TSYS Acquiring Solutions, LLC v. Electronic Payment Systems, LLC, No. 2:2010cv01060 - Document 58 (D. Ariz. 2010)
Court Description: ORDER granting 40 EPS's Motion for Summary Judgment, the Rule 16 Case Management Conference is re-set to 12/21/10 at 4:30 to address EPS's remaining counterclaim. Signed by Judge David G Campbell on 11/9/10.(LSP)
Download PDF
<![CDATA[
TSYS Acquiring Solutions, LLC v. Electronic Payment Systems, LLC 1 Doc. 58 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 TSYS Acquiring Solutions, LLC, Plaintiff, 10 11 vs. 12 Electronic Payment Systems, LLC, 13 Defendant. ) ) ) ) ) ) ) ) ) ) No. CV10-1060 PHX DGC ORDER 14 15 Defendant Electronic Payment Systems, LLC (“EPS”) has moved for partial summary 16 judgment. Doc. 40. Plaintiff TSYS Acquiring Solutions, LLC (“TSYS”) opposes the 17 motion. Doc. 51. The parties have fully briefed the motion, and the Court heard oral 18 argument on November 4, 2010. For reasons stated below, the Court will grant the motion. 19 I. Background. 20 EPS contracted for TSYS to provide credit card payment processing services for EPS 21 customers. As part of the parties’ contract, TSYS agreed to install an exclusive 1-800 22 number on the point-of-sale terminals of EPS’s merchant customers. EPS sought the 23 exclusive number because it would permit EPS to move its merchant portfolio to another 24 payment processing vendor if problems arose with TSYS, a need that was material to EPS’s 25 decision to procure services from TSYS. Disagreements between the parties ultimately led 26 to arbitration. EPS claimed in the arbitration that TSYS had promised to provide it with the 27 exclusive 1-800 number and sought to recover the number in the arbitration proceeding. The 28 arbitrator – retired Arizona Supreme Court Justice Robert Corcoran – agreed and ordered Dockets.Justia.com 1 “TSYS to provide EPS with immediate and continuous ownership, control, and access to the 2 toll-free 1-800 number that connects EPS’ merchants to a processor.” Doc. 41-2 at 40. The 3 arbitrator also awarded EPS more than $2,600,000 in damages. Id. 4 On January 26, 2009, TSYS sought to vacate the arbitrator’s award in toto by filing 5 a complaint in this Court that was assigned to Judge James A. Teilborg. See TSYS Acquiring 6 Solutions, LLC v. Electronic Payment Systems, LLC, No. CV-09-0155-PHX-JAT. The Court 7 will refer to the action before Judge Teilborg as “TSYS I.” Despite the fact that it sought to 8 have the arbitration agreement vacated in its entirety, TSYS focused its arguments before 9 Judge Teilborg primarily on the damages award. On May 4, 2010, Judge Teilborg entered 10 an Amended Judgment that confirmed the arbitrator’s award, granted summary judgment for 11 EPS, and dismissed TSYS’s complaint. The judgment included the arbitrator’s order for 12 “TSYS to provide EPS with immediate and continuous ownership, control, and access to the 13 toll-free 1-800 number that connects EPS’ merchants to a processor.” Doc. 41-24 at 27. 14 TSYS filed a motion under Rules 59 and 60 asking Judge Teilborg for permission to 15 file a supplemental or amended complaint. The motion focused on the 1-800 portion of the 16 order and argued that TSYS and EPS disagreed on its meaning. TSYS argued that it could 17 satisfy the order by providing EPS with any 1-800 number, regardless of whether it 18 connected any EPS merchants to a processor. EPS claimed that it was entitled to the actual 19 1-800 number that connected its merchants to a processor. TSYS noted in its motion that 20 there were, in fact, several 1-800 numbers that had been assigned to EPS merchants, that 21 other TSYS clients had also been assigned to these numbers, and that “by turning control of 22 these . . . numbers over to [EPS], [TSYS] would incur substantial costs, be subjected to 23 potential breach of contract claims, and the risk of potential security threats would arise.” 24 TSYS I, 2010 WL 1781015 at *5 (D. Ariz. May 4, 2010). Judge Teilborg denied the motion 25 to inject these new arguments in the case, noting that they could have been raised before the 26 arbitrator and earlier in the case before Judge Teilborg and therefore did not constitute newly 27 discovered evidence. Id. Judge Teilborg also concluded that requiring TSYS to comply with 28 the order to surrender the numbers to EPS would not be manifestly unjust. Id. -2- 1 Ten days later, on May 14, 2010, TSYS filed this action to enjoin enforcement of the 2 arbitrator’s award and Judge Teilborg’s order. TSYS makes arguments in this case which 3 Judge Teilborg declined to entertain in TSYS’s motion under Rules 59 and 60. TSYS asserts 4 that the 1-800 number awarded to EPS by the arbitrator does not exist, and that EPS’s 5 merchants in fact are connected to TSYS through seven 1-800 numbers that are shared with 6 hundreds of thousands of non-EPS merchants. TSYS argues that giving EPS control over 7 these numbers will put these third parties at risk and will cause TSYS to be in breach of its 8 other client contracts. 9 EPS’s motion for summary judgment asserts that the TSYS complaint in this action 10 is barred by res judicata. The Court agrees. 11 II. Legal Standards. 12 A party seeking summary judgment “bears the initial responsibility of informing the 13 district court of the basis for its motion, and identifying those portions of [the record] which 14 it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. 15 Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate if the evidence, viewed 16 in the light most favorable to the nonmoving party, shows “that there is no genuine issue as 17 to any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. 18 Civ. P. 56(c)(2). 19 In making their respective arguments regarding the res judicata effect of Judge 20 Teilborg’s decision in TSYS I, both TSYS and EPS rely on federal res judicata principles. 21 These principles do not apply. TSYS I was brought under federal diversity jurisdiction. See 22 TSYS I, Doc. 1; Carter v. Health Net of Cal., Inc., 374 F.3d 830, 833 (9th Cir. 2004) (“It is 23 well established that even when a petition is brought under the Federal Arbitration Act 24 (FAA), a petitioner seeking to confirm or vacate an arbitration award in federal court must 25 establish an independent basis for federal jurisdiction.”). When seeking to determine the res 26 judicata effect of a judgment entered in a diversity-jurisdiction case, courts apply the law of 27 the state where the court which entered the judgment sits. Semtek Int'l Inc. v. Lockheed 28 Martin Corp., 531 U.S. 497, 507-508 (2001). Judge Teilborg sits in Arizona, and the res -3- 1 judicata effect of his judgment must therefore be determined under Arizona law. Id. 2 Under Arizona law, “[t]he doctrine of res judicata will preclude a claim when a former 3 judgment on the merits was rendered by a court of competent jurisdiction and the matter now 4 in issue between the same parties or their privities was, or might have been, determined in 5 the former action.” Hall v. Lalli, 977 P.2d 776, 779 (Ariz. 1999). Arizona law does not 6 follow the transaction test applied in the federal cases cited by the parties. Rather, in 7 Arizona, “[t]wo causes of action which arise out of the same transaction or occurrence are 8 not the same for purposes of res judicata if proof of different or additional facts will be 9 required to establish them.” E.C. Garcia & Co. v. Arizona State Dept. of Revenue, 875 P.2d 10 169, 179 (Ariz. App. 1993) (citing Rousselle v. Jewett, 421 P.2d 529 (Ariz. 1966)).1 11 III. Applying Res Judicata to This Case. 12 Arizona law establishes four general requirements for res judicata: (1) the same claim 13 was adjudicated previously, (2) by a “judgment on the merits,” (3) issued by “a court of 14 competent jurisdiction,” (4) against the same parties or their privies. See Hall, 977 P.2d at 15 779. Only the first two elements are in dispute here. 16 A. Same Claim. 17 In Arizona, two claims are not identical if “different or additional facts will be 18 required to establish them.” E.C. Garcia & Co., 875 P.2d at 179 (citing Rousselle, 421 P.2d 19 at 529). In this case, there is only one claim at issue: EPS’s right to an exclusive 1-800 20 number that connects EPS merchants to a credit card processing provider. TSYS does not 21 dispute that the arbitrator found EPS was entitled to obtain such a number from TSYS, nor 22 that both the arbitrator and Judge Teilborg ordered TSYS to provide EPS with immediate 23 1 24 25 26 27 28 The Court notes that the result would be the same in this case even if federal res judicata law were applied. The Court concludes infra that Arizona res judicata principles bar TSYS from asserting defenses that could have been asserted before the arbitrator and Judge Teilborg. Federal law would support the same conclusion. See Travelers Indemnity Co. v. Bailey, 129 S. Ct. 2195, 2205 (2009) (holding that res judicata applies “not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose” (internal quotation marks and citation omitted)). -4- 1 ownership, control, and access to the number. 2 TSYS instead argues that it is asking this Court only to “interpret” what the arbitrator 3 and Judge Teilborg meant when they ordered TSYS to give EPS the number. But in 4 rendering this “interpretation,” TSYS asks the Court to consider the following facts that were 5 in existence at the time of the arbitration and TSYS I but were never presented to the 6 arbitrator or Judge Teilborg: (1) the complex nature of the debit/credit card processing 7 system; (2) that there are seven 1-800 numbers that connect EPS’s merchants to a processor; 8 (3) that those same seven numbers are also being used to process transactions for over 9 515,000 non-EPS merchants; (4) that the numbers are controlled by organizations regulated 10 under federal law, not by TSYS; (5) that TSYS installed proprietary software on the credit 11 card machines of EPS merchants – information that will be compromised if EPS is given 12 control of the toll free numbers; and (6) that data security will be compromised for non-EPS 13 merchants and millions of debit and credit card holders if EPS is given control of the 14 numbers. Doc. 51 at 13. 15 Contrary to TSYS’s adamant argument, the Court’s consideration of these facts would 16 not constitute an “interpretation” of what the arbitrator and Judge Teilborg meant in their 17 orders. The Court could not determine what these judges meant by examining facts and 18 evidence they never considered. More importantly, the plain import of these facts is that 19 TSYS cannot, or should not be required to, “provide EPS with immediate and continuous 20 ownership, control, and access to the toll free 1-800 number that connects EPS’ merchants 21 to a processor” as ordered by the arbitrator and Judge Teilborg. This is not a matter of 22 interpretation; it is a matter of defense. TSYS is arguing that the relief sought by EPS and 23 ordered by the arbitrator and Judge Teilborg is impractical, impossible, or inequitable. 24 Impossibility of performance or its variant, commercial frustration, can be a defense to a 25 breach of contract claim or to a specific performance remedy. See, e.g., 7200 Scottsdale 26 Road Gen. Partners v. Kuhn Farm Mach., 909 P.2d 408, 346-47 (Ariz. App. 1995); Marshick 27 v. Marshick, 545 P.2d 436, 439-40 (Ariz. App. 1976). Thus, it is a defense, not an 28 interpretation, that TSYS really seeks to assert in this case. -5- 1 In Arizona, “a judgment in favor of a plaintiff is res judicata as against the defendant 2 on every defense raised or which he could have raised as a defense against the complaint.” 3 In re Kopely, 767 P.2d 1181, 1183 (Ariz. App. 1988) (emphasis added); accord Pettit v. 4 Pettit, 189 P.3d 1102, 1106 (Ariz. App. 2008) (father barred by res judicata from asserting 5 paternity defense he could have asserted, but failed to assert, in marriage dissolution 6 proceeding); see also Hall, 977 P.2d at 779 (res judicata applies when “the matter now in 7 issue between the same parties or their privities was, or might have been, determined in the 8 former action”). TSYS seeks to assert an impossibility defense in this declaratory judgment 9 action – in the guise of “interpreting” the orders of the arbitrator and Judge Teilborg – that 10 plainly could have been asserted in the arbitration and TSYS I. 11 In sum, the “same claim” requirement of res judicata is satisfied. This case concerns 12 the same claim that was at issue in the arbitration and TSYS I – EPS’s right to an exclusive 13 1-800 number that connects its merchants to a processor. TSYS is barred from raising 14 defenses to that claim that could have been asserted in the prior proceedings. 15 B. Final Judgment on the Merits. 16 TSYS also argues that there was no final judgment on the matter it seeks to litigate 17 here. Doc. 51 at 16. TSYS cites to In re Kopely, 767 P.2d at 1183, for the proposition that 18 a judgment is not res judicata if the court “expressly states that it is not deciding an issue 19 which was raised and could have been decided.” Doc. 51 at 16. TSYS argues that Judge 20 Teilborg expressly stated that he did not decide the issue asserted here, and that res judicata 21 therefore cannot bar its adjudication in this case. The Court disagrees. 22 When TSYS filed this action, EPS filed a motion asking Judge Teilborg to transfer 23 this case to him. Judge Teilborg declined, noting that EPS had not satisfied the requirements 24 of Local Rule of Civil Procedure 42.1. Judge Teilborg also provided this explanation as to 25 why transferring the case to him would not serve the purposes of judicial economy: 26 In any event, the Court does not find that the interests of judicial economy are best served by transferring the declaratory relief action to the undersigned. The original action involved only whether the arbitration award should be vacated. Although the 1-800 number issue was raised in a post-judgment motion, the Court did not have occasion to substantively resolve the issue, as 27 28 -6- 1 2 3 4 the Court was presented only with the issue of whether Rules 59 or 60 permitted an amended or supplemental complaint. Because the 1-800 number issue presents a different legal analysis than vacatur of the arbitration award, the Court does not believe that the interests of judicial economy are best served by transferring the declaratory judgment action to the undersigned. TSYS I, Doc. 79 at 2. 5 This statement by Judge Teilborg does not fall within the Kopely exception to res 6 judicata. As Kopely explained: “If a trial court or an appellate court expressly states that it 7 is not deciding an issue which was raised and could have been decided, the presumption 8 cannot prevail, and the judgment is not res judicata as to the undecided issue.” 767 P.2d at 9 1183 (emphasis added). As noted above, TSYS’s impossibility defense was never raised 10 before the arbitrator or Judge Teilborg issued their orders. TSYS sought to inject the defense 11 into Judge Teilborg’s case subsequently through the motion under Rules 59 and 60, but Judge 12 Teilborg rejected the attempt. His ruling on the motion is worth quoting at some length, 13 because it reinforces the Court’s application of res judicata in this case: 14 15 16 17 18 19 [TSYS] asserts that the newly discovered evidence – namely, the disagreement between the parties concerning the meaning of the award of the 1-800 number – did not come to light until October 2009. The Court disagrees. The arbitrator issued his award in January 2009. It is clear from the face of the award what the arbitrator ordered: that [TSYS] turn over control of the numbers that connect [EPS’s] customers to a processor. [TSYS] focuses on the word the, but misses the thrust of the arbitrator’s finding and conclusion; namely, that [EPS] is to be awarded control over its merchants in the event [EPS] decides not to retain [TSYS’s] services. It was not the goal of the arbitrator, as mentioned throughout his award, to award [EPS] a single telephone number; rather, [EPS] was seeking ownership and control of the numbers its merchants use. . . . 20 21 22 23 24 [TSYS] may disagree with the award issued by the arbitrator, but attaching a new interpretation to the award hardly constitutes new evidence within the meaning of a Rule 59(e) motion. At most, the parties have discovered a new disagreement, but not new evidence within the meaning of a Rule 59(e) motion. Moreover, the Court fails to see why this issue was not raised with [TSYS’s] original filing in January 2009; or at the very least, upon receiving [EPS’s] February 2009 letter. The Court finds that [TSYS] failed to present newly discovered or previously unavailable evidence such that Rule 59(e) relief is appropriate. 25 26 TSYS I, 2010 WL 1781015 at *5 (D. Ariz. May 4, 2010) (emphasis in original). 27 Judge Teilborg provided the following explanation in response to TSYS’s argument 28 that it should be allowed to inject the impossibility defense into the case to avoid manifest -7- 1 2 3 4 5 6 7 8 9 10 11 injustice: [TSYS] argues that not granting it leave to file a supplemental complaint would work a manifest injustice, as the . . . numbers that [EPS’s] merchants use to connect to a processor are also used by other merchants besides [EPS’s] customers. Hence, [TSYS] asserts, by turning control of these . . . numbers over to [EPS], [TSYS] would incur substantial costs, be subjected to potential breach of contract claims, and the risk of potential security threats would arise. Again, it is not clear why these arguments and evidence in support were not raised both before the arbitrator and in [TSYS’s] initial complaint to this Court. In essence, [TSYS] asks the Court to reconsider and re-weigh – should the Court allow a Rule 15 amendment – the consequences of the arbitrator’s award concerning the 1-800 number issue. . . . Even if [TSYS] is subjected to substantial costs, breach of contract claims, and potential security threats as it asserts, such results are the natural consequences of the arbitrator’s award. In the arbitration context, the Court cannot grant the type of relief [TSYS] is ultimately seeking merely because the award will work a hardship for [TSYS]. [TSYS’s] complaints resulting from the arbitration award do not constitute manifest injustice within the meaning of Rule 59(e). Id. (emphasis added). 12 In summary, Judge Teilborg denied TSYS’s post-judgment motion because TSYS 13 sought to inject a new issue into the case – the impossibility defense – that could have been 14 raised earlier but was not. When Judge Teilborg subsequently declined to transfer the instant 15 case to him, and explained in the process that the issues in this case had not been considered 16 substantively by him, he was referring to the fact that TSYS failed to raise the issues in his 17 case and sought to inject them only in the post-judgment motion. This clearly is not the 18 exception to res judicata discussed in Kopely – where a court expressly states that it is not 19 deciding an issue “which was raised and could have been decided.” 767 P.2d at 1183. To 20 the contrary, TSYS’s impossibility defense was not raised in a timely manner before Judge 21 Teilborg and he therefore never addressed it. 22 In sum, a final judgment was entered by the arbitrator and Judge Teilborg on EPS’s 23 claim for the 1-800 number. Under Arizona law, res judicata bars TSYS from now raising 24 a defense to the claim that it could have raised in the arbitration proceeding and TSYS I. 25 C. The Applicability of Res Judicata. 26 In addition to arguing that res judicata, if applied, would not bar its claim, TSYS also 27 contends that res judicata does not apply here because “[c]ourts consistently consider 28 declaratory judgment actions to interpret or clarify judgments,” and that “res judicata does -8- 1 not bar a party from seeking declaratory relief to interpret a court’s confirmation of an 2 arbitration award.” Doc. 51 at 7-8. This argument fails because, as explained above, TSYS 3 does not seek an interpretation of the arbitrator’s or Judge Teilborg’s orders. TSYS seeks 4 to present evidence never presented to the arbitrator and Judge Teilborg to show that their 5 judgments cannot or should not be enforced. 6 In addition, the legal authority cited by TSYS does not support its position. TSYS 7 cites cases from states other than Arizona, chief among them Sandler v. Casale, 178 Cal. 8 Rptr. 265, 268 (App. 1981), and Int’l Bhd. of Elec. Workers, Local Union 1547 v. City of 9 Ketchikan, 805 P.2d 340, 343 (Alaska 1991). These cases apply California and Alaska law, 10 respectively, and involve declaratory judgments to clarify terms in arbitration decisions, not 11 to collaterally attack those decisions and the judicial judgments that confirm them. 12 Therefore, they are not controlling in this case. 13 TSYS has cited no case for the proposition that, under Arizona law, a court judgment 14 that confirms an arbitration award would fall outside res judicata’s reach within the context 15 of a declaratory action. In fact, case law suggests that Arizona courts apply res judicata in 16 declaratory suits that seek to collaterally attack prior judgments. See Shattuck v. Shattuck, 17 192 P.2d 229, 235 (Ariz. 1948) (“[Arizona’s declaratory judgment statute] does not expressly 18 or by implication authorize a court to entertain a proceeding to determine any questions of 19 the construction or validity of a judgment or decree of a court of competent jurisdiction, or 20 to declare the rights or legal relations of interested parties thereunder”), disapproved of on 21 other grounds by Marvin Johnson, P.C. v. Myers, 907 P.2d 67 (Ariz. 1995); accord 22 Schwamm v. Superior Court In and For Pima County, 421 P.2d 913, 914 (Ariz. App. 1966) 23 (interpreting, inter alia, Shattuck as being rooted in “the general principle that persons who 24 have had an opportunity to litigate a matter should not be permitted to relitigate the same 25 matter in a different action”). 26 27 28 -9- 1 IV. The Propriety of a Declaratory Action in this Context. 2 The Court would be justified in dismissing TSYS’s claim even if TSYS sought merely 3 to clarify Judge Teilborg’s order. The Federal Declaratory Judgment Act (“FDJA”) states 4 that “[i]n a case of actual controversy within its jurisdiction [with noted exceptions] . . . any 5 court of the United States . . . may declare the rights and other legal relations of any 6 interested party seeking such declaration, whether or not further relief is or could be sought.” 7 28 U.S.C. § 2201(a) (emphasis added). In a diversity case, Wilton v. Seven Falls Co., 8 515 U.S. 277, 288 (1995), the United States Supreme Court concluded that the FDJA 9 “created an opportunity, rather than a duty, to grant a new form of relief to qualifying 10 litigants.” The Court added that “a district court is authorized, in the sound exercise of its 11 discretion, to stay or to dismiss an action seeking a declaratory judgment before trial or after 12 all arguments have drawn to a close.” Id. Factors to consider when exercising discretion to 13 dismiss include the futility of the action, the existence of parallel proceedings that permit the 14 “ventilation” of the issues, avoiding duplicative litigation, avoiding forum shopping and 15 procedural fencing, and other considerations of “practicality and wise judicial 16 administration.”2 Wilton, 515 U.S. at 288; Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 17 494-95 (1942); Huth v. Hartford Ins. Co. of the Midwest, 298 F.3d 800, 802-04 (9th Cir. 18 2002); Gov’t Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 & n.5 (9th Cir. 1998) (en 19 banc). 20 In this case, parallel proceedings are being conducted before Judge Teilborg to 21 enforce his judgment (TSYS I, Doc. 63), and TSYS can raise the present considerations in 22 that proceeding as a means of arguing that it is not violating the judgment. Thus, this Court 23 2 24 25 26 27 28 Though the Supreme Court referred to the existence of parallel state proceedings in Wilton, 515 U.S. at 290, the existence of parallel federal proceedings in the same district would have the same “parallel litigation” effect in light of judicial economy concerns noted in Wilton. Moreover, Ninth Circuit law permits a district court to dismiss a declaratory claim even if parallel state proceedings do not exist. E.g., Huth v. Hartford Ins. Co. of the Midwest, 298 F.3d 800 (9th Cir. 2002). Wilton also noted that it was not “delineat[ing] the outer boundaries of that discretion in other cases, for example, cases raising issues of federal law.” Wilton, 515 U.S. at 290. - 10 - 1 would dismiss TSYS’s declaratory judgment request even it is was limited to interpreting 2 Judge Teilborg’s order. 3 IT IS ORDERED: 4 1. EPS’s motion for summary judgment (Doc. 40) is granted. 5 2. The Rule 16 Case Management Conference current set for 6 November 12, 2010 at 4:00 p.m. is vacated and reset to December 21, 2010 7 at 4:30 p.m. to address EPS’s remaining counterclaims. 8 DATED this 9th day of November, 2010. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 11 -
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
