imposed by the Bankcard Agreement or July 1990 Materials. If it did not, then there is no breach and CCSI would be entitled to judgment as a matter of law.
In ruling on CCSI's motion to dismiss South Central's breach of contract count, the court previously found that "the express terms of the Agreement clearly place the duty on South Central to investigate the financial condition of a merchant before submitting that merchant's application to the principal bank." South Central Bank & Trust Co. v. Citicorp Credit Servs., Inc., 811 F. Supp. 348, 351 (N.D. Ill. 1992).
South Central's breach of contract claim was not dismissed, however, because South Central alleged that, in negotiating the Bankcard Agreement, First Chicago had agreed orally to assume the responsibility of investigating the financial conditions of merchants and rejecting those not qualified. South Central further alleged that CCSI was aware of First Chicago's oral agreement and continued First Chicago's practice of investigating merchant applicants. Id.
Pretrial discovery apparently failed to bear fruit for South Central on the oral modification theory; South Central appears to have abandoned this theory and looks instead only to the language of the Bankcard Agreement and the July 1990 Materials as the source of CCSI's purported obligation to investigate merchants.
In particular, South Central looks to the APPLICATION PROCESSING page of the Materials wherein CCSI outlines the steps it takes in processing accounts including: "Review of application to insure that the merchant conducts an 'acceptable business'" and "Association mandated inquiry against the MasterCard/Visa Combined Terminated Merchant File." CCSI does not dispute that it was required to perform these two obligations, see CCSI's Memorandum in Response to Plaintiff's Motion for Summary Judgment at 11 ("under the Bankcard Agreement and the July 1990 Materials, CCSI's only obligation in approving a merchant application was to (1) review the application to insure that the merchant conducted an 'acceptable business', . . . and (2) conduct an inquiry against the MCTMF"); rather, CCSI contends that it fully performed those obligations. Id.
Before examining whether a genuine issue of fact exists with respect to whether CCSI fully performed, the court notes that it has thoroughly reviewed the Bankcard Agreement and the July 1990 Materials in their entirety and finds that the Bankcard Agreement explicitly imposes on South Central the duty to: (1) conduct its own investigation into whether a merchant is financially responsible and/or whether there is any significant derogatory background information about any of the principals of the business; and (2) conduct an on-site inspection of the business. See Bankcard Agreement, Plaintiff's 12(M) Facts, Exh. 1 P I.C.
Nothing contained in the July 1990 Materials relieves South Central of these obligations; and, nothing contained in the Materials imposes any additional duty on CCSI to conduct any other inquiry -- other than those identified above -- into the financial responsibility or creditworthiness of merchants. The MERCHANT ACCEPTANCE PROCEDURES page plainly sets out various steps to be taken by the agent bank prior to submitting a new merchant application. The steps reiterate and elaborate the agent bank's obligations under the Bankcard Agreement such as conducting an on-site inspection of the merchant to verify that it is a bona fide business; conducting a full background check on the business and its owners or principals; and evaluating the risk-return trade-off associated with potential merchants based on the results of the credit review. While the July 1990 Materials contain language to the effect that they are designed to protect the agent bank's interests and have the sole focus of protecting the agent bank from unnecessary and avoidable financial risk,
this language in no way imposes specific contractual obligations on CCSI to protect the agent banks from financial loss. Instead, the Materials reinforce the proposition that the agent banks were principally responsible for investigating merchants and carried the risk of loss. With the exception of the APPLICATION PROCESSING page, it is clear that the Materials served only to offer procedures to be followed by the agent banks for the protection of their own interests.
To the extent that CCSI was obligated to conduct an inquiry into the risk posed by the merchant applicant, that obligation was limited to: (1) reviewing the application to ensure that the merchant conducted an acceptable business and (2) conducting an inquiry against the MasterCard/Visa Combined Terminated Merchant File. There is no genuine dispute as to whether CCSI fully performed the latter obligation: The affidavit of Patrick Burke, who as CCSI's Vice President of New Account Processing had responsibility for overseeing the review of credit applications and determining whether or not to grant merchants credit processing privileges, states that CCSI conducted the inquiry against the Terminated Merchant File and that the inquiry did not find any previous termination for cause of AEE. Defendant's 12(N) Facts, Exh. 1, Burke Aff. P 20. South Central presents no evidence to refute this fact. Thus, South Central's breach of contract claim turns on whether CCSI should have rejected AEE as being an unacceptable business.
South Central contends that AEE was an unacceptable business because it was a railroad and was classified as a travel agent/tour operator and that CCSI breached its duties by failing to reject AEE on this basis. In support of its contention that AEE was an unacceptable business, South Central submits two principal pieces of evidence: (1) CCSI's Response to South Central's Second Set of Interrogatories in which CCSI states that the SIC code for railroads is an unacceptable SIC code (Plaintiff's 12(M) Facts, Exh. 7); and (2) a draft letter from CCSI that was never sent containing a crossed-out sentence stating that AEE could be classified as a Travel agent/tour operator (Plaintiff's 12(M) Facts, Exh. 8).
With respect to the former, CCSI has submitted three affidavits stating that "any answers to interrogatories filed in this case indicating that the SIC code for railroads 4011 is unacceptable was in error and the result of an inadvertent typographical mistake." Defendant's 12(N) Facts, Exh. 1, Burke Aff. P 17; Exh. 2, Richman Aff. P 11; Exh. 11, Norkett Aff. P 5. Additionally, after discovering this mistake, CCSI subsequently served upon South Central amended answers to the interrogatories stating that "4011 was an acceptable SIC code." Defendant's 12(N) Facts, Exh. 19.
Further, Patrick Burke, Vice-President of New Account Processing at CCSI, attested that:
A railroad is an acceptable business. A railroad provides the same type of service as cruise lines or airlines and there is nothing unacceptable about such businesses as a general matter. CCSI has never considered a railroad, as a general category, an unacceptable business. Nor has CCSI ever represented to any agent bank that a railroad is an unacceptable business. CCSI has never refused to grant an agent bank credit processing privileges for an indirect merchant solely because the indirect merchant was a railroad.