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Madison Who's Who of Executives and Professionals Throughout the World, Inc. v. Securenet Payment Systems

May 24, 2010


The opinion of the court was delivered by: Glasser, United States Senior District Judge


In this diversity action plaintiff Madison Who's Who of Executives and Professionals Throughout the World, Inc. ("Madison") alleges that defendant SecureNet Payment Systems, LLC and its President and Chief Executive Officer Mark Potash (collectively, "SecureNet") wrongfully withheld funds from Madison and wrongfully charged the credit cards of Madison's customers, causing Madison to suffer the loss of both its customers and its good reputation. Madison seeks damages in excess of $75,000 and declaratory and equitable relief. SecureNet now moves to dismiss the action pursuant to Fed.R.Civ.P. 12(b)(3) and (6) or, in the alternative, to transfer venue to the district court of the District of Maryland pursuant to 28 U.S.C. § 1404. As a second alternative, SecureNet moves for a stay pending arbitration pursuant to 9 U.S.C. § 3. For the reasons set forth below, SecureNet's motion to dismiss is GRANTED.


The facts as set forth below are drawn from the complaint, the allegations of which the Court accepts as true, except where otherwise noted, solely for purposes of this motion to dismiss. Madison is a New York corporation in the business of "providing business-to-business and small business networking directories" to its customers. Complaint ¶ 1. SecureNet is a Maryland corporation which provides credit card processing services for merchants. Id. ¶ 13. In September 2007, Madison entered into an agreement with SecureNet whereby SecureNet became the processor for credit card transactions between Madison and its customers. See id. Ex. A ("Merchant Agreement"). Three of the pages attached to the complaint as the Merchant Agreement contain the signatures of Madison's principals Matthew Schwartz or Scott Minuta. On the first of these signed pages (Ex. A at 2) the merchant is instructed to "Sign and attach the DISCLOSURE FORM provided with the TERMS AND CONDITIONS FOR MERCHANTS." Messrs. Schwartz's and Minuta's signatures appear on this page. On the last signed page (Ex. A at 6), the Agreement states in pertinent part:

As the merchant you are responsible for ensuring that you stay compliant with cardholder data security and storage requirements, as well as maintaining fraud and chargebacks below thresholds. As the Merchant you are also responsible for reviewing and understanding the terms of your Merchant Agreement and following the guidelines set forth in your Merchant Operating Guide. . . .

By signing below, I agree that I have received a copy of my Terms & Conditions for Merchants along with a copy of the Merchant Operating Guide, which is a part of your SecureNet Merchant Agreement. I agree to adhere to all of the guidelines outlined in the Terms & Conditions for Merchants and all of the transaction rules outlined in the Merchant Operating Guide.

Should I have any questions regarding these documents and the information contained within I may contact my Sales Agent or I may contact SecureNet directly.

Id. Mr. Schwartz's signature appears directly below this excerpt.

The Terms & Conditions for Merchants ("Terms & Conditions") referenced above contains many additional provisions, the most directly applicable to the motions at hand being section 16.10 which contains choice of law and forum selection clauses stating in pertinent part: This Agreement will be governed by and construed in accordance with the laws of the State of Maryland without reference to conflict of law provisions. Any action, proceeding, arbitration, or mediation relating to or arising from this Agreement must be brought, held or otherwise occur in the federal judicial district that includes Montgomery County, Rockville, Maryland.

Defendants' Motion to Dismiss, or in the Alternative to Transfer or Stay Proceedings ("Mot."), Ex. 1 at 10.*fn1

In August 2009, a dispute arose with respect to SecureNet's processing of certain credit card transactions authorized by Madison's customers. SecureNet had charged the customers' credit cards for purchases of Madison's goods and services, but SecureNet did not subsequently turn these charged amounts over to Madison. Compl. ¶¶ 22-23. In addition, SecureNet removed $19,776.30 from Madison's bank account. Id. SecureNet's explanation for these actions was that it was establishing a "reserve account" composed of $106,000 of Madison's assets in the event that one of Madison's customers initiated a "chargeback."*fn2 Id. ¶ 25. Madison alleges that, without access to this $106,000, it could not fulfill its customers' orders and was forced to refund $104,425 in customer purchases. Id. ¶¶ 31-32.

Madison then informed SecureNet of its intention to terminate the Merchant Agreement. Id. ¶¶ 33-34. In response, SecureNet threatened to impose a $360,000 termination fee and began charging Madison's clients' credit cards for goods and services even though Madison had already informed SecureNet that these transactions had been cancelled and refunded. Id. ¶¶ 37-38. Madison alleges that, because these charges appeared in Madison's name on its clients' credit card statements, it appeared to them that they were being inappropriately charged by Madison. Id. ¶ 40. As a result of these charges, Madison claims that it has lost approximately 209 clients, approximately $1,705,770.22 in present and future sales as well as damages to its name, reputation and goodwill. Id. ¶¶ 41-47. The complaint pleads causes of action for (1) fraud; (2) conversion, civil theft and misappropriation; (3) unjust enrichment; (4) constructive trust; (5) money had and received; (6) breach of fiduciary duty; (7) tortious interference with contract; (8) tortious interference with business relations; and (9) violation of New York State General Business Law § 349.

SecureNet now moves the Court to dismiss this action based upon the forum selection clause ("FSC") contained in ยง 16.10 of the Terms & Conditions. In the alternative, SecureNet seeks a transfer of venue (also pursuant to the FSC) to the United States District Court for the District of Maryland and, as a second alternative, a stay pending arbitration. SecureNet has already ...

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