-29 (emphasis in original):
The thrust of your letter appears to be a claim that Pinnacle
breached Section 4(c) of the Agreement. The relevant language
in that Section is that “Agent shall not
interfere in any manner whatsoever with the contractual
rights and interests of CPS under any such Merchant
Agreement… (emphasis added).” In fact, Pinnacle
has in no way interfered with any CPS merchant or Merchant
Agreement. And your letter is devoid of specific allegations
to the contrary. Conclusory and vague assertions that
merchants have switched processors - which could happen for
any number of reasons - or that there were “other
improper activities” cannot satisfy any legally or
commercially reasonable definition of interference.
* * *
The failure to timely pay Pinnacle would result in
irreparable harm to its business. Section 6 of the Agreement
provides for such payment by the 30th day of each month.
Based upon the lengthy course of dealing between the parties,
CPS typically makes such payments by the 25th day
of each month. Pinnacle will not sit idly by while CPS
improperly withholds compensation payable to Pinnacle
pursuant to the Agreement.
To be clear, if Pinnacle does not receive payment in full by
January 29, 2016, we will commence litigation on behalf of
Pinnacle in an appropriate jurisdiction and venue.
Pinnacle's claims would potentially include, among
others, breach of contract, fraud, breach of the duty of good
faith, unjust enrichment, tortious interference, a demand for
accounting and equitable relief.
Donato maintains that Pinnacle never received a response to
the letter of January 22, 2016. ECF 43-4, ¶ 18. But,
according to Di Donato, at some point after Pinnacle's
letter of January 22, 2016, Pinnacle lost access to an online
system called “E-Merchant View”, which allows it
to track the status of merchant accounts that it brought to
Capitol. Id. ¶ 19.
Donato then directed counsel to send a second letter to
counsel for Capitol. Id. ¶ 20; id. at
31-32. That letter, dated January 27, 2016, provided, in
pertinent part, id. at 31 (emphasis in original):
CPS's actions constitute a material breach of the
Agreement. This correspondence shall serve as written notice
of CPS's material breach in accordance with Section 10(a)
of the Agreement. As such, CPS's failure to cure this
breach within five (5) days of the date hereof shall
constitute grounds for immediate termination of the
Agreement. To be clear, the Agreement will terminate as of
February 2, 2016 if Pinnacle's access to
E-Merchant View is not fully restored by February l.
* * *
We reiterate our demand that CPS immediately pay Pinnacle its
monthly compensation in full. CPS must also immediately
restore Pinnacle's access to E-Merchant View to ensure
that all merchants receive proper and timely customer
service. If CPS does not alter its present course, not only
will it face costly ...