Campbell v. Heartland Payment Systems, Inc.

REPLY BRIEF to Opposition to Motion

D.N.J.July 25, 2016

128904.06000/102946412v.2 UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY MELISSA CAMPBELL, individually, and on behalf of all other similarly situated, Plaintiffs, v. HEARTLAND PAYMENT SYSTEMS, INC., Defendant. Civil Action No. 3:16-cv-01104-PGS- DEA MOTION RETURNABLE August 1, 2106 REPLY MEMORANDUM OF LAW OF HEARTLAND PAYMENT SYSTEMS, INC. IN FURTHER SUPPORT OF MOTION TO DISMISS Seth J. Lapidow, Esq. Jonathan M. Korn, Esq. BLANK ROME LLP A Pennsylvania LLP 301 Carnegie Center, 3rd Floor Princeton, NJ 08540 (609) 750-7700 (Phone) (609) 750-7701 (Fax) Attorneys for Defendant Heartland Payment Systems, Inc. Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 1 of 21 PageID: 172 i 128904.06000/102946412v.2 TABLE OF CONTENTS Page PRELIMINARY STATEMENT ............................................................................... 1 STATEMENT OF FACTS ........................................................................................ 2 LEGAL ARGUMENT ............................................................................................... 3 I. THE COMPLAINT FAILS TO SATISFY THE REQUIREMENTS OF RULE 8(a)(2) AND SHOULD BE DISMISSED PURSUANT TO RULE 12(b)(6) ................................... 3 II. THE BREACH OF CONTRACT CLAIM SHOULD BE DISMISSED .......................................................................................... 6 III. PLAINTIFF FAILS TO STATE A CLAIM FOR BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING ........................................................................................... 11 IV. PLAINTIFF FAILS TO STATE A CLAIM FOR UNJUST ENRICHMENT ................................................................................... 14 CONCLUSION ........................................................................................................ 15 Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 2 of 21 PageID: 173 ii 128904.06000/102946412v.2 TABLE OF AUTHORITIES Page(s) Cases 16630 Southfield Ltd. P’ship v. Flagstart Bank, F.S.B., 727 F.3d 502 (6th Cir. 2013) ................................................................................ 4 Angel Jet Servs., LLC v. Borough of Woodland Park, No. 10-cv-6459, 2012 WL 5335830 (D.N.J. Oct. 26, 2012) ........................ 12, 13 Ashcroft v. Iqbal, 556 U.S. 662 (2009) .......................................................................................... 3, 4 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .............................................................................................. 6 Bonnieview Homeowners Ass’n v. Woodmont Builders, L.L.C., 665 F. Supp. 2d 473 (D.N.J. 2009) ..................................................................... 13 Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210 (2005) ...................................................................................... 11, 13 Burnett v. Springfield Twp., No. 13-1646, 2014 WL 3109963 (E.D. Pa. July 8, 2014) ................................ 4, 5 Burtch v. Milberg Factors, Inc., 662 F.3d 212 (3d Cir. 2011) ................................................................................. 3 Clean Air Council v. Dragon Int’l Grp., No. 1:CV-06-0430, 2008 WL 4452353 (M.D. Pa. Sept. 30, 2008) ................... 11 Click Corp. of America v. Redco Foods, Inc., 424 F. Supp. 2d 753 (D.N.J. 2006) ....................................................................... 6 Davis v. Wells Fargo, --- F.3d ---, 2016 WL 3033938 (3d Cir. May 27, 2016) ....................................... 4 Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005) ............................................................................................ 11 Elliot & Frantz, Inc. v. Ingersoll-Rand Co., 457 F.3d 312 (3d Cir. 2006) ............................................................................... 12 Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 3 of 21 PageID: 174 iii 128904.06000/102946412v.2 Ferraioli v. City of Hackensack Police Dep’t, No. 09-2663 (SRC), 2010 WL 421098 (D.N.J. Feb. 2, 2010) ........................... 10 Gallo v. PHH Mortg. Corp., 916 F. Supp. 2d 537 (D.N.J. 2012) ..................................................................... 15 Glass v. Suburban Restoration Co., 317 N.J. Super. 574 (App. Div. 1998) ................................................................ 11 Hahn v. OnBoard LLC, No. 2:09-cv-03639 DRD MAS, 2009 WL 4508580 (D.N.J. Nov. 16, 2009) ........................................................................................ 14 Hassler v. Sovereign Bank, 644 F. Supp. 2d 509 (D.N.J. 2009), aff’d, 374 F. App’x 341 (3d Cir. 2010) ............................................................................................................ 12 Hofman v. Time Warner Cable Inc., No. 12-00978 (ES), 2013 WL 2460121 (D.N.J. June 6, 2013) ............................ 6 In re Intelligroup Securities Litig., 527 F. Supp. 2d 262 (D.N.J. 2007) ....................................................................... 5 Lormand v. US Unwired, Inc., 565 F.3d 228 (5th Cir. 2009) .............................................................................. 10 Marjac, LLC v. Trenk, No. 06-1440 (JAG), 2006 WL 3751395 (D.N.J. Dec. 19, 2006) ....................... 15 MZL Capital Holdings, Inc. v. TD Bank N.A., No. 14-CV-05772 RMB/AMD, 2015 WL 4914695 (D.N.J. Aug. 18, 2015) ........................................................................................ 14 Oberstein v. Sunpower Corp., No. 07-CV-1155, 2010 WL 1705868 (E.D.N.Y. Apr. 28, 2010) ......................... 9 Phillips v. Cnty. of Allegheny, 515 F. 3d. 224 (3d Cir. 2008) ............................................................................... 4 Ranke v. Sanofi-Synthelabo Inc., 436 F.3d 197 (3d Cir. 2006) ............................................................................... 11 Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 4 of 21 PageID: 175 iv 128904.06000/102946412v.2 Reckitt Benckiser Inc. v. Tris Pharma, Inc., No. CIV.A. 09-3125 FLW, 2011 WL 773034 (D.N.J. Feb. 28, 2011) ............................................................................................................... 9, 10 Wilson v. Amerada Hess Corp., 168 N.J. 236 (2001) ...................................................................................... 11, 12 Yapak, LLC v. Massachusetts Bay Ins. Co., No. 3:09-cv-3370, 2009 WL 3366464 (D.N.J. Oct. 16, 2009) ..................... 11, 13 Zurawski v. Southeastern Pennsylvania Transp. Auth., No. 2:08-cv-05040, 2010 WL 1946922 (E.D. Pa. May 10, 2010) ..................... 14 Other Authorities Fed. R. Civ. P. 8 ......................................................................................................... 4 Fed. R. Civ. P. 8(a)(2) ................................................................................................ 3 Fed. R. Civ. P. 12(b)(6) .................................................................................... 3, 6, 14 Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 5 of 21 PageID: 176 128904.06000/102946412v.2 PRELIMINARY STATEMENT The Court should dismiss Plaintiff’s breach of contract claim for three reasons. First, Plaintiff admits that American Express replaced the only programs for which compensation was due, One Point and ESA, with Opt Blue. Second, Plaintiff admits that she cannot set forth the specific terms of any contractual obligation to pay sales commissions for the new American Express Opt Blue program. And last, Plaintiff admits that the only way she can meet her obligation to plead the specific contractual terms that have been breached is if discovery reveals a contract. Each of these militates for dismissal of this action. Plaintiff’s unjust enrichment and breach of the covenant of good faith and fair dealing claims should be dismissed as well. First, both claims are unsupported by well-founded allegations and rely on conclusory pleading. Second, Plaintiff admits that a binding, unrescinded contract governs the relationship between Plaintiff and Heartland making a claim of unjust enrichment untenable. And third, Plaintiff’s allegation that Heartland acted unilaterally to Plaintiff’s detriment cannot support a claim for breach of the covenant of good faith and fair dealing.1 For these reasons the Complaint should be dismissed. 1 Plaintiff appends the complaint in another putative class action to its opposition brief. That complaint alleges that Heartland breached its contract with merchants when it voluntarily passed along the lower rates made possible by American Express’s implementation of the Opt Blue program to those merchants. That complaint is also subject to a pending motion to dismiss. That putative complaint has no bearing on this motion (and plaintiff does not say how it is relevant) and should be disregarded by the Court. Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 6 of 21 PageID: 177 2 128904.06000/102946412v.2 STATEMENT OF FACTS Heartland’s Sales Policy Manual (the “Sales Policy”), incorporated by reference into the Vested Relationship Manager Agreement (the “VRMA”), defines “Primary Services” as the “core services provided by HPS to its clients … including Card Processing, Check Management, Payroll Processing, [and] Gift Card Processing. . . .” Ancillary Services are defined as “Products and services provided by HPS to Clients in addition to Primary Services such as processing equipment, software, Age Verification, Check Verification, gift/stored value card products, and Prepaid Services. . .” and also includes “American Express Card Processing Services.” Sales Policy Section 3. The VRMA states that “RM shall continue to receive Residual Commissions so long as merchants signed by RM continue to process bankcard, gift card, check services or payroll transactions through HPS and minimum annual contacts are maintained.” Lapidow Dec. Ex. A at 3. Heartland provides direct processing services for Bankcards, such as Visa and Mastercard, through issuing banks and is an indirect “sales agent” or reseller for American Express cards. Heartland 10-k, Supplemental Declaration of Seth J. Lapidow (“Supp. Lapidow Dec.”) Ex. A at 18. American Express is the “card issuer” for third party acquirers, like Heartland. AMEX 10-k, id. Ex. B at 7. In other words, the VRMA guarantees continued payment for Primary Services, not Ancillary Services which, like American Express Card Processing, Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 7 of 21 PageID: 178 3 128904.06000/102946412v.2 have limited duration. Rather the terms of payment for Ancillary Services such as American Express Card Processing are set forth in the Sales Policy 1.0 which provides: HPS maintains two compensation programs in partnership with American Express (“AXP”): OnePoint and ESA. Subject to the published rules and policies of AXP and HPS in effect at the time of signing, RM shall receive compensation for selling AXP card processing services in accordance with the table below. In no case shall an RM receive compensation unless HPS receives payment from AXP. Sales Policy Section 3(B). Accordingly, pursuant to the terms of the Sales Policy, Heartland agreed to pay Residual Commissions for American Express Ancillary Services for only two specific American Express Programs, OnePoint and ESA, for up to 60 months and only for so long as Heartland was receiving compensation from American Express for those two programs. LEGAL ARGUMENT I. THE COMPLAINT FAILS TO SATISFY THE REQUIREMENTS OF RULE 8(a)(2) AND SHOULD BE DISMISSED PURSUANT TO RULE 12(b)(6) Rule 8(a)(2) requires courts to determine whether a plaintiff’s “well-pleaded facts state a plausible claim for relief.” Burtch v. Milberg Factors, Inc., 662 F.3d 212, 225 (3d Cir. 2011) (citing Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). Here, Plaintiff argues that the Complaint meets the requirements of Rule 8(a)(2) because it states “enough facts to raise a reasonable expectation that discovery will reveal Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 8 of 21 PageID: 179 4 128904.06000/102946412v.2 evidence of the necessary element.” Opp. Br. at 5 (quoting Phillips v. Cnty. of Allegheny, 515 F. 3d. 224, 234 (3d Cir. 2008). But “[w]hile Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era … it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.” Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009); see also 16630 Southfield Ltd. P’ship v. Flagstart Bank, F.S.B., 727 F.3d 502, 506 (6th Cir. 2013) (“‘[N]aked assertions devoid of further factual enhancement’ contribute nothing to the sufficiency of the complaint.”) (quoting Iqbal, 556 U.S. at 678); Davis v. Wells Fargo, --- F.3d ---, 2016 WL 3033938, at *3 (3d Cir. May 27, 2016) (“[W]e disregard legal conclusions and recitals of the elements of a cause of action supported by mere conclusory statements.”). While “bare assertions,” “bald allegations,” and “conclusory” statements do not suffice as “well-pleaded facts,” see Iqbal, 556 U.S. at 681, “the difference between a ‘well-pleaded’ fact and a ‘bald allegation’ is not always clear.” Burnett v. Springfield Twp., No. 13-1646, 2014 WL 3109963, at *6 (E.D. Pa. July 8, 2014). As the Court clarified in Burnett, “well- pleaded facts suggest an adequate basis for knowledge, while “conclusory” or “bald” allegations lack an apparent basis for knowledge.” Id. (internal citations omitted). Here, the complaint offers only conclusory and bald allegations unsupported by any adequate basis in knowledge or fact. Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 9 of 21 PageID: 180 5 128904.06000/102946412v.2 Plaintiff fails to allege any non-speculative basis for liability. First, Plaintiff simply presumes that a contract “presumably” exits which “surely” creates the obligation to continue to pay her sales compensation for American Express Card processing after the two programs she sold admittedly ceased to exist. Opp. Br. at 3. Second, Plaintiff merely concludes that American Express continued to make payment to Heartland for American Express Card Processing after the demise of the One Point and ESA programs without any allegations of how she knows that to be true and where the public record shows that it is not the case. Last, Plaintiff pleads that Heartland acted in “bad faith.” Compl. ¶ 61. But a well-pleaded allegation of bad faith requires an inference as to Heartland’s motivations. Plaintiff would have to “indicate an adequate basis” for such an inference, which she does not and cannot do. See Burnett, 2014 WL 3109963, at *6. At bottom, Plaintiff’s claim for relief is not plausible, for the contractual language relied upon in the Complaint does not address the circumstances of the conduct alleged. And the only way Plaintiff can bridge the gap between that contractual language and the alleged conduct is to ignore the plain terms of the agreement, speculate that there must be more helpful language somewhere, and conclude that American Express continued to pay Heartland for the new program as it did for the old. But these kinds of naked, speculative allegations are not “well- pleaded facts” and the Complaint should be dismissed. See In re Intelligroup Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 10 of 21 PageID: 181 6 128904.06000/102946412v.2 Securities Litig., 527 F. Supp. 2d 262, 278, (D.N.J. 2007) (“plaintiff's complaint will survive dismissal only if it contains ‘enough [factual] heft’ rather than plaintiff's conjecture and self-serving interpretations of actual events.”) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). II. THE BREACH OF CONTRACT CLAIM SHOULD BE DISMISSED Plaintiff asserts that it is “wildly premature” for this Court to interpret the plain language of the contract between Heartland and Plaintiff on this motion to dismiss. Plaintiff is wrong. It is axiomatic that the interpretation of the language of a contract is properly decided by the court as a matter of law on a motion to dismiss. Click Corp. of America v. Redco Foods, Inc. 424 F. Supp. 2d 753,761 (D.N.J. 2006) (“The matter turns on this Court’s interpretation of the contract, a matter of law that is properly considered on a Rule 12(b)(6) motion to dismiss.”); Hofman v. Time Warner Cable Inc., No. 12-00978 (ES), 2013 WL 2460121, at *7 (D.N.J. June 6, 2013) (“Contract interpretation is a matter of law that is properly considered on a motion to dismiss.”). Here, the plain terms of the contract between the parties demonstrates that the Plaintiff cannot state a claim for breach of contract and it is appropriate for the Court to determine this matter of law on this motion to dismiss. Plaintiff does not dispute that the Sales Policy is part of her contract with Heartland and plainly states that sales compensation would be paid on only two specific American Express Programs, One Point and ESA. Further Plaintiff admits Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 11 of 21 PageID: 182 7 128904.06000/102946412v.2 that American Express discontinued these programs and created a “new program called OptBlue.” See Opp. Br. at n.1. Plaintiff’s only answer to the specific contractual language of the Sales Policy is the repeated, conclusory speculation that this change was a “slight modification” and a mere “renaming” by American Express that did not affect Heartland’s obligation to pay sales commissions for American Express Card Processing. And Plaintiff further speculates that American Express continued to pay Heartland for transactions under the Opt Blue Program as it had under One Point and ESA. But neither of these speculations can carry the day because the contractual language is manifest that Heartland was only obligated to pay sales commissions on One Point and ESA and only for as long as “HPS receives payment from AXP” on account of those two programs. It is beyond dispute that those two programs ended in June of 2014. Moreover, the public record shows that third party aquiriers, like Heartland, do not receive payment from American Express under the OptBlue program but rather pay Amex. See Supp. Lapidow Dec. Ex. B at 15 (“we receive a network rate in our settlement with the merchant acquirer, which is individually negotiated between us and the merchant acquirer and is recorded by us as discount revenue…”) The complete agreement between Plaintiff and Heartland makes clear that Heartland’s payment obligation does not extend to any other American Express program. Indeed, contrary to Plaintiff’s argument that “there is no condition that the Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 12 of 21 PageID: 183 8 128904.06000/102946412v.2 program has to have the same name” in order for Heartland to be obligated to pay sales compensation on the American Express Program, see Opp. Br. at 8, that is exactly the condition imposed by the plain terms of the Sales Policy. The Sales Policy states that sales compensation would be paid on only two programs, One Point and ESA. When those Programs were discontinued, by the very terms of the Sales Policy, the obligation to pay compensation was discontinued as well. Plaintiff also argues that the general language from the VRMA provides ample basis for her breach of contract claim. Plaintiff is again wrong. The quoted language from the VRMA that “RM shall continue to receive Residual Commissions so long as merchants signed by RM continue to process bankcard, gift card, check services or payroll transactions through HPS” relates only to the “Primary Service” of “bankcard processing.” But American Express Card Processing, by the explicit terms of the Sales Policy, is not a Primary Service. Rather, “American Express Card Processing” is an Ancillary Service. Plaintiff simply assumes away that critical distinction. But the plain terms of the Sales Policy demonstrates that for contractual purposes, “bankcard processing” has a particular meaning - cards issued by banks - - and is a Primary Service subject to the payment terms for Primary Services. In contrast, “American Express Cards are not issued by banks, but by American Express, and thus American Express Card Processing” is an Ancillary Service subject to the specific terms governing such Ancillary Services. Thus, the general Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 13 of 21 PageID: 184 9 128904.06000/102946412v.2 language from the VRMA does not create the contractual obligation to pay unlimited residual commissions “so long as long as merchants signed by RM continue to process bankcard . . . transactions through HPS. . . .” The specific contractual terms related to the sales compensation for the Ancillary Service of American Express Card Processing is found in the Sales Policy and requires Heartland to pay sales compensation only for the two American Express Programs One Point and ESA, both of which Plaintiff admits were discontinued by American Express. Tellingly, Plaintiff admits that she cannot point to any actual contractual language that requires Heartland to continue to pay sales commissions after One Point and ESA were discontinued and cannot allege what that rate would be or how it would be calculated. Instead, all Plaintiff offers is the assumption that some inculpatory contract language does exist. See Opp. Br. at 3 (“Presumably, the Sales Policy was revised. . . .” and “Surely HPS modified the compensation table to reflect new commission rates”). But speculation that a contract might exist does not meet Plaintiff’s burden to allege the breach of a specific contractual term. See Reckitt Benckiser Inc. v. Tris Pharma, Inc., No. CIV.A. 09-3125 FLW, 2011 WL 773034, at *6 (D.N.J. Feb. 28, 2011) (a breach of contract claim “will withstand a motion to dismiss only if plaintiff ‘allege[s] the essential terms of the parties’ purported contract in nonconclusory language, including the specific provisions of the contract upon which liability is predicated.’”) (quoting Oberstein v. Sunpower Corp., No. 07- Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 14 of 21 PageID: 185 10 128904.06000/102946412v.2 CV-1155, 2010 WL 1705868, at *5 (E.D.N.Y. Apr. 28, 2010)). This Plaintiff cannot do. Indeed, Plaintiff doesn’t plead what the terms of continued payment would be, or how it could even be calculated. Moreover, Plaintiff’s request for “a reasonable opportunity to amend their Complaint, at a minimum, after discovery is completed,” Opp. Br. at 12, cannot cure the present inability to plead the “specific provisions of the contract upon which liability is predicated.” See Reckitt Benckiser, 2011 WL 773034, at *6. Plaintiff’s fond hope that discovery will reveal an actual, specific contractual basis for liability is not enough to avoid dismissal. See Ferraioli v. City of Hackensack Police Dep’t, No. 09-2663 (SRC), 2010 WL 421098, at *12 (D.N.J. Feb. 2, 2010) (“Plaintiffs argue that dismissal of these claims would be premature and believe that discovery will reveal both the existence of contractual obligations and Defendants’ violation of such obligations. This hope by Plaintiffs to fill in the obvious deficiencies of the Amended Complaint at some later time does not meet the pleading requirements set forth by the Federal Rules of Civil Procedure.”).. Indeed, in the face of dispositive contractual language precluding liability, Plaintiff should not be permitted to search around for a contractual obligation that will support a viable cause of action. See Lormand v. US Unwired, Inc., 565 F.3d 228, 256 (5th Cir. 2009) (barring “‘the routine filing of [a] lawsuit[]…with only [a] faint hope that the discovery process might lead eventually to some plausible cause Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 15 of 21 PageID: 186 11 128904.06000/102946412v.2 of action.’”) (quoting Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347 (2005)); Clean Air Council v. Dragon Int’l Grp., No. 1:CV-06-0430, 2008 WL 4452353, at *3 (M.D. Pa. Sept. 30, 2008) (“The federal courts prohibit the filing of a lawsuit to conduct a fishing expedition.” ) (citing Ranke v. Sanofi-Synthelabo Inc., 436 F.3d 197, 204 (3d Cir. 2006)).2 Plaintiff fails to plead the requisite contractual support for her breach of contract claim, and she should not be afforded the opportunity to discover one. Thus, for these independent reasons, Plaintiff’s breach contract claim should be dismissed. III. PLAINTIFF FAILS TO STATE A CLAIM FOR BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING To state a claim for a breach of the duty of good faith and fair dealing, a plaintiff must allege that the defendant acted “in bad faith or with a malicious motive…to deny the plaintiff some benefit of the bargain originally intended by the parties, even if that benefit was not an express provision of the contract.” Yapak, LLC v. Massachusetts Bay Ins. Co., No. 3:09-cv-3370, 2009 WL 3366464, at *2 (D.N.J. Oct. 16, 2009) (citing Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr. Assocs., 182 N.J. 210, 225 (2005); Wilson v. Amerada Hess Corp., 2 New Jersey law is to the same effect. See Glass v. Suburban Restoration Co., 317 N.J. Super. 574, 582 (App. Div. 1998) (“It has long been established that pleadings reciting mere conclusions without facts and reliance on subsequent discovery do not justify a lawsuit.”). Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 16 of 21 PageID: 187 12 128904.06000/102946412v.2 168 N.J. 236, 251 (2001)). Thus, “bad motive or intention is essential, and an allegation of bad faith or unfair dealing should not be permitted to be advanced in the abstract . . . .” Angel Jet Servs., LLC v. Borough of Woodland Park, No. 10-cv- 6459, 2012 WL 5335830, at *4 (D.N.J. Oct. 26, 2012) (citing Elliot & Frantz, Inc. v. Ingersoll-Rand Co., 457 F.3d 312, 329 (3d Cir. 2006)). Here, Plaintiff offers nothing more than the naked, conclusory allegation that Heartland “acted in bad faith by not giving equal consideration to the interests of Plaintiff and the Class Members as they have their own interests.” Compl. ¶ 61. But, as a matter of law, this allegation is not sufficient to state a claim. It is well-settled that “a plaintiff cannot satisfy the ‘improper motive’ element of a claim…by alleging, without more, that the defendant’s discretionary decisions benefited the defendant and disadvantaged the plaintiff.” Hassler v. Sovereign Bank, 644 F. Supp. 2d 509, 518 (D.N.J. 2009), aff’d, 374 F. App’x 341 (3d Cir. 2010) (citing Wilson, 168 N.J. at 246) (exercise of discretion for “ordinary business purposes” does not constitute improper motive, and “[w]ithout bad motive or intention, discretionary decisions that happen to result in economic disadvantage to the other party are of no legal significance”); see also Angel Jet, 2012 WL 5335830, at *4 (“[T]he fact that a discretion-exercising party causes the dependent party to lose some or all of its anticipated benefit from the contract…is insufficient to establish a breach of contract by failing to perform in good faith”) (quoting Wilson, Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 17 of 21 PageID: 188 13 128904.06000/102946412v.2 168 N.J. at 245-46). Thus, Plaintiff’s allegation that Heartland merely acted to her financial detriment is not enough. And Plaintiff’s argument that Heartland acted “unilaterally,” Opp. Br. at 12, is not sufficient either. See Angel Jet, 2012 WL 5335830, at *4 (“an allegation of bad faith or unfair dealing should not be permitted to be advanced in the abstract. . . .”). Absent a factual allegation that demonstrates improper motive (and increasing revenue is not one), Plaintiff cannot state a claim for breach of the implied covenant. See id.; Yapak, 2009 WL 3366464, at *2. Thus, Plaintiff’s allegations that Heartland’s actions deprived Plaintiff of a benefit, absent a well pleaded allegation of the intention to injure Plaintiff, cannot sustain a cause of action of breach of the implied covenant of good faith. See Bonnieview Homeowners Ass’n v. Woodmont Builders, L.L.C., 665 F. Supp. 2d 473, 510 (D.N.J. 2009) (“Proof of ‘bad motive or intention’ is essential to a cause of action for breach of the covenant of good faith and fair dealing.”) (quoting Brunswick Hills, 44 N.J. at 225). Last, stripped of the naked allegation of bad faith, Plaintiff’s claim for breach of the covenant of good faith and fair dealing is based entirely on the same conduct it claims was a breach of the VMRA. And, it is well-settled that “a plaintiff cannot maintain a claim for breach of the implied covenant of good faith and fair dealing when the conduct at issue is governed by the terms of an express contract or the cause of action arises out of the same conduct underling the alleged breach of Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 18 of 21 PageID: 189 14 128904.06000/102946412v.2 contract.” Hahn v. OnBoard LLC, No. 2:09-cv-03639 DRD MAS, 2009 WL 4508580, at *6 (D.N.J. Nov. 16, 2009). For these reasons, Plaintiff’s good faith and fair dealing claim should be dismissed. IV. PLAINTIFF FAILS TO STATE A CLAIM FOR UNJUST ENRICHMENT Plaintiff does not dispute that it is well-settled that where “a plaintiff concedes that its relationship is governed-in its entirety-by a valid and binding contract, Plaintiff has failed to state a facially plausible claim for unjust enrichment.” MZL Capital Holdings, Inc. v. TD Bank N.A., No. 14-CV-05772 RMB/AMD, 2015 WL 4914695, at *9 (D.N.J. Aug. 18, 2015) (internal quotations omitted). Here, there is no legitimate dispute, and Plaintiff raises none, that a valid, unrescinded contract governs the relationship between Plaintiff and Heartland. Instead, Plaintiff seeks sanctuary in the fact that the complaint uses the words “acts, omissions” in addition to “contractual breaches” to allow an alternative cause of action. But this kind of generalized, conclusory pleading falls well short of the mark. The mere addition of magic words cannot excuse the failure to plead in well-founded detail. See Zurawski v. Southeastern Pennsylvania Transp. Auth., No. 2:08-cv-05040, 2010 WL 1946922, at *8 n.7 (E.D. Pa. May 10, 2010) (“Merely inserting the words ‘falsely’ and ‘inappropriately’ into the allegations” fails to raise the allegations above “the kind of bare legal conclusions that will not pass muster under Rule 12(b)(6)”). Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 19 of 21 PageID: 190 15 128904.06000/102946412v.2 Moreover, Plaintiff’s argument that “with or without a contract” the breach of a “promise to pay commissions” gives rise to unjust enrichment is wrong. See Op. Br. at 10. Where there is a contract, breach of a promise to pay triggers a breach of contract claim. Where there is no contract, and the breach is of an implied promise, unjust enrichment is the appropriate cause of action. Here, the parties agree that there is a contract. Heartland either breached the terms of the agreement or it did not. If Heartland did not breach the terms of the agreement, quasi-contract is not available as an “alternative pleading.” See Gallo v. PHH Mortg. Corp., 916 F. Supp. 2d 537, 553 (D.N.J. 2012) (“While it is generally true that a plaintiff may allege alternative claims for breach of contract and unjust enrichment, despite the legal impossibility of recovery under both, a plaintiff may plead breach of contract and unjust enrichment claims in the alternative only where an express contract cannot be proven.”) (applying analogous Pennsylvania law) (citations and quotations omitted).3 CONCLUSION For the foregoing reasons, Defendant Heartland’s Motion to Dismiss should be granted and Plaintiff’s Complaint should be dismissed with prejudice. 3 Plaintiff does not oppose Heartland’s arguments that the Equitable and Promissory Estoppel causes of action should be dismissed. These claims are therefore deemed abandoned. See Marjac, LLC v. Trenk, No. 06-1440 (JAG), 2006 WL 3751395, at *5 n.3 (D.N.J. Dec. 19, 2006) (on motion to dismiss, plaintiff’s failure to address certain claims is deemed abandonment of those claims). Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 20 of 21 PageID: 191 16 128904.06000/102946412v.2 Respectfully submitted, Dated: July 25, 2016 /s/ Seth J. Lapidow BLANK ROME LLP A Pennsylvania LLP Seth J. Lapidow, Esquire Jonathan M. Korn, Esquire New Jersey Resident Partners 301 Carnegie Center, 3rd Floor Princeton, NJ 08540 (609) 750-2644 (609) 897-7284 - facsimile Lapidow@BlankRome.com Attorneys for Defendant Heartland Payment Systems, Inc Case 3:16-cv-01104-PGS-DEA Document 10 Filed 07/25/16 Page 21 of 21 PageID: 192 1 128904.06000/103156953v.1 BLANK ROME LLP A Pennsylvania LLP Seth J. Lapidow, Esquire Jonathan M. Korn, Esquire New Jersey Resident Partners 301 Carnegie Center, 3rd Floor Princeton, NJ 08540 (609) 750-2644 (609) 897-7284 - facsimile Lapidow@BlankRome.com Attorneys for Defendant Heartland Payment Systems, Inc. UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY MELISSA CAMPBELL, individually, and on behalf of all other similarly situated, Plaintiffs, v. HEARTLAND PAYMENT SYSTEMS, INC., Defendant. Civil Action No. 3:16-cv-01104-PGS-DEA Electronically Filed SUPPLEMENTAL DECLARATION OF SETH J. LAPIDOW, ESQUIRE SETH J. LAPIDOW, ESQUIRE, of full age, hereby declares as follows: 1. I am a partner in the law firm of Blank Rome LLP, representing Defendant Heartland Payment Systems, Inc. (“Defendant”) in the above-captioned matter. 2. I submit this Declaration in support of Defendant’s Motion to Dismiss, and I have personal knowledge of the facts stated herein. 3. Attached hereto as Exhibit A is a true and correct copy of relevant excerpts of Heartland Payment Systems, Inc.’s 2014 Form 10-K. 4. Attached hereto as Exhibit B is a true and correct copy of relevant excerpts of American Express Company’s 2015 Form 10-K. Case 3:16-cv-01104-PGS-DEA Document 10-1 Filed 07/25/16 Page 1 of 10 PageID: 193 2 128904.06000/103156953v.1 I declare that the foregoing statements made by me are true. I am aware that if any of the foregoing statements made by me are willfully false, I may be subject to punishment. /s/ Seth J. Lapidow Seth J. Lapidow, Esquire BLANK ROME LLP A Pennsylvania LLP 301 Carnegie Center, 3rd Floor Princeton, NJ 08540 (609) 750-2644 (609) 897-7284 - facsimile Lapidow@BlankRome.com Attorneys for Defendant Heartland Payment Systems, Inc. Dated: July 25, 2016 Case 3:16-cv-01104-PGS-DEA Document 10-1 Filed 07/25/16 Page 2 of 10 PageID: 194 EXHIBIT A Case 3:16-cv-01104-PGS-DEA Document 10-1 Filed 07/25/16 Page 3 of 10 PageID: 195 7/18/2016 HPY 12.31.201410K 10-K 1hpy1231201410k.htm10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [8] ANNUAL REPORT PURSUANT TO SECTION 13 OR lS(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 OR 0 TRANSITION REPORT PURSUANT TO SECTION 13 OR lS(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __ to __ Commission File No. 001-32594 HeartlanCI HEARTLAND PAYMENT SYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) Title of each class Common Stock, $0.001 par value 90 Nassau Street, Princeton, New Jersey 08542 (Address of principal executive offices) (Zip Code) (609) 683-3831 (Registrant's telephone number, including area code) Securities registered pursuant to l 2(b) of the Act: Name of each exchange on which registered New York Stock Exchange Securities registered pursuant to 12(g) of the Act: (NONE) (title of Class) 22-3755714 (l.R.S. Employer Identification Number) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. IBJ YES D NO Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section l S(d) of the Act. D YES IBJ NO https://www.sec.gov/Archives/edgar/data/1144354/000114435415000011/hpy1231201410k.htm 1/202 Case 3:16-cv-01104-PGS-DEA Document 10- Filed 07/25/16 Page 4 of 10 PageID: 196 7/18/2016 HPY 12.31.201410K On occasion, we have received notices from Visa and Mastet{:ard ofnon-compliance and fines, which have typically related to excessive chargebacks by a merchant or data security failures on the part of a merchant. Ifwe are unable to recover fines from our merchants, we will experience a financial loss. The termination of our registration, or any changes in the Visa or Mastet{:ard mies that would impair our registration, could require us to stop providing Visa and Mastet{:ard payment processing services, which would make it impossible for us to conduct our business on its current scale. We rely on sponsor banks, which have substantial discretion with respect to certain elements of our business practices, in order to process bankcard transactions. If these sponsorships are terminated and we are unable to secure new bank sponsors, we will not be able to conduct significant portions of our business. Over 73% of our revenue is derived from processing Visa and Mastet{:ard bankcard transactions. Because we are not a bank, we are not eligible for membership in the Visa and Mastet{:ard networks and are, therefore, unable to directly access the bankcard networks. Instead, Visa and Mastet{:ard operating regulations require us to be sponsored by a member bank in order to process bankcard transactions. We are currently registered with Visa and Mastet{:ard through Wells Fargo Bank N .A. since February 2012, The Bancorp Bank since November 2009, and Barclays Bank Delaware since March 2011. Our sponsorship agreements with Wells Fargo Bank N.A., The Bancorp Bank and Barclays Bank Delaware expire February 2016, February 2016 and March 2016, respectively. If our sponsorships arc terminated and we are unable to secure another bank sponsor or sponsors, which could arise due to future consolidation of sponsor banks or because sponsor banks exit this line of business, we will not be able to process Visa and Mastet{:ard transactions. Furthermore, some agreements give the sponsor banks substantial discretion in approving certain aspects of our business practices, including our solicitation, application and qualification procedures for merchants, the terms of our agreements with merchants and our customer service levels. Our sponsor banks' discretionary actions under these agreements could be detrimental to our operations. Current or future bankcard network rules and practices could adversely affect our business. We are registered with the Visa and Mastet{:ard networks through our bank sponsors as an Independent Sales Organization with Visa and a Member Service Provider with Mastet{:ard. We are currently a sales agent and service agent for American Express and a registered acquirer with Discover. The mies of the bankcard networks are set by their boards, which may be strongly influenced by card issuers, and some of those card issuers are our competitors with respect to these processing services. Many banks directly or indirectly sell processing services to merchants in direct competition with us. These banks could attempt, by virtue of their influence on the networks, to alter the networks' mies or policies to the detriment ofnon-members like us. The termination of our registration or our status as an Independent Sales Organization or Member Service Provider, or any changes in card network or issuer rules that limit our ability to provide payment processing services, could have an adverse effect on our bankcard processing volumes, revenues or operating costs. In addition, if we were precluded from processing Visa and Mastet{:ard bankcard transactions, we would lose the majority of our revenues. Any new laws and regulations, or revisions made to existing laws, regulations, or other industry standards affecting our business may have an unfavorable impact on our operating results and financial condition. Our business is impacted by laws and regulations that affect the bankcard industry. In July 2010, Congress passed The Dodd- Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which significantly changed financial regulation. Changes included restricting amounts of debit card fees that certain issuer banks can charge merchants and allowing merchants to offer discounts for different payment methods. The impact which new requirements imposed by the Dodd-Frank Act or other new regulation will have on our operating results is difficult to determine, as their implementation could result in the need for us to modify our services and processing platforms. As new requirements are mandated, these regulations could adversely affect our operating results and financial condition. Furthermore, the requirements of the new regulations and the timing of their effective dates could result in changes in our clients' business practices that may alter their delivery of their products and services to consumers and the timing of their investment decisions, which could change the demand for our services as well as alter the type or volume of transactions that we process on behalf of our clients. Additionally, all persons engaged in commerce, including, but not limited to, us and our merchant and financial institution customers, are subject to Section 5 of the Federal Trade Commission Act prohibiting unfair or deceptive acts or practices, or UDAP. The Federal Trade Commission, or FTC, has authority to take action against nonbanks that engage in UDAP and to the extent we are processing payments for a merchant engaged in UDAP, we may be subject to action by the FTC. https://www.sec.gov/Archives/edgar/data/1144354/000114435415000011/hpy1231201410k.htm 38/202 Case 3:16-cv-01104-PGS-DEA Document 10- Filed 07/25/16 Page 5 of 10 PageID: 197 7/18/2016 HPY 12.31.201410K 18 https://www.sec.gov/Archives/edgar/data/1144354/000114435415000011/hpy1231201410k.htm 39/202 Case 3:16-cv-01104-PGS-DEA Document 10-1 Filed 07/25/16 Page 6 of 10 PageID: 198 EXHIBIT B Case 3:16-cv-01104-PGS-DEA Document 10-1 Filed 07/25/16 Page 7 of 10 PageID: 199 Togi;le SGML Header(+) Section 1: 10-K (FORM 10-K) Table of Contents D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-7657 Iii American Express Company New York (State or other 1unSdiction of incorporation or organization) 200 Vesey Street New York, New York (Addross of principal executive offices) (Exact name of registrant as specified m its charter) Registrant's telephone number, including area code: (212) 640-2000 Securities registered pursuant to Section 12(b) of the Act: 13-4922250 (l.R. S. Employer Identification No.) 10285 (Zip Code) Title of each class Common Shares (par value $0.20 per Share) Name of each exchange on which registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes 0 No D Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes D No 0 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes 0 No D Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for a shorter period that the registrant was required to submit and post such files). Yes 0 No D Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part Ill of this Form 10-K or any amendment to this Form 10-K. 0 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer 0 Accelerated filer D Non-accelerated filer D Smaller reporting company D (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes D No 0 As of June 30, 2015, the aggregate market value of the registrant's voting shares held by non-affiliates of the registrant was approximately $77.7 billion based on the closing sale price as reported on the New York Stock Exchange. As of February 10, 2016, there were 964,045.452 common shares of the registrant outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part Ill: Portions of Registrant's Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Annual Meeting of Shareholders to be held on May 2, 2016. Case 3:16-cv-01104-PGS-DEA Document 10-1 Filed 07/25/16 Page 8 of 10 PageID: 200 Table of Contents Client managers for our top-spending and higher-revenue clients to support business growth OPEN engages 1n advocacy efforts on behalf of small businesses. These advocacy efforts include our OPEN for Government Contracting program to help small businesses learn how to obtain government contracts, programs designed to help women entrepreneurs learn how to grow and sustain businesses, and our efforts to increase awareness of the importance of small businesses in our communities generally. For example, in 2015 we led the sixth Small Business Saturday®, a day to increase consumer awareness and patronage of local businesses and their role in the economy and local neighborhoods. Small Business Saturday now takes place in the United States, the United Kingdom and Australia, with similar initiatives in Israel and South Africa. Card-Issuing Business - Competition Our payment products face substantial and intense competition and generally compete with a wide variety of financial payment products including cash, foreign currency, checks, debit, prepaid and ATM cards, bank accounts, virtual currencies, alternative financial services such as check cashing and money orders, store- branded gift cards, other network-branded credit and charge cards and other payment accounts and services. As a card issuer, we compete in the United States with financial institutions that issue general-purpose charge and revolving credit cards (such as Bank of America, Capital One Financial, Citibank, Discover Financial Services and JPMorgan Chase). We also encounter competition from businesses that issue their own private label cards or otherwise extend credit to their customers, such as retailers and airline associations, although these cards are generally accepted only at limited locations. We face increasing competition for cobrand relationships, as both card issuer and network competitors have targeted key business partners with attractive value propositions for access to high-spending loyal customers. For example, although we competed aggressively to renew our cobrand and merchant acceptance agreements with Costco Wholesale Corporation in the United States, we were unable in the end to reach terms that would have made economic sense for our Company and our shareholders and in February 2015, we announced that such agreements are set to end in 2016. The largest competing issuers have continued to grow, in several cases by acquiring card portfolios, and also by cross-selling through their retail branch networks. Competing card issuers offer a variety of products and services to attract cardholders, including premium cards with enhanced services or lines of credit, airline frequent flyer program mileage credits, cash rebates and other reward or rebate programs, services for small business owners, "teaser" promotional interest rates and rewards points for both credit card acquisition and balance transfers, and cobranded arrangements with partners that offer benefits to cardholders. Most financial institutions that offer demand deposit accounts also issue debit cards to permit depositors to access their funds. Use of debit cards for point-of- sale purchases has grown as most financial institutions have replaced A TM cards with general-purpose debit cards bearing either the Visa or MasterCard logo. Debit cards were historically marketed as replacements for cash and checks, and transactions made with debit cards have typically been for smaller dollar amounts. However, debit cards are increasingly perceived as an alternative to credit or charge cards and used in that manner. Additionally, overdraft accounts can be used by our competitors to extend credit to customers when transaction values exceed monies available in a linked demand deposit account. As the payments industry continues to evolve, we are also facing increasing competition from non-traditional players, such as online networks, telecommunication providers and software-as-a-service providers, which leverage new technologies and customers' existing charge and credit card accounts and bank relationships to create payment or other fee-based solutions. In addition, the evolution of payment products in emerging markets may be different than it has been 1n developed markets. Instead of migrating from cash to checks to plastic, technology and consumer behaviors in these markets may result in the skipping of one or more steps to alternative payment mechanisms such as mobile payments. For a further discussion of the evolving competitive landscape in the payments industry, see "Global Network & Merchant Services - Competition" under "Global Network & Merchant Services." The principal competitive factors that affect the card-issuing business include: The features. value and quality of the products and services, including customer care, rewards programs, partnerships, benefits and digital resources, and the costs associated with providing such features and services The number, spending characteristics and credit performance of customers The quantity, diversity and quality of the establishments where the cards can be used The pricing, payment and other card account terms and conditions The number and quality of other payment cards and other forms of payment, such as debit cards and electronic wallets, available to customers Reputation and brand recognition The success of marketing and promotional campaigns The nature and quality of expense management data capture and reporting capability, particularly for small businesses 7 Case 3:16-cv-01104-PGS-DEA Document 10-1 Filed 07/25/16 Page 9 of 10 PageID: 201 Table of Contents travel and entertainment sectors 1n 2001 and 60 percent came from retail and other sectors. In 2015, only 26 percent of U.S. billings came from the travel and entertainment sectors. This shift resulted, in part, from the growth, over time. 1n the types of merchants that began to accept payment cards in response to consumers' increased desire to use these cards for more of their purchases, our focus on expanding card acceptance to meet Card Members' needs, and increased competition for travel and entertainment sector spending. Globally, acceptance of general-purpose cards continues to increase and we continue to grow merchant acceptance of American Express cards around the world, as well as refine our approach to calculating merchant coverage. We estimate that, as of the end of 2015, our merchant network in the United States could accommodate more than 90 percent of general-purpose card spending. Our international spend coverage is more limited, although we continue to expand our merchant network in locations outside the United States. We estimate that our international merchant network as a whole could accommodate approximately 80 percent of general-purpose card spending. These percentages are based on comparing spending on all networks' general-purpose credit and charge cards at merchants that accept American Express cards with total general-purpose credit and charge spending at all merchants. Discount Revenue We earn "discounr revenue from fees charged to merchants for accepting our cards as payment for goods or services sold. The merchant discount, or discount rate, is a fee charged to the merchant for accepting our cards and is generally expressed as a percentage of the charge amount. In some instances, an additional flat transaction fee is assessed as part of the merchant discount. The merchant discount is generally deducted from the amount of the payment that the merchant acquirer (in most cases, one of our subsidiaries) pays to a merchant for charges submitted. A merchant acquirer is the entity that contracts for American Express card acceptance with the merchant, accepts transactions from the merchant, pays the merchant for these transactions and submits the transactions to the American Express network, which in turn submits the transactions to the appropriate card issuer. When a Card Member presents our card for payment, the merchant creates a record of charge for the transaction and submits 1t to the merchant acquirer for payment. To the extent that we are the merchant acquirer, we record the merchant discount as discount revenue at the time we receive the transaction. We may also charge additional fees to merchants, such as a variable fee for "non- swiped" card transactions or for transactions using cards issued outside the United States and used at merchants located in the United States. Where we act as the merchant acquirer and the card presented at a merchant is issued by a third-party bank or financial institution, such as in the case of our GNS partners, we will make financial settlement to the merchant and receive the discount revenue. In our role as the operator of the card network, we will also receive financial settlement from the GNS card issuer, which in turn receives an issuer rate that is individually negotiated between the issuer and us (i.e., the amount the GNS card issuer receives for a transaction on our network with a card they issue - usually expressed as a percentage of the charge amount). The difference between the merchant discount received by us from the merchant (which is directly agreed between a merchant and us and is not based on the issuer rate) and the issuer rate received by the GNS card issuer generates a return to us. In cases where American Express is the card issuer and the merchant acquirer is a third party (which can be the case in a country in which an 10 partner is the local merchant acquirer or in the United States under our OptBlue program with certain third-party merchant acquirers), we receive a network rate in our settlement with the merchant acquirer, which is 1nd1vidually negotiated between us and the merchant acquirer and is recorded by us as discount revenue. In contrast with networks such as those operated by Visa and MasterCard, there are no collectively set interchange rates on the American Express network, issuer rates do not serve as a basis for merchant discount rates and no fees are agreed or due between third-party bank or financial institution participants on the network. We work hard to persuade merchants to choose to accept our payment products in addition to those of our competitors. As such, we compete on our ability to innovate and deliver meaningful value to merchants to justify the cost of acceptance. The merchant discount we charge reflects the value we deliver to the merchant and the investments we make in providing that value. We deliver greater value to merchants as compared to our competitors in a variety of ways, including through higher spending by our Card Members relative to users of cards issued on competing card networks, our product and network features and functionality, our marketing expertise and programs, information services, fraud prevention services, our dedicated client management group, and other investments that enhance the merchant value propositions associated with American Express card acceptance. The merchant discount varies with, among other factors, the industry in which the merchant does business, the merchant's charge volume, the timing and method of payment to the merchant, the method of submission of charges and, in certain instances, the geographic scope of the card acceptance agreement signed with us (e.g., local or global) and the charge amount. In the United States and Canada, we charge a different discount rate for our prepaid cards. We may also charge a different discount rate for our corporate purchasing cards if the merchant meets certain requirements. While we believe merchants that accept our cards understand our merchant discount pricing in relation to the value provided, we do encounter merchants that accept our cards, but tell their customers that they prefer to accept another type of payment or otherwise seek to suppress use of the card. Our Card Members value the ability to use their cards where and when they want to, and we, therefore, take steps to meet our Card Members' expectations and to protect the American Express brand, subject to local legal requirements, such as Dodd-Frank in the United States. 15 Case 3:16-cv-01104-PGS-DEA Document 10-1 Filed 07/25/16 Page 10 of 10 PageID: 202