Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

UNIVERSAL BANKCARD SYS. v. BANKCARD AMERICA

March 30, 1998

UNIVERSAL BANKCARD SYSTEMS, INC., Plaintiff,
v.
BANKCARD AMERICA, INC., et al., Defendants.



The opinion of the court was delivered by: POSNER

 POSNER, Chief Circuit Judgey, sitting by designation. I have before me the defendants' motion for judgment as a matter of law. Fed. R. Civ. P. 50(a)(1). It was submitted at the close of the plaintiff's case in chief, and I said that I would reserve my ruling until after the jury rendered its verdict. See, e.g., Mosser v. Fruehauf Corp., 940 F.2d 77, 83 n. 2 (4th Cir. 1991); Norton v. Snapper Power Equipment, 806 F.2d 1545, 1547-48 (11th Cir. 1987); Nichols Construction Corp. v. Cessna Aircraft Co., 808 F.2d 340, 354-56 (5th Cir. 1986). The jury has now done so. It awarded the plaintiff $ 4,090,668 against the corporate defendant, Bankcard America, Inc., on the breach of contract count, but exonerated the individual defendants, Samuel Buchbinder and Paul Alperstein, who had been charged with violations of RICO but not with breach of contract. So judgment in favor of Buchbinder and Alperstein should clearly be entered forthwith, and the part of the defendants' motion for judgment that discusses the RICO counts is therefore moot and need not be discussed.

 I must sketch in some background in order to make the contract, and Bankcard's motion for judgment as a matter of law insofar as it relates to the contract, intelligible. Bankcard was in the business of credit card processing. It was what is called in the industry an "ISO" (Independent Sales Organization). An ISO contracts with a bank to obtain merchants who will clear their credit card sales through the bank. The ISO is responsible for signing up the merchant, installing the necessary equipment (a computer terminal with phone connections and a slot for "swiping" the credit card), and servicing the account, which involves keeping the equipment in running order, answering the merchant's questions, and attending to his complaints. The standard methods by which the ISO is compensated for these various services are by its selling or leasing the terminal equipment to the merchant at a profit and by receiving what the industry calls "residuals." These residuals are a fraction of the price of each credit card sale that the merchant clears through the ISO's bank. The typical ISO's income will therefore consist of equipment and residual income, and to obtain the two kinds of income the ISO will employ a sales force (often on a pure commission basis) plus installers and other service, clerical, and administrative personnel.

 Besides ISOs that operate in the manner just described, which are called "lead" or "direct" ISOs because they have a contract with the bank, there are "sub-ISOs." These operate as agents of the direct ISOs. The lead ISO delegates the sale, installation, and servicing functions to the sub-ISO. The sub-ISO's income consists of income from the sale or leasing of the terminal equipment (which the sub-ISO may, and in the plaintiff's case did, obtain directly from computer companies rather than from its lead ISO), plus a share of the residuals received by the lead ISO. The share generally is not fixed, but depends on the price that the sub-ISO negotiates with each merchant. In effect, the lead ISO sets a minimum price which gives it a specified residual fraction. The difference between that price and the price that the merchant pays the sub-ISO is the latter's share of the residuals that the account generates. A sub-ISO, like a lead ISO, employs sales, service, and clerical personnel.

 When a sub-ISO signs up a merchant, it sends the merchant's application to the lead ISO, which in turns seeks the bank's approval of the application. If approval is given, and the terminal is installed, and the merchant begins clearing credit card sales through it, residuals will be generated and the bank will remit the residuals due to the lead ISO under the bank's contract with it to that ISO. The lead ISO will then cut a check to the sub-ISO for the latter's share of the residuals.

 The contract involved in this lawsuit was originally made on October 9, 1991, and was amended the following month. The contract was between Bankcard as lead ISO and Universal Bankcard Systems, Inc., the plaintiff, as sub-ISO. The contract was for a two-year term (renewable for a second term at Universal's option), but could be terminated by either party without cause on thirty days' notice. The contract forbade Universal to convert, or roll over, accounts (unless it had a preexisting relation with the merchant)--that is, to transfer them to a bank different from the bank that Bankcard represented (First State Bank and Trust Company of Park Ridge, Illinois) and thus deprive Bankcard of its share of the residuals and deprive the bank of its fee. The contract required Universal to use its best efforts to sign up merchants for Bankcard, and made Universal responsible for all customer service as defined--very broadly--in the contract.

 Another provision of the contract entitles Universal to "receive residuals over the lifetime of its accounts as long as the ISO services the account,...whether or not this Agreement has been terminated." Yet another provision entitles Bankcard to "sell, at its sole discretion, any portion or all of its merchant base, and in said event, upon the completion of said sale to a bona fide third party, the right of [Universal] to receive residuals arising from said accounts shall cease."

 The termination letter cited lack of success in signing up merchants (presumably a violation of the best-efforts clause), failure to service accounts, and conversion of accounts. Universal conceded that it had converted four accounts (and the uncontradicted evidence established a fifth conversion) from Bankcard and Park Ridge, but presented evidence that Bankcard had waived these violations of the contract. On whether Universal performed its service obligations, the evidence was in conflict and thus presented a jury issue. As for lack of production, although Bankcard's and Universal's records showed that over the entire eighteen-month period of their relation Universal had signed up only 181 merchants, Universal presented evidence that Bankcard had appropriated a large number of merchant accounts (perhaps as many as 2,000) submitted by Universal for approval. This evidence consisted of testimony by two witnesses (one of whom gave a much lower figure) with no documentary backing; Universal's president, Richard Rothberg, testified that an employee had accidentally discarded copies of all the merchant applications that Universal had sent Bankcard. But I cannot say that a rational jury could not believe the testimony, which although implausible was not incredible as a matter of law.

 Bankcard's alleged conversion of Universal's applications constituted in turn the principal ground for Universal's claim that Bankcard had broken the contract. Universal also presented evidence that Bankcard had failed to pay it the full residuals to which it was entitled by the contract even for those accounts that Bankcard had not taken for itself. Universal also pointed out that Bankcard had terminated it without giving the thirty-day notice required by the contract, and it presented some evidence that Bankcard had violated rules of Visa and Mastercard, though with what consequences the evidence did not reveal.

 Bankcard's motion for judgment as a matter of law argues both that Universal's claim of breach of contract has no merit and that Universal has not presented evidence that would justify any award of damages for the alleged breach. I reject the first argument. There was enough evidence, though only barely enough, of a breach by Bankcard (and of no offsetting breach by Universal) to make the issue of Bankcard's liability under the contract one for the jury to decide. So let me turn to the question whether there was enough evidence to support any award of damages. I emphasize that it is a separate question from whether the jury's award of damages in excess of $ 4 million for the breach of contract was so excessive as to require a new trial on damages. It plainly was, as will become apparent; but that is different from whether a rational jury could award any damages.

 In response to the motion, Universal pointed mainly to the testimony of its president, Rothberg; to "the business records of his company, including the corporate tax returns and his accountant's analysis of the losses sustained by Universal as a proximate cause of Bankcard's breach of the...contract"; and to testimony by a former employee of Bankcard's, Richard Borden, to the effect that the average merchant account has an average value of $ 350 to an ISO or sub-ISO. (Borden's actual testimony was that the average value of an account was between $ 250 and $ 300.) The damages sought, as summarized in a portion of the jury instructions to which Universal did not object, were limited to "lost net profits from residuals that Universal claims that Bankcard owed it but never paid" (and recall that Universal's entitlement to residuals was cut off as of April 1, 1995) and "lost net profits from the sale or lease of [terminal] equipment from October 1991 through April 30, 1993, 30 days after Bankcard issued its letter of termination." Universal sought additional damages for the RICO violations, but the jury's verdict on the RICO counts eliminates that damages claim from the case. I add, however, that the claim had no evidentiary basis, and indeed entered fantasy land in seeking $ 289 million in damages for new business allegedly lost by reason of the RICO violations--this for a company that, according to Universal's own evidence, never had a year in which its sales revenues reached $ 1 million or in which it earned a profit.

 Universal's "business records" evidence in support of its claim for damages for breach of contract was nil. The company's corporate tax returns were placed in evidence, but no witness explained them to the jury and in any event they contain no information from which losses due to the breach of contract could be estimated. The returns do list expenses, but in very broad categories, such as "amortization," "telephone," and "office expense," with no further breakdown. Universal was a lead ISO for two banks for which it signed up more than 2,000 merchant accounts (though over a period somewhat longer than the contract damages period), as well as being a sub-ISO of Bankcard, and the tax returns contain no allocation of the profits or losses of the business to these different aspects of Universal's business. The record is silent on whether Universal's dealings with the other banks generated profits or losses. Bankcard is not responsible for whatever losses Universal may have experienced with the other banks. There is no evidence of a connection, and in any event consequential damages for the breach of contract were not sought, were not proved, and as a matter of contract law were not a permissible remedy for the breach. I note that as well as not seeking consequential damages, Universal did not seek restitutionary recovery, as it might conceivably have done with respect to its losses or Bankcard's gains from the alleged misappropriation of merchant accounts that Universal had submitted to Bankcard.

 As for the "accountant's analysis of the losses sustained by Universal as a proximate cause of Bankcard's breach of the...contract," no such analysis was presented. The reference may be to the report of an expert witness whom I refused to permit to testify, and of course his report was not in evidence either. The reference could conceivably be to a document that is in the record, captioned "Tax return analysis," but it is merely a summary of the information in the tax returns. Like the returns themselves, it contains no information from which "the losses sustained by ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.