United States District Court, E.D. Michigan, Southern Division
FINDINGS OF FACTS AND CONCLUSIONS OF LAW
G. Edmunds United States District Judge.
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.
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
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.")
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.
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.)
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.)
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.
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.
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.)
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.)
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.
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.
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
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.
Terms of the July Agreement
contested and relevant sections of the July Agreement follow.
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.)
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.)
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
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.)
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.)
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
(July Agreement, Pl. Ex. 2, at 6.)
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
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.)
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.)
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
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.
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).
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.
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.)
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.
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.
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.)
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,
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.)
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 ...