Submitted: July 22, 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 Defendants.
This opinion is the second chapter in the business divorce between plaintiff Comerica Bank ("Comerica") and defendant Global Payments Direct, Inc. ("Global" or "Global Direct") concerning the joint venture they established in 1996 to process credit and debit card transactions called Global Payments Comerica Alliance, L.L.C. ("Alliance"). On July 21, 2014, following an expedited trial held on July 14-15, I issued an opinion in which I concluded that certain exclusivity and non-competition obligations in the parties' agreements ended on January 14, 2014, and that Alliance was dissolved on May 14, 2014. These rulings were implemented in an Order and Partial Final Judgment entered on July 21, 2014, granting judgment in favor of Comerica and against Global on Counts I and II of the Verified Complaint.
In this opinion, I address Count III of the Verified Complaint,  which involves two issues: (1) is Comerica contractually entitled to receive certain information and assistance it has requested to effectuate its transition to a new payment processor and, if so, is Global required to incur the expense of assisting in the transfer of this information to the new payment processor, and (2) should the Court intervene in the wind up of Alliance and appoint a liquidating trustee. For the reasons set forth below, I find that Comerica is entitled to receive the information it has requested in connection with the wind up of Alliance but that the expense of assisting in the transfer of such information to Comerica and its new payment processor should be borne by Alliance as an expense of the wind up. I also conclude that cause exists for the Court to intervene in the wind up and to appoint a liquidating trustee to oversee that process to ensure that it is completed promptly and in an orderly manner.
As explained in my July 21, 2014 Memorandum Opinion, the contractual relationship between the parties is largely defined in three interrelated agreements that were entered simultaneously in March 1996, with some subsequent modifications: the LLC Agreement, the Service Agreement and the Contribution Agreement. The provisions of these agreements relevant to Count III are discussed in Section III below. They concern the parties' obligations upon the dissolution of Alliance, which occurred on May 14, 2014.
Comerica and Global are the only two Members of Alliance. Global holds a 51% membership interest. Comerica holds a 49% membership interest. The LLC Agreement provides for Alliance to be managed by its two Members, acting through their Representatives. Global has three Representatives. Comerica has two Representatives.
The principal asset of Alliance is its portfolio of agreements with merchant customers (the "Merchant Portfolio"). Comerica, Global and each merchant are parties to merchant agreements, which generally contemplate processing credit card transactions for the merchants in exchange for a series of fees.
During the wind up process, the Merchant Portfolio is to be divided by "mutual decision" of the Members or, in the absence of agreement, pursuant to a formula and then distributed "in kind" in accordance with the Members' 51/49 percentage interests. The LLC Agreement provides that this "Equitable Division" includes the "right, title, benefit and interest in [Alliance's] merchant agreements."
During the trial of this matter held on July 14-15, I heard testimony concerning the parties' interactions since October 2013, when Comerica informed Global of its intention to terminate the Service Agreement, and the process of converting data for the merchant agreements to be assigned to Comerica as a result of Alliance's dissolution from the system Global manages for Alliance to a new payment processor. Four witnesses testified on these matters: (1) Bridgit C. Chayt, Comerica's Executive Vice President of Treasury Management and Business Deposit Services; (2) Kurt A. Schaeffer, Global's Senior Vice President of Worldwide Operations; (3) Donald Bruce Nanton, Global's Senior Vice President of Core Processing and Integrations; and (4) David L. Green, General Counsel of Global Payments, Inc., Global's parent company.
A. The Parties' Interactions since October 2013
In early 2013, Comerica initiated conversations with Global to discuss the renegotiation of the Service Agreement, which would expire if not renewed on January 31, 2014. On October 22, 2013, after the parties had been unable to reach mutually agreeable renewal terms, "Comerica advised Global Direct in writing that it would not renew the Service Agreement" and initiated a request for proposals (RFP) for a new payment processor relationship.
The next day, on October 23, 2013, Jeffrey S. Sloan, President and CEO of Global, sent Comerica a letter proposing to renew the Service Agreement on certain terms if Comerica agreed not to pursue an RFP process. On October 25, 2013, Comerica told Global it would not withdraw its notice of non-renewal of the Service Agreement and encouraged Global to participate in the RFP process.
On or about October 30, 2013, Vin Perelli, second in command to Sloan at Global, directed that "Comerica's access to the Merchant Accounting System" (known as "MAS") be turned off. The MAS system is "the foundation of how the organization manages transactions." Global cut off Comerica's access to MAS for "between 24 and 48 hours, " during which Comerica was unable to "troubleshoot for [its] customers" or engage in "risk monitoring." Sloan told Chayt that Global's decision to cut off Comerica's access to the MAS system related to the RFP process Comerica had initiated.
Shortly after the MAS incident, Schaeffer, Perelli, and Green reviewed Global's internal protocols regarding Comerica and its customers. Schaeffer was instructed to embark on "a fact-finding mission" to determine whether Comerica was receiving any "special benefits" from Global and then "to decide if [Global] wanted to continue [those benefits] or not." Schaeffer reported to Green that Comerica's customers had been receiving priority when making inquiries to the call center and that a special email box had been established for Comerica employees to communicate with Global.
On November 8, 2013, Global formally responded to Comerica's refusal to reconsider its decision to terminate the Service Agreement. Global asserted that Comerica's exclusivity obligations under the Service Agreement "will continue to apply during any . . . transition period, regardless of which party is requesting the transition services."
Global participated in Comerica's RFP process, including the final presentations, but it did not score as one of the top two proposals and was not selected. Comerica selected Vantiv, Inc. as its new payment processor.
On January 10, 2014, Comerica notified Global that it had selected another payment processor and provided notice that "Comerica will be terminating and winding down its Joint Venture with Global." Later that day, Green directed Comerica to address all "communications regarding these issues to [his] attention."
After Comerica sent its January 10 letter, Sloan told Chayt that Global would "take the BIN [Bank Identification Number] to Wells [Fargo], " suggesting that Global would take the entire Alliance merchant portfolio for itself. After making inquiries, Comerica determined that Global could not take the BIN because it was owned by Comerica.
On January 17, 2014, Joe Fisher, Vice President – Corporate Development of Comerica Incorporated, asked Green to meet the next week to "exchange ideas of how to split the portfolio, your thoughts on your sales force, etc." Green declined Fisher's request to meet and proposed setting up a call over two weeks later.
On January 24, 2014, Green sent Lars C. Anderson, Vice Chairman of Comerica, a letter in which Global reiterated its position that Comerica's exclusivity obligations "will continue to apply for so long as either Global Payments or Comerica desires for the other to provide Services" under the Service Agreement. In the same letter, Green requested that "Comerica continue to provide the Services under the [Service Agreement] during the transition period until we instruct you otherwise."
On February 4, 2014, Fisher of Comerica sent Green of Global a proposal for splitting the Merchant Portfolio along with a draft of a cover letter from Chayt stating that, "[s]ince neither Global nor Comerica has stated any intention of selling its interest in the Alliance, we need to immediately begin discussions on dividing the Merchant Agreements and dissolving the Alliance." In its letter, Comerica disagreed with Global's position on exclusivity. On February 6, 2014, Global rejected Comerica's February 4 merchant split proposal.
On February 10, 2014, Chayt sent Green an internal memorandum circulated at Comerica explaining the process of transitioning "its merchant card processing vendor relationship to a different service provider." The memorandum noted that Comerica expects "to begin transitioning to the new provider as soon as possible."
Also on February 10, 2014, Chayt forwarded Green a letter from Comerica to its bank customers explaining that Comerica would be changing processing service providers. Global objected to this letter because it was sent to all of Comerica's customers, including customers whose merchant services would be allocated to Global after the merchant split.
On February 25, 2014, Green sent an email to Fisher of Comerica that revealed a sharp difference between the parties' expectations concerning the timing of Comerica's transition to a new processor. Contrary to Comerica's expressed desire to transition as soon as possible, Global took the approach that the transition did not need to be completed until January 31, 2015, the last day of the one-year transition period permitted by the Service Agreement,  and worked backwards from there:
We are indeed working on a timetable to ensure that the dissolution and migration of the merchant base occurs within the 12 month transition period. We have a meeting on Friday with our technical folks to discuss their timing needs with regards to the actual migration of the merchants. That will help us work backwards from January 31, 2015 to make sure we hit whatever deadlines we need to ensure a timely transition.
On March 5, 2014, Chayt sent Sloan of Global a timeline for the transition contemplating that new Comerica customers would be processed by Comerica's new processing vendor by March 31, 2014, and that the parties would meet to develop a timeline for dissolution of the legacy portfolio during the week of March 10, 2014.
On March 12, 2014, Green submitted Global's counterproposal, again working backwards from January 31, 2015, the latest extension date permitted by the Service Agreement. Using that date as an end point, Green stated that, "[f]ollowing discussions with our operations and technical teams, we estimate that we would need to identify Global Payments' share of the Alliance's merchants by no later than September 1, 2014." Green also stated that Global intended to provide a proposed division of the Merchant Portfolio during the week of April 14 "as well as other proposed terms to govern the dissolution, " and suggested that the parties meet on April 25 "to discuss the merchant division or any other issues Comerica is interested in discussing relating to the dissolution of the Alliance."
In late March, Comerica learned that Global had "tripled the price" it was charging Alliance for processing services. Chayt testified that these price increases contributed to a loss of Comerica's customers.
On April 1, 2014, Green asked Comerica's General Counsel, DJ Culkar, for another copy of "the original proposed merchant split" Comerica had provided on February 4. Culkar sent a new proposal the next day, on April 2, and reiterated Comerica's desire "to quickly negotiate a mutually agreeable division" of the Merchant Portfolio.
On April 18, 2014, Global sent Comerica its first counterproposal to split the Merchant Portfolio. Significantly, in a cover letter, Green stated that Global's proposal was contingent on a number of conditions, including that the parties agree (i) not to solicit merchants allocated to the other party until January 31, 2018, (ii) not to solicit or hire each other's current or former employees who provided payment processing services until January 31, 2018, (iii) to provide complete and general releases to each other, (iv) that they would pay for any assistance requested from the other party to migrate merchants to a new provider or bank sponsor, and (v) that the Service Agreement would remain in full force until January 31, 2015.
On April 25, 2014, representatives of Global and Comerica met in Atlanta. Toward the end of the meeting, Comerica proffered another proposal to split the
On May 14, 2014, after Global had indicated at least twice since the April 25 meeting that it needed more time to submit a counterproposal,  Comerica wrote Global saying it had given up on reaching an agreed-upon merchant split and had elected to formally dissolve Alliance. In the letter, Comerica demanded that the merchant agreements be divided "pursuant to Section 15.5 of the LLC Agreement, " which sets forth a procedure for dividing the Merchant Portfolio if the parties cannot agree on a division. The next day, on May 15, Global submitted a counterproposal to divide the Merchant Portfolio, which remained "subject to the conditions outlined in [Green's] April 18, 2014 letter."
On May 27, 2014, Comerica responded to Global's May 15 proposal, stating it would accept Global's proposed split of the Merchant Portfolio but rejecting all of the conditions Global had demanded in its April 18 and May 15 letters. On May 28, Green replied that Comerica's "offer" was "incomplete and lack[ed] several matters which must be agreed upon before the business of the Alliance can be completed." Green stated further that "it would be inadvisable for the parties to agree on a merchant division while maintaining starkly different interpretations on such key issues as exclusivity." "Less than 15 minutes" after receiving Global's May 28 letter, Comerica filed this lawsuit.
In their pretrial stipulation, the parties stipulated that "[f]or the purposes of this trial, Comerica and Global Direct have agreed that they do not dispute the division of the Merchant Portfolio set forth in Global Direct's May 15, 2014 letter, and agreed that the division, without the other remaining parts of Global Direct's proposal, shall be the division of the Merchant Portfolio." This proposed division covers "those merchants that were part of the Merchant Portfolio as of April 30, 2014."
Notwithstanding the parties' stipulation, Global was equivocal at trial when asked whether it would commit unconditionally to implement the merchant split it proposed on May 15. Global ...