Equitable Subrogation; Unjust Enrichment; Breach of Contract; Implied Covenants of Good Faith and Fair Dealing
By: Ivelina Popova | Staff Writer
Jetro Holdings, LLC (“Plaintiff”) entered into a contractual agreement with PNC Bank (“PNC”) to enable its customers to pay with their MasterCard credit cards. As an acquirer of Plaintiff’s MasterCard transactions, PNC had an agreement with MasterCard Intl., Inc. (“Defendant”). Unfortunately, cyber criminals penetrated Plaintiff’s computer network. As a result, Defendant imposed $7 million in fines, assessments and fees upon PNC pursuant to their agreement. In turn, PNC withheld $7 million from Plaintiff pursuant to their contract.
Plaintiff subsequently commenced a lawsuit asserting three causes of action: breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. Plaintiff sought to recover from Defendant the funds withheld by PNC, arguing that it should be equitably subrogated to the rights that PNC had to seek recoupment from Defendant of funds it wrongfully collected. Defendant moved to dismiss the complaint for failure to state a cause of action arguing that the claims for breach of contract and breach of the implied covenant of good faith and fair dealing lacked standing.
The court found no cause of action under four grounds: (1) no direct contractual relationship, (2) no equitable subrogation, (3) no breach of good faith and fair dealing, and (4) no unjust enrichment.
First, the court found that Plaintiff was not in a direct contractual relationship or otherwise in privity with Defendant, an essential element to maintain an action for breach of contract. Plaintiff’s claimed losses were occasioned by PNC’s withholding of funds. Thus, the court ruled that Plaintiff did not have a meritorious argument as to the breach of contract claim.
Second, the court found that the doctrine of equitable subrogation did not apply. Equitable subrogation applies when a party pays the debt of another, under compulsion or for the protection of some interest of the paying party. Here, the court found Defendant did not cause the injury or loss and, therefore, equitable subrogation could not apply. The court also noted that Plaintiff had bargained away its rights of indemnity under its agreement with PNC that Plaintiff would indemnify PNC for assessments that Defendant might impose.
Third, the court found there was no breach of the implied covenant of good faith and fair dealing because Plaintiff was not a party to the contract between PNC and Defendant. The covenant only applies when a party in a contract acts in a way that deprives the other party of the right to receive benefits under their agreement.
Fourth, the court found Defendant was not unjustly enriched. To prevail on a claim of unjust enrichment, a plaintiff must establish three elements: 1) that the other party was enriched, 2) at that party’s expense, and 3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered. Here, the fines imposed by Defendant were at the expense of PNC, not Plaintiff. The court ruled it would not be against equity and good conscience to permit Defendant to retain what Plaintiff seeks to recover because there was no benefit conferred from Plaintiff to Defendant. Plaintiff assumed the risk of loss under its agreement with PNC.
Accordingly, the court granted the Defendant’s motion to dismiss for failure to state a cause of action.
Jetro Holdings, LLC v. MasterCard Intl., Inc., Index No.60374/2015, 5/3/16 (Scheinkman, J.).