Global Payments Direct, Inc. v. Frontline Processing Corp.

Court of Appeals of Georgia·Decided June 30, 2021·No. A21A0394·Published

Opinion

FIRST DIVISION

BARNES, P. J.,

GOBEIL and MARKLE, JJ.

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June 30, 2021

In the Court of Appeals of Georgia A21A0394. GLOBAL PAYMENTS DIRECT, INC. v. FRONTLINE PROCESSING CORP.

BARNES, Presiding Judge.

After the termination of fee agreements between Frontline Processing Corporation and Global Payments Direct, Frontline filed suit in Dekalb County alleging, among other things, breach of the agreements. A Dekalb County jury returned a verdict of $135,200,191.29 to Frontline against Global Payments Direct, Inc. The award represented $109.8 million in consequential damages, $24.3 million in direct damages, and $1,071,923.43 in attorney fees pursuant to OCGA § 13-6-11. Global now appeals from that judgment and contends that the consequential and direct damages awards should be vacated and that the trial court erred in denying its directed verdict motions on several breach of contract claims, specifically breach of

the non-solicitation, confidentiality and coordination provisions. For the reasons discussed below, we reverse.

On appeal, we examine the record in the light most favorable to the verdict and judgment. Horan v. Pirkle, 197 Ga. App. 151, 153 (2) (397 SE2d 734) (1990). A jury verdict, after approval by the trial court, will not be disturbed on appeal if it is supported by any evidence. Id.

Viewed in that light, the record reveals that from 2001 until 2015, Global, an electronic payment processing company,1 and Frontline, an independent sales organization (“ISO”), had a contractual relationship under which Frontline solicited, prescreened, and referred merchants to Global for use of Global’s electronic payment processing services. If accepted by Global, the merchants would enter into a Card Services Agreement with Global, and Frontline would receive residual payments from the merchants. Global and Frontline’s relationship was established and controlled by the Merchant Service Agreement (“MSA”) and the Referral Agreement (“RA”) (this agreement included the two companies and a third-party bank – HBSC and later Wells Fargo).

1 Global was formerly known as National Data Payment Systems, and the contract between Frontline and Global was amended in 2003 to reflect the corporate name change.

In 2013, VISA excluded debt collectors from its credit criteria, and thus those merchants could no longer process debt payments with VISA. That same year, Frontline referred two debt collectors to Global– Credit Power and UDPS. According to Frontline, although required by the terms of the MSA, Global withheld the information about VISA’s policy, and Frontline was unaware of the debt collectors prohibition when it screened Credit Power and UDPS and submitted the underwriting and relevant documentation to Global for the company’s approval. Despite the restrictions, Global accepted the merchants.

In 2015, the Consumer Financial Protection Bureau (“CFPB”) commenced a regulatory action against several defendants in federal court, including Global and Frontline for violations of the Consumer Financial Protection Act. Frontline contends that Global’s acceptance of the debt collectors as merchants resulted in Frontline and Global’s involvement in the CFPB action. The federal court ultimately dismissed the CFPB’s claims against Frontline with prejudice.

Claiming that it had a right to indemnification under the MSA, Global withheld its litigation fees associated with the federal action from sales fees owed to Frontline. Frontline’s lawsuit was filed in early June of 2015, and initially only disputed

Global’s withholding of the sales fees.2 But in late June of 2015, Global informed Frontline that it was terminating the Agreements between the two companies, effective October 2015. Subsequently, Frontline amended its complaint to allege additional claims including that Global breached the MSA. .

At trial, Frontline presented evidence of a deteriorating relationship between the two companies, including that Global locked Frontline out of its vendor system, which prevented Frontline from working with its referred merchants, and that Global also refused to assign Frontline’s rights under the Agreements so that Frontline could move to another credit processing company. Frontline’s CEO, Christopher Kittler, testified that Global refused to cooperate with the assignment of its merchants to prevent Frontline from servicing its merchants because by “blocking the transfer [and] the merchant reserves[,] [t]he merchants aren’t going to move anywhere without the reserves.” Kittler attributed the strained relationship to Global’s changing business model in which it shifted from a credit card processor to a competitor, as it purchased companies that offered the same services as its referral partners like Frontline. He also recalled a shifting attitude as Global “wouldn’t resolve issues.

2 Global asserted counterclaims for breach of contract, indemnification, and attorneys’ fees.

They wouldn’t provide training. They wouldn’t cooperate.” Kittler testified that the lack of revenue and operating capital caused by Global’s actions resulted in Frontline’s near financial collapse as the company experienced “enormous layoffs,” lost sales, decreased revenue, and the inability to partner with new credit processing companies. The result, Kittler testified, was that Global destroyed Frontline’s credibility and “wiped out the value of [Frontline].”

At trial, as to damages, Frontline’s expert, Jonathon January, calculated that Frontline had actual or direct damages of $23.4 million dollars which reflected the company’s lost income from December 31, 2014 – the starting point of the company’s decline – through January 2019.3 January testified that to select a starting date for the calculation of Frontline’s actual damages he “looked at the company from the beginning and kind of the process period. And then based on the facts as presented in the case to determine when did things begin to change. And that date was determined to be . . . December 31st, 2014, which is the end of the accounting cycle[.]” He testified that the company was doing “quite well” in the period before 2014 and had an “excellent operating history.” In the four-year period prior to 2014,

3 January was permitted to reference the Frontline damages analysis he prepared prior to trial. The report was not allowed to go out with the jury in its deliberations.

Frontline had “achieved approximately 21 percent compounded growth rate in its gross profit during that time.” January explained that he had used Frontline’s net income of $2,661,000, $2,494,000, and $2,607,000, respectively for the years 2012- 2014 and calculated that if the company had continued experiencing growth at the same rate, its earnings would have increased each year, with total lost profits of $23.4 million, given an interest rate of 7 percent.

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Global Payments Direct, Inc. v. Frontline Processing Corp., (Ga. Ct. App. 2021).

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