Am. Pearl Grp. v. Nat'l Payment Sys.

• Docket Number: Civil Action 3:22-CV-00693-N
• Decision Date: 05 July 2023
• Parties: AMERICAN PEARL GROUP, LLC, et al., Plaintiffs, v. NATIONAL PAYMENT SYSTEMS, LLC, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

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AMERICAN PEARL GROUP, LLC, et al., Plaintiffs, v. NATIONAL PAYMENT SYSTEMS, LLC, et al., Defendants.

Civil Action No. 3:22-CV-00693-N

United States District Court, N.D. Texas, Dallas Division

July 5, 2023

MEMORANDUM OPINION AND ORDER

DAVID C. GODBEY, UNITED STATES CHIEF DISTRICT JUDGE

This Order addresses Plaintiff American Pearl Group, LLC's (“Pearl”) motion for reconsideration [24] and Defendant National Payment Systems, LLC's (“NPS”) motion to dismiss [28]. The Court denies Pearl's motion for reconsideration and grants NPS's motion to dismiss.

I. Origins of the Dispute

The parties' relationship has been explained in detail previously, see Mem. Op. & Order 1-3 [23], and is summarized here. NPS and Pearl operate in the credit card payment processing industry. Whenever a consumer uses a credit card to pay a merchant for his or her purchase information must flow between the issuing bank which extends credit to the cardholder and the acquiring bank which maintains the merchant's account. NPS and Pearl are intermediaries that profit by facilitating transactions and retaining a portion of the money remitted. NPS is an Independent Sales Organization (“ISO”), which is a subtype of intermediary contracted by acquiring banks to sign up new merchants and service their accounts, and NPS subcontracted work to Pearl.

As part of the transaction, NPS leased equipment to Pearl. Pearl encountered financial difficulties paying NPS's invoices which Pearl alleges was part of a concerted scheme by NPS to induce distress and obtain some of Pearl's streams of residual income. To avoid insolvency, Pearl accepted loans from NPS (the “Loan”) and its alleged affiliate Beck Ventures, LLC (“Beck”), both of which were secured by Pearl's residuals portfolio and incorporated agreements granting NPS and Beck options to acquire future residual payment rights for a portion of the merchants in Pearl's portfolio. The options locked in specific purchase prices and were not exercisable until the loans' full repayment or in the event of default.

Plaintiffs initially sued NPS, Beck, and Does 1-20, seeking a declaration that the loans violate Texas's usury statutes and corresponding punitive damages. NPS and Beck moved to dismiss, and the Court concluded that (1) per Texas law's spreading doctrine, the loan schedule did not reflect usurious interest, (2) the values of the purchase options were too uncertain to constitute interest, and (3) Plaintiffs had not adequately alleged a scheme to conceal usury. Mem. Op. & Order 8-9, 12-13. Accordingly, the Court dismissed Plaintiffs' complaint for failure to state a claim, but granted leave to amend. Id. at 13. Plaintiffs have amended their complaint as well as moved for reconsideration of the Court's prior decision.

II. The Applicable Standard for Usury

Under Texas law,^[1] a usurious transaction has three elements: (1) a loan of money; (2) an absolute obligation for the borrower to repay the principal; and (3) an exaction of greater interest than permitted. First Bank v. Tony's Tortilla Factory, Inc., 877 S.W.2d 285, 287 (Tex. 1994) (citing Holley v. Watts, 629 S.W.2d 694, 969 (Tex. 1982)). The usury statutes set out in the Texas Finance Code establish that the maximum allowable interest rate for a commercial transaction such as this is 28% annually. TEX. FIN. CODE § 303.009(c).

Interest is any “compensation for the use, forbearance, or detention of money,” barring exceptions not relevant here. Id. § 301.002(a)(4). However, a charge will not be considered interest if it is “supported by a distinctly separate and additional consideration, other than the simple lending of money.” Tony's Tortilla Factory, Inc., 877 S.W.2d at 287. Nor is a payment interest if the value to be received by the lender is uncertain. See First USA Mgmt., Inc., v. Esmond, 960 S.W.2d 625, 628 (Tex. 1997); Beavers v. Taylor, 434 S.W.2d 230, 231 (Tex. Civ. App. - Waco 1968, writ ref'd n.r.e.). Nevertheless, a contingency may still be interest so long as the contract expressly and automatically entitles the lender to a certain amount upon its occurrence.^[2] Najarro v. SASI Int'l, Ltd., 904 F.2d 1002, 1010 (5th Cir. 1990) (quoting Smart v. Tower Land & Inv. Co., 597 S.W.2d 333, 341 (Tex. 1980)); cf. Beavers, 434 S.W.2d at 232 (finding that contingent payments dependent on the debtor's gross sales were too uncertain to be interest). The certainty principle effectuates the purpose of the usury statutes, which are strictly penal in nature and target only those who intentionally charge excessive interest. Guetersloh v. C.I.T. Corp., 451 S.W.2d 759, 761 (Tex. Civ. App. - Amarillo 1970, writ ref'd n.r.e.). Requiring certainty of interest guards against usury law inadvertently punishing mere business investments, which facilitate socially desirable economic development and would be discouraged if the possibility of substantial returns rendered investors subject to penalties. See Anglo-Dutch Petr. Int'l., Inc., v. Haskell, 193 S.W.3d 87, 96 (Tex. App. - Houston [1st Dist.] 2006, pet. denied) (collecting cases).

Whether a contract is usurious is determined as of its inception. Southwestern Inv. Co. v. Hockley Cnty. Seed & Delinting, Inc., 511 S.W.2d 724, 731 (Tex. Civ. App. - Amarillo 1974), rev'd on other grounds, 516 S.W.2d 136 (Tex. 1974). If no legally valid interest existed at formation - meaning one that was sufficiently certain - “there can be no basis for usury.” Tony's Tortilla Factory, Inc., 877 S.W.2d at 287 (collecting cases). Accordingly, courts look to whether, at the time of the agreement, it was possible to ascertain the true dollar value to be received by the lender. See, e.g., Wagner, 525 S.W.2d at 731.

Because usury statutes are construed strictly, courts initially presume that a transaction is lawful unless usurious on its face. Pearcy Marine, Inc. v. Acadian Offshore Servs., Inc., 832 F.Supp. 192, 196 (S.D. Tex. 1993) (citing Tex. Comm. Bank-Arlington v. Goldring, 665 S.W.2d 103, 104 (Tex. 1984); Smart, 597 S.W.2d at 340-41). Facial usury exists where a contract makes “an express reservation of more than legal interest,” and the intent to do so is apparent. Luong v. Tran, 1995 WL 613062, at *3 (Tex. App. - Houston [14th Dist.] 1995, pet. denied) (quoting Moser v. John F. Buckner & Sons, 292 S.W.2d 668, 672 (Tex. Civ. App. - Waco 1956, writ ref'd n.r.e.)). A party asserting that an instrument is not facially usurious, but nevertheless is a device to conceal usury, bears the additional burden of alleging “a ‘corrupt agreement or scheme to cover usury and that such agreement or scheme was in full contemplation of the parties.'” Najarro, 904 F.2d at 1008 (quoting Moss v. Met. Nat'l Bank, 533 S.W.2d 397, 399 (Tex. Civ. App. - Houston [1st Dist.] 1976, no writ)).

III. The Court Denies the Motion for Reconsideration

A. Legal Standard

A request that the Court reconsider an interlocutory order is governed by Rule 54(b) of the Federal Rules of Civil Procedure, which allows “the district court to revise at any time any order or other decision that does not end the action.” Austin v. Kroger Tex., L.P., 864 F.3d 326, 336 (5th Cir. 2017). The standard for Rule 54(b) is more lenient than those of Rules 59(e) and 60(b), which govern reconsideration of final judgments. See Ryan v. Phillips 66, 838 Fed.Appx. 832, 836 (5th Cir. 2020) (citing McClendon v. United States, 892 F.3d 775, 781 (5th Cir. 2018)). Under Rule 54(b), the Court may “reconsider and reverse its decision for any reason it deems sufficient.” Austin, 864 F.3d at 336 (internal quotations and citations omitted).

But “[t]he mere fact that Rule 54(b) provides for a more flexible approach . . . does not mean that such motions should automatically be granted.” Halprin v. FDIC, 2017 WL 9808438, at *2 (W.D. Tex. 2017). A district court's broad discretion under Rule 54(b) “must be exercised sparingly in order to forestall the perpetual reexamination of orders and the resulting burdens and delays.” Puga v. About Tyme Transp., Inc., 2017 WL 6049244, at *1 (S.D. Tex. 2017). Thus, even though the Rule 54(b) standard is “less exacting than that imposed by Rules 59 and 60 . . . considerations similar to those under Rules 59 and 60 inform the Court's analysis.” Rotella v. Mid-Continent Cas. Co., 2010 WL 1330449, at *5 (N.D. Tex. 2010) (internal quotations omitted). The Fifth Circuit has instructed district courts evaluating Rule 54(b) motions to “avoid[] any dismissal based on a technicality” and “weigh the interests of justice.” Austin, 864 F.3d at 337-38.

B. Plaintiffs Have Not Presented a Sufficient Reason for Reconsideration

Plaintiffs' motion disputes the Court's interpretation of an aspect of Texas usury law known as spreading doctrine. The rule originated in Nevels v. Harris, when the Texas Supreme Court evaluated a loan for usury by assessing the total interest against the maximum interest that could legally have been charged during the loan's term 102 S.W.2d 1046, 1049 (Tex. 1937). The rule has since been enacted into law, with the additional instruction to use the “actuarial method.” Act of June 20, 1997, 75th Leg., R.S., ch. 1396, 1997 Tex. Gen. Laws 5202, 5217, amended and recodified by Act of May 10, 1999, 76th Leg., R.S., ch. 62, 1999 Tex. Gen. Laws 127, 236 (current version at TEX. FIN. CODE § 306.004(a) (“To determine whether a commercial loan is usurious, the interest rate is computed by amortizing or spreading, using the actuarial method during the stated term of the loan, all interest at any time contracted for, charged, or received in connection with the loan.”)). Plaintiffs contend that the statute's specification of the “actuarial method” requires more complex calculations than the Nevels approach and would result in a finding of usury here. See TEX....