Merch. Payment Sols. v. W. Payments, LLC

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MERCHANT PAYMENT SOLUTIONS, LLC, Plaintiff, v. WEST PAYMENTS, LLC, et al., Defendants.

CIVIL No. 23-00438 MWJS-WRP

United States District Court, D. Hawaii

May 22, 2024

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS TO DISMISS FIRST AMENDED COMPLAINT AND DENYING AS MOOT DEFENDANTS' MOTIONS TO TRANSFER AND TO COMPEL ARBITRATION

MICAH W.J. SMITH, UNITED STATES DISTRICT JUDGE.

INTRODUCTION

In three substantially similar motions, Defendants in this case move to dismiss the First Amended Complaint (the FAC) against them. They assert a lack of personal jurisdiction, improper venue, failure to state a plausible claim for relief, and failure to join an indispensable party. In the alternative Defendants request that the Court transfer the case to another district or compel arbitration. Plaintiff Merchant Payment Solutions, LLC (Merchant) opposes the motions on all fronts.

Based on the papers submitted at this juncture, the Court finds it does not have personal jurisdiction over any of the Defendants except West Payments, LLC (West), FFS Data Corporation (FFS), and individual Ricky Beard. And even as to West, FFS, and Ricky Beard, the FAC does not adequately state any plausible claim for relief. The Court therefore DISMISSES the FAC in its entirety.

BACKGROUND

A. The First Amended Complaint's Factual Allegations

Merchant brings this action against seven named defendants and ten unnamed “Doe” defendants. Among the named parties are West (a Texas LLC) and FFS (a Texas corporation), against whom Merchant brings breach of contract claims for non-payment of residual income allegedly owed to Merchant. The FAC also makes sweeping allegations that each defendant is an agent, parent, subsidiary, affiliate, and/or alter ego of the other, and that they were co-conspirators in a fraud carried out against Merchant, which culminated in the nonpayment. The other named defendants are Trio Technologies LLC (Trio), a Nevada LLC; CML Management Services LLC (CML) a Texas LLC; and individuals Olan Beard, Ricky Beard, and Cynthia Lambert.

The parties are in the electronic payment processing industry. In 2019, Merchant and West entered into a referral agreement (the West Agreement), under which Merchant “was authorized to refer prospective merchants to West to apply for credit card processing services”; if “a merchant application was approved by West and the merchant used West's credit card processing services,” Merchant was entitled to residual payments. ECF No. 13, at PageID.76 (¶ 33). For a time, Merchant received residuals from West without incident. But beginning in around November 2021, FFS made the payments-not West. Id. at PageID.79 (¶ 44).

In January 2023, Merchant did not receive payment for December 2022 residuals, in the amount of $193,593.25. Id. at PageID.81 (¶ 56). At that time, Merchant became “confused” about an assignment of rights that had taken place under the contract “without notice.” Id. (¶ 57). Merchant contacted Olan Beard, the owner of FFS, who informed Merchant about an “Asset Purchase Agreement” whereby another business had acquired FFS's merchant card processing business. Id. (¶¶ 55, 57). Olan Beard “deflected responsibility” for the December 2022 residuals to FFS's successor in interest.^[1] Id. (¶ 57). To date, the December 2022 residuals remain unpaid. Id. at PageID.82 (¶ 63).

The FAC also mentions a second contract, executed by Merchant and FFS in 2020 (the FFS Agreement). Under that contract, FFS was to refer new banking partners to Merchant, not the other way around. Id. at PageID.75 (¶ 29). Moreover, the agreement related to FFS's automated clearing house (ACH) business, not its separate card processing services business. Id. (¶ 28). But the FAC alleges that the latter formed FFS Agreement “supersedes” the West Agreement and thereby controls this dispute. Id. at PageID.98 (¶ 159).

The two contracts include differing choice-of-law and forum selection clauses. The FFS Agreement includes a Hawai‘i choice-of-law clause, id. at PageID.106 (¶ 18), and selects a Hawai‘i state court as its forum, id. at PageID.108 (¶ 23). The West Agreement, on the other hand, includes a Texas choice-of-law clause and selects Texas federal or state courts as its forum. Id. at PageID.123 (¶ 26). And the West Agreement includes an arbitration agreement for disputes of amounts greater than $5,000, governed by the Texas Arbitration Act. Id. at PageID.124 (¶ 31).

The FAC acknowledges that on their face, the two contracts name separate entities and their officers. Id. at PageID.79 (¶ 42). But “[d]espite th[is] language,” the FAC alleges, “there is no separation between” West and FFS, nor between any of the other Defendants. Id. (¶ 43). Merchant alleges that shortly after the nonpayment of the December 2022 residuals, it “realized it had been deceived by Defendants and discovered West and FFS shared many relationships, including, among other things, shared employees and the same office building.” Id. at PageID.82 (¶ 60). In particular, the FAC alleges that Olan and Ricky Beard are father and son; West and Trio share the same address for their principal places of business; West, Trio, and FFS all share the same office building; West and FFS share employees, including Defendant Lambert; Olan and Ricky Beard both hold interests in West, Trio, and FFS; and Ricky Beard uses an “@triopay.com” email address in communications on West's behalf. Id. at PageID.77-78 (¶ 39).

In addition to the alter ego theory, the FAC alleges that Defendants should be liable for each other's actions because they conspired to not pay the December 2022 residuals. Id. at PageID.77 (¶ 38). The FAC alleges that, from the beginning, Defendants “conspired to pursue a relationship with [Merchant] with the intent to injure its reputation, undercut [Merchant] from its duly owed residual compensation, and deceive [Merchant] into thinking it would receive the full extent of the bargain” to which it contracted. Id. at PageID.80 (¶ 51). And the FAC further alleges that in carrying out the conspiracy, Defendants intentionally made “false representations regarding their business practices, including, among other things, West's and FFS's underwriting practices, their respective requirement to provide [Merchant] with notice before an assignment of rights, their history of timely payments to their agents, and the existence of West and FFS as separate entities.” Id. (¶ 52).

Accordingly, the FAC alleges the following causes of action:

Count

Theory of Liability

Defendants

Breach of Contract

Against West and FFS

Breach of Duty of Good Faith and Fair Dealing

Against all Defendants

Breach of Fiduciary Duty

Against Ricky Beard and West

Participation in Breach of Fiduciary Duty

Against Trio, Olan Beard, FFS, CML, and Lambert

Civil Fraud/Deceit

Against all Defendants

Violations of Hawai'i RevisedStatutes (HRS) § 480-2 (2009)

Against FFS, Trio, West, and CML

Conspiracy to Commit Conversion and Civil Theft

Against Olan Beard, FFS, Trio, CML, and Lambert

Conversion and Civil Theft

Against all Defendants

Tortious Interference with Prospective Economic Advantage

Against all Defendants

Constructive Trust and Request for Disgorgement

Against all Defendants

Money Had and Received

Against West and FFS

Id. at PageID.82-96 (¶¶ 64-151).

B. Defendants' Motions to Dismiss

On January 16 and 29, 2024, Defendants filed three substantially similar motions to dismiss under Rule 12 of the Federal Rules of Civil Procedure.^[2] ECF Nos. 24, 25, & 27. Defendants seek dismissal of the FAC under Rule 12(b)(2) (lack of personal jurisdiction), 12(b)(3) (improper venue), 12(b)(6) (failure to state a claim upon which relief can be granted), or 12(b)(7) (failure to join an indispensable party); in the alternative, they seek transfer of the case to the Northern District of Texas or to compel arbitration.

In support of their motions, Defendants submit several declarations^[3] that undercut certain allegations in the FAC related to personal jurisdiction, including the declarations of Ricky Beard, Olan Beard, and Lambert. See ECF Nos. 24-2, 25-12, & 25-17. Ricky Beard, for one, declares as follows: He is the owner of West and Trio. ECF No. 25-12, at PageID.250 (¶ 1). He resides in Texas and has never been to Hawai‘i “for any business-related purposes.” Id. (¶ 2). Neither Ricky Beard, West, nor Trio have any assets, property, or bank accounts in Hawai‘i, have an address in Hawai‘i, or pay taxes in Hawai‘i. Id. at PageID.251 (¶¶ 6, 9-10). And neither West nor Trio have any offices, employees, or agents in Hawai‘i. Id. (¶¶ 7-8).

Ricky Beard further avers that neither he nor Trio has ever done business with Merchant. Id. at PageID.252 (¶ 12). Out of sheer convenience, Ricky uses his Trio email address for all personal and business communications. Id. Trio and West are not a subsidiary or parent of any of the other entity Defendants. Id. at PageID.251 (¶ 4). And Trio does no business with West. Id. at PageID.252 (¶ 12).

Ricky Beard also explains West and FFS's relationship. In 2019, FFS contracted with West to bring new merchants into its card processing services portfolio. Id. (¶ 14). Two years later, FFS sold its merchant card processing services business to non-party OLB. Id. at PageID.254 (¶ 18). In connection with that sale, West assigned all of its third-party sales referral agreements to FFS “so that FFS could assign them to OLB.”^[4] Id.

Next in two separate declarations, Olan Beard avers as follows: He is the owner of FFS. ECF No. 25-17, at PageID.292 (¶ 1); ECF No. 27-2, at PageID.369 (¶ 1). He has only been to Hawai‘i once in the 1990s, and has never contracted with Merchant in his personal capacity. ECF No. 27-2, at PageID.369-70 (¶ 2). Olan Beard and FFS do not...