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iPayment, Inc. v. Grainger

Court of Appeals of North Carolina

January 2, 2018

iPAYMENT, INC., Plaintiff,
v.
KELLY M. GRAINGER, INDIVIDUALLY AND AS ADMINISTRATOR OF THE ESTATE OF GEORGE GREGORY GRAINGER, WEAKLEY GETWAWAYS, LLC, 1ST AMERICARD, INC., JESSICA GRAINGER, and UNIVERSAL FINANCE & LEASING CORPORATION, Defendants.

          Heard in the Court of Appeals 8 February 2017.

         Appeal by Plaintiff from an order entered 25 August 2016 by Judge Theodore S. Royster, Jr., in Union County No. 15 CVS 2234 Superior Court.

          Rayburn Cooper & Durham, P.A., by Ross R. Fulton and Tory Ian Summey, for Plaintiff-Appellant.

          Koehler & Associates, by Stephen D. Koehler, for Defendants-Appellees.

          INMAN, JUDGE.

         iPayment Inc. ("Plaintiff") appeals from an order denying its motion to compel arbitration of counterclaims brought against Plaintiff by Universal Finance and Leasing Corp. ("Universal"). Plaintiff argues that the trial court erred in finding that Plaintiff waived its right to compel arbitration on Universal's counterclaims. After careful review, we reverse the trial court's order.

         Factual and Procedural Background

         This appeal arises from a dispute between Plaintiff and 1st Americard, Inc. ("Americard") involving an Asset Purchase Agreement, governed by New York law, which resulted in an arbitration award (the "Arbitration Award") of $2, 350, 264.74 in favor Plaintiff.

         The parties are in the business of processing bankcard payments for retail merchants. Their rights and duties are governed by interconnecting agreements, specifically an Asset Purchase Agreement between Plaintiff and Americard and a separate Split Funding Agreement between Plaintiff and Universal.

         Kelly M. Grainger ("Kelly") is the President and sole shareholder of Americard. Jessica Grainger ("Jessica"), daughter of Kelly, was initially an employee of Americard before becoming an employee of Universal following the death of her father George Gregory Grainger.[1] At all relevant times, Kelly and Jessica were citizens and residents of Union County, North Carolina. Kelly and Jessica were also the sole officers and employees of Universal. Weakley Getaways, LLC ("Weakley") is a corporation based in Panama City Beach, Florida, owned and operated by Cathy Baker, Kelly Grainger's sister, and Cathy's husband, Gordon H. Weakley.

         On 28 June 2013, Plaintiff and Americard executed an Asset Purchase Agreement, whereby Plaintiff agreed to purchase rights to Americard's existing merchant accounts in exchange for $4, 867, 852.32. Plaintiff and Americard also executed a Sub-Independent Sales Organization agreement ("Sub-ISO"), whereby Americard agreed to submit all new merchant applications for payment processing services exclusively to Plaintiff during the "Initial Term" and to use its best efforts to obtain new merchants. The Asset Purchase Agreement included the following arbitration clause and choice of law provision:

BINDING ARBITRATION. EXCEPT AS PROVIDED IN SECTION 5.2(C) HEREOF, ANY DISPUTE OR CLAIM BETWEEN THE PARTIES ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE FULLY AND FINALLY RESOLVED BY BINDING ARBITRATION IN THE CITY OF NEW YORK, NEW YORK COUNTY IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES AND PRACTICES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA") FROM TIME TO TIME IN FORCE AND EFFECT.
. . .
GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ANY JURISDICTION'S PRINCIPLES OF CONFLICT OF LAWS.

         A month after executing the Asset Purchase Agreement, on 25 July 2013, Plaintiff and Universal executed a Split Funding Agreement providing that Universal would advance funds to merchants serviced by Plaintiff in exchange for Plaintiff's remittal of certain funds related to those accounts. Similar to the Asset Purchase Agreement, the Split Funding Agreement included the following mandatory arbitration clause (the "Arbitration Clause") and choice of law provision (the "Choice of Law Provision"):

BINDING ARBITRATION. EXCEPT FOR ANY ACTION FOR INJUNCTIVE RELIEF WITH RESPECT TO THE ENFORCEMENT OF ANY PARTY'S RIGHTS UNDER SECTION 11 OR 12 HEREOF, ANY DISPUTE OR CLAIM BETWEEN THE PARTIES ARISING OUT OF OR RELATED TO THIS AGREEMENT SHALL BE FULLY AND FINALLY RESOLVED BY BINDING ARBITRATION IN THE CITY AND COUNTY OF NEW YORK IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES AND PRACTICES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA") FROM TIME TO TIME IN FORCE AND EFFECT.
. . .
GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY JURISDICTION'S PRINCIPLES OF CONFLICT OF LAWS.

         Within a year after purchasing Americard's merchant accounts, Plaintiff brought an arbitration action in New York against Americard, Kelly, and George Grainger alleging that they made misrepresentations to Plaintiff and breached the Asset Purchase Agreement and associated agreements, excluding the Split Funding Agreement. In February 2015, Plaintiff obtained the Arbitration Award finding Americard, Kelly, and Jessica jointly and severally liable to Plaintiff for $2, 350, 264.74. Plaintiff then filed a motion to confirm the arbitration award in the United States District Court for the Southern District of New York.

         On 25 August 2015, while Plaintiff's motion to confirm the arbitration award was pending, Plaintiff filed a verified complaint in Union County Superior Court alleging that immediately after the arbitration award was entered, Kelly and George Grainger entered into a scheme to fraudulently transfer their assets to Weakley in an attempt to avoid Plaintiff's eventual judgment from the Arbitration Award. On 18 September 2015, Plaintiff amended its original complaint to include Kelly in her capacity as the administrator of the estate of George Gregory Grainger. On 26 October 2015, Plaintiff filed its second amended verified complaint (the "Second Amended Complaint"), which named Jessica, Americard, and Universal as additional defendants in the action. Plaintiff asserted two claims against Universal as a transferee of fraudulent transfers from the other Defendants, alleging "[u]pon information and belief, Universal Finance is the recipient of some or all of those fraudulently transferred assets from the Graingers or 1st AmeriCard or their proceeds." The Second Amended Complaint alleged no conduct by or on behalf of Universal other than receiving fraudulent transfers.

         Plaintiff began pursuing discovery in the fraudulent transfer litigation on 24 September 2015 by propounding to Kelly interrogatories, requests for production of documents, and requests for admissions. On 1 October 2015, prior to adding Americard and Universal as defendants in the action, Plaintiff issued a subpoena to a third-party accountant for all documents relating to Americard, Universal, or Kelly and George Grainger "for the period from January 1, 2013 through the present, including, but not limited to, tax returns, financial statements, work papers, bank account records, and all correspondence (including emails, letters, and text messages)." Later in October 2015, but prior to naming Americard and Universal as defendants in the action, Plaintiff issued subpoenas to five banks seeking additional documents and information relating to specific accounts and transactions involving Kelly, George Grainger, Americard, and Universal.

         In December 2015, after asserting claims against Americard, Universal, and Jessica, Plaintiff served on Americard and Jessica a set of interrogatories, requests for production of documents, and requests for admissions, and served ...


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