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Touch-N-Buy, Ltd. Partnership v. Girocheck Financial, Inc.

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

February 5, 2018

TOUCH-N-BUY, LIMITED PARTNERSHIP, Plaintiff,
v.
GIROCHECK FINANCIAL, INC., Defendant.

          FINDINGS OF FACTS AND CONCLUSIONS OF LAW

          Nancy G. Edmunds United States District Judge.

         The Court held a bench trial in this case on August 1st - 4th, 2017. What follows are the Court's findings of fact and conclusions of law with regard to the breach of an agreement between Touch-N-Buy LP ("Plaintiff") and GiroCheck Financial Inc. ("Defendant"). Additionally, the Court's award of $40, 390.45 plus interest in damages to Plaintiff is contained herein.

         INTRODUCTION

         In 2012, Defendant developed a new financial product, Check2Card. The Check2Card system presumed to transfer the value of a user's check, less fees, directly onto a debit card, and avoided the need for cash in the transaction. Defendant hired Plaintiff to leverage Plaintiff's existing business relationships to promote and distribute the new Check2Card system. From mid-2012 to mid-2013 Plaintiff promoted and facilitated the installation of several Check2Card systems, meeting its contractual obligations. The Check2Card system however proved problematic. By June 2013, Defendant stopped supporting the Check2Card product and in October 2014, Defendant formally terminated the relationship with Plaintiff.

         Plaintiff filed this lawsuit as a result. This is a diversity case arising out of the parties' July 13, 2012 contract. Plaintiff's sole remaining claim is for breach of this contract. This Court dismissed Plaintiff's other claims on summary judgment, those for fraud, for violation of the Michigan Sales Representative Commission Act, and for exemplary damages. (Dkt. 43.) Defendant has a counterclaim for $19, 000 under one of the following theories: (1) breach of contract; (2) promissory estoppel; and (3) account stated. Following the four day bench trial, the Court makes the following findings of fact and conclusions of law with regard to the issues tried, in accordance with the Federal Rules of Civil Procedure. Fed.R.Civ.P. 52(a)(1)("In an action tried on the facts without a jury or with an advisory jury, the court must find the facts specially and state its conclusions of law separately. The findings and conclusions may be stated on the record after the close of the evidence or may appear in an opinion or a memorandum of decision filed by the court.")

         FINDINGS OF FACT

         A. Initial Relationship

         1. Plaintiff Touch-N-Buy is a company engaged in selling and servicing standalone terminals ("Touch-N-Buy kiosks") which offer alternative financial services, typically for under banked people. The Touch-N-Buy kiosks allow a user to buy "PIN-less" products including reloadable prepaid cards (such as telephone calling cards or gift cards), and to pay certain bills such as cell phone bills, and toll road payments without a checking account.

         2. Plaintiff contracts with merchants, like gas station and convenience store owners, to place the Touch-N-Buy kiosks in their stores. Mr. Phillip Toth, the chief executive officer, managing member, and chief operating officer of Plaintiff Touch-N-Buy LP, ("Mr. Toth") testified, that by 2012, after several years in business, Plaintiff had developed relationships with 1, 400 merchants located throughout the Midwest (primarily in Michigan and Illinois). (Mr. Toth Test., Dkt. 67, at 26; PgID 1500, and Dkt. 68, at 13; PgID 1662.)[1]

         3. Plaintiff first came into contact with Defendant in 2008 when Mr. Toth responded to Defendant's press release announcing their new check cashing product for vendors serving the under banked community. At the time, Plaintiff's existing merchants wanted check cashing services incorporated into the Touch-N-Buy kiosks. Defendant's 2008 product provided secure and guaranteed check cashing but required merchants to keep significant quantities of cash on hand and resulted in the merchants being out-of-pocket for several days until the system reimbursed them for the up-front cash outlay. Plaintiff determined the 2008 product did not meet its merchants' needs and declined Defendant's 2008 proposal. (Mr. Toth Test., Dkt. 67, at 28; PgID 1502.)

         4. In late 2011, Defendant returned to Plaintiff with its new Check2Card product, designed to transfer a check's value, less any fees, directly onto a debit card. The new product did not require the merchants to advance money or stock cash. Check2Card was a check cashing alternative. It allowed merchants to scan customers' identification, process payroll and certain other checks, and, if approved, load check funds, minus applicable transaction fees, onto a prepaid, reloadable debit card. (Dkt. 34, at 5.) The Check2Card system guaranteed all checks that it loaded onto the prepaid cards so that the merchant bore no risk even if the check ultimately proved invalid.

         5. Defendant's business model relied on paying Independent Merchant Representatives ("IMRs"), like Plaintiff, to leverage their preexisting relationships with vendors, to promote and distribute Check2Card into the marketplace. The financial success of Check2Card required a high volume business. The Check2Card system charged service fees to the end user, equal to a small percentage of the total value of the check. Each successful transaction would generate pennies in income for the numerous facilitating partners, meaning that to make the Check2Card system profitable for all the involved entities, including Defendant, the merchants, and Plaintiff, Check2Card needed a high volume of transactions and broad placement.

         6. Plaintiff expressed immediate interest in Check2Card. (Mr. Toth Test., Dkt. 67, at 30; PgID 1504.) Defendant sent Plaintiff a proposed IMR contract in early 2012 and cooperation between the companies began almost immediately. On February 7, 2012, the parties entered into their first of two written agreements (the "February Agreement"). (Pl. Ex. 1.)

         B. Contractual Relationship

         7. Five months later, on July 13, 2012, the parties replaced the February Agreement with a second and final IMR agreement (the "July Agreement"). (Pl. Ex. 2.) The July Agreement "embodies the entire understanding between [Plaintiff] and [Defendant]; consequently. . . .there are no other arrangements or understandings, oral or written which affects this contract in any manner." "This contract supersedes any and all prior written or oral agreements of the parties." (Pl. Ex. 2 ¶23-24.)

         8. Substantially similar to the February Agreement, the July Agreement, states Plaintiff "at its sole cost and expense, " agrees to identify merchants willing to place Defendant's new Check2Card product in their businesses. (Id. at § 8(b).) Plaintiff further agreed to then assist those merchants in applying to host the Check2Card system in their stores.

         9. Plaintiff's compensation only began once the system became operational in the merchants' stores. The July Agreement provided a commission structure, with incentives for Plaintiff to identify merchants likely to process a higher volume of checks. (See Id. § 10(a).) Defendant charged the end user 1% (100 basis points) for each successful transaction run through the Check2Card system. In locations which processed under 65 transactions a month, Plaintiff's compensation equaled 10 basis points (10%) of Defendant's "[g]ross revenue for transactions derived from Merchants with executed agreements, provided by IMR [Plaintiff] through duties set forth in this agreement . . ." (Id. at § 10.) In practical terms, this meant that for any check transferred onto a card through the system, Plaintiff received 0.10% of the value. On a $400 check, for example, Plaintiff would receive $0.40 in income.

         10. For locations that processed over 65 transactions per month, however, Plaintiff's basis points increased from 10 to 13. (Id.) Thus, on a $400 check in a merchant's location that processed more than 65 transactions a month, Plaintiff would receive $0.52 income (based on 13 basis points), instead of receiving $0.40(based on 10 basis points).

         11. In the following months, Defendant issued additional proposed compensation structures, although none was formally adopted. (Pl. Ex. 35.) The July Agreement was the final binding contract between the parties.

         C. Terms of the July Agreement

         12. The contested and relevant sections of the July Agreement follow.

         13. Defendant's Check2Card business and the services Defendant contracts to provide are addressed in the opening two "whereas" paragraphs of the July Agreement. As relevant to the dispute before the Court, they specifically require Defendant to provide a functioning program/system which is able to remotely transfer the value of a check onto a debit card.

Whereas, GiroCheck [Defendant] is in the business of providing directly and through its Third Parties certain services and systems (the 'Program'), through which customers may electronically, at locations of authorized agents 'Merchants' submit customer identifications and customer and certain types of checks information and if authorized through the System. . . .receive a prepaid reloadable debit card issued by the Issuing Bank (the 'Prepaid Card') in the amount loaded by the Issuing Bank, less applicable fees.
Whereas, the following services are provided by Girocheck [Defendant] and its Third Parties in connection with the Program (collectively, the 'Girocheck Services'): (i) the electronic captures of customer identification, customer information and check information by a scanner device located on the premises of authorized agents 'Merchants'; (ii) the submission of such information to the entity that manages the prepaid card and the related prepaid debit card accounts of the customers (the 'Card Program Manager') on behalf of a bank that issues the Prepaid Cards, and loads and reloads the Prepaid Cards (the 'Issuing Bank'); (iii) additional services as agreed between GiroCheck [Defendant] and the Card Program Manager, or the Issuing Bank for the enrollment process and/or registration by the Issuing Bank of customers, (iv) capture, retention, and association of specific transactional date to the Prepaid Card, (v) check guarantee, and (vi) if authorized through The System by the Issuing Bank and/or Issuing Bank's Card Program Manager, check submission for truncation so that Card Issue bank can perform remote loading services to the specific prepaid debit card.

(July Agreement, Pl. Exhibit 2 at 1.)

         14. Paragraph 9 of the July Agreement is a standalone sentence which states in full, "[Plaintiff] will be responsible for all its expenses in meeting its limited obligations under this Agreement." (July Agreement, Pl. Exhibit 2 at 4.)

         15. Paragraph 10 of the July Agreement details the compensation and payment structure for IMR's like Plaintiff. Section (a) addresses in part what constitutes timely payment and Section (c) details a set-up fee payment, which is further explained by Paragraph 14(k).

Paragraph 10 Section (a): . . . .All compensation due by [Defendant] to [Plaintiff] shall be settled, reconciled and paid by ACH credit to [Plaintiff's] designated Bank Account by the 30th day of the following month.
Paragraph 10 Section (c): IMR [Plaintiff] will receive as compensation the "net amount of the set-up fee." For purposes of determining this IMR Compensation, the net amount of the set-up fee will be the "set up fee" as stated in 14(k) of this Agreement minus "production costs".
Paragraph 14 Section (k): Merchant will be charged a set-up fee of $200 to assume the cost of all the marketing materials, including, but not limited to in store signage.

(July Agreement, Pl. Exhibit 2, at 4 and 5.)

         16. Paragraph 13 of the July Agreement "System Access" includes Defendant's obligation to provide Plaintiff with "real time" access to customer data.

Under the terms of this Agreement, IMR [Plaintiff] is authorized by Girocheck [Defendant] to access Customer Data on the System for the purpose of reviewing all processing data relating to the Girocheck [Check2Card] Services provided only to Merchants engaged pursuant to this agreement, in real time and on demand. . . .

(July Agreement, Pl. Ex. 2, at 5.)

         17. Paragraphs 16 of the July Agreement includes the term of the agreement and the proper termination notice.

The term of this agreement shall be for a one year period beginning on the "Effective Date" and shall automatically renew for a one year period unless earlier terminated by either party with sixty (60) days written notice.

(July Agreement, Pl. Ex. 2, at 6.)

         18. Paragraph 21 limits the July Agreement to between Plaintiff and Defendant and binds the parties in no way to obligate the other to any terms outside those detailed within the agreement itself.

Neither the existence of this Agreement, nor its execution, is intended to be, nor shall it be construed to be, the formation of a partnership, association, or joint venture between the parties. In fulfilling its obligations pursuant to this Agreement, each Party shall be acting as an independent contractor. The Parties agree not to hold themselves out to the public as doing business together in any other capacity. Neither party is granted any right or authority to assume or to create any obligation or responsibility, expressed or implied, on behalf of or in the name of the other Party, except as expressly provided in this Agreement. Each Party shall be responsible only for its obligations and liability as set forth in this Agreement.

(July Agreement, Pl. Ex. 2, at 6.)

         19. Paragraphs 23 and 24 of the July Agreement clarify that there can be no terms outside those contained within the agreement and that to modify any understanding between the parties requires a written amendment.

Paragraph 23. Modification of Agreement. It is hereby mutually agreed that this contract embodies the entire understanding between IMR [Plaintiff] and GiroCheck [Defendant]; consequently, it is hereby understood and agreed that there are no other arrangements or understandings, oral or written which affects this contract in any manner.
Paragraph 24. This agreement may not be changed, waived or modified except by written agreement signed by all parties stating that it is an amendment to this contract. This contract supersedes any and all prior written or oral agreements of the parties.

(July Agreement, Pl. Ex. 2, at 7.)

         D. Plaintiff's Conduct

         20. Plaintiff performed its obligations under the consecutive contracts. As required, Plaintiff promoted Check2Card services and facilitated the relationship between individual merchants and Defendant. It used commercially reasonable efforts in marketing, promoting, and procuring the engagement of potential merchants including. Plaintiff trained its sales and technical staff pursuant to Defendant's provided guidelines, identified and solicited merchants on Defendant's behalf, helped merchants through a burdensome application process, installed the Check2Card hardware and software at approved merchant locations, provided additional computer equipment to merchants when existing hardware proved inadequate, and serviced multiple Check2Card systems after installation. (Mr. Toth Test., Dkt. 67, at 36-37; PgID 1510-11.)

         21. In addition, and in no way required under the agreements, Plaintiff encouraged his son, Joseph Toth ("J. Toth") to move to North Carolina to start a new Touch-N-Buy business and also to sell Check2Card there. J. Toth formed a new company, Intel Solutions Inc., which operated in North Carolina and promoted and installed 29 of the Check2Card systems with North Carolina merchants.

         22. Between the two companies, Plaintiff and Intel Solutions Inc. participated in 80 merchant applications. Defendant approved of 46 of them. (Mr. Toth Test., Dkt. 67, at 38; PgID 1512.). Plaintiff ultimately installed 17 Check2Card systems in the Midwest and Intel Solutions Inc. installed 29 in North Carolina. (Pl. Ex. 36 & 37 - Michigan; Pl. Ex. 38 & 39 -North Carolina).

         E. Check2Card System

         23. Defendant's Check2Card system required both hardware and software components. The hardware consisted of a scanner, card loader, cards, and printer, all of which required connection to a merchant's computer and internet. Once connected, the merchant's computer had to use Defendant's Check2Card software to transfer a check's value, less fees, onto a debit card.

         24. Defendant's marketing materials (Pl. Ex. 13-20) present a clear picture of a near automatic and instantaneous transfer of funds from a check onto a debit card. Documents created by Defendant state: "Funds are available instantly." (Pl. Ex. 13.) "System is fast and easy to use." (Pl. Ex. 14.) A form letter to a "Potential distributor" from Defendant states: "checks are loaded directly and immediately into [sic] a Prepaid Card activated in real time at your location." (Pl. Ex. 16.) It further provides, under a heading labeled "Benefits for your merchants, " that the product will "[r]un transactions electronically in a matter of seconds." (Id.)(See also Pl. Ex. 19.) A letter addressed to "merchant" from Defendant states the same. (Pl. Ex. 18.)

         25. Defendant asserts the Check2Card product worked properly. Defendant offered no exhibits at all during the trial. Nor did Defendant provide direct testimony of the Check2Card working in the Midwest or North Carolina.

         26. Two officer/employees testified on behalf of Defendant: (1) Defendant's General Manager Jamie Jaramillo, who witnessed the successful operation of the inaugural Check2Card system in Florida and (2) Miguel Bueno, Defendant's CEO. They both testified they believed the product worked but could provide no evidence of its functionality in the Midwest or North Carolina.

         27. Both of Defendant's witnesses explained the Check2Card systems failures as "problems with the market." In their opinion, the Check2Card product failed commercially because customer behaviors needed time to change and led to too few transactions and not enough revenue. (Jaime Jaramillo Test., Dkt. 69, at 113; PgID1928; Miguel Bueno Test., Dkt. 70, at 28; PgID 2007.)

         28. Carlos Aparacio, Defendant's information technology analyst for the relevant time period, also testified by way of deposition. Aparacio testified that his responsibility was to provide telephonic support from his remote location in Cali, Columbia, to merchants during the installation of the Check2Card product. (Aparicio Dep. Tr. at 10:23-25, 11:22, and 12:18.)

         29. Aparacio's contact with Plaintiff was through Thomas Sparks, Plaintiff's installer and technician. (Id. at 16:13-14.) Aparacio stated that Plaintiff would call for support during installations and for troubleshooting, that he did not remember the specifics of the needed troubleshooting and that in every situation he offered a solution. (Id. at 34:1-13.)

         30. In contrast, Plaintiff presented substantial evidence that the Check2Card system did not work properly. The following people testified on behalf of Plaintiff: (1) Mr. Toth, the chief executive officer, managing member, and chief operating officer of Plaintiff Touch-N-Buy LP, (2) J. Toth, the part owner and full time operator of Intel Solutions Inc. (3)Thomas Sparks, Plaintiff's installer and technician, (4) Rami Assaf, owner of a merchant location, Chapoton Woods Market, in ...


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