Rlfshop, LLC v. Am. Express Co.
| Decision Date | 23 August 2018 |
| Docket Number | Case No. 3:17-cv-405 |
| Parties | RLFSHOP, LLC, et al., Plaintiffs, v. AMERICAN EXPRESS COMPANY, et al., Defendants. |
| Court | U.S. District Court — Southern District of Ohio |
ENTRY AND ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS (DOC. 4) OF DEFENDANT PAYPAL, INC.
This case is before the Court on the Motion to Dismiss (Doc. 4) filed by Defendant Paypal, Inc. ("PayPal"). Plaintiffs RLFShop, LLC d/b/a Shopsmith ("Shopsmith") and Robert L. Folkerth ("Folkerth") (collectively, "Plaintiffs") allege that Defendants American Express Company ("American Express") and PayPal are liable for fraudulent purchases made by one of Plaintiffs' former employees on a company American Express card through PayPal's platform. PayPal denies the Plaintiffs' allegations and moves to dismiss all of their claims under Fed. R. Civ. P. 12(b)(6). Plaintiffs oppose PayPal's Motion to Dismiss, which is fully briefed and ripe for review. (See Docs. 10, 17.) For the reasons below, the Court GRANTS IN PART and DENIES IN PART the Motion to Dismiss.
As alleged in the Complaint, Shopsmith is in the business of manufacturing and selling woodworking tools and accessories. (Doc. 2 at ¶ 1.) As Shopsmith's principal owner and manager, Folkerth is responsible for the company's day-to-day operations. (Id. at ¶ 2.) Folkerth is also the holder of the American Express credit card account at the center of this lawsuit. (Id.)
In 2009, after acquiring the assets of a separate company called Shopsmith, Inc., Shopsmith hired Defendant Wesley Powell ("Mr. Powell"), one of Shopsmith, Inc.'s former employees. (Id. at ¶ 8.) Mr. Powell was primarily assigned IT department responsibilities, providing computer maintenance and support and related services. (Id.) Over the years, Mr. Powell was assigned responsibility for the purchase of certain materials and supplies in connection with Shopsmith's manufacturing and distribution operations, in addition to purchases involving the IT department. (Id. at ¶ 9.)
For convenience and to provide "direct financial support" for Shopsmith's business operations, Folkerth permitted Mr. Powell and other Shopsmith employees with purchasing responsibilities to use American Express credit cards issued under Folkerth's American Express credit card account. (Id. at ¶ 10.) Employees were not authorized to use the credits cards for personal use; rather, they were authorized only for the limited purpose of purchasing services, materials and supplies for Shopsmith. (Id.)
Shopsmith maintained financial controls and procedures to monitor employee use of the American Express credit cards. (Id. at ¶ 11.) Shopsmith relied primarily upon its review of American Express's billing statements to identify unauthorized purchases. (Id.) Shopsmith scrutinized the billing statement to confirm that credit card purchases were for approved services, materials and products from companies with which it had an established relationship. (Id.) Financial controls might also include requiring purchaseorders, invoices or receipts in support of transactions, which were the accounting department then reconciled against the American Express billing statements. (Id.)
At some point, Mr. Powell began using his company credit card to make "fictitious purchases" for his personal benefit. (Id. at ¶ 12.) These purchases appeared to be purchases of authorized goods and services from known vendors, but, in reality, they were purchases from accounts created by Mr. Powell for the purposes of defrauding Shopsmith.
Mr. Powell initiated this scheme by opening PayPal accounts in his name and in his mother's name, Dorthy, aka Dorothy, Powell ("Ms. Powell"). (Id. at ¶ 13.) Mr. Powell then used his company American Express card to purchase non-existent, fictitious goods and services from Ms. Powell's PayPal account. (Id.) When Mr. Powell made these purchases, he was able to falsely record the name of the seller of the fictitious goods as an established Shopsmith vendor, instead of his mother. (Id.) After Shopsmith's payments for the fictitious goods were deposited into Ms. Powell's PayPal account, Mr. Powell transferred the funds to his own PayPal account for distribution to himself and Ms. Powell. (Id.) Using this scheme, Mr. Powell allegedly stole more than $400,000 from Shopsmith through fraudulent credit card charges. (Id. at ¶ 22.)
American Express and PayPal issued transaction reports and billing statements that showed the fictitious purchases in the same manner as genuine purchases. These records also displayed the false information input by Mr. Powell, instead of showing that the fictitious goods were sold by (and Shopsmith's monies were paid into) Ms. Powell's PayPal account. Accordingly, American Express sent billing statements to Folkerth atShopsmith showing the date of purported credit card purchases, naming an established Shopsmith vendor as the merchant, identifying a product suitable for use by Shopsmith as the product purchased, and stating the charge for the purchase. (Id. at ¶ 14.) As a result, Folkerth's review of American Express's billing statements did not alert him to Mr. Powell's fraudulent purchases. (Id.)
Folkerth entered into a contract with American Express for the use of his credit card, which contained certain representations and warranties regarding the processing and reporting of credit cards. (Id. at ¶ 17.) Plaintiffs also allege, upon information and belief, that American Express and PayPal entered into an agreement authorizing PayPal to process and report American Express credit card payments for purchases made through PayPal accounts. (Id. at ¶ 18.) These contracts form the basis of several of Plaintiffs' claims.
On October 30, 2017, Plaintiffs brought this action against American Express and PayPal in the Montgomery County Court of Common Pleas. On December 1, 2017, PayPal removed the action to this Court pursuant to its federal question jurisdiction. In the Complaint, Plaintiffs allege against PayPal claims for breach of contract, negligence, fraud, negligent misrepresentation, and unjust enrichment. PayPal moves to dismiss all of the claims against it for failure to state a claim as a matter of law.
Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain a "short and plain statement of the claim showing that the pleader is entitled to relief." While this Rule "does not require 'detailed factual allegations' . . . it demands more than anunadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
To survive a Rule 12(b)(6) motion to dismiss, the complaint must contain sufficient factual allegations "to state a claim to relief that is plausible on its face." Iqbal, 556 U.S. at 697 (2009), quoting Twombly, 550 U.S. 544, 547 (2007). A claim is facially plausible when it includes "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. This standard is not the same as a probability standard, but "asks for more than a sheer possibility that a defendant has acted unlawfully." Id.
When ruling on a motion to dismiss, the Court must accept the factual allegations of the complaint as true and construe them in a light most favorable to the non-moving party. Twombly, 550 U.S. at 554-55. "The Court need not accept as true, however, a legal conclusion couched as factual allegations." Id. If Plaintiff "ha[s] not nudged [its] claims across the line from conceivable to plausible, [its] complaint must be dismissed." Twombly, 550 U.S. at 570.
Plaintiffs' breach-of-contract claim against PayPal is based on an alleged contract between American Express and PayPal "with respect to the use of AMEX credit cards, with the intention that AMEX credit card account holders benefit from the terms of these contracts." (Doc. 2 at ¶ 25.) Plaintiffs allege that the contract's terms include "requirements that PayPal take reasonable precautions to avoid credit card fraud, assurethe identity of the parties to credit card transactions, comply with laws pertaining to credit card use, and provide protections to credit card account holders as required by law." (Id.) Plaintiffs allege that American Express imposed these requirements on PayPal for the specific benefit and protection of its account holders, like Folkerth. (Id.)
Plaintiffs allege that PayPal breached its contract with American Express by failing to take "reasonable precautions to avoid credit card fraud, correctly identify the Merchants and confirm the existence and legitimacy of credit card transactions processed through its accounts." (Id. at ¶ 28.) Plaintiffs further allege that PayPal recklessly processed fraudulent credit card charges, failed to provide accurate transaction statements, and misrepresented the identify of merchants and products sold in connection with fraudulent charges. (Id.)
The parties agree that Plaintiffs' breach-of-contract claim is based on a third-party beneficiary theory of liability. PayPal argues, however, that this claim nonetheless fails because Plaintiffs do not allege that they were specifically intended beneficiaries of the contract between American Express and PayPal.
Under Ohio law, in order to state a breach-of-contract claim as a third-party beneficiary, the plaintiff must allege that a promisee under the contract specifically intended for him to benefit from the contract. Laverick v. Children's Hosp. Medical Center of Akron, Inc., 43 Ohio App. 3d 201, 204, 540 N.E.2d 305 (9th Dist. 1988); see also Norfolk & W. Co. v. United States, 641 F.2d 1201, 1208 (6th Cir. 1980). Ohio law applies the aptly named "intent to benefit" test to determine whether a third party is an intended beneficiary who...
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