2008 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

7-16-2008

Sovereign Bank v. BJ Wholesale Club

Precedential or Non-Precedential: Precedential

Docket No. 06-3392

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1

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Nos. 06-3392/3405

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
2

 v.

INTERNATIONAL BUSINESS MACHINES

CORPORATION, INC.

 Third-Party Defendant

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

Argued: June 19, 2007

Before: McKEE, FISHER and CHAGARES,

Circuit Judges

(Opinion filed: July 16, 2008)

JOSEPH WOLFSON, ESQ. (Argued)

STACEY A. SCRIVANI, ESQ.

Stevens & Lee

620 Freedom Business Center

P.O. Box 62330

King of Prussia, PA 19406

Attorneys for appellant, Sovereign Bank

DONALD B. KAUFMAN, ESQ. (Argued)

DEVIN CHWASTYK, ESQ.

McNees Wallace & Nurick LLC

100 Pine Street
3

P.O. Box 1166

Harrisburg, PA 17108

Attorneys for appellant, Pennsylvania

State Employees Credit Union

JAMES W. PRENDERGAST, ESQ. (Argued)

JENNIFER L. CARPENTER, ESQ.

Wilmer Cutler Pickering Hale and Dorr LLP

60 State Street

Boston, MA 02109

GORDON PEARSON, ESQ.

MARIO J. WEBER, ESQ.

Wilmer Cutler Pickering Hall and Dorr LLP

1875 Pennsylvania Ave., NW

Washington, D.C. 2006

RICHARD L. KREMNICK, ESQ.

CHRISTOPHER A. LEWIS, ESQ.

LEWIS W. SCHLOSSBERG, ESQ.

Blank Rome LLP

One Logan Square

18th & Cherry Streets

Philadelphia, PA 19103

Attorneys for appellee, BJ’s Wholesale Club, Inc.

W. BRECK WEIGEL, ESQ. (Argued)

Vorys, Sater, Seymour & Pease LLP

221 East Fourth Street

Cincinnati, OH 45202
4

ANDREW L. SWOPE, ESQ.

ABRAM D. BURNETT III, ESQ.

Kirkpatrick & Lockhart Preston Gates Ellis LLP

17 N. Second Street, 18th Floor

Harrisburg, PA 17101

Attorneys for appellee, Fifth Third Bank

OPINION

McKEE, Circuit Judge.

In these consolidated 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
5

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 cardsto 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,” 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
6

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
 Visa offers both credit cards and debit cards. Since 1

the distinction is not relevant here, we will simply refer to

“credit cards.”

7

transaction, and so notifies the Merchant. Upon receiving that

notification, 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.

Visa has created an extensive set of “Operating

Regulations” to both govern and facilitate transactions

involving Visa cards. Those Regulations address virtually 1

every aspect of the Visa payment system, and impose both

general and specific requirements on participants in the

network.

The disputes in these appeals center on certain
8

security regulations including the Cardholder Information

Security Program (“CISP”). The CISP provisions apply to

Issuers and Acquirers and include broad security requirements

intended to protect Cardholder Information. Those

requirements include a prohibition against retaining or storing

the data encoded in the familiar magnetic stripe on the back of

credit cards, i.e., Cardholder Information, after a consumer

transaction is completed. 

One provision of the Operating Regulations, entitled

“Enforcement,” defines procedures by which Visa can enforce

compliance with the Operating Regulations. That provision

expressly allows Visa to take specified remedial actions against

Members who do not comply with the Operating Regulations,

including levying fines and penalties. Enforcement actions can

be appealed to Visa’s Board of Directors, but the Board’s

decision is final. The Operating Regulations give Visa, and
A “chargeback” is the return of a transaction from the 2

Issuer to the Acquirer, sometimes because the Issuer’s

customer has a dispute with the Merchant or because the

customer does not recognize the transaction. A

9

only Visa, the right to interpret and enforce the Operating

Regulations, and only Visa can determine whether a violation

of the Operating Regulations has occurred.

The Operating Regulations also impose extensive

security requirements on Issuers and Acquirers. Section 2.3 of

the Operating Regulations requires Issuers and Acquirers to

ensure that their agents, service providers and Merchants

comply with the Operating Regulations. 

The Visa Operating Regulations also include

comprehensive provisions for resolving disputes between Visa

members. These provisions allow members to challenge

disputed charges through “chargeback” and representment

procedures, in accordance with risk allocation judgments made 2
“representment” is the Issuer’s or its agent’s challenge to a

chargeback; it involves resubmission of its response to the

chargeback with additional information. 

10

by Visa. Disputes about the use of these procedures are

resolved by arbitration.

Finally, the Operating Regulations also include

“Compliance” provisions that apply when a Member’s

violation of a Regulation causes a financial loss to another

Member who cannot be made whole by resorting to chargeback

or representment. For example, a loss resulting from fraudulent

charges using stolen data is allocated to the Issuer. However,

the Issuer may use the Compliance proceedings to shift that loss

to the Acquirer if it resulted from the Acquirer’s violation of an

Operating Regulation. The Compliance provisions do not

eliminate any rights a Member may have to pursue any legal

remedies that may otherwise be available.
11

Pursuant to their Membership Agreements with Visa, all

Members of the Visa network including Insurers and Acquirers,

agree to be bound by the Operating Regulations. In addition,

before an Acquirer can enter into a Merchant Agreement with

a Merchant, the Acquirer mustfirst determine that the Merchant

will abide by the Operating Regulations. Given the importance

attached to uniform compliance, an Acquirer’s initial

determination is deemed insufficient. Rather, an Acquirer must

agree to ensure continued compliance with the Operating

Regulations. Finally, the Acquirer must have a Merchant

Agreement with each of its Merchants. The Merchant

Agreements may generally contain whatever extraneous

provisions the Acquirer and Merchant agree upon, but, the

Agreement must, at a minimum, contain the provisions of

Section 5.2 of the Operating Regulations. These disputes

involve § 5.2.h.3.b. That subdivision prohibits a Merchant from
12

retaining or storing Cardholder Information after an Issuer

authorizes a transaction. Like all Visa Members, Fifth Third’s

predecessor agreed to be bound by the Visa Operating

Regulations and By-Laws, which are incorporated by reference

into the Membership Agreement.

The seeds that sprouted this litigation were sewn in

February 2004, when Visa identified a potential compromise of

electronically stored Cardholder Information pertaining to

certain Visa cards issued by Sovereign, PSECU and other

financial institutions. Electronic data on some credit cards had

been copied and used to fraudulently obtain goods and services

after cardholders had used the cards at various BJ’s stores. Visa

responded by issuing a “CAMS alert” to potentially affected

Issuers. Such CAMS alerts notify Visa members that

Cardholder Information may have been compromised. The

CAMS alert here notified the Issuers that Visa cards which had
 The alert is purely informational and does not mean

3

that the accounts listed had been compromised. Fifth Third

claims that an Issuer has discretion in choosing how it will

respond to a CAMS alert. It can respond by monitoring the

affected accounts for fraudulent activity, cancelling the

accounts and reissuing new Visa cards, or taking other

measures based on the potential for fraud.

13

been properly presented for payment at BJ’s stores from July

2003 through February 2004 had been compromised and could

be used to make fraudulent purchases. 

Sovereign responded to the February 2004 alert by

cancelling some Visa cards and issuing new Visa cards to the

affected cardholders. Sovereign claims that the fraud was only 3

possible because BJ’s improperly retained and stored the

Cardholder Information from its customers’ cards instead of

deleting the data immediately after a sales transaction was

completed, as required by Visa Operating Regulation §

5.2.h.3.b. In Sovereign’s view, BJ’s failure to comply with the
14

requirements of § 5.2.h.3.b. breached a duty owed to

Sovereign. Sovereign further contends that Fifth Third failed

to comply with the Operating Regulations by failing to ensure

that BJ’s complied with § 5.2.h.3.b. 

According to Sovereign, BJ’s failure to delete the

Cardholder Information magnetically stored in Visa cards, and

Fifth Third’s failure to ensure that BJ’s complied with §

5.3.h.3.b, allowed the unauthorized and fraudulent use of

Cardholder Information. Sovereign maintains that it was legally

obligated to reimburse its cardholders for the resulting

fraudulent charges, and that it incurred expenses, and lost

income and fees from doing so. This purportedly included the

costs of issuing replacement cards to Cardholders (in an effort

to mitigate further losses), and loss of goodwill of its customer

base. 

After it discovered the breach of security of Cardholder
15

Information that had been retained in BJ’s system, PSECU also

canceled approximately 20,000 Visa cards that it had issued to

its members who had used the cards at BJ’s. It then reissued

Visa cards with new account numbers and new Cardholder

Information at a cost of approximately $98,000. 

II. Sovereign Bank v. BJ’s Wholesale Club and

Fifth Third Bank (No. 06-3392)

On January 10, 2005, Sovereign sued Fifth Third and

BJ’s in state court asserting a claim for negligence, breach of

contract, and equitable indemnification against each defendant.

The suit was brought to recover the losses that resulted from the

fraudulent use of Cardholders’ Information, lost fees and

commissions, the value of the unauthorized purchases and sales,

and the cost of replacing Visa cards. 

BJ’s and Fifth Third removed the action to the United
The district court had jurisdiction pursuant to 28 4

U.S.C. § 1332.

16

States District Court for the Eastern District of Pennsylvania.

4

Venue was subsequently transferred to the United States

District Court for the Middle District of Pennsylvania to allow

consolidation with Pennsylvania State Employees Credit Union

v. Fifth Third Bank and BJ’s Wholesale Club, Inc. That action

had been brought by the PSECU to recover the costs it incurred

in replacing its members’ Visa cards that had been

compromised by the fraud. 

Following the transfer, BJ’s and Fifth Third separately

moved to dismiss the claims against them pursuant to

Fed.R.Civ.P. 12(b)(6). The district court denied BJ’s motion on

the negligence claim, but granted it on the breach of contract

and equitable indemnification claims. The court granted Fifth

Third’s motion on the negligence and equitable indemnification
17

claims, but denied it on the breach of contract claim. Sovereign

Bank v. BJ’s Wholesale Club, Inc., 395 F. Supp. 2d 183 (M.D.

Pa. 2005). 

Fifth Third moved for reconsideration on the sole

remaining claim for breach of contract. Sovereign’s breach of

contract claim is based on a third-party or intended beneficiary

theory and depends, in part, upon whether Fifth Third and Visa

intended to give Sovereign enforceable rights under their

separate contract even though Sovereign is not a party to it.

Ultimately, the district court converted Fifth Third’s motion for

reconsideration into a motion for summary judgment and

ordered the parties to conduct discovery on the third-party

beneficiary issues, i.e., whether Fifth Third’s contractual

obligation to Visa to comply with the Visa Operating

Regulations was intended to benefit Issuers like Sovereign.

In the meantime, Sovereign filed an amended complaint
18

asserting claims against BJ’s for negligence, breach of

fiduiciary duty and promissory estoppel. The amended

complaint restated the breach of contract claim against Fifth

Third and added a claim for promissory estoppel. Fifth Third

and BJ’s again moved to dismiss the claims under Rule

12(b)(6), and the district court dismissed all claims against BJ’s

and dismissed all claims against Fifth Third except the breach

of contract claim. Sovereign Bank v. BJ’s Wholesale Club, Inc.,

427 F. Supp. 2d 526 (M.D. Pa. 2006).

In accordance with the district court’s order directing

limited discovery on the third-party beneficiary issues, the

parties exchanged paper discovery and took the deposition of

Visa’s designated representative, Alex Miller. After discovery

was completed, the district court granted summary judgment in

favor of Fifth Third on the third-party beneficiary claim,

holding that Sovereign was not an intended beneficiary of the
19

Visa-Fifth Third Member Agreement. Sovereign Bank v. BJ’s

Wholesale Club, Inc., 2006 WL 1722398 (M.D. Pa. June 16,

2006).

This appeal followed. With respect to Fifth Third,

Sovereign appeals only the district court’s Rule 12(b)(6)

dismissal of its equitable indemnification claim and the district

court’s grant ofsummary judgment in favor of Fifth Third on its

breach of contract claim. With respect to BJ’s, Sovereign

appeals only the district court’s Rule 12(b)(6)’s dismissal of its

negligence and equitable indemnification claims.

We discuss each of Sovereign’s arguments in turn.

A. Sovereign’s Breach of Contract Claim Against Fifth

Third. 

As noted, Sovereign’s contract claim is based on the

theory that it is a third-party beneficiary of Fifth Third’s

Member Agreement with Visa. As also noted, that agreement
20

required Fifth Third to ensure that BJ’s complied with the Visa

Operating Regulations, and § 5.2.h.3.b. of that agreement

prohibits Merchants from retaining Cardholder Information.

Sovereign contends that Fifth Third breached that contract by

not ensuring BJ’s compliance. 

Historically, under Pennsylvania law, “in order for a

third party beneficiary to have standing to recover on a contract,

both contracting parties must have expressed an intention that

the third-party be a beneficiary, and that intention must have

affirmatively appeared in the contract itself.” Scarpitti v.

Weborg, 609 A.2d 147, 149 (Pa. 1992) (citation omitted).

Sovereign appropriately concedes that it is not an express thirdparty beneficiary of the Visa-Fifth Third Member Agreement.

However, in Scarpitti, the Pennsylvania Supreme Court adopted

§ 302 of the Restatement (Second) of Contracts. Id. That

provision allows an “intended beneficiary” to recover for breach
21

of contract even though the actual partiesto the contract did not

express an intent to benefit the third party. Section 302

provides as follows: 

Intended and Incidental Beneficiaries

(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 intentions 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.

(2) An incidental beneficiary is a beneficiary who

is not an intended beneficiary.

Under § 302, Sovereign’s contract claim depends on

whether the “recognition of a right to performance” in

Sovereign “is appropriate to effectuate the intentions of” both

Visa and Fifth Third in entering into their member agreement

and whether “the circumstances indicate that” Visa (the
22

promisee) “intend[ed]” to give Sovereign “the benefit of the

promised performance.”

As noted earlier, the district court converted Fifth Third’s

Rule 12(b)(6) motion to dismiss to a motion for summary

judgment and ordered limited discovery. The ensuing discovery

included production of numerous documents as well as the

deposition of Visa’s designated representative, Alex Miller.

Fifth Third relies in part on Miller’s testimony that he was not

aware that Visa intended to create a direct right of enforcement

under the Operating Regulations among Members and he has

never seen a document that would allow a Member “to step into

Visa’s shoes under its contract with other members” and

enforce the Operating Regulations. Miller testified in part as

follows: 

[T]he core purpose of the Operating Regulations

is to set up the conditions for participation in the

system, to set up the rules and standards that
23

apply to that ultimately for the benefit of the Visa

payment system, the members that participate in

it and other stakeholders such as cardholders,

merchants, and others who may participate in the

system as well.

Fifth Third further contends that Miller also made it clear that

the Operating Regulations’ prohibition against retaining

Cardholder Information, which Fifth Third claims was enacted

long after it entered into its agreement with Visa, was not to

benefit any individual member or class of members. Rather,

according to Miller: 

[t]he purpose of the CISP program . . . is to

maximize the value to the Visa system as a whole.

That can include the protection of any entity that

may be involved in the use or – or handling of

cardholder data, so it’s to protect a cardholder,

the privacy of their information, to protect their

confidence in using the Visa system, to protect

issuers, to protect acquirers, to protect merchants;

and by creating a system that protects cardholder

data, generally it’s to maximize the usage and

value of the Visa payment system for all of those

participants.
24

Miller was asked whether, even though there may have been

multiple purposes for requiring the Acquirer to ensure Merchant

compliance with the regulations, at least one such reason was to

protect Issuers. Miller responded as follows: 

The part of your question I’m struggling with is

to say whether that was the purpose or not. I

think I summarized what the purpose was.

One of the entities that is impacted by the

Cardholder Information Program is issuers, as

well as acquirers, merchants and cardholders. So

my understanding was the purpose was not

directed at any one of those entities but to

maximize the value of the system in protecting

cardholder information for all of the participants.

Finally, Fifth Third notesthat in responding to a question about

whether Visa intended to give Issuers the benefit of the

Acquirer’s compliance with the CISP, Miller testified:

Visa designed the CISP program to benefit the

Visa system as a whole, to drive confidence in the

integrity of the Visa system, to drive greater,

greater efficiency, to drive cardholder security,
25

and to do that from requirements that apply to all

Visa members that designed ultimately to yield a

more efficient system on behalf of all those

participants.

In sum, Fifth Third contends that Miller’s deposition

testimony clearly shows that the intent of the Operating

Regulations, and more particularly the prohibition on Merchant

retention of Cardholder Information, is to benefit the Visa

system as a whole and not Sovereign or any particular Issuer in

particular. Accordingly, Fifth Third argues that it is entitled to

summary judgment on Sovereign’s breach of contract claim. 

Sovereign responds that there is a genuine issue of

material fact as to Visa’s intent which precludes summary

judgment. Sovereign notes that in August 1993, Visa wrote a

memorandum entitled “Retention of Magnetic-Stripe Data
The memorandum was written by Vincent La Paglia, 5

Visa’s Vice President, Card Operations. 

26

Prohibited.” The memorandum described a new section of the 5

Operating Regulations prohibiting the storage of magneticstripe data, i.e., Cardholder Information. It read in part as

follows:

To protect the Visa system and Issuers from

potential fraud exposure created by databases of

magnetic-stripe information, Section 6.21 has

been revised. Effective September 1, 1993, the

retention or storage of magnetic stripe data

subsequent to the authorization of a transaction is

prohibited. Acquirers are obligated to ensure that

their merchants do not store the magnetic-stripe

information from Visa Cards for any subsequent

use.

Sovereign contendsthat this August 1993 memorandum shows

that Visa understood and clearly intended that Issuers such as

Sovereign (and PSECU) would obtain direct benefits from the

requiring members to ensure that magnetic-stripe data was not
27

retained.

Sovereign further contends that other evidence obtained

from Visa shows that Visa expressly understood and intended

that the prohibition would provide direct benefits to Issuers and

that the type of harm suffered by Sovereign was specifically

intended to be avoided by compliance with the prohibition.

Visa published an on-line article entitled “Issuers and Acquirers

Are At Risk When Magnetic-Stripe Data Is Stored,” in May

2003. The article stated that the CISP “was established to

preclude a compromise that could lead to the duplication of

valid magnetic-stripe data on counterfeit or altered cards,”

because such a data compromise “impacts Issuers, Acquirers,

cardholder goodwill and the integrity of the payment system.”

Sovereign submits that this article is additional evidence that the

prohibition againstretaining Cardholder Information contained

in the magnetic strip was intended to directly benefit Issuers.
28

Finally, Sovereign relies on the following exchange

during Miller’s deposition: 

Q: [by Fifth Third’s counsel] Is it fair to say that

the operating regulations are not intended to

benefit a single group of participants, but the Visa

payment system as a whole?

Objection. Leading.

A: [by Miller] It’s fair to say that the core purpose

of the operating regulations is to set up the

conditions for participation in the system, to set

up rules and standards that apply to that

ultimately for the benefit of the Visa payment

system, the members that participate in it and

other stakeholders such as cardholders,

merchants and others who may participate in the

system as well. (emphasis added).

Q: Theymay have some incidental benefit; is that

correct?

Objection 

Leading, and calls for a legal conclusion.

A: The bylaws and operating regulations, by their

terms, apply only to members. So to the extent

you mean they might have benefits beyond the
29

rules that apply to other stakeholders, that’s

correct. They’re not directly parties to these

rules. (emphasis added)

Sovereign argues that, despite the best efforts of Fifth Third’s

counsel, the italicized portions of Miller’s testimony

demonstrate that Visa understood that Issuers are more than

incidental beneficiaries of the Member Agreements. Rather, it

shows that Visa expressly understood that other classes of

participants, such as Issuers, were intended and foreseeable

beneficiaries of a Member Agreement, even though they are not

parties to a particular agreement.

Sovereign also argues that in granting summary

judgment to Fifth Third, the district court did not apply wellsettled summary judgment standards. Rather, according to

Sovereign, the district court acted like a fact-finder by weighing

conflicting or ambiguous evidence and making credibility

determinations. The district court explained: 
30

In the face of this evidence of Visa’s intent [i.e.,

Miller’s deposition testimony], we do not believe

that the single August 1993 reference to

benefitting issuers nor the ambiguous “core

purpose” statement is sufficient evidence to lead

a reasonable jury to find for [Sovereign] on the

contract claim.

2006 WL 1722398 at *12 (emphasis added). It further

commented:

It cannot be disputed that Sovereign benefits from

the prohibition on the retention of magnetic-stripe

data. It is probably also true that as an issuer it

has the greatest need for such a prohibition, and

benefits the most from it, since its cardholders’

information is at risk if a merchant or other entity

retains such data so that it is subject to theft. But

one essential part of the test for third-partybeneficiary status is that the promisee, here Visa,

must have intended to benefit the third party.

There is sufficient evidence on summary

judgment to state that Visa had no such intent. In

sum, as Fifth Third argues, Sovereign is at most

an incidental beneficiary of the member

agreement between Visa and Fifth Third, and an

incidental beneficiary has no right to enforce a

contract, no matter how great a stake it might

have in doing so.
31

Id. (emphasis added). 

We disagree with Sovereign’s claim that the district court

did not apply well-settled summary judgment standards. In

Saldana v. Kmart Corp., 260 F.3d 228 (3d Cir. 2001), we

discussed the familiar principles governing summary judgment:

When reviewing an order granting summary

judgment, we exercise plenary review and apply

the same test a district court applies. Under

Federal Rule of Civil Procedure 56(c), that test is

whether there is a genuine issue of material fact

and, if not, whether the moving party is entitled to

judgment as a matter of law. In so deciding, a

court must view the facts in the light most

favorable to the nonmoving party and draw all

inferences in the party’s favor. A court should

find for the moving party if the pleadings,

depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if

any, show that there is no genuine issue as to any

material fact and that the moving party is entitled

to judgment as a matter of law. The party

opposing summary judgment may not rest upon

the mere allegations or denials of the pleading; its

response, by affidavits or as otherwise provided

in this title, must set forth specific facts showing

that there is a genuine issue for trial. There is no
32

issue for trial unless there is sufficient evidence

favoring the nonmoving party for a jury to return

a verdict for that party. Such affirmative

evidence – regardless of whether it is direct or

circumstantial – must amount to more than a

scintilla, but may amount to less (in the

evaluation of the court) than a preponderance.

Id. at 231-32 (citations omitted) (emphasis added). In a later

case, In re CITX Corp., 448 F.3d 672, 677 (3d Cir. 2006), we

commented that “to survive summary judgment on his claim .

. . [a nonmovant] must present sufficient evidence to allow a

reasonable jury to find in his favor.”

Moreover, in one of the leading, and oft-cited, summary

judgment standard cases, Anderson v. Liberty Lobby, Inc., 477

U.S. 242 (1986), the Supreme Court noted that “[b]y its very

terms,” Rule 56(c) “provides that the mere existence of some

alleged factual dispute between the parties will not defeat an

otherwise properly supported motion for summary judgment;

the requirement is that there be no genuine issue of material
33

fact.” Id. at 247-248 (emphasis in original). The Court went

on to explain:

As to materiality, the substantive law will identify

which facts are material. Only disputes over facts

that might affect the outcome of the suit under

governing law will properly preclude the entry of

summary judgment. Factual disputes that are

irrelevant or unnecessary will not be counted. 

**********

More important for present purposes, summary

judgment will not lie if the dispute about a

material fact is “genuine,” that is, if the evidence

is such that a reasonable jury could return a

verdict for the nonmoving party.

Id. at 248. 

Therefore, the district court did not err in referring to a

“reasonable jury” or “substantial evidence” in its summary

judgment analysis. However, even though we do not agree with

Sovereign’s contention that the district court misstated the rule

for granting summary judgment, we agree that the court
34

misapplied those principles and erroneously granted summary

judgment. 

In order to be an intended beneficiary of the Visa-Fifth

Third Member Agreement, Sovereign has the burden of

producing, inter alia, sufficient evidence that Visa intended to

give it the benefit of the Fifth Third’s promise to Visa to ensure

that BJ’s complied with the provision of the Member

Agreement prohibiting Merchants from retaining Cardholder

Information. We believe that Sovereign met that burden.

We do not, however, regard the May 2003 on-line article

entitled “Issuers and Acquirers Are At Risk When MagneticStripe Is Stored” as indicative of an intent to benefit a particular

Issuer such as Sovereign or PSECU. That article simply states

the reason for the prohibition against retention of Cardholder

Information, viz., a data compromise that could result from

storage of magnetic-stripe data “impacts Issuers, Acquirers,
35

cardholder goodwill, and the integrity of the system.” However,

we do believe that Visa’s August 1993 memorandum, entitled

“Retention of Magnetic-Stripe Date Prohibited,” and Miller’s

“core purpose” deposition testimony raise a genuine issue of

material fact regarding the intent of the Visa and Fifth Third

Member Agreement. That was sufficient to preclude the grant

of summary judgment on Sovereign’s breach of contract claim.

In his deposition, Millertestified that the core purpose of

the Operating Regulations was to benefit the Visa system and

“the membersthat participate in it.” Admittedly, any indication

of an intent by Visa to specifically benefit Issuers is arguably

undermined by Miller’s references to “other shareholders such

as cardholders, merchants and others who may participate in the

system as well.” Nonetheless, his testimony clearly suggests an

intent by Visa to benefit Issuers. An argument to the contrary

is tantamount to claiming that since Visa intended to benefit
36

everyone who was part of the Visa system, it did not specifically

intend to benefit anyone. However, the fact that it intended to

benefit several Members or classes of Members does not negate

the possibility that it intended to benefit individual Issuers such

as Sovereign. 

Moreover, as recited earlier, the August 1993

memorandum provides, in relevant part: “To protect the Visa

system and Issuers from potential fraud exposure created by

databases of magnetic-stripe information . . . . Acquirers are

obligated to ensure that their merchants do not store the

magnetic-stripe information from Visa Cards for any

subsequent use.” (emphasis added). Thus, the memorandum

clearly states that Acquirers must act to protect Issuers by

ensuring that their Merchants do not retain Cardholder

Information. Accordingly, the August 1993 memorandum is

sufficient evidence by itself to create a genuine issue about
After oral argument, counsel for Fifth Third sent a 6

letter to the Clerk, pursuant to Fed.R.App.P. 28(j), informing

her of a decision of the United States District Court for the

District of Massachusetts in In re TJX Companies Retail

Security Breach Litigation, 524 F. Supp. 2d 83 (D. Mass.

2007), a case that is factually identical to the two appeals

before us. TJX is the Merchant in that case and Fifth Third is

the Acquirer. In TJX, a putative class of Issuers asserted

third-party beneficiary claims against Fifth Third arising from

a data security breach relating to unauthorized access to Visa

Cardholder Information retained by TJX. The district court

dismissed the third-party beneficiary claims pursuant to

Fed.R.Civ.P. 12(b)(6), holding that in a section of the

Operating Regulations, Visa expressly intended to preclude

third-party beneficiaries. 524 F. Supp.2d at 89. However,

that section of the Operating Regulations is in a later version

of the Operating Regulations adopted after the events that

occurred here. Accordingly, In re TJX is not at all helpful to

37

whether Visa intended to give Sovereign the benefit of Fifth

Third’s promise to Visa to ensure BJ’s compliance with the

provisions of the Visa-Fifth Third Member Agreement.

Therefore, we will reverse the district court’s grant of summary

judgment to Fifth Third on the breach of contract claim and

remand for further proceedings on that claim.6
our analysis. 

The standard of review for a dismissal under 7

Fed.R.Civ.P. 12(b)(6) is de novo. Phillips v. County of

Allegheny, 515 F.3d 224, 230 (3d Cir. 2008). We must

review the complaint in light of the Supreme Court’s decision

in Bell Atlantic Corp. v. Twombly, U.S. , 127 S.Ct. 1955

(2007) and our recent opinion in Phillips v. County of

Allegheny, supra, both of which were issued after the district

court’s decision. In Twombly, an antitrust case, the Supreme

Court rejected the language in Conley v. Gibson, 355 U.S. 41,

45-46 (1957), that a district court may not dismiss a

complaint “unless it appears beyond doubt that the plaintiff

can prove no set of facts in support of his claim which would

entitle him to relief.” In rejecting that language, the Supreme

Court explained that the allegations of the complaint should

“plausibly suggest[]” that the pleader is entitled to relief. 

38

B. Sovereign’s Equitable Indemnification Claims Against

Fifth Third and BJ’s.

As noted, BJ’s and Fifth Third separately moved to

dismiss these equitable indemnification claims pursuant to Rule

12(b)(6), and the district court granted both motions. 395 F.

Supp. 2d 183 (M.D. Pa. 2005). Sovereign contends that was

error. 

7
In Phillips, a case brought under 42 U.S.C. § 1983, we

held that Twombly’s “plausibility” standard is not restricted to

antitrust cases. 515 F.3d at 234. Although we commented

that the exact boundaries of Twombly are not yet known, we

read it to mean that “[f]actual allegations must be enough to

raise a right to relief above the speculative level.” Id.

(quoting Twombly, 127 S.Ct. at 1965). Put another way,

“‘stating . . . a claim requires a complaint with enough factual

matter (taken as true) to suggest’ the required element.” Id.

(quoting Twombly, 127 S.Ct. at 1965). The complaint must

state “‘enough facts to raise a reasonable expectation that

discovery will reveal evidence of’ the necessary element.” Id.

(quoting Twombly, 127 S.Ct. at 1965). “That is to say, there

must be some showing sufficient to justify moving the case

beyond the pleading to the next stage of litigation.” Id. at

234-35. 

In Wilkerson v. New Media Technology Charter

School, Inc., 522 F.3d 315, 322 (3d Cir. 2008), we extended

“our holding in Phillips to the employment discrimination

context. The plausibility paradigm announced in Twombly

applies with equal force to analyzing the adequacy of claims

of employment discrimination.” We see no reason why

Twombly’s plausibility standard does not apply to the

complaint before us now. 

39

Indemnification is “a fault shifting mechanism.” Sirianni
40

v. Nugent Bros., Inc., 506 A.2d 868, 871, (Pa. 1986). 

The right of indemnity rests upon a difference

between the primary and the secondary liability of

two persons each of which is made responsible by

the law to an injured party. It is a right which

enures to a person who, without active fault on

his own part, has been compelled, by reason of

some legal obligation, to pay damages occasioned

by the negligence of another, and for which he

himself is only secondarily liable. The difference

between primary liability and secondary liability

. . . depends on a difference in the character or

kind of the wrongs which cause the injury and in

the nature of the legal obligation owed by each of

the wrongdoers to the injured person. . . .

[S]econdary as distinguished from primary

liability rests upon a fault that is imputed or

constructive only, being based on some legal

relation between the parties, or arising from some

positive rule of common or statutory law or

because of a failure to discover or correct a defect

or remedy a dangerous condition caused by the

act of the one primarily responsible.

Builders Supply Co. v. McCabe, 77 A.2d 368, 370, 371 (Pa.

1951) (emphasis omitted). 

Sovereign claims a right to indemnification because BJ’s
41

and Fifth Third are primarily liable (presumably to Sovereign’s

cardholders) based on their negligently allowing the retention

of the Cardholder Information. Sovereign believes that it is

only secondarily liable because of the operation of the Truth in

Lending Act (“TILA”), 15 U.S.C. § 1643(a), (d), which creates

a ceiling of $50 for cardholder liability for unauthorized

charges. 

Sovereign claims that its status of secondary liability

arises because, when a credit card purchase is made, the

cardholder’s account is charged, or debited, within days for that

purchase and it becomes the cardholder’s obligation to pay the

charges incurred; this is true even if the purchase is fraudulent.

However, once a cardholder becomes aware of fraudulent

activity on his/her account and notifies the card Issuer, that

Issuer is obligated to reverse the charges, or credit the

cardholder, for the amount of those fraudulent charges less $50,
42

under the TILA. Thus, although § 1643 on its face only limits

a cardholder’s liability, it creates a concomitant duty in the

Issuer to reimburse the cardholder’s account for all fraudulent

charges in excess of the $50 ceiling.

Sovereign submits that its cardholders had already been

charged the full amount of the fraudulent charges before the

fraud was discovered. Thus, in order to keep cardholders’

liability below the $50 limitation, Sovereign was obligated to

reimburse the cardholder accounts for the amount of the

fraudulent charges less $50. According to Sovereign, thisis the

precise situation the doctrine of equitable indemnification was

designed to address. We disagree. 

Sovereign can point to no authority to support its attempt

to forge an equitable indemnification claim from the provisions

of the TILA, and we have found none. The TILA is a consumer

protection statute. Fairley v. Turan-Foley Imports, Inc., 65
43

F.3d 475, 479 (5th Cir. 1995). TILA § 1643 does not impose

any obligation on issuers of credit cards to pay the costs

associated with unauthorized or fraudulent use of credit cards.

It simply limits the liability of cardholders, under certain

circumstances, to a maximum of $50 for unauthorized charges.

Indeed, §1643 does not address, nor is it even concerned with,

the liability of an Issuer or any party other than the cardholder

for unauthorized charges on a credit card. Section 1643

imposesliability only upon the cardholder. Since TILA § 1643

does not obligate Sovereign to reimburse its cardholders’

accounts, the district court correctly dismissed the equitable

indemnification claims against Fifth Third and BJ’s.

C. Sovereign’s Negligence Claim Against BJ’s.

The district court dismissed Sovereign’s negligence

claim pursuant to Fed. R. Civ. P. 12(b)(6) because the claim

was barred by the economic loss doctrine. 427 F. Supp. 2d at
44

533.

“The Economic Loss Doctrine provides that no cause of

action exists for negligence that results solely in economic

damages unaccompanied by physical or property damage.”

Adams v. Cooper Beach Townhome Communities, L.P., 816

A.2d 301, 305 (Pa. Super. 2003). “[T]he Economic Loss

Doctrine is concerned with two main factors: foreseeability and

limitation of liability.” Id. at 307

Pennsylvania appellate courts first discussed this doctrine

in Aikens v. Baltimore & Ohio R.R. Co., 501 A.2d 277 (Pa.

Super. 1985). There, employees of a manufacturing company

sued a railroad company to recover wages lost when their plant

had to close because of damage inflicted by a derailment

allegedly caused by the railroad company’s negligence. The

employees did not suffer any personal injuries or loss of

property. In appealing the trial court’s judgment on the
45

pleadings in favor of the railroad, the employees argued that the

Pennsylvania Superior Court should recognize “a cause of

action to compensate a party suffering purely economic loss,

absent any direct physical injury or property damage, as a result

of the negligence of another party.” 501 A.2d at 278. The

Superior Court declined the invitation; instead, the court

adopted the general rule set forth in the Restatement (Second)

of Torts § 766C. That rule provides as follows: 

Negligent Interference with Contract or

Prospective Contractual Relation.

One is not liable to another for pecuniary harm

not deriving from physical harm to the other, if

that harm results from the actor’s negligently

(a) causing a third person not to perform a

contract with the other, or

(b) interfering with the other’s performance of his

contract or making the performance more

expensive or burdensome, or

(c) interfering with the others acquiring a contractual

relation with a third person.

The Superior Court noted that under § 766C, “recovery for
46

purely economic loss occasioned by tortuous interference with

contract or economic advantage is not available under a

negligence theory.” 501 A.2d at 278 (citation omitted). 

As the Superior Court explained, the “roots of this wellestablished rule” reach back to the U.S. Supreme Court’s

decision in Robins Dry Dock and Repair Co. v. Flint, 275 U.S.

303 (1927). The Superior Court quoted from the Supreme

Court’s decision in Flint, in concluding that:

negligent harm to economic advantage alone is

too remote for recovery under a negligence

theory. The reason that a plaintiff cannot recover

stems from the fact that the negligent actor has no

knowledge of the contract or prospective relation

and thus has no reason to foresee any harm to the

plaintiff’s interest.

501 A.2d at 279.

Moreover, as the Superior Court stressed, there are sound

public policy reasons to condition tort recovery on injury to

person or property.
47

[A]llowance of a cause of action for negligent

interference with economic advantage would

create an undue burden upon industrial freedom

of action, and would create a disproportion

between the large amount of damages that might

be recovered and the extent of defendant’s fault.

See Restatement (Second) of Torts Sec. 766c,

comment a (1979). To allow a cause of action for

negligent cause of purely economic loss would be

to open the door to every person or business to

bring a cause of action. Such an outstanding

burden is clearly inappropriate and a danger to

our economic system.

Id. Accordingly, the Superior Court held “that no cause of

action existsfor negligence that causes only economic loss.” Id.

In its negligence claim against BJ’s, Sovereign is seeking

to recover the costs associated with replacement of some of its

customers’ Visa cards and the amounts it paid to reimburse

customers whose magnetic-stripe data was used for fraudulent

purchases. Sovereign tries to get around the fatal limitation of

the economic loss doctrine by relying on the Pennsylvania

Supreme Court’s decision in Bilt-Rite Contractors, Inc. v. The
48

Architectural Studio, 866 A.2d 270 (Pa. 2005). Sovereign

claims that Bilt-Rite severely weakened the economic loss

doctrine as first announced in Aikens v. Baltimore & Ohio R.R.

Co., supra.

Sovereign first claims that the district court erred in

assessing its losses in purely economic terms, because it also

incurred a loss of property, i.e. money, because of BJ’s alleged

negligence. The argument is meritless. Not surprisingly,

Sovereign cites no authority to support its contention that its

financial loss negates the economic loss doctrine. Indeed, the

argument would totally eviscerate the economic loss doctrine

because any economic loss would morph into the required loss

of property and thereby furnish the damages required for a

negligence claim.

Sovereign also attempts to pirouette around the economic

loss doctrine by arguing that it only applies when the plaintiff
49

has suffered an unforeseeable loss, and then claiming that its

loss was clearly a foreseeable result of BJ’s negligence. We do

not doubt that Sovereign’s loss was a foreseeable result of not

taking appropriate precautions to protect its cardholders’

information. However, that does not advance Sovereign’s claim

to the extent that Sovereign believes. We agree that the court

in Aikens did explain that the economic loss doctrine was partly

the result of a policy consideration to not impose loss for an

unforeseeable result. However, that is of no consequence here

because Sovereign did not incur any loss of property.

Moreover, Sovereign’s argument ignores the thrust of the public

policy rational explained in Aikens. 

Finally, Sovereign claims that the decision in Bilt-Rite

Contractors, Inc. v. The Architectural Studio, supra, severely

weakened the economic loss doctrine by permitting negligence

claims to proceed without regard to economic loss. There, Bilt-
50

Rite, a general contractor, entered into a construction contract

to build a new school for a school district. In formulating its

winning bid for the contract, Bilt-Rite claimed that it had relied

on the drawings and specifications prepared byan architect who

had been hired by the school district for the very purpose of

preparing drawings and specifications that were to be used to

prepare bids. However, during the subsequent construction,

Bilt-Rite discovered that some of the representations in the

specifications were inaccurate. Bilt-Rite incurred significant

cost overrunsin attempting to build the building, and itsued the

architect for negligent misrepresentation to recover its losses.

The trial court sustained the architect’s preliminary

objections based on the operation of the economic loss doctrine

and the Pennsylvania Superior Court affirmed. On appeal, the

Pennsylvania Supreme Court held that the economic loss

doctrine did not bar the contractor’s negligent misrepresentation
51

action. Sovereign relies on the following language from the

Pennsylvania Supreme Court’s majority opinion:

Here, [the contractor] had no contractual

relationship with [the architect]; thus, recovery

under a contract is not available to [the

contractor]. Having found that [the contractor]

states a viable claim for negligent

misrepresentation . . . , and that privity is not a

prerequisite for maintaining such an action, logic

dictates that [the contractor] not be barred from

recovering the damages it incurred, if proven.

Indeed, to apply the economic loss doctrine . . .

would be non-sensical: it would allow a party to

pursue an action only to hold that, once the

elements of the cause of action are shown, the

party is unable to recover for its losses.

866 A.2d at 288 (emphasis is Sovereign’s). Sovereign attempts

to leverage this excerpt from the majority opinion in Bilt-Rite

into a claim that applying the economic loss doctrine here

would be equally nonsensical. However, this argument is

completely without merit. 

Sovereign concedes that “the bulk of the Supreme
 Moreover, in reaching its decision in Bilt-Rite, the 8

Court adopted the Restatement (Second) of Torts § 552,

which is entitled: “Information Negligently Supplied for the

Guidance of Others,” and which provides:

52

Court’s opinion in Bilt-Rite focuses not on the economic loss

doctrine, but on whether or not in the context of a negligent

misrepresentation claim, plaintiff could establish the existence

of a duty on the part of the architect absent privity of contract.”

Sovereign’s Br. at 42. Moreover, the decision did not, as

Sovereign claims, severely weaken the economic loss doctrine.

Rather, the Court simply made an exception to the doctrine to

allow a commercial plaintiff recourse from an “expert supplier

of information” with whom the plaintiff has no contractual

relationship, when the plaintiff has relied on that person’s

“special expertise” and the “supplier negligently misrepresents

the information to another in privity.” 866 A.2d at 286. That

is simply not our case. The Pennsylvania Supreme Court never 8
(1) One who, in the course of his business, profession or

employment, or in any other transaction in which he has a

pecuniary interest, supplies false information for the guidance

of others in their business transactions, is subject to liability

for pecuniary loss caused to them by their justifiable reliance

upon the information, if he fails to exercise reasonable care or

competence in obtaining or communicating the information.

(2) Except as stated in Subsection (3), the liability stated in

Subsection (1) is limited to loss suffered

(a) by the person or one of a limited group of persons for

whose benefit and guidance he intends to supply the

information or knows that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends

the information to influence or knows that the recipient so

intends or in a substantially similar transaction.

(3) The liability of one who is under a public duty to give the

information extends to loss suffered by any of the class of

persons for whose benefit the duty is created, in any of the

transactions in which it is intended to protect them.

53

suggested that it intended to severely weaken or undermine the

economic loss doctrine in a case such as this. It simply carved
54

out a narrow exception when losses result from the reliance on

the advice of professionals.

Thus, the district court correctly held that Sovereign’s

negligence claim against BJ’s was barred by the economic loss

doctrine. 

D. CONCLUSION

For the above reasons, we will reverse the district court’s

grant of summary judgment to Fifth Third on Sovereign’s

breach of contract claim and remand for further proceedings.

However, we will affirm the district court’s dismissal of

Sovereign’s equitable indemnification claims against Fifth

Third and BJ’s and its dismissal of Sovereign’s negligence

claim against BJ’s.

III. Pennsylvania State Employees Credit Union v.

Fifth Third Bank and BJ’s Wholesale Club, Inc.

(No. 06-3405)

The Pennsylvania State Employees Credit Union is the
 It appears that PSECU went through the Visa 9

Compliance Process and was made whole by Fifth Third for

the money paid to PSECU’s cardholders as a result of BJ’s

retention of the Cardholder Information.

 PSECU initiated the action in state court, but the 10

case was subsequently removed to the Middle District of

Pennsylvania. After removal, BJ’s filed a third-party

55

Issuer of Visa cards to it members, Fifth Third is the Acquirer

and BJ’s is the Merchant. After discovering the breach of

Cardholder Information retained in BJ’s system, PSECU

canceled approximately 20,000 of its Visa cards that had been

used at BJ’s. It then reissued Visa cards with new account

numbers and new Cardholder Information at a cost of

approximately $98,000. PSECU brought this action to recover

related costs.9

PSECU filed an amended complaint against Fifth Third

and BJ’s alleging breach of contract, negligence, equitable

indemnification, and unjust enrichment. Fifth Third and BJ’s

10
complaint against International Business Machines

Corporation, (“IBM”) alleging that IBM’s software failed to

comply with BJ’s instructions not to retain Cardholder

Information. BJ’s sought to recover damages PSECU might

be awarded in its suit against BJ’s. However, the district court

granted IBM’s motion to dismiss BJ’s third-party complaint. 

Consequently, that matter is not before us.

56

separately filed Rule 12(b)(6) motions to dismiss the amended

complaint. The district court dismissed all of PSECU’s claims

against BJ’s pursuant to BJ’s 12(b)(6) motion. The district court

also dismissed all of PSECU’s claims against Fifth Third except

for PSECU’s breach of contract claim. Pennsylvania State

Employees Credit Union v. Fifth Third Bank, 398 F. Supp. 2d

317 (M.D. Pa. 2005).

After limited discovery, the district court granted

summary judgment in favor of Fifth Third on PSECU’s breach

of contract claim, holding that PSECU, like Sovereign, was not

an intended beneficiary of the Visa-Fifth Third Member
57

Agreement. Pennsylvania State Employees Credit Union v.

Fifth Third Bank, 2006 WL 1724574 (M.D. Pa.June 16, 2006).

This appeal followed. 

PSECU challenges the grant of summary judgment to

Fifth Third on PSECU’s breach of contract claim and the

district court’s dismissal of its claims against Fifth Third and

BJ’s for negligence and unjust enrichment.

A. PSECU’s Breach of Contract Claim Against Fifth

Third.

PSECU’s breach of contract claim parallels Sovereign’s

breach of contract claim that we just discussed in No. 06-3392.

PSECU asserts that it is a third-party or intended beneficiary of

Fifth Third’s Member Agreement with VISA requiring Fifth

Third to ensure BJ’s compliance with the Visa Operating

Regulations. PSECU relies on the same documentary evidence

and deposition testimony that formed the basis of Sovereign’s
58

third-party beneficiary claim against Fifth Third. PSECU’s

arguments on appeal mirror Sovereign’s third party beneficiary

arguments, and our analysis of Sovereign’s third party

beneficiary claim therefore applies with equal force to PSECU’s

breach of contract claim. Accordingly, for the reasons set forth

in 06-3392, we will reverse the district court’s grant of

summary judgment to Fifth Third on PSECU’s breach of

contract claim and remand for further proceedings.

B. PSECU’s Negligence Claims Against BJ’s and Fifth

Third.

In asserting negligence claims against BJ’s and Fifth

Third, PSECU argues that BJ’s had a duty to comply with the

Visa Operating Regulations, and that Fifth Third had a duty to

ensure compliance. PSECU alleged that both parties negligently

breached their duties. The district court dismissed both

negligence claims based upon the economic loss doctrine that
59

we have already discussed in No. 06-3392.

PSECU makes two arguments in contesting the district

court’s application of the economic loss doctrine. First, PSECU

maintains that BJ’s and Fifth Third’s negligence resulted in

physical damage to PSECU’s property – the Visa cards - and

the doctrine was therefore not applicable. PSECU’s theory

proceeds as follows: 

BJ’s and Fifth Third’s negligence allowed

unauthorized third parties to access the magnetic

stripe data from these Visa cards and convert that

data to their own purposes. Once this credit card

information was in the hands of third parties, the

associated Visa cards were rendered useless,

necessitating their replacement. [BJ’s and Fifth

Third’s] negligence, therefore, resulted in a

physical act (third party access) which damaged

physical property (the Visa cards) that belonged

to PSECU. PSECU therefore suffered property

damage as a result of [BJ’s and Fifth Third’s]

negligence and its claims should not be barred by

the economic loss doctrine.

PSECU’s Br. at 39-40. We cannot agree.
60

Even if we assume arguendo that destruction of the Visa

cards constitutes the kind of property damage that can be

compensated in a negligence action, PSECU’s argument still

fails because it ignores the fact that the Visa cards were not

damaged; they were cancelled. Therefore, if the magneticstripe data constitutes physical property, PSECU’s negligence

claim isstill not advanced. The data was copied, not destroyed.

Furthermore, the cards themselves remained intact and useable

until cancelled by PSECU. The fraudulent transactions had no

physical effect on either the cards, the data encoded on the

cards, or the magnetic-stripe which contained that data. The

fraudulent activity simply did not render the cards useless. The

cardholders could continue to use them to make purchases after

the information was compromised. Indeed, as BJ’s notes,

PSECU deemed the cards useless not because they were

damaged, but because PSECU was exposed to liability for
61

unauthorized charges. PSECU decided to limit that exposure by

canceling cards and reissuing new ones, but, that does not

establish that PSECU’s property was damaged. 

Second, PSECU contends that the economic loss

doctrine does not apply because the parties are not in privity of

contract and the justifications for application of the doctrine are

not advanced by its application here. PSECU relies on Bilt-Rite

Contractors, Inc. v. The Architectural Studio, 866 A.2d 270

(Pa. 2005). PSECU also argues that that case constituted a

“sweeping departure from previous incantations of the

economic loss doctrine.” PSECU’s Br. at 43. According to

PSECU, in Bilt-Rite “the Pennsylvania Supreme Court held that

the economic loss doctrine may not apply where the plaintiff

has no available contract remedy.” PSECU’s Br. at 41 It bases

that argument on the following excerpt from Bilt-Rite:

Pennsylvania has long recognized that purely
62

economic losses are recoverable in a variety of

tort actions . . . . We agree with that court that a

plaintiff is not barred from recovering economic

losses simply because the action sounds in tort

rather than contract law. Here, Bilt-Rite had no

contractual relationship with TAS; thus, recovery

under a contract is not available to Bilt-Rite.

Having found that Bilt-Rite states a viable claim

for negligent representation . . . and that privity is

not a prerequisite for maintaining such an action,

logic dictates that Bilt-Rite not be barred from

recovering the damages it incurred.

866 A.2d at 288 (emphasis is PSECU’s). 

However, we have already explained that Bilt-Rite did

not hold that the economic loss doctrine may not apply where

the plaintiff has no available contract remedy. As explained in

Sovereign’s appeal, the Bilt-Rite Court simply carved-out an

exception to allow a commercial plaintiff to seek recourse from

an “expert supplier of information” with whom the plaintiff has

no contractual relationship, in very narrow circumstances not

relevant here. 866 A.2d at 268. The Pennsylvania Supreme
63

Court emphasized that its holding was limited to those

“businesses” which provide services and/or information that

they know will be relied upon by third parties in their business

endeavors. . . .” Id. Acordingly, the district court did not err in

dismissing PSECU’s negligence claims against BJ’s and Fifth

Third.

C. PSECU’s Claims For Unjust Enrichment Against

Fifth Third and BJ’s.

The elements of unjust enrichment under Pennsylvania

law have been defined as follows: 

(1) benefits conferred on defendant by plaintiff;

(2) appreciation of such benefits by defendant;

and (3) acceptance and retention of such

benefits under such circumstances that it would

be inequitable for defendant to retain the

benefit without payment of value.

Limbach Co. LLC v. City of Philadelphia, 905 A.2d 567, 575

(Pa. Commw. Ct. 2006) (citation omitted). The cause of action

is similar to a claim for equitable indemnification that we
64

discussed in No. 06-3392. “To sustain a claim of unjust

enrichment, a claimant must show that the party against whom

recovery is sought either wrongfully secured or passively

received a benefit that it would be unconscionable for her to

retain.” Torchia v. Torchia, 499 A.2d 581, 582 (Pa. Super.

1985) However, a claim for unjust enrichment requires more

than a showing that the defendant may have benefitted in some

way from the disputed conduct. Walter v. Magee-Womens

Hosp., 876 A.2d 400, 407 (Pa. Super. 2005). 

PSECU arguesthat BJ’s and Fifth Third benefitted from

PSECU’s cancellation and replacement of its Visa cards

because the cancellation stopped the fraudulent use of those

cards and permitted PSECU’s members to resume using their

cards for retail purchases. PSECU’s actions also limited the

liability that BJ’s and Fifth Third would otherwise have

incurred to PSECU and its members. Thus, argues PSECU,
65

BJ’s and Fifth Third’s acceptance and retention of the benefits

conferred without compensation to PSECU, would be

inequitable. Accordingly, BJ’s and Fifth Third were unjustly

enriched by PSECU’s cancelling and replacing its members’

Visa cards. We cannot agree.

The district court held that BJ’s and Fifth Third received

no benefit from PSECU’s cancelling and reissuing of its

members’ Visa cards because PSECU replaced the cards

pursuant to its contractual obligation with its cardholders. The

district court relied on Allegheny Gen. Hosp. v. Philip Morris,

Inc., 228 F.3d 429 (3d Cir. 2000), in holding that any benefit

that BJ’s or Fifth Third may have derived was purely incidental,

and could not form the basis of an unjust enrichment claim.

398 F. Supp. 2d at 331. 

In Allegheny Gen. Hospital, a group of hospitals sued

various tobacco companies asserting an unjust enrichment claim
66

for unreimbursed medical care the hospitals had provided to

nonpaying, diseased smokers. The hospitals claimed that “by

paying for the medical services required by nonpaying patients,

the Hospitals discharged the Tobacco Companies’ legal duties

and saved them from bearing costs caused by their fraudulent

and wrongful conduct.” 228 F.3d at 447. We held that a claim

for unjust enrichment may not be based on the performance of

an obligation that is independently owed to third parties: 

In addition, since the Hospitals had an

independent obligation to provide health care to

the nonpaying patients [through Medicaid],

incidental benefit to the Tobacco Companies is

not enough to maintain an action; the nonpaying

patients get the main benefit, not the Tobacco

companies. See Restatement of Restitution § 106

(1937) (“A person who, incidentally to the

performance of his own duty . . . has conferred a

benefit upon another, is not thereby entitled to

contribution.”).

Id. 

PSECU’s unjust enrichment claims against BJ’s and
67

Fifth Third are analogous to the hospital’s failed unjust

enrichment claim against the tobacco companies. PSECU

attempts to distinguish Allegheny by arguing that, unlike the

hospitals, it did not replace its members’ Visa cards pursuant to

an independent obligation. However, PSECU’s amended

complaint fatally undermines that contention. There, PSECU

alleged that it replaced its members’ Visa cards “to fulfill a

contractual obligation to its customers.” Am. Compl. ¶ 65.

Although PSECU’s attempt to salvage its unjust enrichment

claim now requires that it take a contrary position, the allegation

in the amended complaint is a binding judicial admission. See

Parilla v. IAP Worldwide Serv., VI, Inc., 368 F.3d 269, 275 (3d

Cir. 2004) (“Judicial admissions are formal concessions in the

pleadings, or stipulations by the party or its counsel, that are

binding upon the party making them.”). Accordingly, the

district court properly dismissed the unjust enrichment claim.
68

Finally, PSECU tries to distinguish this case from

Allegheny. According to PSECU, this case should be governed

by the Restatement of Restitution § 81, which provides:

Unless otherwise agreed, a person who has

discharged more than his proportionate share of

a duty owed by himself and another as to which,

between the two, neither had a prior duty of

performance, is entitled to contribution from the

other, except where the payor is barred by the

wrongful nature of his conduct.

Comment (b) offers the following guidance: 

The rule stated in this Section applies where two

or more persons are interested in an enterprise out

of which the obligation arises, whether as primary

or secondary obligors, and where neither of them

with respect to the other has a prior duty of

performance, irrespective of the question

whether, as between them and the creditor, one of

them appears to be primarily responsible.

Comment (c) explains the limited scope of § 81:

The rule stated in this Section is limited to those

who are parties to a single transaction or series of

transactions. If there is but one debt or duty, the

fact that there are a number of separate
69

agreements which guarantee its performance does

not prevent contribution between all the

secondary obligors.

Id. at comment (c). 

PSECU argues that it entered into the series of contracts

that make up the Visa system with BJ’s and Fifth Third, but it

does not have any “prior duty of performance” within the Visa

system. PSECU concedes that it did allege that it replaced its

members’ cards pursuant to its contractual obligations within

the Visa system. However, it submits that Visa’s designated

representative’s deposition testimony establishes that

cancellation and reissuance of its members cards is only one of

a number of options an Issuer may take in response to a breach

of Cardholder Information by a Merchant or Acquirer. 

According to PSECU, this establishes that it had no

obligation to cancel and reissue the cards; rather, doing so was

just one of PSECU’s options under the Visa system. PSECU
70

claims that by promptly cancelling and replacing cards, it

protected BJ’s and Fifth Third from greater fraud losses, which

would have been shifted to Fifth Third’s compliance process

(and then shifted to BJ’s for indemnification to Fifth Third). 

PSECU concludes that it, BJ’s and Fifth Third are all

“interested in an enterprise [the Visa system, and its associated

network of contracts] out of which [obligations] arise,” as to

which none of the three have a prior duty of performance.”

PSECU’s Br. at 55 (quoting Restatement of Restitution § 81,

comment (b)). It further says that by cancelling and reissuing

its members’ Visa cards, it “discharged more than [its]

proportionate share of a duty owed by [PSECU, BJ’s and Fifth

Third]” “as to which, between the [three], neither had a prior

duty of performance.” Id. (quoting Restatement of Restitution

§ 81). Therefore, PSECU contends that it is entitled to

contribution from BJ’s and Fifth Third on its unjust enrichment
71

theory, regardless of whether PSECU, BJ’s or Fifth Third

“appears to be primarily responsible” for reissuance of Visa

cards. Id. (quoting Restatement of Restitution § 81, comment

(b)). 

This argument has some facial appeal. However,

PSECU did not make this argument in the district court, and we

therefore need not determine its merit now. “Generally, barring

exceptional circumstances, like an intervening change in the law

or the lack of representation by an attorney, this Court does not

review issues raised for the first time at the appellate level.”

Gleason v. Norwest Mortgage, Inc., 243 F.3d 130, 142 (3d Cir.

2001). PSECU does not contend that there are exceptional

circumstances present here, and we do not find any.

Accordingly, this argument has been waived, and we will reject

it without discussion.

We conclude that the district court did not err in
72

dismissing PSECU’s unjust enrichment claim against either

BJ’s or Fifth Third.

D. CONCLUSION

For all of the above reasons, we will reverse the district

court’s grant of summary judgment to Fifth Third on PSECU’s

breach of contract claim, but affirm that court’s dismissal of

PSECU’s negligence and unjust enrichment claims against Fifth

Third and BJ’s.