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Sovereign Bank v. BJ's Wholesale Club, Inc.

Sovereign Bank v. BJ's Wholesale Club, Inc.

United States Court of Appeals for the Third Circuit

June 19, 2007, Argued; July 16, 2008, Opinion Filed

Nos. 06-3392/3405

Opinion

 [*164]  McKEE, Circuit Judge.

In these consolidated  [**2] appeals, Sovereign Bank and the Pennsylvania State Employees Credit Union appeal orders dismissing claims that arose from the theft of certain credit card information from a retailer's computer files. For the reasons that follow, we will reverse in part, and affirm those orders in part.

I. BACKGROUND

These consolidated appeals involve two law suits that arose from the theft of credit card information from the computer files of a prominent retailer. Visa U.S.A., Inc., is a corporation, comprised of an association of financial institutions, which operates a credit card payment system known as "Visa." Sovereign Bank and the Pennsylvania State Employees Credit Union ("PSECU") are both members of the Visa network. Sovereign and PSECU have a Membership Agreement with Visa that allows them to issue Visa cards to their respective customers and members. Within the Visa network, Sovereign and PSECU are referred to as "Issuers," which means that they issue Visa cards to cardholders pursuant to the contracts they enter into with them.

Fifth Third Bank is also a member of the Visa network, and it also has a Membership Agreement with Visa. Within the network, Fifth Third is referred to as an "Acquirer,"  [**3] which means that Fifth Third enters into contractual relationships with businesses that agree to accept Visa cards as payment for their goods and services ("Merchants"). Acquirers process those transactions on behalf of the Merchants. BJ's Wholesale Club, Inc., is a Merchant. Accordingly, Fifth Third and BJ's have entered into a Merchant Agreement. Although Merchants participate in the Visa network, they are not members. Only financial institutions are eligible for membership. Therefore, Merchants have no contractual relationship directly with Visa.

Every time a cardholder uses a Visa card to pay a Merchant for goods or services, the Issuer, Acquirer and Merchant must interact to process and complete the transaction. The Merchant's computer scanners first "read" the "Cardholder Information" contained in the magnetic stripe on the back of Visa cards as they are swiped through the familiar terminal at the checkout. The Merchant then sends the pertinent account information through the Visa network to the Issuer. The Issuer reviews the Cardholder Information and, assuming the card is valid with sufficient available credit, the Issuer authorizes the transaction, and so notifies the Merchant.  [**4] Upon receiving that notification,  [*165]  the Merchant completes the transaction with the cardholder, and then forwards the receipt to the Acquirer who pays the Merchant pursuant to their agreement. The Acquirer then notifies the Issuer that payment has been received, and the Issuer pays the Acquirer and charges the cardholder.

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533 F.3d 162 *; 2008 U.S. App. LEXIS 15098 **; 51 A.L.R.6th 657

SOVEREIGN BANK, Appellant No: 06-3392 v. BJ'S WHOLESALE CLUB, INC.; FIFTH THIRD BANCORP; PENNSYLVANIA STATE EMPLOYEES CREDIT UNION, Appellant No: 06-3405 v. FIFTH THIRD BANK; BJ'S WHOLESALE CLUB, INC.; BJ'S WHOLESALE CLUB, INC., Defendant/Third-Party Plaintiff v. INTERNATIONAL BUSINESS MACHINES CORPORATION, INC., Third-Party Defendant

Prior History:  [**1] Appeals from the United States District Court for the Middle District of Pennsylvania. (Civ. Nos. 05-cv-01150/04-cv-01554). District Judge: Hon. William W. Caldwell.

Sovereign Bank v. BJ's Wholesale Club, Inc., 2006 U.S. Dist. LEXIS 40063 (M.D. Pa., June 16, 2006)Pa. State Emples. Credit Union v. Fifth Third Bank, 2006 U.S. Dist. LEXIS 40066 (M.D. Pa., June 16, 2006)Pa. State Emples. Credit Union v. Fifth Third Bank, 398 F. Supp. 2d 317, 2005 U.S. Dist. LEXIS 28707 (M.D. Pa., 2005)Sovereign Bank v. BJ's Wholesale Club, Inc., 427 F. Supp. 2d 526, 2006 U.S. Dist. LEXIS 20037 (M.D. Pa., 2006)

CORE TERMS

Cardholder, cards, Issuers, Regulations, Merchant, district court, Acquirer, economic loss doctrine, breach of contract claim, fraudulent, unjust enrichment, magnetic-stripe, summary judgment, cancelling, compliance, charges, equitable indemnification, negligence claim, replacement, parties, benefits, damages, third-party, retention, contends, disputes, network, argues, contractual relationship, intended beneficiary

Contracts Law, Beneficiaries, Types of Third Party Beneficiaries, Intended Beneficiaries, Incidental Beneficiaries, Civil Procedure, Summary Judgment, Supporting Materials, General Overview, Appeals, Summary Judgment Review, Standards of Review, Entitlement as Matter of Law, Opposing Materials, Accompanying Documentation, Burdens of Proof, Nonmovant Persuasion & Proof, Evidentiary Considerations, Scintilla Rule, Judgments, Evidentiary Considerations, Need for Trial, Genuine Disputes, Materiality of Facts, Standards of Review, De Novo Review, Defenses, Demurrers & Objections, Motions to Dismiss, Failure to State Claim, Pleadings, Complaints, Requirements for Complaint, Business & Corporate Compliance, Contracts Law, Contract Conditions & Provisions, Indemnity Clauses, Torts, Multiple Defendants, Indemnity, Banking Law, Consumer Protection, Truth in Lending, Liability for Violations, Negligence, Types of Negligence Actions, Commercial Interference, Contracts, Prospective Advantage, Elements, Duty, Foreseeability of Harm, Types of Contracts, Quasi Contracts, Remedies, Equitable Relief, Quantum Meruit, Noncontractual Indemnity, Contribution, Evidence, Types of Evidence, Judicial Admissions, Pleadings, Reviewability of Lower Court Decisions, Preservation for Review