Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Manufacturers and Traders Trust Co. v. Brick House Spring Water Distributors, LLC

United States District Court, D. Maryland

July 25, 2018

MANUFACTURERS AND TRADERS TRUST COMPANY, Plaintiff,
v.
BRICK HOUSE SPRING WATER. DISTRIBUTORS, LLC, el al. Defendants.

          MEMORANDUM OPINION

          A. DAVID COPPERTHITE UNITED STARES MAGISTRATE JUDGE

         The Court will address three pending motions in this Memorandum Opinion. First. Defendants/Cross-Plaintiffs. Brick House Spring Water Distributors, LLC ("Brick House") and John Taro (collectively with Brick House, "Cross-Plaintiffs"). Filed a Motion for Clerk's Entry of Default against Defendant, Edward Young, ("Cross-Plaintiffs' Motion") (ECF No. 25) because Mr. Young failed to file a responsive pleading to their crossclaim. ECF No. 25-1 at 1-2. Second. Mr. Young filed a Motion to Modify the Scheduling Order ("Defendant's Motion") (ECF No. 27), requesting additional time to complete discovery. Third, Plaintiff. Manufacturers and Traders Trust Company ("Plaintiff'), moves this Court for summary judgment in favor of Plaintiff and against Defendants. Brick House. Mr. Taro. and Mr. Young (collectively with Brick House and Mr. Taro, "Defendants") ("Plaintiffs Motion") (ECF No. 29). Plaintiff seeks a ruling from the Court that Defendants breached their agreement with Plaintiff. ECF No. 29-1 at 2. After considering each of the motions and responses thereto, the Court finds that no hearing is necessary. See Loc.R. 105.6 (D.Md. 2016). For the reasons set forth herein, the Court will DENY Cross-Plaintiffs' Motion (ECF No. 25), DENY Defendant's Motion (ECF No. 27), and GRANT Plaintiffs Motion (ECF No. 29).

         FACTUAL BACKGROUND

         Brick House is a limited liability company formed by Messrs. Taro and Young in October 2016 for the distribution of bottled water. ECF Nos. 7 at 2-3 & 9 at 1-2. Mr. Taro is the President and 51% owner of Brick Mouse while Mr. Young is the Chief Executive Officer ("CEO") and 49% owner. ECF Nos. 7 at 2 & 9 at 1.

         On January 19, 2017, Mr. Young, as CEO of Brick House, executed a Merchant Services Agreement (the "Agreement") with Plaintiff. ECF No. 29-3 at 2. The Agreement consisted of several documents, including the Merchant Services Application executed by Messrs. Taro and Young on January 19, 2017; the Pricing Terms, Card Network and Services Election Form: the Merchant Services Terms & Conditions and Processing Terms & Conditions: and Personal Guaranties of Messrs. Taro and Young. See generally Id. The Rules of the Card Associations, such as Visa and MasterCard, are also part of and incorporated by reference into the Agreement. ECF Nos. 29-3 to 29-6. Under the Agreement, Plaintiff agreed to provide "Merchant Services" to Brick House, which included, among other things. Visa and MasterCard "merchant card processing services" for the use of credit and debit cards in payment for goods and services. ECF No. 29-6 at 5.

         The Agreement required Brick House to maintain a Merchant Deposit Account with Plaintiff with sufficient funds to prevent the occurrence of a negative balance. Id. at 7. In addition, the Agreement required Plaintiff to provide monthly account statements to Brick House. Id. In the case that Brick House believed that an account statement contained an error, the Agreement stated that Brick House could request that Plaintiff initiate an inquiry by providing written notice within sixty days and that failing to do so would "preclude [Brick Mouse] from disputing the activity shown on the subject statement." Id.

         Furthermore, the Agreement specified that Brick House had an obligation to pay all application transaction fees, including fees charged by Card Associations, such as Visa or MasterCard. Id. at 9. The Agreement also required Brick House to "immediately reimburse [Plaintiff] the amount of negative balance in the Merchant Deposit Account that occurs as a result of deductions for charge-backs, charges, fees or otherwise" and stated that excessive chargebacks could result in termination of the Agreement. Id. at 8. According to the Agreement, Brick House understood that "having excessive charge-backs may result in assessments, fine, fees, and penalties by the Card Associations" and "agree[d] to reimburse [Plaintiff] for any such assessments, fines, fees, and penalties imposed on [Plaintiff] and any related loss, cost, or expense incurred by [Plaintiff]." Id.

         The Agreement also set forth that "Merchant Obligations[1] are immediately due and owing in full, without demand or notice to" Brick House and "Merchant Obligations that are not paid when due will bear interest at the rate of 1.5% per month or the maximum rate of interest allowed by Law, whichever is more." Id. at 6-7. In addition, the Agreement specifies that Brick House "will resolve disputes related to Card Transactions that arise with a Cardholder, exclusively between itself and Cardholder." Id. at 7. The Agreement further delineates that "[u]pon termination of this Agreement. [Brick House] must [c]ontinue to be responsible for all Chargebacks, fees, fines, assessments, credits, and adjustments resulting from Transactions processed pursuant to this Agreement before termination; and [b]e responsible for all amounts then due or which thereafter may become due to [Plaintiff] under this Agreement." Id. at 13.

         Pursuant to the Agreement, Plaintiff supplied Brick House with two card payment devices, which were assigned two merchant account numbers. ECF No. 29-22 at 2. The account number ending in 8842 was primarily used for card transactions in March 2017, while the account number ending in 9451 was primarily used for card transactions in April 2017. Id. A separate merchant deposit account, in the form of an advanced business checking account, was set up to receive the merchant processing settlement funds in connection with all card transactions conducted by Brick House. Id.

         On or around March 30, 2017. Visa posted a bulletin for its member banks explaining that it had detected an increase in fraud from merchants submitting unauthorized force-posted transactions into the payments system. ECF No. 30. The bulletin explained that a force-posted transaction allows merchants to manually enter a previously obtained authorization code in order to bypass the authorization process. Id. Such unauthorized transactions can result in excessive chargeback losses. Id. According to Visa, a force-posted transaction may entail a small initial sale in order to obtain a valid authorization code for repeated subsequent use. Id.

         When a merchant force-posts a transaction, the merchant submits a payment request to the card issuing bank using a manually entered authorization code, rather than swiping the card. ECF No. 29-22 at 3. Once the payment request is submitted to the issuing bank, Plaintiff credits the merchant deposit account in the amount of the transaction with the expectation that the issuing bank will fund the transaction that same day. Id. It can take several days-or longer for international transactions-for Plaintiff to receive notification that the card issuing bank denied a transaction and initiated a chargeback. Id.

         Between February 13, 2017 and April 10, 2017, Brick House conducted dozens of card transactions. ECF No. 29-8. When Visa and MasterCard determined that fifty-two of the transactions in the amount of $4, 325, 977.37 were unauthorized, they notified Plaintiff that they would not fund the transactions and initiated chargebacks totaling $4, 332, 145.75 through chargeback journal entries. ECF Nos. 29-8, 29-12, 29-15 & 29-16. On April 11, 2017, Visa further notified Plaintiff that several of the Brick House's transactions were "highly suspicious transactions with no authorization" and requested that Plaintiff investigate the challenged transactions. ECF No. 29-17 at 1. Despite knowing none of the details of the transactions and failing to produce any sales records pertaining to the challenged transactions. Defendants do not dispute that they conducted the transactions deemed unauthorized by the card issuing banks. ECF No. 29-19 at 2, 5-6.

         According to the monthly account statements for Brick House's Merchant Deposit Account which detail the debits and credits from the initial deposit of the amount of the challenged transactions, withdrawals by Mr. Young, and subsequent account and chargeback fees, in September 2017. Brick House's Merchant Deposit Account had a negative balance of $189, 991.18. ECF No. 29-10. Defendants have refused to reimburse Plaintiff for the fees assessed for the card transactions which were deemed unauthorized, including the chargeback fees. On April 11, 2017. Plaintiff informed Messrs. Taro and Young that it would be terminating the Agreement to provide merchant services to Brick House because the Agreement was violated. ECF No. 29-18.

         PROCEDURAL ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.