Case 1:13-cv-02576-LGS Document 348 Filed 08/21/17 Page 1 of 10
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`INTERNATIONAL CARDS COMPANY, LTD.,
`Plaintiff,
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`-against-
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`MASTERCARD INTERNATIONAL INC.,
`Defendant.
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`LORNA G. SCHOFIELD, District Judge:
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` 08/21/17
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`13 Civ. 2576 (LGS)
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`OPINION AND ORDER
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`A jury found for Plaintiff International Cards Company, Ltd. (“ICC”) on its conversion
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`claim against Defendant MasterCard International Inc. (“MasterCard”) and awarded ICC $2.78
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`million in damages. MasterCard moves for judgment as a matter of law under Federal Rule of
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`Civil Procedure 50(b) on ICC’s claim. For the following reasons, the motion is denied.
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`BACKGROUND
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`A.
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`Factual Background
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`Familiarity with the allegations and procedural history is assumed. See Int’l Cards Co. v.
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`MasterCard Int’l Inc., No. 13 Civ. 2576, 2016 WL 3039891, at *1–3 (S.D.N.Y. May 26, 2016).
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`The facts below are taken from undisputed evidence presented at trial.
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`ICC is a financial services company based in Jordan. MasterCard is a technology
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`company that maintains a payment network to facilitate the processing of debit and credit card
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`payment transactions. MasterCard’s payment network is based on the “four-party system.” The
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`four parties are: (1) cardholders that use MasterCard-branded cards to purchase goods or
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`services; (2) merchants that accept MasterCard-branded cards as payment for goods or services;
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`(3) issuers, the financial institutions that issue the MasterCard-branded payment cards to
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`cardholders; and (4) acquirers, the financial institutions that contract with merchants to acquire
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`Case 1:13-cv-02576-LGS Document 348 Filed 08/21/17 Page 2 of 10
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`the payment-card transactions. Cardholders pay issuers for their payment card transactions.
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`Acquirers pay merchants for the cardholder purchases in exchange for a fee. From December
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`23, 1999, until April 2, 2013, MasterCard granted ICC a Membership in MasterCard’s payment
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`network and related brand licenses that allowed ICC to act as both an issuer and acquirer. In
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`exchange, ICC paid MasterCard an annual licensing fee and other fees.
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`In its capacity as an acquirer, ICC’s standard agreement with merchants provides that
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`ICC “shall pay [merchants] the total value of the valid sales receipts submitted for collection,
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`when produced, after deducting and paying the agreed upon commission of (_)% and shall do so
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`within (_) business days of the date of receipt.” In almost all instances, ICC’s merchant
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`agreements state that the payment term is “within five business days of the date of receipt.”
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`In 2010, ICC provided MasterCard with collateral in the form of a letter of credit for
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`$1.72 million. In February 2012, MasterCard required ICC to provide additional collateral of
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`approximately $2.78 million. According to MasterCard’s February 2012 notification to ICC, the
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`additional collateral was needed to cover “ICC’s estimated MasterCard settlement exposure” of
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`$4.5 million. Settlement is the process by which an issuer pays funds to acquirers, or by which
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`an acquirer, like ICC, pays funds to merchants.
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`ICC posted the additional collateral in the form of a Standby Letter of Credit in the
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`amount of $2.78 million (the “Letter of Credit”). The Letter of Credit permits MasterCard to
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`“demand payment” for any amount that “represent[s] funds either (i) paid by . . . MasterCard . . .
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`to MasterCard . . . Merchants, or (ii) due and payable to MasterCard . . . Merchants.” It states
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`that “partial drawings are permitted.”
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`On March 28, 2013, MasterCard employees exchanged emails regarding drawing down
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`on the Letter of Credit on April 1, 2013, “in advance of officially terminating [ICC’s] licenses[.]”
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`Case 1:13-cv-02576-LGS Document 348 Filed 08/21/17 Page 3 of 10
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`MasterCard employee Dharma Bajpai wrote that MasterCard has “evidence of [ICC’s] non[-
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`]payment to merchants, currently and in the past.” Another MasterCard employee, Ian Webb,
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`replied, “We have until the middle of the month to draw on the [Letter of Credit]. We could wait
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`until after the termination notice and decide after seeing post-termination behavior. Grounds for
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`drawing may be more robust then.” Bajpai responded in part:
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`There may be claims against [M]aster[C]ard and[/or] we may decide to make
`some or all merchants whole. Having cash on hand and potentially returning it if
`not used is a better course of action I feel . . . . We do not know the extent of
`merchant non[-]payment. Onl[y] when we have drawn will we have leverage for
`[I]CC to open up its books and conduct some form of audit. Again if we want to.
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`On April 1, 2013, MasterCard drew down on the Letter of Credit in the full amount of
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`$2.78 million. MasterCard’s drawing statement, signed by Webb, states that the $2.78 million
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`“represent[s] funds either (i) paid by . . . MasterCard . . . to MasterCard . . . Merchants, or (ii)
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`[d]ue and payable to MasterCard . . . Merchants.” MasterCard did not pay, either before or after
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`the drawdown, any funds owed by ICC to any merchants, nor did MasterCard return any of the
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`funds to ICC until more than four years later, after the jury verdict. MasterCard did not draw
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`down on the $1.72 million letter of credit, which also provides that MasterCard could draw down
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`for funds paid by MasterCard to merchants or due and payable to merchants.
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`On April 2, 2013, MasterCard sent a letter to ICC terminating ICC’s Membership in
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`MasterCard’s network and related licenses effective as of that date. The letter provides that
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`“[d]espite MasterCard’s notice, ICC has continued to delay payments to [m]erchants for
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`transactions ICC acquired from those [m]erchants.”
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`B.
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`Procedural History
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`On April 18, 2013, ICC sued MasterCard asserting six causes of action. Count Three, the
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`only surviving claim at the time of trial, alleges conversion under New York law based on the
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`$2.78 million drawdown on the Letter of Credit. MasterCard asserted three counterclaims -- two
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`claims for breach of contract and one claim for a declaratory judgment that MasterCard had a
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`right to draw down on the Letter of Credit.
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`On April 3, 2017, a six-day jury trial commenced on ICC’s conversion claim and
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`MasterCard’s contract counterclaims. The parties agreed before trial that judgment should be
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`entered on MasterCard’s declaratory judgment counterclaim in a manner consistent with the
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`jury’s finding on ICC’s conversion claim. The jury found for ICC on the conversion claim and
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`awarded ICC $2.78 million, in effect reversing MasterCard’s drawdown on the letter of credit.
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`The jury found for MasterCard on one of the two contract claims, concluding that ICC had
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`breached its contract with MasterCard “by failing to pay merchants on a timely basis or by
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`failing to provide information MasterCard requested.” The jury awarded no damages to
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`MasterCard. On April 24, 2017, MasterCard returned $2.78 million to ICC.
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`STANDARD
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`Judgment as a matter of law is appropriate “only if the court, viewing the evidence in the
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`light most favorable to the non-movant, concludes that a reasonable juror would have been
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`compelled to accept the view of the moving party.” MacDermid Printing Sols. LLC v. Cortron
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`Corp., 833 F.3d 172, 180 (2d Cir. 2016) (internal quotation marks omitted). “The court cannot
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`assess the weight of conflicting evidence, pass on the credibility of witnesses, or substitute its
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`judgment for that of the jury.” Wiercinski v. Mangia 57, Inc., 787 F.3d 106, 113 (2d Cir. 2015)
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`(internal quotation marks omitted). A Rule 50 motion may be granted only if “there exists such a
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`complete absence of evidence supporting the verdict that the jury’s findings could only have
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`been the result of sheer surmise and conjecture, or the evidence in favor of the movant is so
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`overwhelming that reasonable and fair minded [persons] could not arrive at a verdict against
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`[it].” Warren v. Pataki, 823 F.3d 125, 139 (2d Cir. 2016) (internal quotation marks omitted),
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`cert. denied sub nom. Brooks v. Pataki, 137 S. Ct. 380 (2016).
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` DISCUSSION
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`MasterCard argues that no reasonable jury could have found in favor of ICC on the
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`conversion claim. This argument is rejected.
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`“A conversion takes place when someone, intentionally and without authority, assumes
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`or exercises control over personal property belonging to someone else, interfering with that
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`person’s right of possession.” Colavito v. N.Y. Organ Donor Network, Inc., 860 N.E.2d 713, 717
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`(N.Y. 2006). In certain circumstances, a defendant commits conversion if she obtains possession
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`by making a knowingly false statement. See, e.g., Hyosung Am., Inc. v. Sumagh Textile Co., 25
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`F. Supp. 2d 376, 384 (S.D.N.Y. 1998) (applying New York law; “letter of credit applicant may
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`state a claim for conversion against party drawing down letter of credit using fraudulent
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`documents . . . .” (citing Emery-Waterhouse Co. v. R.I. Hosp. Tr. Nat’l Bank, 757 F.2d 399, 406
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`(1st Cir. 1985) (Breyer, J.))), aff’d, 189 F.3d 461 (2d Cir. 1999); City of Amsterdam v. Daniel
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`Goldreyer, Ltd., 882 F. Supp. 1273, 1280 (E.D.N.Y. 1995) (applying New York law; “the
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`commission of fraud may also be sufficient interference to support a claim of conversion”);
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`Merrill Lynch, Pierce, Fenner & Smith Inc. v. Arcturus Builders Inc., 552 N.Y.S.2d 287, 288
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`(1st Dep’t 1990) (conversion claim based on the defendants’ withdrawing funds from a bank to
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`which the defendants were not entitled); 23 N.Y. Jur. 2d Conversion, Etc. § 22 (2d ed., May
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`2017 update) (“A defendant who obtains possession of property under a false representation and
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`who retains the property is liable for conversion conducted with a clear intent designed to
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`victimize the owner.”); see generally Connaughton v. Chipotle Mexican Grill, Inc., 29 N.Y.3d
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`137, 142 (N.Y. 2017) (“To allege a cause of action based on fraud, plaintiff must assert a
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`misrepresentation or a material omission of fact which was false and known to be false by
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`defendant . . . .” (internal quotation marks omitted)). “The usual measure of damages for
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`conversion is the value of the property at the time and place of conversion . . . .” Fantis Foods,
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`Inc. v. Standard Importing Co., 402 N.E.2d 122, 125 (N.Y. 1980); accord Overton v. Art Fin.
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`Partners LLC, 166 F. Supp. 3d 388, 402 (S.D.N.Y. 2016) (applying New York law).
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`The trial record contains ample evidence from which a reasonable jury could conclude
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`that MasterCard, intentionally and without authority, interfered with ICC’s right of possession in
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`$2.78 million by making a knowingly false statement in order to draw down on the Letter of
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`Credit. MasterCard made the representation necessary to obtain the funds -- that the $2.78
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`million MasterCard sought to draw down comprised either (1) amounts MasterCard paid to
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`merchants or (2) amounts due and payable to merchants. A reasonable jury could conclude that
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`MasterCard knew that neither of the two conditions was met. As to the first condition, it is
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`undisputed that MasterCard did not pay any amount to any ICC merchant. As to the second
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`condition, a reasonable jury could conclude that MasterCard knew that it was false to represent
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`that $2.78 million was due and payable to merchants at the time of the drawdown based on the
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`following evidence:
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`First, the evidence was sufficient for the jury to conclude that it was false to say that
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`$2.78 million was due and payable to merchants in April 2013. A December 2012 email from
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`ICC’s CEO Khalil Alami to MasterCard states that over 80% of ICC’s merchants, which
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`represented over 90% of its volume, were “up to date and paid daily.” At trial, Alami confirmed
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`that ICC was “striving” to pay every merchant “on a daily basis” rather than within the five-day
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`period contemplated by ICC’s standard merchant agreement. A reasonable jury could conclude
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`that ICC had accomplished its goal, and thus $2.78 million was not due and payable as of the
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`drawdown on April 1, 2013. This conclusion is bolstered by the evidence that ICC’s acquiring
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`volume had been declining since 2008, meaning that ICC had fewer transactions to process with
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`fewer possibilities for late payment.
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`Second, the evidence was sufficient for the jury to conclude that MasterCard knew it was
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`false to represent that $2.78 million was due and payable to merchants. The evidence is
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`overwhelming that MasterCard had no idea how much, if anything, was owed to merchants. The
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`jury heard from multiple MasterCard witnesses who testified that they did not know of any
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`amounts due and payable to merchants at the time of the drawdown. For example, one employee
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`testified that MasterCard “did not have the specific amounts that [ICC] owed to merchants,” and
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`another employee answered in the negative when asked if she had “any personal knowledge of
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`specific amounts which were due to any specific merchants.” Three days before the drawdown,
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`one MasterCard employee conceded that MasterCard did not “know the extent of merchant non[-
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`]payment” and another wrote that, if MasterCard waited to draw down, its grounds for doing so
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`could become “more robust.” One employee suggests that only by drawing down could
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`MasterCard gain the “leverage” needed to “open up [ICC’s] books.” A reasonable jury could
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`infer that MasterCard was attempting to exert pressure on ICC by drawing down on the Letter of
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`Credit, despite knowing that $2.78 million was not due and payable to merchants.
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`MasterCard also never paid any funds to any ICC merchants, even though the March 28
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`email suggests that it planned to use the funds from the Letter of Credit to compensate merchants
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`for amounts ICC failed to pay them. A reasonable jury could conclude that MasterCard never
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`paid any merchant because no amounts were due and payable to any of them. MasterCard
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`argues that the jury was instructed that any post-drawdown conduct is irrelevant, but this
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`argument misapprehends the instruction. In its final jury instruction, the Court told the jurors:
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`“You should consider only whether MasterCard’s drawdown was without authority. The [L]etter
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`of [C]redit does not create an obligation for MasterCard to use the funds for any particular
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`purposes after the drawdown.” This instruction makes clear that the alleged conversion was
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`based on the drawdown, not MasterCard’s subsequent retention of funds. MasterCard’s post-
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`drawdown conduct is relevant to the extent it supports the inference that there were no merchants
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`to pay.
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`The evidence in the record is far from “so overwhelming that reasonable and fair minded
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`[persons] could not arrive at a verdict against [MasterCard].” Warren, 823 F.3d at 139.
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`MasterCard cites trial testimony and exhibits suggesting (to a greater or lesser extent) that ICC
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`continued to pay merchants for some months following ICC’s termination. None of that
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`evidence compels the conclusion that at least $2.78 million or more was due and payable on
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`April 1, 2013, or that MasterCard had any basis to believe that ICC owed at least $2.78 million
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`to merchants. The jury was entitled to conclude, as it apparently did, that even if some amount
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`was due and payable to merchants on April 1, 2013, MasterCard’s statement that $2.78 million
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`was due and payable was false, and MasterCard knew it was false as to the entire $2.78 million
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`because it had no idea what, if any, amount was owing.
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`MasterCard’s reliance on ICC’s failure to produce, either before or after the drawdown, a
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`list containing any outstanding payables is misplaced. At trial, the Court provided an adverse
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`inference instruction advising the jurors that they “may, but are not required to, conclude that the
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`documents ICC failed to produce were unfavorable to ICC on the issue of whether ICC timely
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`paid its merchants.” MasterCard does not show that ICC’s failure to produce documents
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`compels a reasonable jury to infer that $2.78 million was due and payable to merchants as of
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`April 1, 2013.
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`MasterCard’s challenge as to damages also fails. First, MasterCard waived any objection
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`to the amount of the damages by raising it for the first time in its reply brief. See, e.g., Schlosser
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`v. Time Warner Cable Inc., No. 14 Civ. 9349, 2017 WL 2468975, at *6 (S.D.N.Y. June 7, 2017)
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`(challenge raised for the first time in a reply brief was waived).
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`Second, even assuming MasterCard had not waived its challenge, it has failed to show
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`that no reasonable jury could find ICC’s damages to be $2.78 million. The Court instructed the
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`jury, “The damages should equal the $2.78 million or any portion of that amount that you find
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`MasterCard intentionally and without authority drew down on ICC’s letter of credit.” Accord
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`Fantis Foods, 402 N.E.2d at 125 (noting the “usual measure” of damages is the value of the
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`converted property at the time and place of conversion). The “calculation of damages is the
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`province of the jury” and “considerable deference” should be given to the jury’s award, Restivo
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`v. Hessemann, 846 F.3d 547, 587 (2d Cir. 2017), including in the context of conversion claims,
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`see 23 N.Y. Jur. 2d Conversion, Etc. § 63 (2d ed., May 2017 update) (“It is for the jury to fix the
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`damages in an action for conversion, and it is improper for the court to direct a verdict.”). As
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`explained above, a reasonable jury could find that MasterCard’s drawdown as to every dollar of
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`the $2.78 million was unauthorized because its statement that $2.78 million “represent[ed] funds
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`. . . [d]ue and payable” to merchants was knowingly false. The Court cannot disturb the jury’s
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`damages calculation.
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`In sum, MasterCard has failed to show that, viewing the evidence in the light most
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`favorable to ICC, a reasonable juror would have been compelled to accept MasterCard’s view
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`that it did not convert $2.78 million when it drew down on the Letter of Credit.
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` CONCLUSION
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`For the foregoing reasons, MasterCard’s motion for judgment as a matter of law is
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`DENIED, and its counterclaim seeking declaratory judgment is dismissed. The Clerk of Court is
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`respectfully directed to close the motion at Docket Number 326.
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`Dated: August 21, 2017
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`New York, New York
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