United States District Court, D. New Jersey
MADELINE COX ARLEO UNITED STATES DISTRICT JUDGE.
MATTER comes before the Court on Plaintiff Merrick
Bank Corporation's (“Merrick”) and Defendant
Valley National Bank's (“VNB”) cross-motions
for summary judgment in the matter Merrick Bank Corp. v.
Valley National Bank, No. 13-7756 (D.N.J.) (the
“Merrick” action), and Plaintiffs
American Express Travel Related Services, Inc.
(“American Express”) and JetPay Merchant
Services, LLC (“JetPay”) and Defendant VNB's
cross-motions for summary judgment in the matter American
Express Travel Related Services, Inc. and JetPay
Merchant Services, LLC v. Valley National Bank, No.
14-7827 (D.N.J.) (the “JetPay”
action).Merrick ECF Nos. 207, 208;
JetPay ECF Nos. 113, 116-118. The parties oppose the
respective motions. Merrick ECF Nos. 211, 212;
JetPay ECF Nos. 124-27. For the reasons stated
below, Plaintiffs' motions for summary judgment are
DENIED, and VNB's motions for summary
judgment are GRANTED in part and
DENIED in part.
matter arises from the fraudulent operation and eventual
collapse of Southern Sky Air Tours (d/b/a Direct Air)
(“Direct Air”), a public charter operator.
Plaintiffs Merrick, JetPay, and American Express are banks
and credit card processing companies that ultimately
reimbursed Direct Air consumers who had paid for incomplete
flights due to the company's demise. Plaintiffs seek
payment from Defendant VNB, the manager of Direct Air's
escrow account, which was formed with the purpose to ensure
that sufficient funds were available to refund Direct Air
customers in the event that their flights were not completed.
Direct Air Relationship with Plaintiffs
credit card purchase typically involves four parties: (1) the
cardholder; (2) the cardholder's bank (the “issuing
bank”); (3) the merchant's acquiring bank; and (4)
the merchant. Amex Stmt. ¶ 42. Following an introduction
by JetPay, Merrick served as Direct Air's acquiring bank
from its inception in 2006 to its eventual closure in
2012. VNB Corrected R.56.1 Statement of
Undisputed Facts (“VNB Stmt.”) ¶¶
55-64, Merrick ECF No. 209-1. JetPay, an
Independent Sales Organization, enters into contractual
arrangements with association member banks such as Merrick to
provide credit card processing services to its merchant
customers, such as Direct Air. JetPay R.56.1 Statement of
Undisputed Facts (“JetPay Stmt.”) ¶ 1,
JetPay ECF No. 116-2.
capacity as an acquiring bank, Merrick cleared and settled
certain credit and debit card transactions for Direct Air.
VNB Stmt. Id. ¶ 63. When a cardholder purchased
a flight with a credit or debit card, Merrick received a
payment from the credit or debit card “issuing
bank” through the applicable Card Association rules and
regulations by which it is bound as a member bank.
Id. ¶ 23. Merrick then made a payment to Direct
Air. Id. ¶ 24. If the cardholder later disputed
a card charge, the cardholder could demand the money back
from its issuing bank, which credited the cardholder.
Id. ¶ 25. The issuing bank then initiated a
“chargeback.” Id. ¶ 26. Pursuant to
the Card Association regulations, Merrick is required to
reimburse the card issuing bank the amount of the chargeback.
Id. Once those funds are properly charged-back,
Merrick would then attempt to collect the funds from Direct
Air pursuant to a Merchant Agreement under which Direct Air
was responsible for paying Merrick and JetPay for any
chargebacks. Id. ¶ 67. Through additional
agreements, JetPay also agreed to indemnify Merrick for any
chargebacks it could not collect from Direct Air.
Id. ¶ 68. In addition, as a credit card
process, JetPay was bound through card association agreements
to refund Direct Air customers directly. JetPay Stmt. ¶
79. Direct Air was a covered merchant under Merrick's
uncollectable chargeback insurance policy at all relevant
times. VNB Stmt. Id. ¶¶ 59-61.
American Express can serve as both an acquiring bank and the
issuing bank or solely as an acquiring bank. American Express
R.56.1 Statement of Undisputed Facts (“Amex
Stmt.”) ¶ 42, JetPay ECF No. 113-2. As
the acquiring bank associated with American Express credit
card transactions, when a merchant processes a
cardholder's American Express credit card transaction,
American Express issues payment to the merchant who accepted
the credit card. Id. ¶ 43. If a cardholder
disputes a credit card charge, then he/she can seek a
reversal or reimbursement for the charge from American
Express by initiating a “dispute.” Id.
¶ 44. As an acquiring bank, American Express is required
to honor valid disputes and issue a reimbursement to the
cardholder. Id. ¶ 45. American Express can then
seek to charge back the merchant. Id. ¶ 46.
2006, American Express entered in a Credit Card Acceptance
Agreement with Direct Air, pursuant to which Direct Air
accepted American Express credit cards as payment.
Id. ¶ 17. As such, it served as the acquiring
bank for Direct Air purchases with an American Express card.
When American Express cardholders used their credit cards to
purchase tickets for Direct Air flights, American Express
deposited the entire purchase amount into Direct Air's
escrow account with VNB. Id. ¶ 18. American
Express was obligated to refund payments for cancelled Direct
Air flights to customers who submitted claims in accordance
with American Express's dispute procedures. Id.
The Direct Air Escrow with VNB
Air was subject to regulations promulgated by the Department
of Transportation (the “DOT Regulations”), which
required it to maintain an escrow account in which payments
made by Direct Air customers were held. VNB Stmt.
Id. ¶ 36. On October 20, 2006, VNB and Direct
Air entered into a Public Charter Depository Agreement
pursuant to DOT Regulations. Id. VNB subsequently
opened the Direct Air depository account on or around October
26, 2006. Id. ¶ 52. Direct Air made its first
deposit into the account in January 2007, and began to accept
bookings from consumers. Id. ¶¶ 53, 93. In
its role as a depository bank, VNB also entered into a number
of tripartite Depository Agreements that each involved VNB,
Direct Air, and either a Direct Air carrier or another
charter operator. Id. ¶ 16.
to maintain an accounting of the funds it received from
Direct Air pursuant to the DOT Regulations. Merrick R.56.1
Statement of Undisputed Facts (“Merrick Stmt.”)
¶ 12, Merrick ECF No. 207-2; JetPay Stmt.
¶ 12; Amex Stmt. ¶ 12. The DOT Regulations provide
that funds paid by passengers for services covered by the DOT
Regulations are held until the air carrier certifies that the
flight to which the charter operator has allocated funds has
been completed. Merrick Stmt. ¶ 18; JetPay Stmt. ¶
18; Amex Stmt. ¶ 16. At that point, the escrow bank must
release the funds to the charter operator. Id. VNB
filed a Form 4534 with the DOT certifying that it, along with
Direct Air and an air carrier, “will completely fulfill
[its] obligations” under the Depository Agreement and
the DOT Regulations. Merrick Stmt. ¶ 18; JetPay Stmt.
the course of Direct Air's operations, VNB released funds
from the escrow account in response to written requests
submitted by Direct Air, as well as chargebacks from Merrick
and JetPay. VNB Stmt. ¶ 138. The parties dispute
whether, during the course of Direct Air's operations,
VNB knew if the escrow account was operating normally.
Merrick Response to VNB Stmt. ¶ 135, Merrick
ECF No. 211-21. Specifically, they dispute if VNB was
required to do a flight-by-flight accounting for Direct Air
and whether VNB was to ensure that the charter operator had
sufficient funds in its account at any particular time to
make refunds to all passengers on cancelled flights.
Id. Plaintiffs further allege that VNB mismanaged
the Direct Air account by: (1) failing to maintain a
“flight by flight” accounting of passenger funds;
(2) failing to verify information that Direct Air provided
about the completion of flights; (3) and disbursing
undifferentiated and unsegregated funds to Direct Air for
Direct Air's “Family Ties” program in
violation of DOT regulations. Merrick Stmt. ¶¶
40-71; JetPay Stmt. ¶¶ 40-71.
Direct Air Closure and Subsequent Litigation
Air operated until March 12, 2012 when it suspended its
operations. VNB Stmt. ¶ 116. On March 15, 2012, it filed
for bankruptcy. Id. ¶ 117. Deposits into the
Direct Air escrow account ceased, and the account was frozen.
Id. ¶ 118. Direct Air had approximately $1.017
million in its escrow account when it ceased operations.
Id. ¶ 119. Merrick alleges that this number
reflects a shortfall of nearly 30 million that should have
been in the account had VNB taken the proper steps to ensure
that the escrow account complied with DOT Regulations.
accordance with DOT advice, customers who had paid for future
flights with Direct Air initiated chargebacks through their
credit cards to recoup the price of the flights. Id.
¶ 122. Merrick ultimately incurred chargebacks totaling
$26.2 million. Id. ¶ 125. JetPay incurred $1.4
million in chargeback damages. JetPay Stmt. ¶ 80.
American Express ultimately paid out $3.7 million in
reimbursements to its cardholders for cancelled Direct Air
flights. Amex Stmt. ¶ 50. Plaintiffs were barred by the
bankruptcy automatic stay from seeking reimbursement of the
chargebacks from Direct Air. VNB Stmt. Id. ¶
126; Amex Stmt. ¶ 51.
of Direct Air later pled guilty to bank fraud and wire fraud.
VNB Stmt. ¶ 126. He admitted to sending false financial
statements to creditors, as well as submitting false release
requests to VNB containing inflated passenger figures.
Id. ¶¶ 131-32. In addition to the CFO, two
other original owners of Direct Air have also been indicted
for wire and bank fraud. Id. ¶ 133.
filed a lawsuit against JetPay in the United States District
Court in the District of Utah seeking indemnification.
Id. ¶ 150. In June 2016, Merrick and JetPay
reached a settlement in which JetPay paid Merrick $13.24
million. Id. ¶ 151. Merrick also filed a claim
pursuant to its UCB policy with its insurer, Chartis.
Id. ¶ 152. After Chartis denied Merrick's
claim, Merrick filed a lawsuit against Chartis in the United
States District Court for the Southern District of New York.
Id. In December 2016, Merrick obtained a verdict on
liability against Chartis. Id. ¶ 153. Pending
motions for Judgment as a Matter of Law and for a new trial
are still pending in the Chartis litigation. Id.
first filed suit in this District against VNB in December
2013. ECF No. 1. In its Second Amended Complaint
(“SAC”), Merrick alleged the following ten causes
of action: (1) breach of contract on behalf of Direct Air
customers as intended third-party beneficiaries of the
depository agreements; (2) negligence/gross negligence; (3)
breach of fiduciary duty; (4) negligent misrepresentation;
(5) aiding and abetting fraud; (6) conversion/aiding and
abetting conversion; (7) violation of DOT Regulations, 14
C.F.R. § 380; (8) consumer fraud on Merrick and Direct
Air customers; (9) breach of contract on behalf of Direct Air
as assignee of the bankruptcy trustee's claims against
Valley; and (10) consumer fraud on Direct Air. SAC
¶¶ 82-141, Merrick ECF No. 64. In an
Opinion dated March 31, 2015, the Court dismissed
Merrick's claims for violations of DOT Regulations with
prejudice, finding they do not afford a private right of
action. Merrick Bank Corp. v. Valley National Bank,
No. 13-7756, 2015 WL 1472497, at *5-6 (D.N.J. Mar. 31, 2015)
(“Merrick I”). Merrick filed a Third
Amended Complaint (“Merrick TAC”). See
Merrick TAC, ECF No. 64. In an Order dated January 29, 2016,
the Court dismissed Merrick's breach of contract claim on
behalf of Direct Air customers and consumer fraud claims with
counts remain at issue in Merrick: (2)
negligence/gross negligence; (3) breach of fiduciary duty;
(4) negligent misrepresentation; (5) aiding and abetting
fraud; (6) conversion/aiding and abetting conversion; (9) and
breach of contract on behalf of Direct Air as assignee of the
bankruptcy trustee's claims against Valley. VNB moves for
summary judgment against Merrick on all counts. Merrick moves
for summary judgment on counts two, three, and four.
and Amex jointly filed a complaint against VNB on December
16, 2014. JetPay ECF No.1. In March 2016, JetPay and
Amex filed an Amended Complaint against VNB (“JetPay
Am. Compl.”), alleging the following eleven causes of
action:: (1) breach of contract; (2) negligence/gross
negligence; (3) breach of fiduciary duty; (4) negligent
misrepresentation; (5) aiding and abetting fraud as to
consumers; (6) aiding and abetting fraud as to JetPay and
Amex; (7) conversion/aiding and abetting conversion; (8)
violation of DOT Regulations, 14 C.F.R. § 380; (9)
consumer fraud on charter customers; (10) consumer fraud on
Direct Air; and (11) indemnification. JetPay Am. Compl.
¶¶ 74-190, JetPay ECF No. 49. In an Order
dated October 28, 2016, the Court dismissed counts One,
Eight, Nine, Ten, and Eleven of JetPay and Amex's Amended
Complaint. JetPay ECF No. 98.
counts remain at issue in JetPay: (2)
negligence/gross negligence; (3) breach of fiduciary duty;
(4) negligent misrepresentation; (5) aiding and abetting
fraud as to consumers; (6) aiding and abetting fraud as to
JetPay and Amex; and (7) conversion/aiding and abetting
conversion. VNB moves for summary judgment on all counts.
JetPay and Amex seek partial summary judgment on their claims
for negligence and breach of fiduciary duty. Amex Br. at 1,
JetPay ECF No. 113-1; JetPay Br. at 1,
JetPay ECF No. 116-1.
to Fed.R.Civ.P. 56(c), a motion for summary judgment will be
granted if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with
available affidavits, show that there is no genuine dispute
as to any material fact and that the moving party is entitled
to judgment as a matter of law. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 247 (1986); Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986). “[S]ummary
judgment may be granted only if there exists no genuine issue
of material fact that would permit a reasonable jury to find
for the nonmoving party.” Miller v. Ind.
Hosp., 843 F.2d 139, 143 (3d Cir. 1988). All facts and
inferences must be construed in the light most favorable to
the non-moving party. Peters v. Del. River Port
Auth., 16 F.3d 1346, 1349 (3d Cir. 1994).
Merrick I, the Court dismissed Merrick's claims
for violations of 14 C.F.R. § 380 because there is no
private right of action under the DOT Regulations. 2015 WL
1472497, at *5-6. VNB argues that Plaintiffs' negligence,
breach of fiduciary duty, and conversion claims are merely
“back door” attempts to enforce the DOT
Regulations, and must therefore be dismissed. See
VNB Br. as to Merrick at 16-18, Merrick ECF No.
208-22; VNB Br. as to JetPay at 17-19, JetPay ECF
No. 117- 2; VNB Br. as to Amex at 16-18, JetPay ECF
No. 118-4. The Court disagrees.
absence of a private right of action may preclude common-law
tort claims where the common law claim is based on a
violation of the statute. See Astra USA, Inc. v. Santa
Clara Cty., 563 U.S. 110, 117-19 (2011) (holding that a
contract claim based on the violation of a policy that merely
incorporated statutory language was “in essence a suit
to enforce the statute itself, ” and therefore
unenforceable in a private action); Umland v. PLANCO Fin
Servs., 542 F.3d 59, 66 (3d Cir. 2008) (holding that
plaintiff could not bring common-law contract claim where the
alleged implied contractual term reflected the provisions of
the Federal Insurance Contributions Act, which did not
provide a private right of action); Mankodi v. Trump
Marina Assocs. LLC, 525 Fed. App'x 161, 166 (3d Cir.
2013) (holding that plaintiff's causes of action for
breach of contract and conversion were really violations of
the Casino Control Act where the complaint alleged,
“when defendant's personnel breached the
regulations of the New Jersey Gaming Control Commission . . .
it breached the gaming agreement . . . that it had with
plaintiff.”). In other words, a plaintiff cannot assert
a common law claim by simply stating that a defendant has
violated a statute that does not in itself afford a private
right of action.
that is not the case here. Plaintiffs' common law claims
are not directly premised on violations of the DOT
Regulations. In contrast to the cases cited by VNB,
Plaintiffs here have asserted an independent basis for their
common law claims. They allege that VNB was negligent in its
failure to supervise Direct Air's depository account;
that VNB owed Plaintiffs a fiduciary duty when it became an
escrow agent to the depositors; and that VNB interfered with
the possessory rights of passengers and Plaintiffs to the
money in the account. See Merrick TAC ¶¶
98-109, 123-29; JetPay Am. Comp. ¶¶ 90-114,
152-160. Therefore, Plaintiffs claims are not- contrary to
VNB's argument-based solely on a “standard of
conduct . . . established by a regulation under which no
private right of action exists.” VNB Reply to Merrick
at 5, Merrick ECF No. 216. Rather, Plaintiffs
allegations are based on standards provided by common law
tort, and are not predicated on violations of the DOT
Breach of Fiduciary Duty
assert a breach of fiduciary duty claim on their own behalf
and as subrogees of the Direct Air passengers. JetPay Am.
Compl. ¶¶ 104-114; Merrick Reply at n.3,
Merrick ECF No. 215. VNB contends that it must be
granted summary judgment as VNB did not owe a fiduciary ...