Lagb, LLC v. Total Merch. Servs., Inc.

• Citation: 284 So.3d 720
• Decision Date: 26 September 2019
• Docket Number: NO. 2018-CA-00723-SCT,2018-CA-00723-SCT
• Parties: LAGB, LLC and Mama Kio's Grill, Inc. v. TOTAL MERCHANT SERVICES, INC., HSBC Bank USA, Global Payments, Inc. and Global Payments Direct, Inc.
• Court: United States State Supreme Court of Mississippi

284 So.3d 720

LAGB, LLC and Mama Kio's Grill, Inc.

v.TOTAL MERCHANT SERVICES, INC., HSBC Bank USA, Global Payments, Inc. and Global Payments Direct, Inc.

NO. 2018-CA-00723-SCT

Supreme Court of Mississippi.

September 26, 2019

Rehearing Denied December 12, 2019

ATTORNEYS FOR APPELLANTS: JAMES L. KELLY, Brandon, H. KEITH KEETON

ATTORNEYS FOR APPELLEES: CHARLES H. RUSSELL, III, Jackson, JAMES E. GRAVES, III, Jackson, JOHN T. ROUSE, Ridgeland, WALTER H. BOONE, Jackson

BEFORE RANDOLPH, C.J., ISHEE AND GRIFFIS, JJ.

RANDOLPH, CHIEF JUSTICE, FOR THE COURT:

¶1. LAGB, LLC, a commercial landlord, sued its tenant Mama Kio's Grill and numerous companies that provided credit-card processing services to Mama Kio's, alleging that the negligence of the credit-card processing companies caused Mama Kio's to breach its lease with LAGB. Mama Kio's filed a cross-claim against the credit-card processing companies, alleging misrepresentations and tortious interference with its business. The credit-card processing companies filed motions compelling LAGB and Mama Kio's to arbitrate. The trial court granted the motions. While the trial court did not err by compelling Mama Kio's to arbitrate its cross-claims, it did err by compelling LAGB to arbitrate its claims.

FACTS AND PROCEDURAL HISTORY

¶2. In January 2013, LAGB was formed "for the sole purpose of acquiring and owning the 10,000 square foot building ... renovating and improving the said building for the purpose of housing a Mexican restaurant, and then leasing the improved building to Mama Kio's Grill, Inc." Once the building was acquired, LAGB and Mama Kio's entered into a commercial lease.

¶3. Federico Garcia, president of Mama Kio's, entered into an agreement with Total Merchant Services (TMS) for credit-card financial services for the restaurant. Two months after opening Mama Kio's, Garcia noticed that the bank deposits through TMS were considerably less than expected. TMS later discovered the cause was an improper code in its software that had failed to collect the tips authorized by the customers. The missing tips totaled approximately $14,000. TMS attempted to remedy the error by running the credit cards again for the uncharged tip amounts. However, the customers were charged not only for the uncollected tips but also for the entire charged amounts. More than three thousand customers' transactions were double and/or triple billed, resulting in more than $400,000 taken from Mama Kio's customers' accounts. Mama Kio's worked with the credit-card companies for more than a month to repair and mitigate the damages. Mama Kio's was forced to close its restaurant for lack of customers.

¶4. LAGB filed suit against Mama Kio's for breach of its lease contract and sought damages for rent, insurance, taxes, and capital improvements. LAGB also filed suit against the credit-card processing companies, pleading in the alternative three theories of wrongdoing: negligence, tortious interference with a contract, and tortious interference with a prospective business advantage. In its answer to the complaint, Mama Kio's filed cross-claims against the credit-card processing companies, alleging causes of action for breach of fiduciary relationship, intentional and/or gross negligent misrepresentation, and tortious interference with a prospective business advantage.

¶5. The credit-card processing companies filed motions to compel arbitration of LAGB's claims against them and Mama Kio's cross-claims. The companies also filed motions to stay, alleging that all claims arose from contractual breaches of the agreement between the companies and Mama Kio's and that the agreement contained an arbitration clause. The companies alternatively moved to dismiss the complaint, because LAGB lacked standing to bring an action against the companies and the companies owed no legal duty to LAGB.

¶6. LAGB argued that it never contracted with the companies, that it was not a third-party beneficiary of the contract, and that it could not be bound by an arbitration clause in a contract between two other parties. Mama Kio's argued that its claims did not arise out of the Merchant Agreement signed by a representative of Mama Kio's and that Mama Kio's was not aware of and had never signed any other agreement that contained an arbitration clause.

¶7. The trial court granted the companies' motions to compel arbitration. LAGB and Mama Kio's separately moved to alter or amend the judgment and filed a motion for the trial court to enter specific findings of fact and conclusions of law. After a hearing was conducted on the motions, the trial court denied their motions. Subsequently, Mama Kio's and LAGB appealed.

ISSUES

¶8. For brevity and clarity, the issues have been reordered and restated as follows:

I. Is there a valid arbitration agreement?

II. Does the dispute fall within the scope of the agreement?

III. Whether any legal constraints external to the agreement would prevent arbitration.

IV. Is LAGB bound by the arbitration clause contained in the contract entered into by Mama Kio's and the credit-card processing companies?

STANDARD OF REVIEW

¶9. The standard of review for arbitration disputes is well settled.

This Court reviews the grant of a motion to compel arbitration de novo. Tupelo Auto Sales, Ltd. v. Scott , 844 So. 2d 1167, 1169 (Miss. 2003) (citing East Ford, Inc. v. Taylor , 826 So. 2d 709, 713 (Miss. 2002) ). Under Mississippi's two-prong test to determine arbitrability, this Court asks: (1) whether the parties have agreed to arbitrate the dispute, and (2) whether legal constraints external to the agreement prevent arbitration. Smith ex rel. Smith v. Captain D's, LLC , 963 So. 2d 1116, 1119-20 (Miss. 2007) (quoting Rogers–Dabbs Chevrolet–Hummer v. Blakeney , 950 So. 2d 170, 173 (Miss. 2007) ).

Doe v. Hallmark Partners, LP , 227 So. 3d 1052, 1055 (Miss. 2017). Under the first prong, this Court asks: "(1) Is there a valid arbitration agreement? And, if so, (2) does the dispute fall within the scope of the agreement?" Id. (quoting Smith , 963 So. 2d at 1120 ). "To determine whether there is a valid arbitration agreement, we apply the law of contracts." Adams Cmty. Care Ctr., LLC v. Reed , 37 So. 3d 1155, 1158 (Miss. 2010) (citing Grenada Living Ctr., LLC v. Coleman , 961 So. 2d 33, 36-37 (Miss. 2007). The elements of a contract are "(1) two or more contracting parties, (2) consideration, (3) an agreement that is sufficiently definite, (4) parties with legal capacity to make a contract, (5) mutual assent, and (6) no legal prohibition precluding contract formation." Id. (internal quotation marks omitted) (quoting Coleman , 961 So. 2d at 37 ). Applicable contract defenses provided under the second prong include fraud, duress, and unconscionability. E. Ford, Inc. v. Taylor , 826 So. 2d 709, 713 (Miss. 2002) (citing Doctor's Assocs., Inc. v. Casarotto , 517 U.S. 681, 686, 116 S. Ct. 1652, 134 L. Ed. 2d 902 (1996) ).

ANALYSIS

I. Is there a valid arbitration agreement?

¶10. Mama Kio's and TMS entered into a "Merchant Credit Card Processing Application and Agreement" (Merchant Application). The following language was contained in the Merchant Application in the first of three paragraphs directly above the signature line:

By signing below you are agreeing to the provisions stated within this merchant application, and have acknowledged receipt and have read the Merchant Credit Card Processing Agreement (the "Merchant Agreement"). These provisions must be read before signing. By signing below you agree to the terms and conditions contained in the merchant application and the Merchant Agreement.

The last sentence of that paragraph reads, "A complete copy of your Merchant Agreement can be obtained at the following URL: http://www.merchantsupport.info/disclosure/TMS.html." The font size of the URL was slightly smaller than the preceding text.

¶11. The second paragraph reads as follows:

IN ORDER TO DISPUTE ANY CHARGE OR FUNDING, MERCHANT MUST NOTIFY SERVICERS IN WRITING WITHIN THIRTY DAYS OF THE DATE OF THIS STATEMENT WHERE SUCH CHARGE OR FUNDING APPEARS OR SHOULD HAVE APPEARED. THE LIABILITY OF SERVICES IS LIMITED UNDER THE MERCHANT AGREEMENT. THE MERCHANT AGREEMENT CONTAINS MANDATORY PROCEDURES FOR RESOLVING DISPUTES. ARBITRATION IS REQUIRED IN ALL BUT CERTAIN LIMITED CIRCUMSTANCES, AND PURSUING CLAIMS ON A CLASS-WIDE BASIS IS PROHIBITED. Please review the Merchant Agreement for further details.

¶12. The Merchant Agreement, which was provided through accessing a website, was a thirteen-page document. Almost the entirety of page nine of the Merchant Agreement was devoted to arbitration.

1.50 Dispute Resolution.

Servicers and Merchant each acknowledge and agree that any controversy, disagreement, dispute or claim arising out of or relating to this Agreement, or any breach thereof (each, a "Dispute"), shall be settled by following the procedures set forth below:

....

(c) IN THE ABSENCE OF RESOLVING THE DISPUTE UNDER THIS SECTION 1.50 AND INSTEAD OF SUING IN COURT, SERVICERS AND MERCHANTS EACH AGREE TO SETTLE AND RESOLVE FULLY AND FINALLY ALL DISPUTES EXCLUSIVELY BY ARBITRATION, EXCEPT IN THE FOLLOWING LIMITED CIRCUMSTANCES: (I) SERVICERS OR MERCHANTS MAY COMMENCE AN INDIVIDUAL ACTION IN SMALL CLAIMS COURT WHERE THE AMOUNT OF THE DISPUTE DOES NOT EXCEED THE JURISDICTIONAL LIMIT OF SUCH COURT; AND (II) MERCHANT MAY FILE A DISPUTE WITH ANY FEDERAL, STATE OR LOCAL GOVERNMENTAL AGENCY THAT CAN, IF THE LAW SO AUTHORIZES, SEEK RELIEF AGAINST SERVICERS OR BEHALF OF MERCHANT. THE AGREEMENT TO HAVE DISPUTES RESOLVED BY ARBITRATION IS MADE WITH THE UNDERSTANDING THAT EACH PARTY IS IRREVOCABLY, KNOWINGLY, AND INTELLIGENTLY WAIVING AND RELEASING ITS RIGHT TO LITIGATE DISPUTES THROUGH A COURT AND TO HAVE A JUDGE OR JURY DECIDE DISPUTES. Without limitation, Servicers and Merchant

agree that Disputes, as defined above, shall include the following matters: (a) any Dispute by any party against any agent, employee, successor, or assign of the other party or parties, including to the

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