United States District Court, S.D. New York
July 28, 2004.
BERND BILDSTEIN, on behalf of himself and others similarly situated, Plaintiffs,
MASTERCARD INTERNATIONAL INCORPORATED, Defendant.
The opinion of the court was delivered by: WILLIAM PAULEY, District Judge
MEMORANDUM AND ORDER
This putative class action challenges certain foreign currency
conversion policies by MasterCard International Incorporated
("MasterCard"). Specifically, Bernd Bildstein ("Bildstein")
alleges that MasterCard charges its customers an undisclosed
Foreign Currency Transaction Fee ("FCTF") in violation of Section
349 of the N.Y. General Business Law.
Presently before this Court is MasterCard's motion to dismiss
the Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(6).
MasterCard argues that Bildstein fails to allege the elements of
a Section 349 claim. For the reasons set forth below,
MasterCard's motion to dismiss is granted. BACKGROUND
MasterCard is one of the largest general purpose card networks
in the world and is a joint venture or membership association
owned and operated by its member banks. (Amended Complaint, dated
July 8, 2003 ("Am. Comp.") ¶ 4); see also In re Currency
Conversion Fee Antitrust Litig., 265 F. Supp.2d 385, 391
(S.D.N.Y. 2003); United States v. Visa U.S.A., Inc.,
163 F. Supp.2d 322, 332 (S.D.N.Y. 2001). There are approximately 1500
member banks and 13,500 affiliate members in the MasterCard
operational network. (Am. Comp. ¶ 3.) They compete with each
other to issue MasterCard-branded general purpose cards. (Am.
Comp. ¶ 3.)
The MasterCard network executes transactions for member banks
and affiliates under a set of uniform operating rules. (Am. Comp.
¶ 5.) All participating banks must comply with the bylaws, rules,
regulations published by MasterCard, including payment of fees,
dues and assessments. (Am. Comp. ¶ 5.)
MasterCard implemented a policy of imposing a service charge
(i.e., FCTF) equal to one percent of the value of transactions
made in foreign currencies. (Am. Comp. ¶ 8.) The FCTF was
embedded in the currency conversion rate paid by cardholders.
(Am. Comp. ¶ 10.) While encouraging cardholders to use their
MasterCard general purpose card for foreign transactions,
Defendant did not disclose the embedded FCTF. (Am. Comp. ¶¶ 10-11.) As a result, cardholders "unknowingly paid
millions of dollars for the FCTF." (Am. Comp. ¶ 13.)
Plaintiff alleges that he has been a MasterCard general purpose
card holder since September 1997 and that he used his card in
Mexico between 2000 and July 2003 to make purchases in Mexican
Pesos. (Am. Comp. ¶¶ 1, 13.) According to the Amended Complaint,
MasterCard converted the Mexican Peso charges into U.S. Dollars
and embedded the FCTF in the conversion rate, without disclosing
it. (Am. Comp. ¶ 13.)
I. Motion to Dismiss Standard
On a motion to dismiss pursuant to Rule 12(b)(6), a court
typically must accept the material facts alleged in the complaint
as true and construe all reasonable inferences in a plaintiff's
favor. Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d
Cir. 1998). A court should not dismiss a complaint for failure to
state a claim unless "it appears beyond doubt that the plaintiff
can prove no set of facts in support of his claim which would
entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46
(1957); accord Gant v. Wallingford Bd. of Educ., 69 F.3d 669,
673 (2d Cir. 1995). Dismissal is proper when the plaintiff fails
to plead the basic elements of a cause of action. Corcoran v.
New York Power Authority, 935 F. Supp. 376, 382 (S.D.N.Y. 1996) ("The Court can dismiss the claim only if, assuming all
facts alleged to be true, plaintiff still fails to plead the
basic elements of a cause of action."); accord Wright v.
Giuliani, No. 99 Civ. 10091 (WHP), 2000 WL 777940, at *4
(S.D.N.Y.), aff'd, 230 F.3d 543 (2d Cir. 2000). The issue on a
motion to dismiss "is not whether plaintiff will ultimately
prevail, but whether claimant is entitled to offer evidence to
support claims." Villager Pond, Inc. v. Town of Darien,
56 F.3d 375, 378 (2d Cir. 1995) (citation omitted).
II. N.Y. General Business Law § 349
Section 349 "`was designed to protect consumers from various
forms of consumer fraud and deception.'" Twentieth Century Fox
Film Corp. v. Marvel Enterprises, Inc., 155 F. Supp.2d 1, 25
(S.D.N.Y. 2001) (quoting Smith v. Triad Mfg. Group, Inc.,
255 A.D.2d 962, 681 N.Y.S.2d 710, 712 (4th Dep't 1998)). Section 349
"declares unlawful `deceptive acts or practices in the conduct of
any business, trade or commerce or in the furnishing of any
service.'" Riordan v. Nationwide Mut. Fire Ins. Co.,
977 F.2d 47, 51 (2d Cir. 1992) (internal brackets omitted) (quoting
General Business Law § 349(a)); accord Highlands Ins. Co. v.
PRG Brokerage, Inc., No. 01 Civ. 2272 (GBD), 2004 WL 35439, at
*9 (S.D.N.Y. Jan. 6, 2004); Kforce, Inc. v. Alden Personnel,
Inc., 288 F. Supp.2d 513, 518 (S.D.N.Y. 2003). The statute provides a private right of action to any
person injured by a business' deceptive act or practice.
Riordan, 977 F.2d at 51 (citing General Business Law § 349(h));
accord Am. Med. Ass'n v. United Healthcare Corp., No. 00 Civ.
2800 (LMM) (GWG), 2003 WL 22004877, at *6 (S.D.N.Y. Aug. 22,
2003); Gucci Am., Inc. v. Duty Free Apparel, Ltd., 277 F. Supp.2d 269,
272 (S.D.N.Y. 2003).
"A plaintiff under section 349 must prove three elements:
first, that the challenged act or practice was consumer-oriented;
second, that it was misleading in a material way; and third, that
the plaintiff suffered injury as a result of the deceptive act."
Stutman v. Chem. Bank, 95 N.Y.2d 24, 29 (2000) (citations
omitted); accord Maurizio v. Goldsmith, 230 F.3d 518, 521-22
(2d Cir. 2000); Lava Trading Inc. v. Hartford Fire Ins. Co.,
No. 03 Civ. 7037 (PKC), 2004 WL 555723, at *3 (S.D.N.Y. March 19,
2004); Smith v. Chase Manhattan Bank, USA, N.A., 741 N.Y.S.2d 100,
102 (2d Dep't 2002). "In addition, a plaintiff must prove
`actual' injury to recover under the statute, though not
necessarily pecuniary harm." Stutman, 95 N.Y.2d at 29.
MasterCard contends that Bildstein fails to plead the elements
of Section 349, because he does not allege facts establishing
materiality, actual injury, consumer-oriented conduct, or
actionable deception by MasterCard. A. Materiality
MasterCard argues that Bildstein has not pleaded materiality
because he does not allege that "if fully informed of the claimed
`fee,' he could have and would have sought out a different and
less costly means of making his alleged foreign currency
purchases." (Defendant's Memorandum in Support of its Motion to
Dismiss ("Def. Mem.") at 5.) While his opposition papers were
silent on this subject, at argument, Bildstein explained that his
sole material injury was payment of the FCTF. (Transcript of Oral
Argument, dated June 17, 2004 ("Tr.") at 11.)
Section 349 does not define materiality. However, it is modeled
after Section 5 of the Federal Trade Commission Act ("FTCA").
See Sports Traveler, Inc. v. Advance Magazine Publishers,
Inc., No. 96 Civ. 5150 (JFK), 1997 WL 137443, at *2 (S.D.N.Y.
March 24, 1997) ("Because section 349 is modelled [sic] after the
Federal Trade Commission Act, federal courts have interpreted the
statute's scope as limited to the types of offenses to the public
interest that would trigger Federal Trade Commission intervention
under 15 U.S.C. § 45."); see also Wells Fargo Bank Northwest,
N.A. v. Taca Intern. Airlines, S.A., 247 F. Supp.2d 352, 371 n.
21 (S.D.N.Y. 2002) ("Section 349(h) is modeled primarily on the
Federal Trade Commission Act."). Section 5 of the FTCA prohibits
unfair and deceptive acts affecting commerce. See FTC v.
P.M.C.S., Inc., 21 F. Supp.2d 187, 190 (E.D.N.Y. 1998). Therefore, this Court evaluates the
materiality prong by examining the case law interpreting Section
5 of the FTCA.
"[A] material claim is one that `involves information that is
important to consumers and, hence, likely to affect their choice
of, or conduct regarding, a product.'" Novartis Corp. v.
F.T.C., 223 F.3d 783, 787 (D.C. Cir. 2000) (quoting In re
Cliffdale Assocs., Inc., 103 F.T.C. 110, 165 (1984)); accord
Kraft, Inc. v. F.T.C., 970 F.2d 311, 322 (7th Cir. 1992);
F.T.C. v. 1263523 Ontario, Inc., 205 F. Supp.2d 205, 212
(S.D.N.Y. 2002); F.T.C. v. Five-Star Auto Club, Inc.,
97 F. Supp.2d 502, 529 (S.D.N.Y. 2000). "The burden is on plaintiffs
to show `materially deceptive conduct' on which they relied to
their detriment." Stutman et al. v. Chem. Bank, 260 A.D.2d 272,
273 (1st Dept 1999). To survive a motion to dismiss,
Bildstein must allege that information regarding FCTF would have
affected MasterCard holders' choice of credit cards.
The Amended Complaint does not contain any allegations
concerning the effect disclosure of the FCTF would have had on
the Bildstein. For example, Bildstein does not allege that
disclosure of the FCTF would have caused him to select a
different credit card. Indeed, the Amended Complaint does not
even plead that MasterCard's concealment of its FCTF was a
material omission. Instead, it asserts in conclusory fashion that "Defendant's concealment of its FCTF violated § 349 of the
General Business Law in that it never disclosed to its customers
the existence of such conversion rate." (Am. Compl. ¶ 15).
Because Bildstein's Amended Complaint contains no allegation
regarding materiality, it is insufficient to state a claim under
Section 349. See Moses v. Citicorp Mortg. Inc., 982 F. Supp. 897,
903 (E.D.N.Y. 1997) ("Conclusory allegations have been held
to be insufficient to state a claim under section 349."); see
also Altschuler v. Univ. of Pennsylvania Law Sch., No. 95
Civ. 249 (LLS), 1997 WL 129394, at *10 (S.D.N.Y. Mar. 21, 1997)
("Conclusory allegations will not survive a motion to dismiss for
failure to state a claim.") (quotations omitted).
B. Actual Injury
Assuming arguendo that Bildstein alleged materiality, his
claim would still fail because he has not adequately plead actual
injury. MasterCard claims that because Bildstein "has failed to
allege that the claimed deception caused him to pay more in
making his foreign currency purchases than he otherwise would
have paid, the Court should dismiss the [Amended] Complaint for
failure to allege `actual' causal injury." (Def. Mem. at 8.)
Bildstein counters that he sustained actual injury when he paid
the FCTF unknowingly. (Plaintiff's Memorandum in Opposition to the Motion to Dismiss ("Opp. Mem.") at 8).*fn1 In other
words, Bildstein avers that his payment of the FCTF is, itself,
the actual injury. (Tr. at 11.)
To state a claim under Section 349, Plaintiff must plead facts
establishing actual injury by the alleged deceptive act:
To state a claim under the statute, a plaintiff must
allege that the defendant has engaged "in an act or
practice that is deceptive or misleading in a
material way and that plaintiff has been injured by
Small v. Lorillard Tobacco Co., Inc., 94 N.Y.2d 43, 55 (1999)
(quoting Oswego Laborers' Local 214 Pension Fund v Marine
Midland Bank, 85 N.Y.2d 20, 25 (1995)); see also Stutman, 95
N.Y.2d at 29 ("[A] plaintiff must prove `actual' injury to
recover under the statute, though not necessarily pecuniary
harm."); Goshen v. Mutual Life Ins. Co. of New York, 98 N.Y.2d 314
326 (2002) (finding that "origin of any . . . conduct is
irrelevant if the deception itself . . . did not result in a transaction in which
the consumer was harmed"). Thus, Bildstein must plead facts
showing actual injury, not merely the alleged deceptive act.
See Small, 94 N.Y.2d at 56 (finding that mere allegation of
deception was insufficient to establish actual injury); accord
Sokoloff v. Town Sports Int'l Inc., 778 N.Y.S.2d 9
, 10-11 (N.Y.
App. Div., 1st Dep't 2004).
Bildstein alleges that his injury is the fact that he paid the
deceptive FCTF. (Opp. Mem. at 8; Tr. at 11.) It is well
established, however, that the claimed deception cannot itself be
the only injury. Small, 94 N.Y.2d at 56 (finding no violation
of Section 349 where there was no actual harm besides the alleged
deceptive act); accord Sokoloff, 778 N.Y.S.2d at 11; DeRiso
v. Synergy USA, 773 N.Y.S.2d 563, 563 (N.Y. App. Div., 1st Dep't
2004). In Small, the New York Court of Appeals upheld dismissal
for failure to plead actual injury, where plaintiffs alleged that
defendants employed deceptive practices to sell cigarettes, and
sought recoupment of the purchase price. 94 N.Y.2d at 51, 56. The
New York Court of Appeals held:
[Plaintiffs] posit that consumers who buy a product
that they would not have purchased, absent a
manufacturer's deceptive commercial practices, have
suffered an injury under General Business Law § 349.
Plaintiffs' definition of injury is legally flawed.
Their theory contains no manifestation of either pecuniary
or "actual" harm; plaintiffs do not allege that the
cost of cigarettes was affected by the alleged
misrepresentation, nor do they seek recovery for
injury to their health as a result of their ensuing
addiction. Indeed, they chose expressly to confine
the relief sought solely to monetary recoupment of
the purchase price of the cigarettes. Plaintiffs'
cause of action . . . thus sets forth deception as
both act and injury.
Small, 94 N.Y.2d at 56 (internal citations omitted). Similarly,
in a very recent case, the First Department upheld dismissal of a
case where plaintiff sued her health club for deception, because
she did "not claim any kind of monetary loss other than payment
of her membership fees, d[id] not claim that defendant failed to
deliver the services called for in the contract, never sought to
cancel the contract, remain[ed] a member of defendant's health
club and continue[d] to pay defendant's monthly membership fees
without objection." Sokoloff, 2004 WL 636253, at *1.*fn2
Bildstein acknowledges that the FCTF was a service fee charged
by MasterCard in exchange "for converting transactions [in
foreign currency] into American dollars." (Am. compl. ¶ 8.) The
Amended Complaint is bereft of any allegation that MasterCard
failed to deliver the service Bildstein paid for (i.e.,
Plaintiff was unable to make purchases in Mexican Pesos), or that
MasterCard charged an inflated FCTF. Such allegations would have
been sufficient to state a claim under Section 349. Small, 94
N.Y.2d at 56 n. 5. But here, Bildstein does not dispute that he
received the services he paid for in that he was able to use his
MasterCard in Mexico. (Am. Compl. ¶ 13.) Therefore, this Court
finds that Bildstein has failed to allege facts establishing
In view of this Court's conclusion that the Amended Complaint
fails to plead materiality or actual injury, MasterCard's
arguments regarding consumer-oriented conduct and actionable
deception by MasterCard need not be addressed. CONCLUSION
For the reasons set forth above, MasterCard's motion to dismiss
is granted without prejudice and with leave to replead within
thirty (30) days.