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Gumino v. First Data Corp.

United States District Court, N.D. Illinois, Eastern Division

April 25, 2017



          SARA L.ELLIS, United States District Judge

         ACS Capital Partners, Inc. (“ACS”) and its owner, Christopher Gumino, allege multiple breach of contract claims against Ignite Payments, LLC (“Ignite”) and First Data Corporation (“FDC”). ACS and Gumino allege that Ignite and FDC failed to make various payments to which ACS and Gumino were entitled under their contracts with Ignite and FDC. Ignite and FDC filed a motion to dismiss all the claims against them [8]. In addition, FDC filed a separate motion to dismiss all claims against it because it was not a party to any contracts at issue [11]. Because Gumino is not a proper plaintiff to this action, the Court grants in part FDC and Ignite's motion to dismiss. Additionally, the Court dismisses FDC from this action because ACS and Gumino fail to plead facts sufficient to state a claim against FDC as a non-party to the contracts.


         ACS is an Illinois corporation, owned and operated by Gumino, that sells credit card processing services to various merchants. ACS does business in Illinois under the name[2] Ignite is a California limited liability company and an Independent Sales Organization of Wells Fargo Bank that provides credit card processing services and equipment. FDC, a Delaware corporation, owns Ignite and performs the credit card processing services provided by Ignite.

         In April 2013, ACS entered into a Premier Agent Agreement (“the Agent Contract”) with Ignite in which ACS agreed to solicit merchants to purchase Ignite's credit card processing services and products. The Agent Contract provides for payments to ACS called “residuals, ” which are based on the number of merchant accounts opened by ACS in a given time period. ACS and Ignite also entered into an additional agreement titled “2011 Premier Agent Incentive Commissions and Residuals Summary” (“the Commissions Contract”). The Commissions Contract outlines specific calculations and policies related to residual payments and upfront commission payments.

         In December 2013, Gumino identified an opportunity to sell Ignite's services to Beauty Counter, a start-up company that uses individual sales associates rather than brick and mortar stores to sell beauty products. Beauty Counter would require thousands of individual accounts and terminals[3] to process credit card transactions through Ignite. To secure Beauty Counter's business, Gumino offered to cover the cost of each terminal, which was less than $150 per terminal. Gumino could afford this cost if ACS[4] received $150 in upfront payments from Ignite, as set forth in the Commissions Contract, for each Beauty Counter account. On December 20, 2013, Gumino contacted John Barrett, the President of Ignite, to confirm that ACS would receive the $150 upfront payments and Barrett responded in the affirmative. However, negotiations regarding the amount of the upfront payments continued into 2014. In June 2014, Gumino communicated with Michael Rossi, an FDC employee, regarding the upfront payments. On June 9, 2014, Rossi stated in an email to Gumino, “no matter what, we must pay you the 150 term minimum even though Brett thinks it is too risky.” Doc. 1-1 ¶ 25. On June 18, 2014, Rossi wrote to Gumino “we all agreed that 150 UF is ok and 250 is possible if the volume can support it.” Doc. 1-1 at 47.

         On July 1, 2014, Beauty Counter completed a Merchant Processing Application and Agreement with Ignite, with Gumino as the sales representative and ACS as the “agent office” on the contract. Doc. 1-1 at 49. Relying on the statements by Rossi, Barrett, and another FDC employee, Gumino agreed to cover the cost of Beauty Counter's terminals. However, ACS did not receive $150 in upfront payments on every account and instead only received partial upfront payments on some accounts. In addition, ACS did not receive the 55% residual payments for Beauty Counter accounts to which it was entitled under the Agent Contract and Commissions Contract with Ignite.

         Gumino continued communicating with Rossi and requesting the upfront and residual payments. In December 2014, Rossi indicated in an email that certain fees would need to be charged to the Beauty Counter accounts in order to secure the upfront payments. Later, in May 2015, Ignite sent ACS an “Addendum to the Premier Agent Agreement” (“the Addendum”), which provided $75 upfront payments for each Beauty Counter account that produced $100 in revenue within six months. Doc. 1-1 at 68. The terms of the Addendum were to be retroactive and effective from August 1, 2014. Gumino and ACS did not sign the Addendum. In May 2015, ACS secured a promissory note from Ignite for a $66, 000 loan to cover the cost of the Beauty Counter terminals.

         In July 2015, Beauty Counter cancelled its contracts with Ignite. ACS was not paid a residual payment from the closure fee charged to Beauty Counter. Months later, in December 2015, Gumino attempted to retire and sell ACS's rights to future residuals to Ignite under the “offer to purchase upon retirement” clause set forth in the Agent Contract. Doc. 1-1 at 23. Ignite denied the request because ACS was using its residuals as collateral. In January 2016, Ignite terminated ACS for alleged fraud. Gumino, however, asserts that he did not partake in any fraudulent, dishonest, willful, or malicious acts. Gumino believes that Ignite terminated ACS to relieve itself of any contractual obligations to pay residual payments to ACS.


         A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its merits. Fed.R.Civ.P. 12(b)(6); Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded facts in the plaintiff's complaint and draws all reasonable inferences from those facts in the plaintiff's favor. AnchorBank, FSB v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011). To survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant with fair notice of a claim's basis but must also be facially plausible. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads 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.


         I. FDC as a Party

         FDC argues that the Court should dismiss all four claims against it because FDC is not a party to the Agent Contract or the Commissions Contract and a breach of contract action cannot lie against an entity not party to the contract. Under New York law[5], an essential element for a breach of contract claim is the existence of a contract between the plaintiff and the defendant. Diesel Props S.r.l. v. Greystone Bus. Credit II LLC, 631 F.3d 42, 53 (2d Cir. 2011). “Under New York law, a party who is not a signatory to a contract generally cannot be held liable for breaches of that contract.” TransformaCon, Inc. v. Vista Equity Partners, Inc., No. 15-cv-3371, 2015 WL 4461769, at *3 (S.D.N.Y. July 21, 2015) (citing Black Car & Livery Ins., Inc. v. H & W Brokerage, Inc., 813 N.Y.S.2d 751, 752 (N.Y.App.Div. 2006); Bellino Schwartz Padob Adver., Inc. v. Solaris Mktg. Grp., Inc., 635 N.Y.S.2d 587, 588 (N.Y.App.Div. 1995); Smith v. Fitzsimmons, 584 N.Y.S.2d 692, 695 (N.Y.App.Div. 1992)).

         Here, ACS and Gumino do not argue that FDC is in fact a party to the contracts at issue. The Agent Contract clearly states that it is “between Ignite Payments, LLC (‘Ignite Payments') and ACS Capital Partners Inc.” Doc. 1-1 at 16. The Agent Contract further states:

This Agreement is made for the benefit of Ignite Payments, [ACS] and their respective successors and assigns. In addition, Ignite Payments' sponsor bank is a third party beneficiary of this Agreement and may enforce this Agreement against [ACS]. No other person or entity has or acquires any rights by virtue of this Agreement.

Id. at 27. The Commissions Contract does not identify the specific parties to the contract. Id. at 39. The complaint alleges only that the Commissions Contract was “entered into and executed by the Parties hereto, ” without specifying which parties entered into and executed the contract. Doc. 1-1 ¶ 15.

         ACS and Gumino argue that FDC is a proper defendant because FDC can be held liable for Ignite's breach of contract under New York's corporate veil-piercing theory.[6] Under certain circumstances, a corporate relationship between a parent and its subsidiary can be “sufficiently close to justify piercing the corporate veil and holding one corporation legally accountable for the actions of the other.” Jalili v. Xanboo Inc., No. 11 Civ 1200, 2011 WL 4336690, at *3 (S.D.N.Y. Sept. 15, 2011). Piercing the corporate veil requires “showing that: (1) the owners exercised complete domination over the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury.” P.A.C. Consolidators Ltd v. United Cargo Sys. Inc., No. 10 CV 1981, 2011 WL 3099887, at *4 (E.D.N.Y. July 25, 2011). However, “[a]ctual domination, rather than the opportunity to exercise control, must be shown” to justify piercing the corporate veil. Jalili, 2011 WL 4336690 at *3. To determine “actual domination, ” a court considers the following factors:

the intermingling of corporate and shareholder funds, undercapitalization of the corporation, failure to observe corporate formalities such as the maintenance of separate books and records, failure to pay dividends, insolvency at the time of a transaction, siphoning off of funds by the dominant shareholder, and the inactivity of other officers and directors.

Id. The fact that a corporation exerts some control over another corporation's business affairs does not rise to the level of actual domination. See Id. Common management among two corporate entities or duplication of some or all of the directors or executive officers is also insufficient to show domination. Capmark Fin. Grp. Inc. v. Goldman Sachs Credit Partners L.P., 491 B.R. 335, 349 (Bankr. S.D.N.Y. 2013) (citing United States v. Bestfoods, 524 U.S. 51, 61-62, 118 S.Ct. 1876, 141 L.Ed.2d 43 (1998); In re Digital Music Antitrust Litig., 812 F.Supp.2d 390, 418 (S.D.N.Y. 2011)).

         Here, in support of their veil-piercing theory of liability, ACS and Gumino allege that “nearly all” of their communications were with FDC rather than Ignite and that their interactions with FDC did not indicate that any individuals from Ignite exerted control over managing contracts or made decisions. ACS and Gumino base these allegations on several email exchanges regarding the residual and upfront payments for ACS's Beauty Counter accounts, which they attached as exhibits to their complaint. While these communications demonstrate some control by FDC, they do not show “actual domination.” FDC's involvement or authority in determining residual or upfront payments does not rise to the level of intermingling or siphoning of funds, undercapitalization, failure to observe corporate formalities, or Ignite's insolvency or inactivity. ACS and Gumino's allegations are insufficient to make out a claim against FDC based on piercing the corporate veil.[7]See Jalili, 2011 WL 4336690 at *3 (conduct showing some control over a subsidiary's business affairs that does not rise to the level of ...

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