United States District Court, D. Maryland
MANUFACTURERS AND TRADERS TRUST COMPANY. Plaintiff,
BRICK HOUSE SPRING WATER DISTRIBUTORS, LLC, el al. Defendants.
DAVID COPPERHITE, UNITED STATES MAGISTRATE JUDGE
Court will address three pending motions in this Memorandum
Opinion. First, Defendant Edward Young filed a Motion to
Alter or Amend Judgment ("Defendant's Motion")
(ECF No. 44) seeking to reduce the summary judgment award of
$189, 991.18 entered against the Defendants by $150, 873.64
on the basis that Plaintiff, Manufacturers and Traders Trust
Company ("Plaintiff"), failed to prove damages in
its breach of contract claim. ECF No. 44 at 1, 4-6. Second.
Plaintiff filed a Motion to Specify Pre-Judgment and
Post-Judgment Interest ("Plaintiffs Motion") (ECF
No. 45), requesting that the Court specify and award pre- and
post-judgment interest. ECF No. 45 at 3. Third,
Defendants/Cross-Plaintiffs. Brick House Spring Water
Distributors, LLC ("Brick House") and John Taro
(collectively with Brick House.
"Cross-Plaintiffs"), then filed a "Motion for
Joinder" ("Cross-Plaintiffs' Motion") (ECF
No. 47) to "join in the Motion to Amend/Alter Judgment
filed by the defendant and cross-defendant, Edward
Young." ECF No. 47 at 1. 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
Defendant's Motion (ECF No. 44), GRANT Plaintiffs Motion
(ECF No. 45), and DENY Cross-Plaintiffs' Motion (ECF No.
House is a limited liability company formed by Messrs. Taro
and Young in October 2016 for the distribution of bottled
water. ECF No. 7 at 2-3; ECF No. 9 at 1-2. Mr. Taro is the
President and 51% owner of Brick House, while Mr. Young is
the Chief Executive Officer ("CEO") and 49% owner.
ECF No. 7 at 2; ECF No. 9 at 1.
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 Product Flection
Form; the Merchant Services Terms & Conditions and
Processing Terms & Conditions; and Personal Guaranties of
Messrs. Taro and Young. See generally ECF Nos. 29-3,
29-4, 29-5. 29-6. 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. 29-3 at 2; ECF No.
29-6 at 5.
Agreement required Brick House to maintain a Merchant Deposit
Account with Plaintiff with sufficient funds to prevent the
occurrence of a negative balance. ECF No. 29-6 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 House] from disputing the activity
shown on the subject statement." Id.
the Agreement specified that Brick House had an obligation to
pay all applicable 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 charge-backs could
result in termination of the Agreement. Id. at 8.
Brick House agreed that "having excessive charge-backs
may result in assessments, tines, fees, and penalties by the
Card Associations" and "agree[d] to reimburse
[Plaintiff] immediately for any such assessments, fines.
fees, and penalties imposed on [Plaintiff] and any related
loss, cost, or expense incurred by [Plaintiff]."
Agreement also set forth that "Merchant
Obligations 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.
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
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.
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.
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 Brick House's transactions were
"highly suspicious transactions with no
authorizations" 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.
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 at 20. 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.
October 11, 2017, Plaintiff filed suit in this Court against
Defendants alleging that Defendants breached their
contractual obligation under the Agreement by failing to
maintain sufficient funds and to pay amounts owed as a result
of a negative balance in their account. ECF No. 1. On
November 9, 2017, Brick House and Mr. Taro filed a joint
answer and crossclaim against Mr. Young, denying Plaintiffs
allegations and alleging that Mr. Young was solely
responsible for any damages Plaintiff suffered to the extent
that any of Plaintiff's allegations were true. ECF No. 7.
Mr. Young filed an answer to the Complaint on November 15,
2017. denying liability. ECF No. 9.
discovery closed on April 2, 2018, ECF No. 10-1 at 2,
Cross-Plaintiffs filed a motion requesting that the Clerk of
the Court enter an Order of Default against Mr. Young on
Cross-Plaintiffs' crossclaim for failing to answer or
otherwise respond to the crossclaim, ECF No. 25. On April 27,
2018, Mr. Young filed a Motion to Modify Scheduling Order and
Briefing Schedule, ECF No. 27, and on April 30, 2018.
Plaintiff filed its Motion for Summary Judgment, ECF No. 29.
Upon reviewing the motions, the responses thereto (ECF Nos.
32, 34, 35, 37), and Plaintiffs reply (ECF No. 38), the Court
denied Cross-Plaintiffs' Motion for Clerk's Entry of
Default, denied Mr. Young's Motion ...