Taylor Bldg. Mgt., Inc. v Priority Payment Sys., LLC

(New York State Supreme Court, Suffolk County - Commercial Division, 5/22/2012)

We represented: Taylor Bldg. Mgt., Inc.

Elizabeth Hazlitt Emerson, J.S.C.

DECISION and ORDER

Upon the following papers . . . it is,

ORDERED that this motion by the plaintiff for the entry of a judgment in its favor and against the defendant Priority Payment Systems, LLC , is granted; and it is further

ORDERED that a judgment be entered in favor of the plaintiff and against the defendant Priority Payment Systems, LLC, in the amount of $1,490,012.21 with interest from January 16, 2008.

The plaintiff is engaged in the business of performing back-office services for Global Hotels, Inc. The defendant Priority Payment Systems, LLC ("Priority"), provided credit card processing services to the plaintiff pursuant to an agreement dated August 21, 2006 (the "Merchant Services Agreement"). The Merchant Services Agreement authorized Priority to place a percentage of the amounts it collected into a reserve account as security against chargebacks to the plaintiffs account.1 In March 2007, the plaintiff commenced an action against Priority alleging that Priority was holding an excessive percentage of the plaintiffs funds in the reserve account. On March 23, 2007, the plaintiff and Priority entered into a settlement agreement (the "Settlement Agreement") in which Priority agreed to pay the plaintiff $300,000 from the reserve account and to release the remaining funds on or before May 15, 2007, upon the plaintiffs delivery of a letter of credit for the balance in a form acceptable to Priority and naming Priority as the sole beneficiary.

In May 2007, Priority assigned all of its rights under the Merchant Services and Settlement Agreements to the defendant Global Payments Direct, Inc. ("Global"), who assumed all of Priority's obligations thereunder. In furtherance thereof, Priority transferred all of the remaining funds in the reserve account to Global. At the time of the assignment, the plaintiff and Priority were still negotiating the terms of a letter of credit to be issued by Bank Hapoalim. After the assignment, the plaintiff continued to negotiate with Global. The plaintiff was unable to procure a letter of credit that was acceptable to Global by the May 15, 2007, deadline, and Global subsequently declared the plaintiff in default of its obligations under the Settlement Agreement.

The plaintiff commenced an action in the Supreme Court, New York County, against Global and Priority, inter alia, to enforce the Settlement Agreement and to compel Global to accept the letter of credit issued by Bank Hapoalim. By an order dated March 20, 2008, the Supreme Court, New York County (Fried, J.), dismissed the plaintiffs complaint in its entirety. The plaintiff subsequently commenced this action against Priority and Global for breach of contract, alleging that, since the maximum period of time within which funds could be held in the reserve account had expired, Priority and Global had breached the Merchant Services Agreement by failing to return such funds to the plaintiff. Priority moved to dismiss the complaint on the ground that the plaintiffs claim against it was barred by the doctrine of collateral estoppel. By an order of this court dated February 1, 2010, the motion was denied.

The plaintiff subsequently moved for summary judgment against Priority on the issue of liability. In support thereof, the plaintiff argued that § 23.2 of the Merchant Services Agreement provided that Priority was entitled to hold funds in the reserve account for 10 months after termination of that agreement. Since more than 10 months had passed since the Merchant Services Agreement was terminated, the plaintiff argued that it was entitled to recover the funds held in the reserve account as a matter of law. Although Priority did not dispute that the maximum period of time that the plaintiffs funds could be held in the reserve account had expired, it opposed the plaintiffs motion on the ground that Global had already performed its obligation to the plaintiff. By an order of this court dated August 2, 2010, the motion was denied as premature. The plaintiff appealed. By an order of the Appellate Division, Second Judicial Department, dated January 24, 2012, this court's order dated August 2, 2010, was reversed, and the plaintiffs motion for summary judgment on the issue of Priority's liability was granted. The plaintiff currently moves for the entry of a judgment against Priority in the amount of $1.5 million with interest from January 16, 2008.

In opposition, Priority characterizes the plaintiffs motion as a motion for summary judgment on the issue of damages and contends that there are issues of fact which preclude such relief. Priority argues that § 6.1 of the Merchant Services Agreement required the plaintiff to submit to Priority only transactions between credit-card holders and the plaintiff and that, if the plaintiff submitted to Priority transactions between credit-card holders and another business, Priority could charge back all such transactions. Priority contends that, since the plaintiff was engaged in the business of performing back-office services for Global Hotels, there is a material issue of fact as to whether the plaintiff submitted to Priority transactions on its own behalf or transactions between credit-card holders and Global Hotels. Priority further contends that the plaintiff is not entitled to a refund of the money in the reserve account unless it submitted transactions to Priority in accordance with the Merchant Services Agreement and Priority did not fund such transactions.

Priority is arguing for the first time that the plaintiff is not entitled to any recovery because it breached § 6.1 of the Merchant Services Agreement. Contrary to Priority's contentions, this argument goes to the issue of liability and not to the issue of damages. The issue of liability has already been determined. The Appellate Division has found that Priority is liable to the plaintiff for failing to return the funds in the reserve account. That determination is the law of the case and, as such, is binding on this court (see, People v Evans, 94 NY2d 499, 503, citing Preston Corp. v Fabrication Enters., 68 NY2d 397, 405). The court must follow the Appellate Division and is without discretion to make a contrary finding (Id.).

Alternatively, Priority is seeking affirmative relief, i.e. an offset for the Global Hotels transactions due to the plaintiffs purported breach of § 6.1 of the Merchant Services Agreement. Priority has not asserted a counterclaim therefor. Priority's sixth affirmative defense alleges that the plaintiffs claim for damages is barred and/or limited by the Merchant Services Agreement. An affirmative defense, however, is substantially different from a counterclaim. A counterclaim is a cause of action asserted by a defendant against a plaintiff (CPLR 3019[a]). By its very nature, a counterclaim seeks affirmative relief (P.J.P. Mech. Corp. v Commerce & Indus. Ins. Co., 65 AD3d 195, 199). Affirmative defenses, on the other hand, cannot seek such relief (Id.). The effect of a successful affirmative defense is dismissal of the plaintiffs complaint or cause of action.2 It does not give the defendant any affirmative ~elief against a plaintiff, such as monetary damages (ld. at 200). Accordingly, Priority may not obtain an offset in the absence of a counterclaim.

Priority further argues that, pursuant to § 10.2 of the Merchant Services Agreement, it is entitled to offsets for its legal fees and investigation costs. This argument fails for the same reason as the previous argument, i.e., Priority has not asserted a counterclaim for legal fees and investigation costs. Additionally, the legal fees for which Priority claims an offset were not incurred in its defense of this action. Enforcement of the prohibition against the splitting of causes of action requires that such fees be sought within the action in which they are incurred and not in a subsequent action (Wavertree Corp. v 136 Waverly Assocs., 258 AD2d 392). Accordingly, the plaintiffs motion is granted, and the court has signed the proposed judgment annexed to the plaintiffs motion papers, as amended.

Dated: May 22, 2012


FOOTNOTES

1 Charge-backs occur when a customer disputes the payment for a credit-card transaction.

2 As previously discussed, the issue of liability has already been determined by the Appellate Division, which found in the plaintiffs favor. Thus, it is too late for Priority to obtain dismissal of the complaint.