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Big City Small World Bakery Cafe, LLC v. Francis David Corp.

United States District Court, E.D. Michigan, Southern Division

July 11, 2017



          DAVID M. LAWSON United States District Judge

         The plaintiff alleges in a complaint and amended complaint on behalf of itself and others that defendant Francis David Corporation, which does business as Electronic Merchant Systems (EMS), overcharged it for processing credit card transactions. The plaintiff signed a credit card merchant agreement with EMS that contained an arbitration clause. Before the Court is EMS's motion to dismiss or compel arbitration. Although the agreement contains a rate schedule governing the parties' relationship (which the plaintiff contends was exceeded), the plaintiff has gone to great lengths to distance itself from the merchant agreement, and to argue that the arbitration clause is unconscionable. Those efforts do not persuade. Therefore, the Court will grant the motion to dismiss.


         In summarizing the facts below, the Court has looked to the complaint, the amended complaint, and the admissions and other discovery responses produced by the parties during the period of limited discovery that the Court allowed to address whether the case must be sent to arbitration.

         Most of the basic background facts of the case are undisputed. Plaintiff Big City Small World Café, LLC is a small bakery in Ann Arbor, Michigan, operated by its owner Scott Newell. Defendant EMS is an Ohio corporation that provides credit and debit card transaction processing services to retail merchants like Big City. In March 2012, Big City was approached by an agent of EMS offering its transaction processing services. The agent assured Big City that EMS could lower the bakery's costs for its credit card services. The agent represented that EMS could process transactions for a fee comprised of “Interchange 0.80% 10 cents per transaction, ” which means whatever amount was charged by the underlying card issuer “interchange network” to complete each transaction, plus a fixed 10 cent charge and a variable amount equal to 0.80% of the purchase value. That sounded like a good deal to Newell, so on March 21, 2012 he completed an application and merchant agreement to become a customer of EMS, and he signed that agreement as a principal and authorized representative of the plaintiff.

         Although they are at odds about the legal effect of the agreement, the parties do not dispute that the copy of the document attached to the defendant's motion to dismiss is an accurate and complete copy of the merchant agreement that was signed by the plaintiff. The agreement contains the following operative provisions pertinent to this lawsuit.

         First, and of principal relevance to the present motion, the agreement contains an arbitration clause which reads as follows:

Except as expressly provided in Section 27, any claim or dispute arising out of or related to this Agreement shall be finally resolved by final and binding arbitration. Whenever a party shall decide to institute arbitration proceedings, it shall give written notice to that effect to the other parties. The party giving such notice shall refrain from instituting the arbitration proceedings for a period of thirty (30) days following such notice to allow the parties to attempt to resolve the dispute between or among themselves. If the parties are still unable to resolve the dispute, the party giving notice may institute the arbitration proceeding under the rules of the American Arbitration Association (“AAA Rules”). . . . The arbitrator shall have the authority to award any remedy or relief a court of the State of Ohio could order or grant, including, without limitation, specific performance of any obligation created under this Agreement, the awarding of the issuance of an injunction or the imposition of sanctions for abuse or frustration of the arbitration process. Judgment upon the award of the arbitrator may be entered in any court of competent jurisdiction and enforced with full judicial effect thereafter. All fees and expenses of the arbitration shall be borne by the parties equally. However, each party shall bear the expenses of its own counsel, experts, witnesses, and preparation and presentations. The [arbitrator is] authorized to award any party such sums as shall be deemed proper for the time, expense and inconvenience of arbitration, including arbitration fees and attorney fees.

         Agreement ¶ 28. Although that provision states that “any claim or dispute arising out of or related to this Agreement” would be resolved by arbitration, the agreement includes a carve-out provision allowing the defendant to resort to litigation in the specific case of an action to collect sums due and unpaid under the agreement:

Bank and EMS shall have the absolute right to initiate or defend any and all disputes arising from this Agreement with Merchant. . . . In the event of a claim by Bank and/or EMS for the failure of a Merchant to pay any chargebacks, fees, settlement costs, or other amounts due hereunder, Merchant agrees that personal jurisdiction and venue of any such claim shall lie in the federal or state courts of Cuyahoga County, Ohio.

         Agreement ¶ 27.

         Second, the agreement states that its term “shall commence on the acceptance of the Application and this Agreement by Bank and EMS and the issuance of a merchant account identification number to Merchant identifying Merchant for accounting, billing, customer service and related purposes . . . and continue for a minimum of twenty-four (24) months unless earlier terminated in accordance with the provisions of this Agreement.” Agreement ¶ 9. The agreement further states that it “shall be effective only upon acceptance and signature by Bank and EMS, ” but that “[a]ny application fee paid to Bank or EMS is nonrefundable whether or not Merchant and this Agreement are accepted by Bank and EMS.” Agreement at 7. The agreement also states that it “may not be modified in any respect without the express written consent of the Bank.” Ibid. However, the agreement also states that it represents consent by the merchant, effective upon its execution, for EMS to process credit and debit entries to the merchant's bank account. Agreement at 1 (“MERCHANT hereby authorizes BANK and EMS in accordance with this MERCHANT Agreement to initiate debit/credit entries to MERCHANT's checking account as indicated below. This authority is to remain in full force and effect during the term of this Agreement.”). As to any purported “waiver” of its provisions, the agreement states: “Neither the failure nor any delay on the part of Bank or EMS to exercise any right, remedy, power or privilege hereunder shall operate as a waiver nor be construed as an agreement to modify the terms of this Agreement.” Agreement ¶ 24.

         Third, in a section labeled “SCHEDULE OF FEES, ” the Agreement sets forth, in boilerplate terms modified by handwritten figures that were filled in on certain blanks, the “Interchange 0.80% 10 cents per transaction” formula alluded to in the complaint. Agreement at 2. The parties have not pointed to any other document disclosed during the course of the limited discovery which memorialized that schedule of fees.

         Finally, with respect to choice of law, the agreement states: “This Agreement shall be governed by and constructed in accordance with the laws of the State of Ohio.” Agreement ¶ 27.

         During the course of the limited discovery allowed by the Court, the plaintiff admitted that “the Merchant Agreement was signed on behalf of Big City by an authorized representative, ” which was the plaintiff's owner, Scott Newell, and that “the representative who signed the Merchant Agreement is a graduate of the University of Michigan.” Neither the bank nor EMS ever signed the agreement. However, it appears that EMS issued a merchant account identification number to Big City. The plaintiff admitted that “beginning in March 2012 and ending in August 2013, Big City submitted credit and debit card transactions to EMS for processing and that EMS processed those transactions, ” and that “during the referenced time period, [Big City] submitted for processing thousands of card transactions involving tens of thousands of dollars.” The plaintiff admitted that “EMS performed processing services on behalf of Big City for approximately eighteen months, ” and that, during that time, it “received . . . monthly account statements from EMS.” The plaintiff asserts that all of its claims concern alleged overcharging in the “imposition of fees” for processing services, but it insists that its claims do not implicate the “quality” of the services rendered.

         The plaintiff admitted that between “July 2012 [and] July 2016, Big City entered into other written business or commercial agreements or contracts, for example, a lease or purchase of the business location and agreements or contracts with supplier, manufacturers, and service providers.” It also admitted that Big City “processed its credit and debit card transactions with a different processor prior to EMS, ” and “with a different processor after EMS.” The plaintiff admitted that “its representative [Scott Newell] read parts of the document and that its representative had the opportunity to read the remainder if he had a few hours to spare and had obtained a magnifying glass.” Near the center of the first page of the agreement (one of the pages that was signed by Newell in two places), is a provision that is printed in bold face and capital letters, where the agreement states: “MERCHANT ACKNOWLEDGES HAVING READ AND RECEIVED A COPY OF THIS AGREEMENT.”

          In response to a request to admit that it “could have conferred with legal counsel prior to signing the Merchant Agreement, ” the plaintiff stated that it “could not have afforded to retain legal counsel prior to signing the Merchant Agreement, ” but that if “one assumes Big City could have found legal counsel to review the Merchant Agreement and advise Big City for free, then Big City would admit the request.”

         The plaintiff filed its original complaint as a putative class action on July 15, 2016, which pleaded claims for declaratory relief, breach of contract, and unjust enrichment premised on the alleged overcharging of transaction fees. EMS responded with a motion to dismiss or to stay the case and to compel arbitration, based on the arbitration clause in the merchant agreement. That motion was referred to the assigned magistrate judge for a hearing and a report and recommendation. The plaintiff later filed a motion for leave to amend, which was granted upon the stipulation of the parties. In the same stipulation, the parties also agreed that the motion to dismiss or compel arbitration should be dismissed as moot due to the filing of the amended pleading. The Court subsequently denied the motion to dismiss without prejudice.

         The amended complaint omits the breach of contract count and excised nearly all uses of the word “contract” and references to the “merchant agreement” that were in the original. On December 19, 2016, the defendant filed a renewed motion to dismiss addressed to the ...

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