Heartland Payment Systems, Inc. v. Mercury Payment Systems,
LLC, 2014 WL 5812294, No. C 14–0437 (N.D. Cal. Nov. 7, 2014)
Heartland and Mercury compete to provide electronic payment
processing to small and medium-sized merchants through point of sale (POS)
systems, which allow merchants to accept credit cards and debit cards. POS
systems, allow banks and credit card companies to receive their fees, merchants
to receive the proceeds from sales, and consumers to have their accounts charged.
Both companies use an “interchange-plus pricing model”: banks and credit card
brands charge a fee, typically as a percentage of the transaction plus a
per-transaction fee. POS systems providers then charge an additional fee to the
merchants as their price. POS systems
providers can’t control the interchange fee, but do control the plus fee, which
is “usually in some combination of basis points and cents-per-transaction.” Both plus and interchange fees can be reset as
often as twice per year.
Heartland alleged that Mercury took advantage of the
interchange fee adjustment to increase its fees and deceptively blame increases
on the credit card brands. Mercury
allegedly falsely told merchants that it would pass on the interchange fees at
cost, with no markup. Heartland alleged
that the deceptions worked through Mercury’s merchant application; the
representations of third-party POS dealers who sell Mercury’s product; its
website; and “other advertising and promotional materials distributed to
merchants and potential merchants.” Moreover, Heartland alleged that Mercury’s Operating
Guide contained deceptive language that misrepresents how Mercury bills its
merchants. In its review of nearly 300
of Mercury’s monthly billing statements, Heartland alleged, it found that in
75% Mercury actually charged a fee higher than disclosed. Heartland alleged that merchants didn’t know
the actual network fees and couldn’t easily determine them based on Mercury’s
statements. Further, Heartland
identified thirty merchants who switched from Heartland to Mercury, and
believed that its bid was deceptively undercut.
The resulting statement allegedly showed Mercury’s bid-upon amount as
the “plus” fee, but also “falsely inflated network charges to impose an
additional four cent fee per card transaction.”
Heartland sued for false advertising under the Lanham Act
and state law, and related business torts. The court first determined that Rule
9(b) applied to all claims, because Heartland alleged “a unified course of
fraudulent conduct” as the basis of its claims, and sought punitive damages
based on Mercury’s allegedly intentional and willful conduct.
Mercury argued that it wasn’t engaged in “advertising and
promotion.” First, Mercury argued that
its monthly statements weren’t ads, because they “memorialize transactions that
have already occurred”; that the Merchant Application was a contract, and not promotional;
and that the Operating Guide, despite being on its website, is a mere
“technical manual.” (It seems to me that monthly statements
don’t have to be ads; it’s the alleged misrepresentations that got merchants to
engage in the transaction that are the core problem, and the statements then allegedly
prevent the merchants from realizing the prior deception.)
The court found that, with respect to alleged oral
statements, Heartland failed to plead with the requisite particularity. Heartland didn’t disclose the name of the
merchant it allegedly identified as a victim, or any other merchant. It also didn’t allege facts to support the
idea that a Mercury employee or representative made false statements, or
engaged in commercial speech. However,
Heartland had no way to know exactly which employee drafted the written ads, so
to the extent the complaint relied on written documents, Heartland didn’t need
to identify exactly who wrote them and when.
The court did find that the monthly statements “could induce
merchants to continue using Mercury’s services, and hence could be considered
commercial speech designed to propose a continued business relationship.” Similarly,
the Operating Guide “could be seen to propose a commercial transaction by
providing information to a potential merchant who may be considering using
Mercury’s services.” And the Merchant Application could be viewed as proposing
a commercial transaction—not a contract, but an offer to enter into a contract.
Thus, the complaint adequately alleged Mercury’s commercial speech.
The complaint still failed because Heartland didn’t allege
sufficient facts to show that Mercury disclosed its pricing as Heartland
alleged, or that Mercury charged something different from what it
disclosed. It needed to identify
specific language to show that there wasn’t sufficient disclosure of pricing
and fees.
For basically the same reasons, the UCL, FAL, and intentional
interference with contract/prospective economic advantage claims were
dismissed, with leave to amend.
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