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Fva Ventures, Inc. D/B/A Visalus Sciences v. Bmo Harris

October 12, 2012

FVA VENTURES, INC. D/B/A VISALUS SCIENCES,
PLAINTIFF,
v.
BMO HARRIS BANK, N.A. F/K/A HARRIS BANK, N.A., CYNERGY DATA, LLC, MONERIS SOLUTIONS, INC., AND MONERIS LLC, DEFENDANTS. U.S. DISTRICT COURT EASTERN DISTRICT OF NEW YORK LONG ISLAND OFFICE BMO HARRIS BANK, N.A. F/K/A HARRIS BANK, N.A., CYNERGY DATA, LLC, MONERIS SOLUTIONS, INC., AND MONERIS LLC,, COUNTERCLAIMANTS/THIRD-PARTY PLAINTIFFS
v.
FVA VENTURES, INC. D/B/A VISALUS SCIENCES, AND PIVOTAL PAYMENTS, INC.,
COUNTERCLAIM DEFENDANT AND THIRD-PARTY DEFENDANT.
PIVOTAL PAYMENTS, INC.,
CROSS-CLAIMANT/THIRD-PARTY PLAINTIFF,
v.
FVA VENTURES, INC. D/B/A VISALUS SCIENCES, AND BLYTH, INC.,
CROSS-CLAIM DEFENDANT AND THIRD-PARTY DEFENDANT



The opinion of the court was delivered by: Spatt, District Judge.

FILED CLERK

ORDER

Presently before the Court is a motion by Pivotal Payments, Inc. ("Pivotal"), a third-party defendant and cross-claimant, for an injunction pursuant to 28 U.S.C. § 2361, to enjoin the parties to this statutory interpleader action (the "Interpleader Action") from prosecuting a separate action in the Supreme Court of the State of New York, County of Queens, Commercial Division (the "State Action"). Pivotal has requested that the Court consider this motion on an expedited basis.

I.BACKGROUND

A.Factual Background

FVA Ventures, Inc., d/b/a ViSalus Sciences ("ViSalus") is a network marketing company that sells health and nutritional products through a network of independent sales distributors. ViSalus's customers can purchase its products over the internet using credit or debit cards. Thus, in order to be able to process customer payments that are made via credit and debit cards, ViSalus must contract with a third-party credit card processing company.

Two such credit card processing companies are Pivotal and Cynergy Data ("Cynergy"). Pivotal is a national merchant services provider, offering credit and debit card processing, clearing and settlement, gift/loyalty/stored value card programs, terminal management solutions, and electronic check processing services. Cynergy is also in the business of providing credit and debit card processing services to merchants, and manages a portfolio of over 100,000 merchants processing in excess of $10 billion annually.

On or about February 23, 2006, Cynergy and Pivotal entered into an "ISO Conduit Processing Agreement", which stated that Cynergy would provide credit and debit card processing services to merchant businesses that entered into merchant processing agreements with Cynergy and a Visa/Mastercard member financial institution, such as the Defendant Harris Bank. However, pursuant to the ISO Conduit Processing Agreement, Cynergy assigned to Pivotal its "position"-namely, it assigned the sole ownership, exclusive rights, title and interest in the merchant agreements.

On or about July 6, 2006, Visalus entered into such a merchant processing agreement with Cynergy, which contained an assignment to Pivotal of Cynergy's position in the merchant processing agreement.

Once the agreement with Cynergy was set to expire, ViSalus began to negotiate directly with Pivotal in connection with two new merchant processing agreements, by which Pivotal would process ViSalus's consumer sale transactions in the United States and Canada. However, according to ViSalus, it learned on September 9, 2011, that Cynergy----the entity that was previously processing transactions for ViSalus and controlled the resulting cash proceeds----had placed ViSalus's account on a "hold". In other words, Cynergy began to hold 100% of the proceeds of ViSalus's sales and refused to disburse those cash proceeds to ViSalus. For its part, ViSalus claims that it never received a coherent explanation for the magnitude of the hold, even if a small portion could be utilized to cover potential charge backs-i.e., debit and credit card transactions that could not be processed. Therefore, ViSalus signed a draft of the new merchant processing agreement with Pivotal, but only on the basis of a representation by Pivotal that if the draft agreement was signed, the "hold" would be released by Cynergy. ViSalus never received the money.

Thereafter, on September 28, 2011, ViSalus attempted to revoke its acceptance of the merchant processing agreement with Pivotal, claiming that it did not become a binding agreement merely because the draft agreement was signed. However, according to Pivotal, any attempt at revocation failed, because the agreement was already enforceable.

Furthermore, ViSalus now contends that Pivotal cannot enforce the merchant processing agreement that ViSalus signed with Cynergy on July 6, 2006. On the other hand, Pivotal claims that as an assignee of Visalus's agreement with Cynergy, it is the real party in interest and has the capacity to do so. According to Pivotal, for nearly four years, it processed more than 1.3 million credit and debit card transactions submitted by ViSalus to consummate sales of its merchandise to consumers.

At issue in the context of the instant motion is the approximate $10 million that Cynergy still retains as a "hold" on ViSaluss' proceeds. ViSalus understands that Cynergy continues to hold this money at Pivotal's request based upon Pivotal's claim that it is entitled to have that ...


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