Paycom Billing Services v. Payment Resources

• Decision Date: 03 June 2002
• Docket Number: No. 1:01-CV-528.,1:01-CV-528.
• Parties: PAYCOM BILLING SERVICES, INC., a Delaware corporation, Plaintiff, v. PAYMENT RESOURCES INTERNATIONAL, a Nevada corporation; Amtrade International Bank, d/b/a AmTrade International Merchant Services, a Georgia corporation; and does 1 through 10, inclusive, Defendants.
• Court: U.S. District Court — Western District of Michigan

212 F.Supp.2d 732

PAYCOM BILLING SERVICES, INC., a Delaware corporation, Plaintiff, v. PAYMENT RESOURCES INTERNATIONAL, a Nevada corporation; Amtrade International Bank, d/b/a AmTrade International Merchant Services, a Georgia corporation; and does 1 through 10, inclusive, Defendants.

No. 1:01-CV-528.

United States District Court, W.D. Michigan, Southern Division.

June 3, 2002.

Todd R. Dickinson, Fisher & Dickinson, P.C., Ada, MI, for Paycom Billing Services, Inc., Plaintiff.

Geoffrey A. Fields, Dickinson Wright, PLLC, Grand Rapids, MI, for AmTrade International Bank, Defendant.

Daniel R. Gravelyn, Warner Norcross & Judd, LLP, Grand Rapids, MI, for Payment Resources International, Defendant.

OPINION

ROBERT HOLMES BELL, Chief Judge.

Plaintiff Paycom Billing Services, Inc. ("Paycom") has filed a federal claim under the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. against Defendant AmTrade International Bank, d/b/a AmTrade International Merchant Services ("AmTrade"), and eight state law claims against Defendant AmTrade and Defendant Payment Resources, Inc. ("PRI"). This matter comes before the Court on Defendant AmTrade's motion to dismiss RICO and exemplary damage claims and on Defendant PRI's motion to dismiss the state claims against it in the event the RICO count against Defendant AmTrade is dismissed.

I.

Defendant AmTrade's motion to dismiss Plaintiff's RICO claim is filed pursuant to Rules 12(c), 12(h)(2), and 9(b) of the Federal Rules of Civil Procedure. Because the motion raises the defense of failure to state a claim upon which relief can be granted, Defendant's 12(c) motion is evaluated under the same standards applied to a 12(b)(6) motion. Morgan v. Church's Fried Chicken, 829 F.2d 10 (6th Cir.1987).¹ In reviewing the motion the Court is required to construe the Complaint in the light most favorable to the plaintiff, accept all of the Complaint's factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of the claims that would entitle relief. Ziegler v. IBP Hog Market, Inc., 249 F.3d 509, 511-12 (6th Cir.2001); Grindstaff v. Green, 133 F.3d 416, 421 (6th Cir.1998). However, the Court need not accept as true legal conclusions or unwarranted factual inferences. Mixon v. Ohio, 193 F.3d 389, 400 (6th Cir.1999) (citing Morgan, 829 F.2d at 12).

For purposes of this motion, then, the Court accepts as true the factual allegations in Plaintiff's Complaint.² Plaintiff Paycom is a Delaware corporation with its principal place of business in California. ¶ 4. Paycom is in the business of processing credit card transactions for internet websites. ¶ 27. A large part of Paycom's business involves providing credit card transaction services to merchants who deliver content to the adult Internet industry. ¶ 32. VISA and MasterCard consider this an industry that involves particularly high levels of risk for fraud, exposing them to a higher than normal risk of chargebacks. ¶ 32. Because of the nature of these transactions and the risk involved, these transactions command higher than normal processing fees. ¶ 32.

A merchant who desires to accept VISA or MasterCard charges must have a "Merchant Account" with an Acquiring Bank that is a member of the VISA or MasterCard organizations and is authorized to accept credit card charge slips from merchants and submit them to Issuing Banks (banks that issue credit cards). ¶ 14. The merchants Paycom services do not have their own Merchant Account for VISA and/or MasterCard with a Member Bank. Paycom accordingly enters into Merchant Agreements with Acquiring Banks, and serves as the agent for the web merchants. ¶ 29.

When a customer disputes a charge on a credit card bill, the issuing bank recovers the amount it paid through a charge back from the acquiring bank, which in turn collects the amount, plus an additional fee, from the merchant. If there are too many chargebacks, VISA or MasterCard may impose a fine. ¶ 21.

Defendant PRI is a Nevada corporation with its principal place of business in California. ¶ 5. PRI is an Independent Sales Organization ("ISO") that signs up merchants with Acquiring Banks. ¶ 7. ISOs relieve the Acquiring Banks of the obligation of marketing and providing technical and sales support to merchants. ¶ 24. PRI introduced Paycom to various Acquiring Banks from December 1998 to May 2001 and assisted Paycom in establishing Merchant Accounts with those Acquiring Banks. As each relationship went sour, PRI introduced Paycom to a new Acquiring Bank. ¶ 42.

AmTrade is a Georgia banking corporation with its principal place of business in Grand Rapids, Michigan. ¶ 6. AmTrade is an Acquiring Bank, i.e., it accepts credit card transactions from merchants, submits them to VISA or MasterCard for payment, and then remits payment (less fees) to the merchant. ¶ 14, 19 & 88. Paycom entered into two successive merchant agreements with AmTrade on July 25, 1999, and on June 30 2000. ¶¶ 88 & 94.

This case is but one segment of a more comprehensive case Plaintiff Paycom has filed against PRI and other Acquiring Banks in California.³ Paycom alleges that PRI was involved in at least five separate schemes to defraud Paycom (the Comercard scheme, the London Scheme, the Amtrade Scheme, the Minotola scheme, and the Banco Uno Scheme.) ¶ 9. Paycom alleges that each of these schemes comprised a separate "spoke" on the "wheel" of the RICO enterprise known as PRI, with PRI acting as the "hub" that tied all of these schemes (i.e., spokes) together. ¶ 9. Only the alleged AmTrade scheme is at issue in this case. ¶ 10. The allegations against AmTrade are found in paragraphs 88-127 of the Complaint. Paragraphs 47-87 and 127-71 of the Complaint outline the four other alleged schemes. These paragraphs do not mention AmTrade, and Paycom does not suggest that AmTrade was involved in any of these other alleged schemes.

Paycom claims AmTrade and PRI originally represented that AmTrade could handle all of Paycom's credit card processing, but that AmTrade became unable to process Paycom's credit card transactions because of AmTrade's failure to properly register Paycom's account and AmTrade's inability to meet VISA's capital requirements for Acquiring Banks. ¶¶ 88, 91-92, 96, 99, 102-07. AmTrade rejected many transactions, payment was late, and Paycom suffered substantial damages due to AmTrade's insufficient capital and deliberate mis-registration of Paycom's VISA account. ¶ 114. AmTrade also collected fines from Paycom that were attributable to AmTrade's violation of VISA rules instead of authorized chargebacks to Paycom and its customers. ¶¶ 115-123. Paycom also did not receive chargeback information on a timely basis, so it was unable to cancel member's accounts, and suffered additional damages. ¶ 124.

Based upon these factual allegations Plaintiff has asserted a federal RICO claim against AmTrade. ¶¶ 172-83. Plaintiff has also asserted eight state law claims against AmTrade and PRI arising out of the AmTrade scheme: fraud; negligent misrepresentation; breach of contract; breach of implied covenant; conversion; money had and received; accounting and restitution; and constructive trust.

II.

Section 1962(c) of RICO provides that "[i]t shall be unlawful for any person employed by or associated with any enterprise ... to conduct ... such enterprise's affairs through a pattern of racketeering activity...." 18 U.S.C. § 1962(c) (1999) (emphasis added). A complaint asserting a RICO claim must allege the (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Sedima, SPRL v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985); Eby v. Producers Co-op, Inc., 959 F.Supp. 428, 432 (W.D.Mich.1997).

Defendant AmTrade moves to dismiss Plaintiff's RICO claim on the basis that Paycom has failed to properly allege that AmTrade (1) engaged in a pattern of racketeering activity and (2) conducted a RICO enterprise.

A. Racketeering Activity

In order to establish a "racketeering activity," Plaintiff must allege a predicate act. Advocacy Org. for Patients & Providers v. Auto Club Ins. Ass'n, 176 F.3d 315, 322 (6th Cir.1999) (quoting Kenty v. Bank One, Columbus, N.A., 92 F.3d 384, 389 (6th Cir.1996)). "Racketeering activity" is defined in 18 U.S.C. § 1961(1)(B) as including any act "indictable" under certain enumerated federal criminal statutes, including 18 U.S.C. § 1343, which makes wire fraud a crime. Central Distributors of Beer, Inc. v. Conn, 5 F.3d 181, 183 (6th Cir.1993).

In this case the predicate acts upon which Plaintiff relies to establish racketeering activity by Defendants are wire fraud, bank fraud, and money laundering. Because Plaintiff is alleging fraud to establish racketeering activity, the allegations regarding those predicate acts must be "stated with particularity." FED.R.CIV.P. 9(b). Although the Sixth Circuit reads Rule 9(b)'s pleading requirement liberally, it still requires a plaintiff, "at a minimum, to allege the time, place, and content of the alleged misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud." Advocacy Organization for Patients and Providers v. Auto Club Ins. Ass'n 176 F.3d 315, 322 (6th Cir.1999) (quoting Coffey v. Foamex L.P., 2 F.3d 157, 161-62 (6th Cir. 1993)). Allegations of fraudulent misrepresentations "must be made with sufficient particularity and with a sufficient factual basis to support an inference that they were knowingly made." Id. "Courts have repeatedly held in RICO cases alleging mail fraud and wire fraud as the `predicate acts,' the underlying fraudulent activities must be pled with particularity." Eby, 959 F.Supp. at 431 (quoting Berent v. Kemper Corp., 780 F.Supp. 431, 448 (E.D.Mich. 1991)). See also Kenty, 92 F.3d at 389-90 (requiring that predicate act of mail fraud in RICO claim be alleged with...