Elec. Merch. Sys. LLC v. Gaal

Decision Date30 January 2023
Docket Number22-3602
Citation58 F.4th 877
Parties ELECTRONIC MERCHANT SYSTEMS LLC, Plaintiff-Appellant, v. Peter GAAL, Defendant-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

ON BRIEF: Egon P. Singerman, EGON P. SINGERMAN, ATTORNEY AT LAW, Solon, Ohio, Hunter G. Cavell, CAVELL LAW, LLC, Solon, Ohio, for Appellant. Alexander J. Durst, THE DURST LAW FIRM, Cincinnati, Ohio, for Appellee.

Before: GILMAN, McKEAGUE, and GRIFFIN, Circuit Judges.

McKEAGUE, Circuit Judge.

Plaintiff Electronic Merchant Systems LLC ("EMS") appeals the district court's dismissal, for failure to state a claim, of its complaint against Defendant Peter Gaal for breach of guaranty, unjust enrichment, and fraud. EMS argues that the district court erred in considering outside information, not granting EMS leave to amend its complaint, and finding that Gaal is not liable under a guaranty provision that he signed for debt allegedly owed EMS by Gaal's company, Procom America LLC. We AFFIRM in part and REVERSE in part.

I.
1. Facts

EMS, an Ohio-based corporation, offers payment processing services to other companies. In April 2014, it entered into a merchant agreement (the "2014 Agreement") with non-party Procom, a business owned by Defendant Peter Gaal that sold historical tours. Under this agreement, EMS and an associated bank provided payment processing services to Procom, in return for which Procom paid fees to EMS.

The 2014 Agreement—which was a form contract drafted by EMS—was executed by Gaal and another Procom officer, Nikoletta Montgomery, and contained a personal-guaranty provision signed by Gaal. The guaranty provision reads:

The undersigned ... in consideration of BANK and EMS entering into this Merchant Agreement ("Agreement") with [Procom], hereby absolutely and unconditionally guarantee the full and prompt payment of any and all amounts owed to BANK and EMS and the performance of all MERCHANT'S obligations under this Agreement as may be subsequently amended from time to time, whether before or after termination or expiration of the Agreement. ... This Guaranty is continuing, binding upon heirs and successors and may not be changed except in writing and signed by BANK and EMS.

88R. 40-1 at PID 278. The 2014 Agreement also contains terms relating to "chargebacks," which occurred when a Procom customer's transaction was declined or canceled after EMS had already credited Procom's account for the purchase. Under the agreement, EMS paid the money back to the Procom customer, then in turn charged Procom for that money plus a chargeback fee.

On June 10, 2019, EMS and Procom executed a second agreement (the "2019 Agreement"). This agreement was, like the first, a form contract drafted by EMS, and it addressed the same subject as the first contract but with slightly altered terms (beneficial to EMS). This contract contained an explicit integration clause, which reads:

This Agreement, including the Application and any other documents executed in conjunction herewith, constitutes and expresses the entire agreement and understanding between [Procom], Bank and EMS with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, inducements, or conditions, by Bank, EMS or its sales representative, whether expressed or implied, oral or written.

R. 40-2 at PID 291. The agreement contained a new guaranty provision, signed not by Gaal but by a different Procom employee, Debra Watkins.

The COVID-19 pandemic hit Procom hard. Beginning in March 2020, many Procom customers canceled their credit card purchases with Procom, resulting in, EMS claims, over $10 million in chargebacks. Some of these chargebacks related to transactions occurring prior to June 10, 2019 (the execution date of the 2019 Agreement), and some related to transactions occurring after that date. Neither Procom nor Gaal has paid EMS the money for these chargebacks.

Procom is currently involved in a Chapter 7 bankruptcy proceeding in the United States Bankruptcy Court for the Middle District of Florida. EMS filed a creditor's proof of claim in this proceeding, the accuracy of which was attested to by EMS's Chief Financial Officer under penalty of perjury.

2. Procedural History

On August 25, 2020, EMS instituted this action in the United States District Court for the Northern District of Ohio against Gaal,1 and the operative complaint alleges breach of guaranty, unjust enrichment, and fraud.2 Gaal moved to dismiss the complaint for lack of personal jurisdiction and failure to state a claim. The district court granted Gaal's motion to dismiss for failure to state a claim, and declined to analyze the personal-jurisdiction issue. It first found that the 2019 Agreement superseded the 2014 agreement "in all material respects," including replacing Gaal's guaranty provision with a new guaranty provision signed by Watkins. R. 49 at PID 426. The court then concluded that all of the chargebacks in question—which the court found occurred after the execution of the 2019 Agreement, though some related to transactions which themselves occurred before that date—arose solely under the 2019 Agreement. Because Gaal signed the guaranty provision of only the 2014 Agreement, the court concluded that he was not liable for any of the chargeback debt. In performing this analysis, the court took judicial notice of EMS's filing in the Procom bankruptcy proceeding and refused to consider an affidavit (proffered by EMS) by Daniel Moenich, an EMS employee (the "Moenich Affidavit"). EMS timely appealed.

II.

EMS raises four issues on appeal: that the district court erred in (1) considering the bankruptcy filing and refusing to consider the Moenich Affidavit, (2) dismissing with prejudice rather than allowing EMS to amend its complaint, (3) finding that the 2019 Agreement replaced the 2014 Agreement rather than merely supplementing it, and (4) finding that all of the chargeback debt—including that relating to transactions which occurred prior to the execution of the 2019 Agreement—arose under the 2019 Agreement rather than under the 2014 Agreement. We affirm the district court on the first and third issues, decline to address the second, and reverse on the fourth, holding that, as alleged by EMS, any chargeback debt related to transactions occurring prior to the execution of the 2019 Agreement arose under the 2014 Agreement.

1. Standard of Review

We review de novo a district court's decision to dismiss under Rule 12(b)(6) for failure to state a claim. Lindke v. Tomlinson , 31 F.4th 487, 495 (6th Cir. 2022). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). In analyzing a 12(b)(6) motion, the court must "construe the complaint in the light most favorable to the plaintiff and accept all allegations as true." Taylor v. City of Saginaw , 922 F.3d 328, 331 (6th Cir. 2019) (quoting Keys v. Humana, Inc. , 684 F.3d 605, 608 (6th Cir. 2012) ). However, the court does not have to accept as true "unwarranted factual inferences." Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield , 552 F.3d 430, 433 (6th Cir. 2008). The burden of demonstrating that the complaint fails to adequately state a claim falls on the defendant. Taylor , 922 F.3d at 331.

Ohio law governs this dispute, which provides that if the terms of a contract are "clear and unambiguous, then its interpretation is a matter of law for the court." Wilkerson v. Am. Family Ins. Co. , 997 F.3d 666, 668 (6th Cir. 2021) (citation and internal quotation marks omitted). Where a dispute is based on the interpretation of a contract, and the contract's terms are clear, "there is no issue of fact to be determined," Masco Corp. v. Wojcik , 795 F. App'x 424, 427 (6th Cir. 2019), and thus dismissal on 12(b)(6) grounds might be appropriate, see Constr. Interior Sys., Inc. v. Marriott Family Rests., Inc. , 984 F.2d 749, 754 (6th Cir. 1993) ; In re Fifth Third Early Access Cash Adv. Litig. , 925 F.3d 265, 276 (6th Cir. 2019).

2. The District Court's Consideration of Outside Information

EMS makes multiple arguments regarding the district court's consideration of (or refusal to consider) information outside of the pleadings. Chiefly, EMS argues that the district erred (1) in taking judicial notice of EMS's filing in Procom's bankruptcy proceeding, without converting the motion to dismiss into a summary judgment motion and allowing EMS to present other evidence, and (2) in refusing to consider the Moenich Affidavit. Neither of these arguments is persuasive.

Generally, in considering a motion to dismiss, the district court is confined to considering only the pleadings, or else it must convert the motion into one for summary judgment under Rule 56. See Wysocki v. Int'l Bus. Mach. Corp. , 607 F.3d 1102, 1104 (6th Cir. 2010). However, the court may, in undertaking a 12(b)(6) analysis, take judicial notice of "matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint." Golf Vill. North, LLC v. City of Powell , 14 F.4th 611, 617 (6th Cir. 2021) (quoting Meyers v. Cincinnati Bd. of Educ. , 983 F.3d 873, 880 (6th Cir. 2020) ). Courts may consider public records for the truth of the statements contained within them only when the "contents prove facts whose accuracy cannot reasonably be questioned." Passa v. City of Columbus , 123 F. App'x 694, 697 (6th Cir. 2005). We review challenges to a court's decision-making regarding whether to take judicial notice of facts for abuse of discretion. See Price v. Jefferson County , 9 F. App'x 369, 370 (6th Cir. 2001) ; Platt v. Bd. of Comm'rs on Grievs. & Discipline of the Ohio Supreme Court , 894 F.3d 235, 245 (6th Cir. 2018).

The district court took judicial notice of EMS's filing in the bankruptcy...

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