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Note: International Cards Co. Ltd. (Local Card Company), a Jordan-based financial services company, was a member of a payment network that facilitated the processing of debit and credit card transactions operated by MasterCard International Inc. (Payment System/Beneficiary). Under the system, Local Card Company was obligated to “pay [merchants] the total value of the valid sales receipts submitted for collection, when produced, after deducting and paying the agreed upon commission of (_)% and shall do so within (_) business days of the date of receipt.”The opinion noted that “[i]n almost all instances, [Local Card Company’s] merchant agreements state that the payment term is ‘within five business days of the date of receipt.’”

From 1999 to 2013, Local Card Company acted as both an issuer and acquirer in Jordan and Palestine, contracting with merchants to accept payment cards and make payments. In 2010, Local Card Company/Applicant obtained a USD 1.72million standby letter of credit in favor of Payment System/Beneficiary to assure its performance. Local Card Company/Applicant was then required to provide addition collateral of USD 2.78 million “to cover ‘[Local Card Company’s] estimated [Payment System/Beneficiary] settlement exposure’ of $4.5 million.” Local Card Company/Applicant obtained another standby for USD 2.78 million. Settlement is the process acquirers like Local Card Company use to pay merchants.

Beginning in 2010, Payment System/Beneficiary received several complaints about Local Card Company’s delay in paying merchants within the required timeline. These complaints continued for three years. During that time Payment System/Beneficiary contacted the Local Card Company several times by email, hosted an in-person meeting, and eventually assessed a USD 5,000 fine.

In 2013, Payment System/Beneficiary sent Local Card Company a letter terminating their business relationship due to the delayed payments. Payment System/Beneficiary then drew on the USD 2.78 million standby for the full amount to pay any funds owed to merchants.

Local Card Company/Applicant sued Payment System/Beneficiary, asserting six causes of action. At the trial in 2017, a jury found in favor of Local Card Company’s claim of conversion under New York Law and awarded Local Card Company USD 2.78 million. Payment System/Beneficiary moved for a judgment as a matter of law under Federal Rule of Civil Procedure 50(b). The United States District Court, Schofield, J., denied the motion.

The Judge ruled that “[Payment System/Beneficiary], intentionally and without authority, interfered with [Local Card Company’s] right of possession in [USD] 2.78 million by making a knowingly false statement in order to draw down on the Letter of Credit.” At trial, the jury heard testimony that “[Payment System/Beneficiary] did not know of any amounts due and payable to merchants at the time of the drawdown.”

Payment System/Beneficiary contended that the jury was instructed not to consider post-draw actions by Payment System/Beneficiary. The Judge noted that they had misapprehended the instructions, which said, “You should consider only whether [Payment System/Beneficiary’s] drawdown was without authority. The [L]etter of [C]redit does not create an obligation for [Payment System/Beneficiary] to use the funds for any particular purposes after the drawdown.” Although Local Card Company/Applicant did not send a list of outstanding payments to be made, Payment System/Beneficiary did not show that “[Local Card Company’s] failure to produce documents compels a reasonable jury to infer that [USD] 2.78 million was due and payable to merchants.”

[KEC]

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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.