Owner-Operator Ind. Drivers Assoc. v. Concord EFS ( 2000 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
OWNER-OPERATOR )
INDEPENDENT DRIVERS )
ASSOCIATION, INC., HAROLD
LAN DRY , JIMM Y HU X d/b/a
HUX TRUCKING, RICHARD
)
)
)
FILED
KERSHMAN, and LAUREL ) February 29, 2000
BAR RICK , Individually and On Be half )
of All Others Similarly Situated, ) Cecil Crowson, Jr.
) Appellate Court Clerk
Plaintiffs/Appellants, ) Appeal No.
) M1999-02560-COA-R3-CV
VS. )
) Williamson Ch ancery
CONCORD EFS, INC., EFS ) No. 125387
NATION AL BAN K, FLYING J, )
INC., and PILOT CORPORATION, )
)
Defendants/Appellees. )
APPEALED FROM THE CHANCERY C OURT
OF WILLIAMSON COUNTY AT
FRANKLIN, TENNESSEE
THE HONORABLE CORNELIA A. CLARK, CHANCELLOR
FOR THE APPELLAN TS: FOR THE APPELLEES
W. GARY BLACKBURN CONCOR D EFS, INC. and
JOHN R. CALLCOTT EFS NATIONAL BANK:
Nashville, Tennessee J. RICHARD BUCHIGNANI
DOUGLAS A. BLACK
PAUL D. CULLEN, SR. Memphis, Tennessee
AMY IRENE WASHBURN
Washington, DC FOR APP ELL EE FL YING J, INC .:
J. O. BASS, JR.
Nashville, Tennessee
JONATHAN A. DIBBLE
ERIC D. BARTON
Salt Lake City, Utah
FOR APP ELL EE PI LOT COR P.:
ROBERT R. CAMPBELL
AMY V. HOLLARS
Knoxville, Tennessee
AFFIRMED IN PART; REVERSED IN PART;
AND REMANDED
BEN H. CANTRELL,
PRE SIDIN G JU DGE , M.S.
OPINION
The primary question in this breach of contract case is whether the
plaintiff independent truckers were third-party beneficiaries of promises made
by the defendant truck stop owners to the defendant bank and the credit card
organizations that they would not add a surcharge to purchases. The trial court
found that they were not third-party beneficiaries and granted summary judgment
to the defendants. We believe, however, that as holders of credit cards issued by
Visa and MasterCard, the truckers were intentional beneficiaries of the no-
surcharge provisions in those contracts. We accordingly reverse the trial court’s
award of summary judgment to the defendant truck stop owners. We affirm the
trial court in other respects, including its dismissal of claims by the truckers’
organization.
I. A CLASS ACTION LAWSUIT
Harold Landry, Jimmy Hux, Richard Kershman and Laurel Barrick
were independent truckers who used credit cards issued by Visa and MasterCard
to purchase diesel fuel at truck stop chains owned by two of the defendant
companies. Contracts between the Visa and MasterCard organizations, the
defendant bank, and the truck stop operators all provided that no surcharge
would be imposed against users of the cards. Nonetheless, the truckers had to
pay at least three cents more for each gallon of fuel than did customers who paid
by other means.
The above named truckers are members of the Owner-Operator
Independent Drivers Association (OOIDA). On April 7, 1998 OOIDA joined
with them in a class action lawsuit to enjoin the practice of imposing a surcharge
on the use of the credit cards. The individual truckers also asked for damages
resulting from the practice. The plaintiffs’ claims were based on the theory that
they were third-party beneficiaries of the contracts in question. The defendants
were truck stop operators Flying J and Pilot Corporation; EFS National Bank
(EFSNB), which processes Visa and MasterCard charges for the truck stop
operators; and Concord EFS, Inc., the parent company of EFSNB. Visa and
MasterCard were not named as defendants.
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The plaintiffs filed a Motion for Partial Summary Judgment on the
issue of liability. They contended that as there was no dispute that the truck stop
operators breached their contracts not to impose surcharges on credit card
transactions, the cardholders were entitled to prevail. The defendants filed a
Motion to Dismiss, arguing that since the plaintiffs were not parties to the
contracts at issue, they had no standing to sue.
After two hearings and a vigorous struggle about discovery of
contract documents (which continued even after the final order was filed), the
trial court finally granted summary judgment to the defendants on all claims, and
dismissed the plaintiffs’ Motion for Partial Summary Judgment. The court
agreed with the defendants that the plaintiff truckers association and the
individual plaintiffs had no standing to sue, finding that they were not intended
third-party beneficiaries of the contracts. The court also found that Concord EFS,
as a parent corporation, could not be held liable for the actions of its subsidiary.
This appeal followed.
II. THE CREDIT CARD SYSTEM
It is not possible to discuss the contracts at issue without reference
to the complex web of contractual obligations between banks, merchants, and
individual cardholders which makes modern consumer credit possible. The
structure of the system is something like a pyramid, with the credit card
associations at the top. Only banks and other financial institutions are eligible
for membership in the voluntary Visa and MasterCard associations.
The member banks, which number in the thousands, constitute the
second level of the pyramid. The credit card associations recognize two kinds
of members, each performing a different function within the system: issuing
banks contract with customers such as the plaintiff drivers and issue credit cards
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to them; acquiring banks, also known as merchant banks, process credit card
transactions for merchants, such as Flying J and Pilot.
Hundreds of thousands of retail merchants make up the next level
of the pyramid. When a cardholder uses his credit card to buy something from
a merchant, the merchant must of necessity contact both an issuing bank and a
merchant bank, for the issuing bank must approve the credit of the cardholder
before the merchant bank can process the transaction through its electronic
communications network.
The lowest level of the pyramid is made up of many millions of
cardholders. When a cardholder desiring to make a purchase presents his card
to a participating merchant, the merchant “swipes” the card through the point of
sale device supplied by the merchant bank. The information on the card’s
magnetic stripe, together with information about the intended purchase, is
transmitted to the Visa or MasterCard association, then to the issuing bank.
If the issuing bank approves the sale, an intricate sequence of
electronic transactions is set into motion which involves the issuing bank, the
Visa or MasterCard association, the merchant bank, and the merchant.
Essentially, the merchant bank pays the merchant a discounted sum, and is
subsequently reimbursed by the issuing bank, which makes payment through the
credit card association. The issuing bank then bills the cardholder for the full
amount of the transaction. The merchant bank, the issuing bank, and the credit
card association each make a small profit from the sale, but action by the
cardholder is necessary to both open and close the sequence of transactions.
III. THE CONTRACTS
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There are four separate contracts at issue in this case. The contracts
between Visa and EFSNB (the merchant bank) and between MasterCard and
EFSNB are both made up of several documents, including the by-laws and rules
promulgated by the respective credit card associations. Both Visa and
MasterCard prohibit surcharges. Rule 9.04 of the MasterCard rules demonstrates
the comprehensiveness of the prohibition:
Charges to Cardholders. The merchant shall
not directly or indirectly require any MasterCard
cardholder to pay a surcharge, to pay any part of any
merchant discount, whether through an increase in
price or otherwise, or to pay any contemporaneous
finance charge in connection with the transaction in
which a MasterCard is used. A surcharge is any fee,
charged directly or indirectly, deemed by this
corporation to be associated with the use of a
MasterCard card that is not charged if another
payment method is used.
The MasterCard rules further specify how the desired result is to be
achieved:
Because an issuer must be able to rely on certain basic
terms in merchant agreements that affect the use of its
MasterCard cards in interchange transactions, each
merchant agreement must contain the substance of the
prohibitions set forth in Rule 9.04(b) . . .
Each member and each affiliate shall use its best
efforts to cause each of its merchants to observe the
provisions of the merchant agreement required by
Rule 9.04(b) . . .
The MasterCard rules also state that “these rules are intended to be
solely for the benefit of the Corporation [MasterCard] and its members.” A
similar provision is found in the Visa by-laws. However, the record shows that
both organizations used several methods to notify consumers of the benefits of
the no-surcharge provision, including publication of those provisions on their
internet sites.
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The contracts between EFSNB and Pilot, and between EFSNB and
Flying J specifically reference the documents that make up the Visa-EFSNB and
the MasterCard-EFSNB contracts, and require the merchants to comply with
those contracts. They both also state that “Merchant . . . shall not impose any
surcharge on transactions,” and warrant that “each Sales Draft prepared and each
transaction transmitted to EFSNB represents a valid obligation for the amount
set forth therein, . . . and that there have been no services, carrying or any special
charges or any special agreements, conditions or securities extracted in
connection with the sale . . . .” It is undisputed that Pilot and Flying J charged
more for fuel purchased with Visa and Mastercard than for fuel purchased by
other means.
IV. THE CARDHOLDERS AS THIRD-PARTY BENEFICIARIES
The law presumes that a contract has been executed solely for the
benefit of those who are parties to it. Thus, the general rule is that an individual
who is not a party to a contract cannot sue for its breach. However, the general
rule gives way when a non-party can prove that he is an intended beneficiary of
the contract. First Tenn. Bank Nat’l Ass’n v. Thoroughbred Motor Cars, Inc.,
932 S.W.2d 928, 930 (Tenn. Ct. App. 1996). A non-party who wishes to enforce
a contract has the burden of proving that he is entitled to recover as a third-party
beneficiary. Moore Construction Co. v. Clarksville Dept. of Electricity, 707
S.W.2d 1, 9 (Tenn. Ct. App. 1985).
The law draws a sharp distinction between an intentional beneficiary
(who may maintain an action on the contract) and an incidental beneficiary (who
may not). The fact that a party may reap a substantial benefit from the
performance of a contract does not, in and of itself, entitle it to the status of an
intentional beneficiary. United American Bank of Memphis v. Gardner, 706
S.W.2d 639 (Tenn. Ct. App. 1985). Rather, he must show that the contract was
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entered into, at least in part, for that party’s benefit (the “intent to benefit” test)
or that one party to the contract assumed a duty that the other party owed to the
third-party (the “duty owed” test). Moore Construction v. Clarksville Dept. of
Electricity, supra at 9. The appellants contend that they satisfy both of these
tests.
Although the intent to benefit test may sound as if it sets out a clear
standard to follow, its application still begs the question of just what constitutes
an intent to benefit. In attempting to answer the question, courts frequently find
themselves having to apply definitions that suffer from an unhelpful circularity.
The following excerpt from Restatement (Second) of Contracts § 302 (quoted in
footnote 18, Moore Construction Co. v. Clarksville Dept. of Electricity, 707
S.W.2d 1, 9 (Tenn. Ct. App. 1985) serves as an example:
(1) Unless otherwise agreed between promisor
and promisee, a beneficiary of a promise is an
intended beneficiary if recognition of a right to
performance in the beneficiary is appropriate to
effectuate the intention of the parties and either
(a) the performance of the promise will satisfy
an obligation of the promisee to pay money to the
beneficiary; or
(b) the circumstances indicate that the promisee
intends to give the beneficiary the benefit of the
promised performance. . . (emphasis added)
While acknowledging the validity of the general principles stated
above, the court did not attempt to more precisely define how one determines
what “the promisee intends,” but concluded that ultimately, “[e]ach case must be
decided on its own unique facts considered in light of the specific contractual
agreements and the circumstances under which they were made.” 707 S.W.2d
at 10.
With respect to the merchants (Pilot and Flying J) we think that the
truckers were clearly third-party beneficiaries of the merchants’ contract with the
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merchant bank. In that agreement the merchants said in effect, “We promise not
to add a surcharge to purchases made with your credit cards.” Only if the
merchants now say “Well, we never intended to keep that promise” can they
escape the conclusion that the benefit of the agreement was intended for the card
holders. They do not insist that they were that cynical. We accordingly find that
the truckers have standing to maintain this suit against Pilot and Flying J, and
that the trial court erred in granting summary judgment to those defendants.
With respect to the merchant bank (EFSNB) its promise does not
affect the cardholders so directly. Its promise to Visa and MasterCard was to
“use its best efforts to cause each of its merchants to observe the provisions of
the merchant agreement required by Rule 9.04(b).” Does that promise give the
cardholders a right to sue the merchant bank for failing to prevent the merchants
from adding a surcharge to credit card purchases?
We are convinced that the merchant bank’s promise only
incidentally confers a benefit on the cardholders. “Using my best efforts to
prevent” another from adding a surcharge is a far different thing from the
merchant’s promise of “I will not add a surcharge.” Therefore, we think the
lower court properly granted summary judgment to the merchant bank. It follows
that EFSNB’s parent company, Concord EFS, was also entitled to summary
judgment.
V. THE STANDING OF THE OWNER-OPERATORS DRIVERS ASSOCIATION
The trial court explicitly found that aside from the question of third-
party beneficiary status, OOIDA lacked standing to maintain a class action in its
own name on behalf of its members, because it did not meet all three
requirements set out for such standing in Redbud Cooperative Corporation v.
Clayton, 700 S.W.2d 551 (Tenn. Ct. App. 1985).
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As stated in Redbud, the three requirements a membership
association must meet before it can maintain suit in its own name are (1) its
members would otherwise have standing to sue in their own right; (2) the
interests it seeks to protect are germane to the organization’s purpose; and (3)
neither the claim asserted, nor the relief requested, requires the participation of
individual members in the lawsuit. 700 S.W.2d at 556. The court correctly
found that OOIDA met the first two requirements, but not the third.
We have already determined that the four OOIDA members have
standing to sue in their own right. It is also apparent that OOIDA is seeking to
protect the interests of its members. OOIDA is a national trade organization of
independent truckers. Its members each drive on average more than 100,000
miles per year, and surcharges of even a few cents per gallon on the fuel they use
can result in substantial monetary damages to their operations. Because of their
geographic dispersion, it is difficult for members to pursue claims for relatively
small sums of money. OOIDA has accordingly set up a department to help
owner-operators collect funds rightfully due to them, and this department handles
an average of 140 phone calls a day from members.
As appropriate as it may be for OOIDA to pursue claims on behalf
of its individual members, it cannot maintain this suit without the participation
of those members. In the Redbud case, the court ruled that a homeowner’s
association could maintain suit against residential developers who had
negligently planned and executed a drainage system to carry rainwater away from
the development. The developers themselves had incorporated the homeowner’s
association to own, maintain and control the common areas of the development
for the benefit of the homeowners. Thus the homeowner’s association could be
considered an injured party when the development (including the common areas)
repeatedly flooded.
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The truck drivers’ association cannot claim any similar relationship
to the defendants, and it has not claimed any injury to itself, apart from the injury
to its members. OOIDA is not mentioned in the contracts at issue, and cannot be
considered a third-party beneficiary of those contracts. There are also no
allegations in the record that it purchased gas from the defendants using Visa or
MasterCard.
Although OOIDA lacks several ingredients required for standing,
we see no obstacle to prevent it from continuing to support its members in their
attempt to obtain redress. Our holding does not prevent the individual plaintiffs
from seeking class certification “on behalf of all those similarly situated,”
whether members or non-members of OOIDA, nor does it prevent them from
continuing to seek the same remedy OOIDA sought, an injunction, in addition
to their damages.
VII.
The trial court’s grant of summary judgment to Flying J, Inc., and
Pilot Corporation is reversed, and the claims of Harold Landry, Jimmy Hux,
Richard Kershman and Laurel Barrick against those entities are reinstated. We
affirm the summary judgment in favor of EFSNB and Concord EFS. Remand
this cause to the Chancery Court of Williamson County for further proceedings
consistent with this appeal. Tax one-half the costs on appeal to the Owner-
Operator Independent Drivers Association, and one-half to Flying J, Inc., and
Pilot Corporation.
_______________________________
BEN H. CANTRELL,
PRESIDING JUDGE, M.S.
CONCUR:
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___________________________
WILLIAM C. KOCH, JR., JUDGE
____________________________
WILLIAM B. CAIN, JUDGE
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