Canters Deli Las Vegas, LLC v. FreedomPay, Inc.

• Decision Date: 14 May 2020
• Docket Number: CIVIL ACTION NO. 19-3030
• Parties: CANTERS DELI LAS VEGAS, LLC, et al., Plaintiffs, v. FREEDOMPAY, INC., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

460 F.Supp.3d 560

CANTERS DELI LAS VEGAS, LLC, et al., Plaintiffs,

v.FREEDOMPAY, INC., Defendants.

CIVIL ACTION NO. 19-3030

United States District Court, E.D. Pennsylvania.

Filed May 14, 2020

Patrick J. Doran, Danielle M. Karcich, Archer & Greiner PC, Philadelphia, PA, Travis Franklin Chance, Adam K. Bult, Brownstein Hyatt Farber Schreck LLP, Las Vegas, NV, for Plaintiffs.

Craig J. Mariam, Gordon & Rees LLP, Los Angeles, CA, Lynne McChrystal, Jackson Lewis, P.C., Las Vegas, NV, Alexander W. Saksen, Gordon & Rees LLP, Pittsburgh, PA, Ronald A. Giller, Gordon & Rees LLP, Philadelphia, PA, for Defendants.

MEMORANDUM

Goldberg, J.

Plaintiffs, the owners of two delis, have sued Defendant FreedomPay, Inc., a provider of secure "switching" services used to facilitate credit card transactions, in connection with the theft of funds by a former indirect owner of the Plaintiff companies. Defendant moves, under Federal Rules of Civil Procedure 12(b)(6) and 12(f), to dismiss and/or strike certain allegations from the Amended Complaint. For the following reasons, I will grant the Motion in part and deny it in part.

I. FACTS IN THE AMENDED COMPLAINT

The following facts are taken from the Amended Complaint.¹

Plaintiffs Canters Deli Las Vegas, LLC ("CDLV") and Canters Deli Tivoli Village LLC ("CDTV") (collectively, "Plaintiffs") own two Canters Delis, both of which are located in Las Vegas, Nevada. Mikhail Siretskiy had an indirect ownership in CDLV and CDTV by virtue of his ownership of former members High Roller Holding Firm, LLC and Tivoli Holding Firm, LLC. Under the Operating Agreements for each of the Plaintiffs, Siretskiy had no right to participate in Plaintiffs’ management or control. (Am. Compl. ¶¶ 8–11.)

On December 6, 2016, Plaintiffs entered into Merchant Processing Applications and Agreements with Bank of America Merchant Services, LLC and Bank of America, N.A. (collectively, "BOA"). Pursuant to these agreements, BOA was obligated to procure monies from processed credit and debit card transactions at the Plaintiffs’ delis, as provided by Defendant FreedomPay, Inc. ("FPI"), and to deposit those settled funds into a deposit account maintained and specified by Plaintiffs. (Id. ¶¶ 12–13.)

On June 12, 2017, Plaintiffs entered into Secure Switching Product Agreements with FPI (the "FPI Agreements"). Pursuant to Section 1.1 of the FPI Agreements, FPI was obligated to provide secure switching services and equipment to Plaintiffs at their retail deli locations. In effect, FPI acted as an intermediary third party "switcher," providing data related to processed credit and debit transactions from both of Plaintiffs’ delis to BOA in order to facilitate the procurement and settlement of payments. FPI also agreed to provide the card swiping equipment to be used at Plaintiffs’ delis. (Id. ¶¶ 14–20.)

In addition, the FPI Agreements provided that FPI would provide secure switching services pursuant to something called SSP Order. Under Section 1.3 of the FPI Agreements, FPI was required to "configure and load Client information onto the System as appropriate in order to perform the Secure Switching." FPI also warranted that it would "perform all Direct Secure Switching under the this [sic] Agreement in a timely, professional and workmanlike manner using reasonable care." In exchange for these secure switching services, Plaintiffs agreed to pay to FPI agreed upon fees, in accordance with Section 3.1 and Exhibit A to the FPI Agreements. The term of the FPI Agreements continued until the expiration of all SPP Orders unless terminated earlier in accordance with the terms of the FPI Agreements. (Id. ¶¶ 21–27.)

In April 2018, Siretskiy visited a BOA branch at 1100 Green Valley Parkway, Henderson, Nevada (the "Green Valley Branch") and opened deposit and savings accounts in the name of "Canters Deli Tivoli, Inc." and "Canters Deli Linq., Inc." Siretskiy falsely claimed that he had won a lawsuit against Plaintiffs and was taking over their Las Vegas delis. Thereafter, on April 25, 2018, Siretskiy was approved for merchant services by BOA and obtained two VAR (value added reseller) Sheets, which are instructional sheets containing information, such as merchant account numbers and associated bank deposit accounts, that is provided to a third-party payment data collector, such as FPI. The information is configured with that third party's systems, so that the merchant servicer can procure and settle monies into accounts specified by the sheet. (Id. ¶¶ 28–33.)

On June 14, 2018, Siretskiy provided the VAR Sheets obtained from BOA to FPI, representing that he was Plaintiffs’ owner. Siretskiy then requested that FPI change the depository accounts for transactions processed at Plaintiffs’ delis to his own depository accounts, as instructed by the VAR Sheets. According to the Amended Complaint, FPI took Siretskiy at his word, without verifying his representations, without contacting anyone at Plaintiffs to confirm, and without being given any legal documents showing the change in ownership that was claimed. Ultimately, Siretskiy converted processed credit and debit card transactions for eight business days at CDLV and fourteen business days at CDTV. (Id. ¶¶ 34–40.)

On June 19, 2018, Plaintiffs’ counsel wrote to FPI about this error and demanded that the funds be reinstated into Plaintiffs’ accounts. FPI's General Counsel responded that FPI was merely a passive third-party intermediary and implied that the problem arose as a result of BOA's conduct. In a June 27, 2018 conversation with Plaintiffs’ counsel, BOA's counsel stated that the conversion resulted from FPI's conduct. (Id. ¶¶ 41–49.)

On June 29, 2018, Plaintiffs’ counsel wrote to FPI and BOA jointly, demanding return of the monies wrongfully taken. BOA responded that, due to the alleged dispute between Plaintiffs and Siretskiy as to rightful ownership of the settlement funds, it was issuing a funding hold on Plaintiffs’ merchant accounts until receipt of a Court order or joint written instructions from Plaintiffs and Siretskiy. (Id. ¶¶ 49–52.)

On June 22, 2018, Plaintiffs terminated the FPI Agreements. (Id. ¶ 56.)

On October 2, 2018, Plaintiffs filed suit against Defendants FPI and BOA in the United States District Court for the District of Nevada. Following FPI's motion for change of venue, the case was transferred to my docket on July 15, 2019. Plaintiffs then filed the Amended Complaint on September 3, 2019, dropping BOA as a Defendant and alleging, against FPI only, breach of contract, gross negligence, and concerted tortious conduct/civil aiding and abetting. Defendant FPI now moves to dismiss all claims in the Amended Complaint and to strike Plaintiffs’ demands for punitive and consequential damages and attorneys’ fees.

II. STANDARDS OF REVIEW

A. Federal Rule of Civil Procedure 12(b)(6)

Under Federal Rule of Civil Procedure 12(b)(6), a defendant bears the burden of demonstrating that the plaintiff has not stated a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6) ; see also Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). The United States Supreme Court has recognized that "a plaintiff's obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quotations omitted). "[T]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" and only a complaint that states a plausible claim for relief survives a motion to dismiss. Ashcroft v. Iqbal, 556 U.S. 662, 678–79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 678, 129 S.Ct. 1937. A complaint does not show an entitlement to relief when the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct. Id. at 679, 129 S.Ct. 1937.

The Court of Appeals has detailed a three-step process to determine whether a complaint meets the pleadings standard. Bistrian v. Levi, 696 F.3d 352 (3d Cir. 2014). First, the court outlines the elements a plaintiff must plead to state a claim for relief. Id. at 365. Next, the court must "peel away those allegations that are no more than conclusions and thus not entitled to the assumption of truth." Id. Finally, the court "look[s] for well-pled factual allegations, assume[s] their veracity, and then ‘determine[s] whether they plausibly give rise to an entitlement to relief.’ " Id. (quoting Iqbal, 556 U.S. at 679, 129 S.Ct. 1937 ). The last step is " ‘a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.’ " Id. (quoting Iqbal, 556 U.S. at 679, 129 S.Ct. 1937 ).

B. Federal Rule of Civil Procedure 12(f)

Federal Rule of Civil Procedure 12(f) provides that "the court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent or scandalous matter." Fed. R. Civ. P. 12(f). Content is immaterial when it "has no essential or important relationship to the claim for relief." Donnelly v. Commonw. Fin. Sys., No. 07-1881, 2008 WL 762085, at *4 (M.D. Pa. Mar. 20, 2008) (citing Del. Healthcare, Inc. v. MCD Holding Co., 893 F. Supp. 1279, 1291–92 (D. Del. 1995) ). Content is impertinent when it does not pertain to the issues raised in the complaint. Id. Scandalous material "improperly casts a derogatory light on someone, most typically on a party to the action." Id. (citing Carone v. Whalen, 121 F.R.D. 231, 233 (M.D. Pa. 1988) ).

"The standard for striking a complaint or a portion of it is strict, and ‘only allegations that are so unrelated to the plaintiffs’ claims as to be unworthy of any consideration should be stricken.’ " Steak Umm Co., LLC v. Steak'Em Up, Inc., No. 09-2857, 2009 WL 3540786, at *2 (E.D....