Best Beach Getaways LLC v. TSYS Merch. Sols.

• Decision Date: 29 July 2021
• Docket Number: Civil Action No. 20-cv-01962-NRN
• Parties: BEST BEACH GETAWAYS LLC, Plaintiff, v. TSYS MERCHANT SOLUTIONS, LLC, Defendant.
• Court: U.S. District Court — District of Colorado

BEST BEACH GETAWAYS LLC, Plaintiff, v. TSYS MERCHANT SOLUTIONS, LLC, Defendant.

Civil Action No. 20-cv-01962-NRN

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

July 29, 2021

ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT (Dkt. #84), PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT (Dkt. #88), and PLAINTIFF'S MOTION FOR LEAVE TO FILE AMENDMENT TO COMPLAINT TO ADD PRAYERS FOR EXEMPLARY DAMAGES AND DISGORGEMENT (Dkt. #86)

N. Reid Neureiter Untied States Magistrate

This matter is before the Court for all purposes upon the consent of the parties (Dkt. #36), and an Order of Reference by Chief Judge Philip A. Brimmer pursuant to 28 U.S.C. § 636(c). (Dkt. #37.) Before the Court are Defendant TSYS Merchant Solutions, LLC's ("TSYS") Motion for Summary Judgment (Dkt. #84), Plaintiff Best Beach Getaways LLC's ("Best Beach") Motion for Partial Summary Judgment (Dkt. #88), and Best Beach's Motion for Leave to File Amendment to Complaint to Add Prayers for Exemplary Damages and Disgorgement (the "Motion for Leave to Amend"). (Dkt. #86.)

I heard oral argument on June 11, 2021 (Dkt. #112) and I have taken judicial notice of the Court's file and considered the applicable Federal Rules of Civil Procedure and case law. Now, being fully informed and for the reasons discussed below, it is hereby ORDERED as follows: TSYS's Motion for Summary Judgment (Dkt. #84) is GRANTED IN PART and DENIED IN PART, Best Beach's Motion for Partial Summary Judgment (Dkt. #88) is DENIED, and Best Beach's Motion for Leave to Amend (Dkt. #86) is DENIED.

PROCEDURAL BACKGROUND

This matter has a somewhat complicated procedural history, which the Court detailed in its Order on TSYS's Partial Motion to Dismiss. (Dkt. #76.) The Court assumes the parties' familiarity with the history and will not repeat it here except as necessary.

In relevant part, Best Beach filed its Amended Complaint (Dkt. #44) on July 24, 2020, bringing six claims for relief: (i) tortious interference with its contracts with property owners, (ii) tortious interference with its contracts with depositors, (iii) violation of the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA"), (iv) breach of implied covenant of good faith and fair dealing, (v) violation of the Colorado Consumer Protection Act ("CCPA"), and (vi) emergency preliminary injunction. Best Beach also submitted a renewed Motion for Preliminary Injunction. (Dkt. #45.) Ultimately, after an evidentiary hearing, the Court issued an oral ruling denying Best Beach's request for a preliminary injunction on the ground that the harm alleged did not appear to be irreparable. (Dkt. #61.)

TSYS then filed its Partial Motion to Dismiss Plaintiff's Amended Complaint (Dkt. #63), which the Court partially granted and partially denied on December 4, 2020. (Dkt. #76.) Specifically, the Court dismissed Best Beach's tortious interference claims, as well as its claim for violation of the CCPA. Thus, the only surviving claims in this matter arefor (1) breach of the implied covenant of good faith and fair duty and (2) violation of the FDUTPA.

On April 21, 2021, TSYS moved for summary judgment on these remaining claims. (Dkt. #84.) TSYS argues that Best Beach, as a matter of law, cannot show that TSYS breached the duty of good faith and fair dealing. (Id.) TSYS also moves for summary judgment as to certain categories of damages for the breach of duty claim. (Id.) Finally, TSYS argues that Best Beach's FDUTPA claim fails because Best Beach has failed to offer evidence of "actual damages." (Id.) Best Beach responded (Dkt. #101) and TSYS replied. (Dkt. #109.)

Best Beach, for its part, moved for summary judgment as to the issue of TSYS's liability on the breach of the implied duty of good faith and fair dealing claim. (Dkt. #88.) Best Beach also filed a Motion for Leave to Amend, seeking to add claims for exemplary damages and disgorgement. (Dkt. #86.) TSYS opposed both of Best Beach's motions. (Dkt. ##100 and 99, respectively.) The Court heard oral argument on each of these motions on June 11, 2021. (Dkt. #112.)

FACTUAL BACKGROUND

The following facts are undisputed unless otherwise indicated.

I. The Parties and the Merchant Card Processing Agreement

Best Beach provides management services to owners of more than 400 short-term vacation rental properties on behalf of property owners throughout the Florida Panhandle. (Dkt. #84 at 2; Dkt. #88 at 2.)¹ It facilitates renting those properties forvacationing customers. (Dkt. #84 at 2; Dkt. #88 at 2.) After making a reservation, the vacationing customer provides a non-refundable $450 deposit, which is applied towards rent. (Dkt. #84 at 2.) Best Beach's standard rental agreement contains a strict "no-refunds" policy. (Id. at 3.)

TSYS provides VISA and Mastercard credit card processing services for Best Beach pursuant to the Merchant Card Processing Agreement (the "Agreement"). (See Dkt. #85-6.) Under section 3.4 the Agreement, Best Beach is required to maintain a "settlement account" into which TSYS provides "provisional credits" for the dollar amount of credit card transactions processed for Best Beach, less any fees owed to TSYS. (Id. at 2.) This same section provides, in bold lettering: "Provisional credit to Merchant for a Transaction disputed by a Cardholder for any reason is not final." (Id. at 2-3.) Section 3.4(b) further provides that TSYS can make certain deductions from payments to Best Beach's settlement account, including for amounts for chargebacks and amounts to be held in a reserve account (explained in more detail below). (Id. at 3.) Section 3.4(c) sets forth Best Beach's acknowledgement that "all payments and credits provided to [Best Beach] are provisional and subject to suspension, to Chargeback, and to adjustments" in accordance with the terms of the Agreement. (Id.)

A chargeback occurs when a customer asks their credit card company for his or her money back by disputing the legitimacy of a charge. TSYS, as the payment processor, and in accordance with the terms of the Agreement as well "Operating Rules," is responsible for reimbursing the credit card companies for all chargebacks initiated by the customer; at least initially—Best Beach is ultimately responsible. (Id. at 3, 4, 6.) TSYS is required to fund the chargeback regardless of whether Best Beach'ssettlement account contains sufficient funds to cover the cost of the chargeback, and even if Best Beach disagrees with the chargeback request. (Id. at 6.)

Section 13 of the Agreement provides that Best Beach may be required to provide additional collateral security for its obligations under the Agreement, and that such collateral "shall be of a kind, and in amounts, satisfactory to Bank in Bank's sole discretion." (Id. at 5.) One of the means that TSYS has to protect itself from the risk of chargebacks is through the use of a reserve account. (See id.) Section 13.1(a) provides:

Merchant [Best Beach] may be required to deposit, or Merchant Bank [TSYS] may deposit by deducting from any payment due to Merchant or from any funds in the Settlement Account or any other deposit account of Merchant, into an account maintained by Merchant Bank . . . (the "Reserve Account"), initially or at any time in the future as requested by Bank, sums sufficient to satisfy Merchant's current and/or future obligations as determined by Bank in its sole and absolute discretion.

(Id.)

Section 13.4 of the Agreement sets forth the terms for replenishment of the reserve account, including specifying that if the balance reserve account falls below the minimum required or is "otherwise deficient," "Merchant Bank may, without prior notice, deposit the deficiency into the Reserve Account by reducing any payment to Merchant required by this Merchant Agreement or deduct the deficiency from the Settlement Account . . . ." (Id. at 6.)

Further, section 13.5 provides for additions to the reserve account. (Id.) In relevant part, section 13.5 states:

If Bank has reason to believe that Merchant may be liable to customers or to Bank for Chargebacks exceeding the balance in the Reserve Account, Merchant Bank may: (a) immediately place in the Reserve Account payments due to Merchant and/or stop processing transactions for Merchant until such time as the extent of Merchant's obligations to Bank, orMerchant's liability for Chargebacks, or Merchant's liabilities to customers are known, and Bank no longer deems itself insecure.

TSYS argues that, taken together, sections 3.4 and 13 expressly permit it to "deduct from any 'provisional payment' to Best Beach 'any amount to be deposited into the Reserve Account.'" (Dkt. #84 at 5.) Best Beach contends that TSYS had no contractual authority to create a reserve account in the first instance without prior notice, because Section 13 of the Agreement contemplates that TSYS first give Best Beach an opportunity to provide additional collateral. (Dkt. #101 at 9-10.)

Finally, section 11 of the Agreement contains several provisions regarding termination of the contract. (Id. 4-5.) Section 11.2(b)(v) provides that TSYS may, in its sole and absolute discretion, immediately terminate the Agreement for cause if Best Beach has "a monthly ration of Chargebacks to Transactions exceeding (1%), or Chargebacks are in excess of three percent (3%) of any monthly dollar amount of transactions." (Id. at 4.)

II. The COVID-19 Pandemic, Chargebacks, and the Reserve Account

In early to mid-2020, many of Best Beach's customers sought to cancel their reservations due to the COVID-19 pandemic, particularly after Florida banned all short-term vacation rentals as part of its response to the pandemic. (Dkt. #84 at 3-4). Because of its strict no-refund policy, Best Beach refused to provide refunds when customers cancelled. As a result, many of Best Beach's customers initiated chargebacks with their credit card companies.²

Best Beach claims that TSYS first placed a hold on its account in March 2020. (Dkt. #101 at 10.) TSYS disputes this, arguing that this action was...