Opinion ID: 1274615
Heading Depth: 4
Heading Rank: 1

Heading: Refusal to Process RTC Charge Slips

Text: The first alleged breach is FNBA's refusal to honor charge slips for RTC coupons and memberships. FNBA admits refusing to honor those slips, but claims that both the contract and the law permit its refusal. A credit card transaction involves four parties: the consumer, the merchant, and a bank for each of them (known as the issuer and the merchant bank). Four contracts support the transaction: the sales agreement between consumer and merchant, the credit card agreement between consumer and issuer, the merchant agreement between merchant and merchant bank (the contract at issue here), and the interchange agreement among banks. Barkley Clark & Barbara Clark, The Law of Bank Deposits, Collections and Credit Cards 15-2 to 15-4, 15-8 to 15-16 (1995). Federal and state consumer credit law regulates the two consumer agreements, governing such matters as solicitation of cards, billing, interest rates, consumer defenses, complaint procedures, and disclosures. Consumer Credit Protection Act, Pub.L. No. 90.321, 82 Stat. 146 (codified as amended in scattered sections of 15 U.S.C.); Truth in Lending Regulations (Regulation Z), 12 C.F.R. § 226 (1995); AS 06.05.209. The merchant agreement, however, is subject to few regulations. Case law on it is also limited. See Broadway Nat'l Bank v. Barton-Russell Corp., 154 Misc.2d 181, 585 N.Y.S.2d 933, 937-39 (Sup. 1992). Under FNBA's interpretation of its merchant agreement with ATS, FNBA may refuse to honor credit card transactions that it finds questionable. The contract does not explicitly say this. It provides that FNBA will pay ATS as to all card sales, and defines card sale as a legal sale ... completed in every respect. FNBA argues that ATS's sales were not in accordance with the contract because they were not card sales. According to FNBA, the sales were not completed or legal. FNBA argues that its agreement with ATS expressly provided that FNBA could refuse to accept sales slips that were incomplete or illegal. However, the contract did not give FNBA unconditional authority to repudiate any sales it found to be incomplete or illegal. FNBA was contractually obligated to determine ... a reasonable procedure for resolving questioned card sales. The contract required FNBA to determine ... and instruct [ATS] as to, a reasonable procedure, which the parties will strictly follow, ... whereby in instances where a sales slip received indicates that the sale, or preparation or transmission of the sales slip, was not in accordance herewith, [FNBA] refrains from paying [ATS], or if payment has already been accomplished, [ATS] repays [FNBA] for account of cardholder. FNBA claims that the sales were incomplete because the consumers, here the coupon purchasers, had not yet received the airplane flights which were the real service they purchased, or even tickets ... on an existing, identified scheduled airline. According to FNBA, purchase of a voucher for a future event is not a complete transaction until the certificate or ticket has been exchanged for goods or services. FNBA also contends that its transactions with ATS were not completed because the consumers who bought the travel coupons might have repudiated the transactions and refused to pay the credit card bill. [2] FNBA cites First United Bank v. Philmont Corp., 533 So.2d 449 (Miss. 1988), as support for its argument that FNBA's sales were provisional and thus incomplete. Philmont involves a factual situation similar to the present case. A merchant which had deposited credit card sales slips with the First United Bank sued when the bank froze the merchant's account because of the bank's concerns about a travel marketing scheme in which the merchant participated. The issue on appeal was whether the bank had the right to place a hold or freeze on the account. Philmont, 533 So.2d at 453. The Mississippi Supreme Court held that the merchant could not withdraw the funds in the account as of right. Id. at 457. Characterizing the merchant's deposits as provisionally credited to the account, the court upheld the bank's right to place a temporary freeze on the account. Id. Philmont is of limited value to FNBA since it only supports FNBA's argument that the ATS transactions were not completed, a fact that is not dispositive here. FNBA unquestionably had a contractual right to scrutinize provisional or incomplete sales. But the essential element of its argument in this case  which it was required to establish as a matter of law in order to justify summary judgment  is its contention that the RTC transactions were illegal. FNBA argues that it proved that the RTC sales violated Alaska's Unfair Trade Practices and Consumer Protection Act. [3] In the trial court, FNBA claimed a sample RTC travel coupon showed on its face that the sales violated the Act, as the coupon did not disclose that Commonwealth was the sponsor and owner of both RTC and the airline whose ticket RTC would exchange for the coupon, and did not reveal that no schedule of flights existed when the coupon was sold. Aside from arguing that on its face the coupon showed an illegal transaction, FNBA's motion provided little or no explanation of its illegality argument. On appeal FNBA once again argues that the coupons appear to violate AS 45.50.471. It says that the coupons did not reveal that no schedule of flights existed when the coupons were sold, that the seller merely hoped there would be scheduled flights in the future, that RTC concealed its true ownership and identity and that of the airline it was promoting, and that the coupons falsely implied that RTC had some connection with an airline that actually existed which would honor the RTC coupons. FNBA's concerns about RTC's operations were shared by the consumer protection section of the state attorney general's office. In January 1988  at the same time, essentially, that FNBA was deciding to reject ATS's credit card purchase slips  the attorney general was investigating RTC's dealings with consumers. RTC provided the attorney general with certain voluntary assurances. RTC promised to deposit all credit card payments in an escrow account at a local bank. It agreed not to withdraw more than fifteen percent of payments and agreed that these funds would only be withdrawn after an airline had issued its own tickets to the actual purchasers in redemption of RTC's coupons. It agreed to refund purchase money to all buyers unless it sold at least 1200 coupons before March 1, 1988. It agreed to disclose in its advertising its refund agreement, and it agreed to refund all coupon payments and membership fees paid by buyers who had bought before the advertising disclosure had been made. Its promises were stated in a letter of agreement drafted by the attorney general. The letter of agreement was signed on January 29, 1988. FNBA rejected the ATS sales slips on January 27 and 28. FNBA knew that RTC had discussed the legality of RTC's operations with the attorney general. Allen Lively, FNBA's vice president in charge of the bank's card lending department, noted that he was told by Les Reynolds, ATS's president, on January 28 that after RTC's contact with the attorney general's office, everyone is satisfied deal is legit. In response, Lively noted, [t]old him too late, we don't want anything to do with Rainbow Travel. FNBA made no further investigation regarding RTC's contacts with the attorney general and it made no further attempts to determine whether RTC's marketing schemes were illegal. While RTC's and ATS's contacts with the attorney general did not result in state approval of RTC's operations, neither did they result in a finding of illegality. The attorney general's office did not characterize RTC's sales as illegal and it did not file suit against RTC, ATS, or their associates. FNBA argues here that its refusal to process ATS's sales slips was justified by its well-founded doubt as to the legality of the sales, since the coupons appear on their face to violate [Alaska's consumer protection] statutes. Its arguments on appeal as well as in the trial court inadequately address the complex factual and legal issues that are involved. In such circumstances, remand to the trial court for further consideration of both parties' arguments is appropriate. See State v. Grogan, 628 P.2d 570, 574 (Alaska 1981) (Since this question [whether certain practices of a party violated AS 45.50.471(b)] has not been adequately briefed in this appeal we leave it to the parties to brief the matter upon retrial in the superior court.). [4] Although legality of the transactions at the time of FNBA's actions was a very legitimate cause for concern and reasonable protective measures, FNBA did not establish as a matter of law that the transactions were illegal or that its conduct under the circumstances was reasonable. If the trial court's summary judgment order was based on FNBA's illegality argument, the order was erroneously entered. In summary, FNBA was obligated to handle questioned transactions reasonably. It could not avoid its contractual obligations by merely characterizing the sales as incomplete or illegal. Although it had the right to refrain from paying ATS for card sales that were not completed, the Merchant Agreement did not give it that right unfettered by its obligation to determine reasonably whether payment should be made. It had the right also to question the legality of sales, but not to do so unreasonably. FNBA's obligation to institute reasonable procedures for handling questioned transactions and to make reasonable determinations regarding disputes that might arise in connection with the merchant agreement governed all of its contractual dealings with ATS. As it did not establish an absence of genuine issues of material fact regarding breach of the merchant agreement, its motion for summary judgment was erroneously granted.