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TransFirst, LLC v. Brown

United States District Court, D. Colorado

March 19, 2019




         This matter is before the Court on Plaintiff's motion for default judgment (ECF No. 215), Defendants BA Brokerage, LLC (“BA”) and Appelhans' motion for partial judgment on the pleadings (ECF No. 223), Defendant Reich's motion for partial judgment on the pleadings and for summary judgment as to all claims against him (ECF No. 224), and Plaintiff's motion to strike (ECF No. 256). For the reasons given below, these motions are denied.

         I. BACKGROUND

         Plaintiff is a Delaware limited liability company with its principal place of business in Broomfield, Colorado. (ECF No. 102 at ¶ 1.) Plaintiff processes and settles transactions on behalf of merchants who accept credit and debit cards for payment of goods and services by receiving card transactions initiated by a merchant, routing them to the appropriate bank, settling the transactions, collecting the resulting credits, and forwarding the credits to the merchant's account. (Id. at ¶ 13.) Cardholders may charge back a transaction under certain circumstances, such as when goods are not delivered, services are not as represented, or a charge is not authorized. (Id. at ¶ 14.) When chargebacks occur, Plaintiff must re-credit the issuing bank and look to the merchant to recover. (Id.) Chargeback rights may be exercised up to 180 days after the date of the card transaction. (Id.)

         Defendant Veteran Toner Services, LLC (“VTS”) was in the business of selling toner cartridges and related products. (Id. at 16.) VTS had branches in three states-Illinois, New York, and California.[1] Plaintiff alleges that VTS was dominated and controlled by the individual Defendants. (ECF No. 102 at ¶ 9.) BA was owned and operated by Defendant Appelhans.

         In November 2013, VTS filed an application with Plaintiff for merchant card processing. (Id. at ¶ 22.) Plaintiff's Colorado address was on the application, making it clear that Plaintiff operated in Colorado. Plaintiff alleges the application VTS submitted was misleading in several respects. (Id. at ¶ 23.) Nonetheless, after multiple meetings and communications between Plaintiff and VTS, Plaintiff accepted and approved the application, and the parties entered into a merchant agreement. (Id.) In December 2013, Plaintiff began processing card transactions for VTS. (Id. at ¶¶ 27, 28.) Over the course the parties' two-and-a-half-year business relationship, Plaintiff processed roughly 1500 card transactions for VTS, totaling more than $15 million. (Id. at ¶ 30.)

         Per the merchant agreement, personal charges were not permitted. According to the complaint, however, Defendants circumvented this rule and generated cash deposits into the VTS account by presenting personal card transactions accompanied by phony invoice numbers to make the transactions look like product sales. (Id. at ¶¶ 32-34.)

         In August 2016, VTS announced it had ceased operations, and Plaintiff began receiving chargebacks on some VTS transactions, totaling more than $1.8 million. (Id. at ¶ 40.) The VTS account had insufficient funds to cover the chargebacks, and Plaintiff's attempts to recover from VTS were unsuccessful. (Id. at ¶ 47.) Plaintiff alleges that the individual Defendants transferred the money from the VTS account to themselves and persons associated with them. (Id. at ¶¶ 49-51.)

         Plaintiff filed this suit in state court, and the case was removed to this Court. In its second amended complaint, Plaintiff asserts eight claims for relief, seeking to hold Defendants jointly and severally liable for (1) breach of contract; (2) restitution; (3) fraud/deceit; (4) aiding and abetting fraud/deceit; (5) civil theft; (6) aiding and abetting civil theft; (7) violations of the Colorado Organized Crime Control Act (“COCCA”); and (8) civil conspiracy.


         A. Motion for Default Judgment

         Plaintiff successfully moved for entry of default against VTS after it failed to respond to Plaintiff's complaint.[2] (ECF No. 99.) Plaintiff has now moved for entry of judgment of default against VTS, seeking a judgment of over $6 million. (ECF No. 215.)

         The decision to enter default judgment is discretionary for this Court. Dennis Garberg & Assocs., Inc. v. Pack-Tech Int'l Corp., 115 F.3d 767, 771 (10th Cir. 1997). “Once default is entered, it remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law.” Bixler v. Foster, 596 F.3d 751, 762 (10th Cir. 2010) (quotation omitted). But “when one of several defendants who is alleged to be jointly liable defaults, judgment should not be entered against him until the matter has been adjudicated with regard to all defendants, or all defendants have defaulted.” Hunt v. Inter-Globe Energy, Inc., 770 F.2d 145, 147 (10th Cir. 1985) (quotation omitted). Thus, the Hunt court concluded that in the interest of avoiding inconsistent liability determinations among joint tortfeasors, the district court should not have entered default judgment against one defendant where multiple defendants were alleged to be jointly and severally liable. Id. at 148 (“[J]ust as consistent verdict determinations are essential among joint tortfeasors, consistent damage awards on the same claim are essential among joint and several tortfeasors.”).

         The Court finds that the rationale in Hunt applies here and that entry of default judgment against VTS would be inappropriate before liability of the other Defendants is determined. Accordingly, Plaintiff's motion is denied.

         B. Motion for Partial Judgment on the Pleadings

          Defendants Appelhans and BA have moved for partial judgment on the pleadings on ...

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