Hudson Nat. Bank v. Shapiro

• Decision Date: 07 September 1988
• Docket Number: No. 88-1530-CIV.,88-1530-CIV.
• Citation: 695 F. Supp. 544
• Parties: HUDSON NATIONAL BANK, Plaintiff, v. Irwin SHAPIRO a/k/a "Chuck" Shapiro; Hotel Marketing Association, Inc.; Club Victoria, Inc.; Delco Tours, Inc. Theodore Berounsky a/k/a "Ted" Berounsky; and World Travel Concepts, Inc., Defendants.
• Court: U.S. District Court — Southern District of Florida

695 F. Supp. 544

HUDSON NATIONAL BANK, Plaintiff, v. Irwin SHAPIRO a/k/a "Chuck" Shapiro; Hotel Marketing Association, Inc.; Club Victoria, Inc.; Delco Tours, Inc. Theodore Berounsky a/k/a "Ted" Berounsky; and World Travel Concepts, Inc., Defendants.

No. 88-1530-CIV.

United States District Court, S.D. Florida, Miami Division.

September 14, 1988.

Nunc Pro Tunc September 7, 1988.

Tom Farrar, Holland & Knight, Miami, Fla., for plaintiff.

John Freud, Berounsky & World, Miami, Fla., for Berounsky & World Travel.

William Weisman, Ft. Laud., Fla., Marc Nurik, Miami, Fla., for Shapiro & Victoria, Inc.

MEMORANDUM OPINION

SPELLMAN, District Judge.

FINDINGS OF FACT AND CONCLUSIONS OF LAW¹

This diversity action was before the Court on Plaintiff's Motion for Preliminary Injunction. An evidentiary hearing was held on August 23, 1988, and September 6, and 7, 1988. The Plaintiff, HUDSON NATIONAL BANK ("BANK"), was seeking a preliminary injunction against three different bank accounts: Florida National Bank accounts # XXXXXXXXXXXX and # XXXXXXXXXXXX, held under the name of Victoria Marketing Concepts; and NCNB National Bank of Florida account # XXXXXXXXXX, held under the name of World Marketing Concepts. This Court entered temporary restraining order against those accounts on August 17, 1988, with a ten day extension granted on August 23, 1988.

The Plaintiff, HUDSON NATIONAL BANK ("BANK"), claims that it has been the victim of a fraudulent credit card scheme perpetrated by the Defendants in this action, in conjunction with two Massachusetts corporations, Treasure House Enterprises, Inc. ("TREASURE HOUSE"), and Dynasty Enterprises, Inc. ("DYNASTY"). The Massachusetts corporations, along with their principle officers, June A. Allyn ("JUNE") and Jon Z. Allyn ("JON"), are the subject of another action pending in Massachusetts. The Plaintiff is bringing the action in this Court to recover certain proceeds of the fraudulent scheme allegedly held in the Defendants' bank accounts and sought a preliminary injunction to freeze the funds in those accounts. A Temporary Restraining Order against those accounts was granted on August 17, 1988, and at a hearing held on August 23, 1988, was extended until September 7, 1988.

I. FINDINGS OF FACT

1. The Court has subject matter jurisdiction through diversity of the parties over this matter. The Plaintiff BANK is a national banking association with its principal place of business in Hudson, Massachusetts. BANK is a citizen of Massachusetts under 28 U.S.C. section 1348. The Defendants are persons or entities who are citizens of and doing business in Florida. The amount in controversy exceeds the sum of $10,000, and is between citizens of different states. This Court therefore has original jurisdiction under 28 U.S.C. section 1332.

2. Defendants Irwin Shapiro ("SHAPIRO"), Hotel Marketing Association, Inc. ("HOTEL"), Club Victoria, Inc. ("CLUB") and Delco Tours, Inc. ("DELCO") are or have been doing business under fictitious names, including "Victoria Marketing Concepts" and "Hotel Marketing Association," and will be referred to collectively as "VICTORIA." VICTORIA is in the business of selling tours and travel packages to the Bahamas. The sales are made through telephone solicitations and secured by a $100 deposit, usually using the customer's credit card.

3. Defendants Theodore Berounsky ("BEROUNSKY") and World Travel Concepts, Inc. ("WORLD") are or have been doing business under the fictitious name "World Marketing Concepts" and collectively will be referred to as "WORLD." WORLD is in the business of selling memberships to a discount buying club. As an incentive to join the club, WORLD offers a free vacation to various locations.

4. The Court has personal jurisdiction over each of the Defendants in this matter. Each of the Defendants has either been personally served or has appeared in order to contest this Motion for Preliminary Injunction. The Court's personal jurisdiction over the Defendants that have not yet been personally served extends only to the issue of this preliminary injunction, and is without prejudice to any other pending motions filed by those Defendants.

5. TREASURE HOUSE and DYNASTY are Massachusetts corporations organized on January 15, 1988. On or about January 13, 1988, two days before JON and JUNE incorporated TREASURE HOUSE and DYNASTY, JUNE contacted the BANK and requested that the BANK open MasterCard and Visa merchant accounts in the names of TREASURE HOUSE and DYNASTY. JUNE represented to the BANK that TREASURE HOUSE and DYNASTY were in the mail-order wholesale jewelry business and that they had been in business for twenty years. These representations were false. Acting in reliance upon these misrepresentations, the BANK entered into MasterCard and Visa Card Merchant Agreements with TREASURE HOUSE and DYNASTY.

6. WORLD and VICTORIA orally contracted with TREASURE HOUSE and DYNASTY to "factor" credit card sales secured by the sales operations of WORLD and VICTORIA. These oral agreements violated the merchant agreement between BANK, and TREASURE HOUSE and DYNASTY. No connection between WORLD and VICTORIA was alleged or established.

7. WORLD and VICTORIA, each operating through a telephone solicitation program, would secure sales to be charged to the customer's MasterCard or Visa. They would then fax a copy of those charges to TREASURE HOUSE and/or DYNASTY. TREASURE HOUSE and DYNASTY would present the charges to the BANK. The BANK then entered the charges into a central processing system, so that the customer's MasterCard or Visa accounts were debited by the Cardholders' banks. The BANK would credit the account of TREASURE HOUSE or DYNASTY for the amount of the charges. These credits to the accounts of TREASURE HOUSE and DYNASTY were the equivalent of cash deposits and could be withdrawn immediately.

8. TREASURE HOUSE and DYNASTY withdrew some of the funds credited by the BANK to their accounts and transferred those funds to WORLD and VICTORIA. Those funds have been traced to the above mentioned bank accounts held by VICTORIA and WORLD.

9. After the credit card charges had been processed, many of the cardholders rejected and rescinded their purchases and sought credits for their purchases. The cardholders rejected their purchases for a number of reasons, including allegations that they had never authorized the credit card charge, that they had never heard of TREASURE HOUSE or DYNASTY, and that they had not received what they had been promised. Many of the cardholders requested reimbursement or credits from WORLD, VICTORIA, TREASURE HOUSE and DYNASTY directly. These requests for reimbursements have frequently not been honored by VICTORIA. There was insufficient evidence to establish whether any refunds requested from WORLD had not been processed.

10. Representatives from the Better Business Bureau of Miami and the Attorney General's Office of Legal Affairs, Consumer Protection and Fair Trade Practices Unit, both testified that they had dealt extensively with VICTORIA regarding consumer complaints. There were voluminous records establishing a history of problems, mostly concerning refunds and breach of promise, between VICTORIA and public consumers. There were numerous complaints and allegations that VICTORIA was operating a travel credit card scam. The Attorney General's office in the past investigated deceptive and unfair trade practices by VICTORIA, and is currently undertaking another investigation. As a result of the past investigations, the State of Florida, through the Attorney General's office, has entered into at least three written agreements in which VICTORIA has given assurance of voluntary compliance with the law, including the consumer protection laws of the State of Florida and of the United States Federal Trade Commission.

11. Many cardholders, either because they were unable to obtain refunds or because they did not wish to try to obtain refunds directly from VICTORIA or WORLD, requested that their MasterCard or Visa account issuing banks credit their charge accounts for the amount of the contested charges made by TREASURE HOUSE and DYNASTY on behalf of WORLD or VICTORIA. The cardholders' banks credited those cardholders' accounts and electronically notified the BANK through the central processing system of the credits. The BANK then issued a credit to the cardholders' banks and debited the account of TREASURE HOUSE or DYNASTY. This type of procedure is known as a "chargeback."

12. On or about July 18, 1988, the BANK discovered an extraordinarily large number of chargebacks to the MasterCard and Visa merchant accounts of TREASURE HOUSE and DYNASTY. Thereafter, on or about July 20, 1988, the BANK terminated the merchant agreements with TREASURE HOUSE and DYNASTY. The BANK is continuing to receive chargebacks on those accounts, at the rate of approximately $5,000 per business day. The BANK expects the chargebacks to continue for the next several months. TREASURE HOUSE and DYNASTY have transferred funds to the Defendants and so depleted their accounts that insufficient funds remain therein to pay off the chargebacks which the BANK will receive, estimated to exceed $1,600,000.

13. Evidence was presented to show that VICTORIA often uses factoring agents in different states to process its credit card sales. Further, VICTORIA uses various fictitious names and frequently changes both name and bank accounts. VICTORIA was aware of the numerous refunds and chargebacks attributable to its operation and has not satisfied large numbers of such complaints. The evidence also showed that this is a usual pattern of activity by this boiler room operation and is most likely done in an attempt to defraud the BANK and the consuming public. Funds have been traced from the accounts of TREASURE HOUSE and DYNASTY to the accounts held by VICTORIA under the name of Victoria Marketing Concepts. There is a substantial likelihood that there was an illegal and...