Capitol PaymentSystems, Inc. v. Salvatore Di Donato (Maryland U.S.D.C.)

Filed: May 23, 2017

Opinion by: Ellen L. Hollander

Holding:  Transfer of venue is appropriate if the convenience of the witnesses, convenience of the parties, and interest of justice outweigh the plaintiff’s choice of venue.

Facts:  Plaintiff is a Maryland corporation with the principle place of business in Maryland that operated payment transaction processing services to a wide array of businesses. Defendant is a New Jersey company with a principle place of business in New Jersey, that operated as an agent in the electronic payment processing industry. Plaintiff and Defendant entered into a contractual agreement in which the defendant would provide independent marketing services.

Plaintiff alleged that Defendant entered into outside business agreements with third parties in breach of the agreement. Plaintiff and Defendant attempted to renegotiate the terms of the agreement, but failed to reach an understanding.

Plaintiff filed suit seeking injunctive relief in the Anne Arundel County Circuit Court on February 1, 2016. Defendant filed a counter suit in the United States District Court for the District of New Jersey on February 25, 2016 before being served for the Maryland case. After withdrawing the case for an injunction from the Circuit Court, the Plaintiff removed the case to the United States District Court of Maryland on March 23, 2016 and the Defendant moved to transfer venue to New Jersey.

Defendant argued that New Jersey was a more convenient forum because it is where the dispute arose, the potential witnesses reside, and the majority of the evidence is located. Plaintiff contended Maryland is the appropriate venue since it is a Maryland corporation, the agreement is governed by Maryland law, the signed agreement was returned to Maryland, and the first-to-file rule requires adjudication of the case in Maryland.

Analysis:  The Court began its analysis by upholding the validity of both the Maryland suit as well as the New Jersey action. In adjudicating a motion to transfer the Court examines several case-specific factors. The factors pertinent to this case include: 1) the weight accorded to the plaintiff’s choice of venue; 2) witness convenience and access; 3) convenience of the parties; and 4) the interest of justice. (Citing Plumbers and Pipefitters Nat. Pension Fund v. Plumbing Serv., Inc.)

The Court began its analysis by reviewing the Plaintiff’s choice of venue. Since the conduct underlying the claim occurred entirely in New Jersey the Plaintiffs’ choice of venue is diminished. The Court sided with the Defendant that the convenience of the witnesses favored New Jersey because all the third parties citied in the complaint, which the merchant Defendant allegedly interfered with, are located in New Jersey or New York. The convenience of the parties would not be more burdensome in New Jersey or Maryland, so the Court did not weight this factor heavily in the final determination. Likewise, transfer would not negatively impact the interest of justice since New Jersey Courts have ample history of ruling on cases controlled by Maryland law.

Finally, the Court declined to adhere to the first-to-file rule since the convenience of the factors supported transfer to New Jersey. Examining this rule under the interests of justice, the fact that the Plaintiff filed first in Maryland Court did not control because of the specifics of the matter. Defendants filed in Federal Court before the Plaintiff, weeks before being served notice of the Maryland case and the Maryland case was moved to Federal Court.

Motion to transfer Granted.

The full opinion is available in PDF.

James Dillon v. BMO Harris Bank, N.A. (4th Circuit)

Filed: May 10, 2017

Opinion by: Judge Barbara Milano Keenan

Holding: An arbitration agreement containing choice-of-law provisions applying tribal law and disclaiming the application of federal and state law was held to be unenforceable because (1) by its unambiguous language, it triggered the prospective waiver doctrine, which disallows arbitration agreements that prevent litigants from vindicating federal substantive statutory rights as contravening public policy; and (2) the provisions could not be severed as they went to the essence of the agreement and were negotiated by a party, not in good faith, with superior bargaining power.

Facts:  Plaintiff, a resident of North Carolina, applied for and received a “payday loan” in 2012. “Payday loans” are short, unsecured consumer loans for small amounts and with generally high interest rates (sometimes in excess of 400%). The loan was offered through the website of Great Plains Lending, LLC (the “Company”), which was wholly owned by a federal tribe.  Plaintiff executed a contract (the “Contract”) that contained a loan agreement and an agreement to submit disputes to arbitration. Both agreements contained choice-of-law provisions that required the application of tribal law and disclaimed the application of state or federal law.

Plaintiff filed a putative class action lawsuit in district court, claiming that the Company and other tribal lenders had issued unlawful loans. Instead of suing the lenders for violating state usury laws, Plaintiff sued the financial institutions that facilitated the electronic lending transactions. Plaintiff claimed that the institutions constituted an enterprise whose members, including Defendant BMO Harris (“Defendant”), conducted and participated in the collection of unlawful acts in violation of the Rackeeter Influenced and Corrupt Organizations Act.

In district court, Defendant sought to compel arbitration pursuant to the terms of the Contract and relying on the Federal Arbitration Act (“FAA”). The district court held the Contract unenforceable because it denied the applicability of all federal and state law. Defendant appealed.

Analysis: Pursuant to the FAA, the Court has jurisdiction to review de novo the order denying the motion to compel arbitration. The FAA provides that arbitration agreements are valid and enforceable, except upon grounds at law or in equity for the revocation of any contract. Consistent with such contract principles, the Supreme Court has held that arbitration agreements that operated as prospective waivers of a party’s right to pursue statutory remedies are unenforceable as violating public policy. This prospective waiver doctrine keeps courts from enforcing arbitration agreements that prevent a litigant from vindicating federal substantive statutory rights. 

A mere foreign choice-of-law provision is insufficient to trigger the application of the doctrine. A court must first analyze whether, as a matter of law, “the choice-of-forum and choice-of-law clauses operate in tandem as a prospective waiver of a party’s right to pursue statutory remedies.” Where it is unclear, the arbitrator should decide in the first instance whether a litigant is deprived of those remedies, and the waiver issue is not ripe until a federal court is asked to enforce the arbitrator’s decision. 

In Hayes v. Delbert Services Corp., 811 F.3d 666 (4th Cir. 2015), the Court applied the prospective waiver doctrine to a contract governing an internet payday loan by another federal tribe lender. The choice-of-law provision disclaimed the application of any law other than that of the tribe. The Hayes Court held that this language flatly and categorically renounced the authority of federal statutes. The provision was not severable from the contract because it went to its essence; the animating purpose of the agreement was to circumvent federal law. Another disclaimer of the application of federal and state law in the contract lent support to this position.

Here, Defendant argued that the waiver issue was not ripe as it had not yet come before an arbitrator. Plaintiff countered that the issue was ripe because the language of the choice-of-law provision was unambiguous, thus triggering the prospective waiver doctrine. The Court agreed with Plaintiff. The choice-of-law and other provisions in the Contract are similar or identical to the provisions in Hayes; these applied the law of the federal tribe or disclaimed the application of federal and state laws as to the Contract and lender. As in Hayes, the Contract was an unambiguous attempt to apply tribal law to the exclusion of federal and state law.

The Court held that the choice-of-law provisions could not be severed from the Contract. Severance is allowed only if the provision is not essential to the agreement and the party seeking to enforce the remainder of the agreement negotiated it in good faith. Restatement Second of Contracts § 184 (1981). Here, as in Hayes, the provision went to the essence of the agreement. The Court did not accept Defendant’s request to grant Plaintiff access to federal substantive rights because this would essentially allow Defendant to rewrite the Contract and defeat the purpose of the Contract entirely.

Additionally, the Company used its superior bargaining power to avoid the application of state and federal law, and Section 184 does not permit redrafting where superior bargaining power is used to extract a promise offensive to public policy. Thus, the Company did not meet the second prong to negotiate in good faith.  

The full opinion is available in PDF. 

Plum House IV, Inc. v. Wells Fargo Merchant Services, LLC (Maryland U.S.D.C.)

Filed: January 29, 2016

Opinion by: Catherine Blake

Holding: Under Maryland’s "economic loss rule" courts have limited remedies if the loss is purely economic and the parties were engaged in arms-length commercial bargaining.

Facts: Plaintiff operated a restaurant that allowed customers to pay with American Express Credit Cards. Plaintiff alleged that Defendant, a merchant payment card processor, mixed up the customer identification number and this mistake resulted in $349,395.14 being routed incorrectly to John Doe/ ABC Co. Plaintiff sued Defendant, American Express, and John Doe/ABC Co. to recover payments made by customer’s credit cards.

Plaintiff sued Defendant for negligence and breach of contract. Defendant filed a motion to dismiss for failure to state a claim. Parties agreed, per the terms of the contract, to apply NY law for the breach claim. The Court applied the Erie doctrine, choice of law, and outcome determinative test. Maryland law controlled the negligence claim and NY law controlled the breach of contract claim.

Analysis: The Court relied on Jacques v. First Nat'l Bank of Md., to determine if a duty exists. The Jacques test balances the nature of the harm that is likely to result from a failure to exercise due care and the nature of the relationship between the parties. When the failure to exercise due care creates only a risk of economic loss courts generally require an intimate nexus between the parties to impose tort liability. Plaintiff argued that, like in Jacques, it had a special relationship with Defendant which trumps the economic loss rule.

A special relationship exists when: (i) the business is affected with the public interest; (ii) the plaintiff is an individual consumer who is particularly vulnerable and dependent upon the other parties' exercise of due care; (iii) there is a disparity in strength of bargaining position; (iv) and one party more sophisticated than the other.

The Court disagreed. Specifically, it distinguished this matter from Jacques in two ways. First, Defendant in this matter is a merchant payment card processor, not a bank. Second, and more importantly, Jacques centered upon the fiduciary relationship a bank has to the individual clients. The Defendant conducts a sophisticated commercial enterprise with the same bargaining power as the Plaintiff. The Court ruled that a credit card payment processor does not have the same fiduciary relationship to a vendor that a bank has to individual consumers.

The Court determined that the economic loss doctrine applies for the negligence claim and granted Defendant’s motion to dismiss the negligence claim.

The full opinion is available in PDF.

In Re: MTBE Products Liability Litigation (New York U.S.D.C.)

Filed: March 30, 2015

Opinion by: Shira A. Scheindlin

Summary:  In a case involving multiple jurisdictions, a federal court held that in the absence of a federal question, the laws of the forum state should control, in this case Pennsylvania. The court then applied Pennsylvania’s choice-of-law rules to hold that the laws of the jurisdiction where the “targeted entity” is incorporated should determine whether to piece the corporate veil. The defendant’s parent company was incorporated in Delaware, but its Maryland subsidiary—the target of the lawsuit—was formed in Maryland. Thus, under the court’s ruling, Maryland’s veil-piercing laws should govern.

The full opinion is available in PDF.

TIG Insurance Company v. Monongahela Power Company (Ct. of Special Appeals)

Filed: December 21, 2012

Opinion by Judge Shirley M. Watts

Held:  Pennsylvania law applies to the interpretation of insurance policies where the policies are delivered to and paid from a company’s office within that state.

Facts: Appellee, a Maryland corporation, is a holding company that purchased numerous insurance policies from various insurance companies (hereafter collectively referred to as “insurers”). Among these policies were four Excess Insurance policies issued by appellant, which provided indemnification of appellee for loss exceeding certain amounts. On each of these policies, appellee listed a New York address.

In 2001 and 2002, appellee demanded that the insurers indemnify it for costs related to the settlement of asbestos suits that triggered the policies and informed insurers to expect thousands of additional. Following these demands, one of the insurers filed a complaint against appellee and the other insurers requesting a declaratory judgment for the purpose of determining what obligations were owed under the policies. In 2010, appellee filed a motion for partial summary judgment requesting that the court find that Pennsylvania law apply to all policies made within a certain timeframe. It argued that the policies were “made” in Pennsylvania because the policies were accepted through payment of premiums by its insurance managers in that state.  Appellant joined in the arguments of another insurer, contending that New York law should apply due to appellee's headquarters there.  The trial court granted appellee’s motion for partial summary judgment.

Analysis: The court engaged in a thorough analysis of contract construction, explaining that insurance policies are contracts and under the doctrine of lex loci contractus, absent a contractual choice of law provision, a contract will be governed by the law of the state where the last act necessary to complete the contract occurs. For insurance policies, Maryland appellate courts have consistently held that this occurs in the state where “the policy is delivered and premiums are paid.” In this case, there was undisputed evidence that this occurred in Pennsylvania.  The record showed that: 1) appellee’s insurance department was located in Pennsylvania; 2) its insurance broker was also located in that state; 3) it was the general practice of appellee for insurance policies to be received by the insurance broker and forwarded to appellee’s Pennsylvania office; 4) it considered itself bound by a policy after the policy was received in its Pennsylvania office, at which point it would begin paying premiums; and 5) premium payments were made from its Pennsylvania office.

Appellant contended that New York law should apply because appellee was headquartered in New York, making it reasonable to conclude that the policies were delivered to that state. The court, however, noted that a company being headquartered in a state does not mean that all contracts into which the company enters are made in that state. Because appellant offered nothing to show that the policies were delivered to New York or that the premiums were paid from New York, the court affirmed the lower court’s grant of partial summary judgment and found that Pennsylvania law applies to the interpretation of the insurance policies.

The court went on to address a separate issue raised by appellant regarding whether, under Pennsylvania law, appellant is entitled to a set-off against the appellee’s loss which reflects the settling insurers’ proportionate shares of coverage for responsibility of the loss. 

The full opinion is available in  PDF.