Submitted: July 18, 2014
Daniel A. Dreisbach, Thomas A. Uebler and Sarah A. Clark of Richards, Layton & Finger, P.A., Wilmington, DE; Howard J. Roin and Laura R. Hammargren of Mayer Brown LLP, Chicago, Illinois, Attorneys for Plaintiff.
Peter B. Ladig, Meghan A. Adams and Kyle E. Gay of Morris James LLP, Wilmington, DE; John P. Brumbaugh and Claire Carothers Oates of King & Spalding LLP, Atlanta, GA, Attorneys for Defendant.
This action involves a business divorce. In 1996, predecessors of plaintiff Comerica Bank ("Comerica") and defendant Global Payment Direct, Inc. ("Global" or "Global Direct") established a Delaware limited liability company called Global Payments Comerica Alliance, L.L.C. ("Alliance") to process credit and debit card transactions in a joint venture. Comerica, a financial institution and a member of the Visa and MasterCard associations, agreed to refer merchants to Alliance exclusively. Global, a payment processor, was to be the exclusive processor for Alliance. These arrangements are reflected in a series of agreements the parties entered simultaneously when the joint venture began.
In October 2013, Comerica elected not to renew the parties' Service Agreement, which thus expired on January 31, 2014. On May 14, 2014, Comerica exercised its right to dissolve Alliance. Now, the parties are embroiled in a series of disputes as they work through the wind up of Alliance and Comerica seeks to transition its share of the merchant portfolio to a new payment processor. Global asserts that Comerica remains bound by certain exclusivity obligations during the transition period. Comerica seeks declaratory relief that, among other things, it is no longer bound by these obligations. It also seeks the appointment of a liquidating trustee. An expedited trial on these issues was held on July 14-15, 2014.
In this opinion, I conclude that the exclusivity and non-competition obligations in the parties' agreements, discussed in detail below, ended when the Service Agreement terminated on January 31, 2014. Comerica's request for a liquidating trustee will be addressed separately at a later date.
A. The Parties
Plaintiff Comerica Bank is a Texas Banking Association with its principal place of business in Dallas, Texas. It is a member of the Visa and MasterCard associations.
Defendant Global Payments Direct, Inc. is a New York corporation with its principal place of business in Atlanta, Georgia. It is a provider of payment processing services.
Electronic payment processing involves a consumer acquiring goods or services from a merchant using an electronic method such as a credit card as the form of payment. A payment processor is the intermediary between the merchant, the credit card networks, and the banks that issue credit cards. Visa and MasterCard, which are the largest card associations, require that a payment processor be sponsored by a member financial institution. In this arrangement, a payment processor will route and clear transactions under the member bank's control through the Visa and MasterCard networks.
B. The Formation of Alliance and the Governing Agreements
On March 31, 1996, Comerica and Global entered into a Limited Liability Company Agreement ("LLC Agreement") establishing Alliance as a joint venture to process credit and debit card transactions and provide related services. Alliance provides these services to merchants in its merchant portfolio with whom it has made agreements. Alliance's merchant customers are collectively referred to as the "Merchant Portfolio."
Alliance is a Delaware limited liability company. Comerica and Global have been its only two members during the time period relevant to this action, with Global holding a 51% membership interest and Comerica holding a 49% membership interest. Alliance is managed by its two members, who act through designated Representatives. Global has three Representatives and Comerica has two Representatives.
As part of their joint venture, Comerica and Global entered into additional agreements on and after March 31, 1996, including (1) Asset Purchase and Contribution Agreements dated March 31, 1996, December 31, 1996, and May 31, 2001 ("Contribution Agreements") and (2) Merchant Alliance and Service Agreements dated March 31, 1996 and May 31, 2001 ("Service Agreement"). In general terms, the Contribution Agreements set forth the terms by which Comerica contributed its merchant accounts to Alliance, and the Service Agreement sets forth specific services that Comerica and Global each would provide to each other and Alliance in connection with the joint venture. The Contribution Agreements and the Service Agreement are governed by Delaware law.
C. Key Provisions of the Service Agreement
Section 2 of the Service Agreement sets forth the services that Global and Comerica were obligated to provide to Alliance and each other. Under that section, Global was obligated to furnish certain services listed in Exhibit A ("Global Direct Services"), which generally consist of payment processing services, and Comerica was obligated to furnish certain services listed in Exhibit C ("Comerica Services"), which generally consist of bank sponsorship and transaction clearing services. The Global Direct Services and the Comerica Services, collectively, are defined in the Service Agreement as the "Services."
The Service Agreement contains certain exclusivity obligations. Section 2 provides, in relevant part, that "[d]uring the term of this Agreement, Alliance [and Comerica] shall purchase all merchant processing services, including but not limited to the Global Direct Services, exclusively from Global Direct." Section 6(a) provides, in relevant part, that "[d]uring the term of this Agreement, [Comerica] agrees[s] to refer to Alliance, exclusively, potential merchants for Credit Card processing services."
Section 15 of the Service Agreement is entitled "TERM, TERMINATION, AND TRANSITION ASSISTANCE." Section 15(a) provides for automatic termination of the Service Agreement on January 31, 2014, unless the parties agree to a renewal:
The parties agree that the term of [the Service Agreement] shall extend from the date hereof until [January 31, 2014]. The parties agree to enter into negotiations one year prior to termination regarding renewal but if the parties have not agreed to renew, this Agreement shall automatically terminate on the close of business on [January 31, 2014], subject to Section 15.d. hereof.
Section 15(d) of the Service Agreement is at the core of the parties' dispute in this action over whether Comerica remains bound by the exclusivity obligations in Sections 2 and 6(a) after January 31, 2014 for up to one year until such time as both parties no longer request Services from the other. It states as follows:
In the event this Agreement terminates or otherwise expires, but a party hereto desires that either Global Direct or Comerica or their Affiliates continue to provide Services beyond the termination date, Global Direct and Comerica agree to extend this Agreement for a period of up to one (1) year on the same terms and conditions as expressed herein except that such party shall be obligated to purchase from Global Direct and/or Comerica or their Affiliates only such Services as such party shall specify from time to time. Global Direct or Comerica Bank, as applicable, shall have the right to adjust the fees set forth on Exhibit B or Exhibit D, as applicable, to reflect commercially reasonable market rates.
D. Key Provisions of the Contribution Agreements
The Contribution Agreements provide that Comerica will not compete with Alliance by soliciting processing business from the merchants in the Merchant Portfolio. These non-competition obligations end (1) upon "the earlier of the date of termination or expiration of the [LLC] Agreement" or "dissolution" of Alliance in the case of the first two Contribution Agreements,  and (2) "as of the earlier of the date of termination or expiration of the . . . Service Agreement, " "the acquisition by one Member of another Member's Membership interest in Alliance, " or "the dissolution of Alliance" in the case of the third Contribution Agreement.
E. Key Provisions of the LLC Agreement
Section 18.1.5 of the LLC Agreement defines an "Optional Sale Event" to mean, among other things, the expiration or termination of the Service Agreement. When an Optional Sale Event occurs, one member (denominated the "Purchasing Member") has an option to negotiate for the purchase of the other member's interest in Alliance and, if that option is not exercised, "the Purchasing Member shall have the right to elect to cause [Alliance] to be dissolved and liquidated pursuant to Section 21."
Section 18.4.4 of the LLC Agreement provides that in any Optional Sales Event, "upon consummation of the sale or dissolution, as applicable, there shall be no restrictions on the ability of either party to obtain processing services."
Section 21 of the LLC Agreement governs dissolution. It provides that Alliance "shall be dissolved and its affairs wound up . . . [u]pon the occurrence of a[n] . . . Optional Sale Event pursuant to Article 18 and the decision of the Member entitled to make the purchase to dissolve [Alliance]." Section 21 further provides that "[u]pon the dissolution of [Alliance], the Members shall wind up [Alliance]'s affairs in accordance with the Delaware Act" and that the "Members are authorized to take any and all actions contemplated by the Delaware Act, " including, without limitation, to settle and close Alliance's business, distribute Alliance's assets (in particular, the Merchant Portfolio) and provide for Alliance's liabilities. After payment of known liabilities and ...