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Princeton-based electronic payment processor Heartland Payment Systems is suing a competitor, alleging that Mercury Payment Systems is deceptively inflating fees on merchants, among other things. Mercury, based in Durango, Colo., denies the charges.More: http://www.njbiz.com/article/20140204/NJBIZ01/140209941/Heartland-Payment-Systems-suing-Mercury-Payment-Systems
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SHARTSIS FRIESE LLP FRANK A. CIALONE (Bar #172816) [email protected] LISA A. JACOBS (Bar #230364) [email protected] One Maritime Plaza, Eighteenth Floor San Francisco, CA 94111-3598 Telephone: (415) 421-6500 Facsimile: (415) 421-2922 Email: [email protected] Email: [email protected] Attorneys for Plaintiff HEARTLAND PAYMENT SYSTEMS, INC.
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION HEARTLAND PAYMENT SYSTEMS, INC., a Delaware corporation,
Plaintiff,
v.
MERCURY PAYMENT SYSTEMS, LLC, a Delaware limited liability company,
Defendant.
Case No. COMPLAINT FOR FALSE ADVERTISING, UNFAIR COMPETITION, INTENTIONAL INTERFERENCE WITH CONTRACT AND PROSPECTIVE ECONOMIC ADVANTAGE
JURY TRIAL DEMANDED
Plaintiff, Heartland Payment Systems, Inc. (“Plaintiff” or “Heartland”), hereby alleges and
complains as follows:
THE PARTIES
1. Plaintiff, Heartland, is a corporation duly organized and existing under the laws of
the state of Delaware, having its principal place of business at 90 Nassau Street, Princeton, New
Jersey.
2. Plaintiff is informed and believes that Defendant, Mercury Payment Systems, LLC
(“Defendant” or “Mercury”) is a Delaware limited liability corporation, having its principal place
of business in Durango, Colorado.
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JURISDICTION AND VENUE
3. This action arises under the Lanham Act, 15 U.S.C. § 1125(a)(1)(B), and under the
laws of the State of California. This Court has subject matter jurisdiction over the Lanham Act
false advertising claim under 28 U.S.C. § 1331 and 28 U.S.C. § 1338. This Court has
supplemental jurisdiction over the related California state law claims under 28 U.S.C. § 1367(a)
and 28 U.S.C. § 1338(b).
4. Plaintiff is informed and believes, and on that basis alleges, that this Court has
personal jurisdiction over Defendant because Defendant has extensive contacts with, and
conducts business within, the State of California and this judicial district.
5. Venue is proper in this Court pursuant to 28 U.S.C. §1391(b) - (d) because
Defendant is subject to personal jurisdiction in this judicial district and because a substantial part
of the events or omissions giving rise to the claim occurred in this judicial district.
INTRADISTRICT ASSIGNMENT
6. This action is appropriate for assignment to the San Francisco Division as both
Plaintiff and Defendant are found and do business in the counties comprising this Division.
FACTS COMMON TO ALL ALLEGATIONS
PLAINTIFF HEARTLAND PAYMENT SYSTEMS, INC. ENGAGES IN THE PAYMENT PROCESSING BUSINESS
7. Heartland is engaged in the business of electronic payment processing, which
involves processing credit and debit card transactions for merchants who accept such forms of
payment.
8. Heartland was founded in 1997 with the plan of building its business through a
differentiated approach to the market, a major element of which involved providing fair, honest,
and fully disclosed payment solutions to small businesses. Heartland has dedicated enormous
economic resources into building a very strong and respected reputation and is now one of the
largest payment processors in the United States. Heartland has a large nationwide sales force
that, among other things, contacts potential merchants to engage Heartland’s credit card
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processing services and maintains merchant relationships. Heartland has offices and sales people
at various locations across the nation, including in California and within this judicial district.
9. Payment processors (or “merchant acquirers”) such as Heartland provide services
to merchants to ensure that transactions are properly credited to the merchant and charged to the
customer through the bank or institution that issued the customer’s credit or debit card. Thus,
each time a customer’s credit or debit card is swiped through a terminal at a store, restaurant, or
other place of business, information is accumulated to be transmitted through the payment
processing system so that the merchant can receive the proceeds of the transaction, the issuing
institutions (i.e., Wells Fargo, Chase, etc.) and card brands (i.e., Visa, MasterCard, Discover,
American Express) can receive their fees, and the consumer’s account can be correctly and
appropriately charged. Payment processors such as Heartland act as intermediaries between these
various entities.
10. A substantial part of Heartland’s processing business is focused on providing
services and solutions to small and medium-sized merchants, especially in the restaurant, lodging
and hospitality, and retail sectors. The vast majority of Heartland’s customers in these sectors are
small chains or independent locations, and not part of national chains. These kinds of businesses
typically operate on thin profit margins, so that even a small difference in the cost of processing
services matters greatly to these merchants. These kinds of business, typically owned and
managed by a single or small group of entrepreneurs, are especially vulnerable to the predatory
and deceptive practices in which Mercury has engaged, as alleged herein.
DEFENDANT MERCURY PAYMENTS SYSTEMS, LLC BECOMES A SIGNIFICANT COMPETITOR
IN THE PAYMENT PROCESSING BUSINESS
11. Mercury, like Heartland, is engaged in the business of payment processing for
merchants. Also like Heartland, Mercury provides payment services nationwide, including in
California and within this judicial district.
12. Heartland is informed and believes that Mercury was founded in 2001. In 2010,
Silver Lake Partners acquired a majority interest in Mercury.
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13. Mercury competes directly with Heartland in the sectors in which Heartland
concentrates its efforts: providing processing services to small and medium-sized merchants,
particularly restaurants and retail stores.
14. Heartland is informed and believes that Mercury has grown dramatically over the
past few years. According to an industry source, from 2008 through 2012 Mercury’s processing
volume (in dollar terms) nearly quadrupled, as did the number of merchant outlets to which
Mercury provides processing services.
15. Unlike Heartland, which uses a network of regional sales representative to contact
potential merchants and manage merchant relationships, Heartland is informed and believes that
Mercury, in addition to its website and other internal marketing strategies, partners with certain
Point Of Sale (“POS”) dealers which solicit potential merchants for Mercury’s services on
Mercury’s behalf. These dealers sell, install and maintain POS systems and related software that
manage the merchant’s business and also enable the merchants to process credit and debit card
transactions. They will sign merchants up for Mercury’s services at the time they sell to or set-up
the POS equipment for the merchants. On information and belief, the POS dealers who solicit
merchants on Mercury’s behalf and sell Mercury’s card processing services are acting as
Mercury’s agents in the course of such activities.
PAYMENT PROCESSING SERVICES ARE OFTEN SOLD TO MERCHANTS ON AN “INTERCHANGE PLUS” BASIS
16. Processing services are sold with a variety of pricing approaches for merchants,
including flat and tiered discount rates. However, in recent years, and in large part led by
Heartland, small and medium-sized merchants have increasingly been priced on a cost-plus basis.
Issuing institutions charge certain fees when cards that they issued are used, generally calculated
as a percentage of the transaction plus a per-transaction fee. Those fees vary based on the type of
card used (e.g., a merchant will pay a different fee for transactions in which a basic bank credit
card is used than for transactions in which a rewards card, for which the user gets airline miles or
similar benefits, is used; similarly, the merchant will pay a much lower fee for a debit card
transaction than a credit card transaction). Those fees, charged by the card issuers, are referred to
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as “interchange” fees. The card networks (e.g., Visa and MasterCard) also charge fees, including
fees that are assessed on a per-transaction basis. For example, Visa charges a fee known as the
“APF” (or “Acquirer Processing Fee”), and MasterCard charges a fee known as the “NABU” (or
“Network Access Brand Usage”) fee. The card brands charge additional fees for particular kinds
of transactions or events, such as transactions in which a customer’s credit card is declined. All
of those fees, charged by the card brands, are known as “network” fees. As interchange and
network fees are established by the card networks, apply identically, regardless of the acquirer of
the transaction, and are outside the control of those acquirers (or the merchants), they are often
combined colloquially and described as “interchange” fees. Thus, the “interchange-plus” pricing
model that Heartland and others offer to merchants means that the acquirer (1) will pass through
at cost the uncontrollable interchange and network fees to the merchant, and (2) will add a
separate mark-up, usually in some combination of basis points and cents-per-transaction, that is
supposed to represent the amount the acquirers are being paid for their services. As network fees
and interchange fees can be adjusted or reset as often as twice a year, a merchant on interchange-
plus pricing would expect to see changes in their fees based on those adjustments, but would not
and should not expect to see any change in the spread paid to the acquirer.
17. As part of its commitment to merchants, particularly the small and medium-sized
merchants on which much of its business efforts are focused, Heartland has promulgated a
“Merchant Bill of Rights.” Among other things, the Merchant Bill of Rights discusses the issue
of “undisclosed fee markups” by processors. As the Merchant Bill of Rights states, when the card
brands such as Visa and MasterCard adjust fees, “many processors seize the opportunity to inflate
them even more -- and then deceptively blame the increase on the card brands.” As alleged
below, this is precisely the kind of conduct in which Mercury has engaged: Inflating the network
fees charged by card brands, deceptively passing those inflated fees on to their merchants by
falsely characterizing them as part of Mercury’s uncontrollable (i.e., controlled by the card
networks) costs and retaining the inflated amount as pure profit.
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HEARTLAND LEARNS THAT MERCURY HAS USED DECEPTIVE AND UNFAIR PRACTICES TO GROW ITS BUSINESS
18. Mercury uses the interchange-plus pricing model with many of the merchants for
which Mercury provides processing services. Heartland is informed and believes that Mercury
represents to those merchants that Mercury will pass interchange fees through at cost, and will
charge an additional, disclosed, mark-up on a per transaction basis (in addition to other fees, such
as monthly flat rate fees). In fact, however, as alleged below, Mercury is significantly inflating
the interchange fees over cost.
19. Heartland is informed and believes that Mercury makes these representations to
merchants and potential merchants in merchant applications in which Mercury discloses the
pricing that will be applied to a particular merchant as being on an interchange or cost-plus basis.
Mercury further makes such representations through certain third parties, who act as Mercury’s
agents and sell services on Mercury’s behalf, who confirm that interchange fees are fees charged
by the issuing banks and card brands and that Mercury passes those fees through at cost, on its
website and in other advertising and promotional materials distributed to merchants and potential
merchants throughout the country in which Mercury likewise represents that interchange fees are
fees charged by issuing banks and card brands, i.e., not by Mercury.
20. Heartland is informed and believes that Mercury makes these representations to
many if not most of the merchants and potential merchants Mercury solicits throughout the
United States. Mercury also makes these representations on its website, which can be accessed
by any potential merchant in the United States with internet access.
21. In its “Operating Guide,” published on its website and expressly incorporated by
reference into all merchants’ agreements with Mercury, Mercury represents to merchants and
potential merchants that interchange fees are fees set and charged by the issuing banks and the
card brands:
…the fees associated with exchange of transaction data between the card processing bank and Card Issuer in accordance with the Card Organization Rules. It is the fee that Card Organizations charge to clear your transaction to the Cardholder bank. The interchange fee is actually paid to the Card Issuer while Merchant’s bank is charged the interchange fee.
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Mercury further represents that the card brands, set the fees and have different rates under
different circumstances. Specifically:
Visa, MasterCard and Discover have different interchange requirements based on industry type and method of transmission. Transactions that do not meet these requirements are billed at mid-qualified or non-qualified rates.
Mercury advises merchants to “[r]eview the Visa, MasterCard, and Discover Interchange
Qualification Criteria to ensure your transactions are being processed correctly” and further
advises merchants as to how to qualify for the lowest interchange rates for particular transactions.
Mercury also represents to merchants and potential merchants that the “Discount Rate” is:
Comprised of a number of dues, fees, assessments, network charges and mark-ups, Merchants are required to pay for accepting credit and debit cards, the largest of which is the interchange fee. However, some assessments will be billed separately from the Discount Rate, such as:
Brand Statement Description
Discover DISC NETWORK ACCESS FEE
MasterCard MC NETWORK ACCESS FEE
Visa VISA APF FEE
Visa VS MISUSE OF AUTH SYSTEM FEE
Visa VISA NETWORK ACCESS FEE
Visa VS ZERO FLOOR LIMIT FEE
These representations lead merchants to conclude that interchange fees, including the above
“separately billed assessments,” are fees set and charged by the issuing banks and card brands,
not by Mercury, and that the merchant would have to pay such fees regardless of which merchant
acquirer it chooses to purchase processing services from.
22. Contrary to Mercury’s representations that it is passing through interchange fees at
cost, Mercury is in fact substantially inflating these fees without disclosing these additional mark-
ups to merchants. To date, Heartland has reviewed nearly 300 monthly statements from Mercury
to merchants in various locations throughout the United States, including a number of statements
from merchants who are located in the San Francisco Bay Area. Based on this review, Heartland
is informed and believes that, beginning in or before July 2011, Mercury began a widespread
practice of charging inflated network fees to its “interchange-plus” merchants. Specifically,
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instead of charging merchants a fee of less than 2 cents per transaction, the actual network fee,
Mercury is regularly charging its merchants up to nearly 6 cents per transaction, without
informing them of the mark-up. Mercury disguises these inflated fees by identifying them as
specific interchange or network fees. Heartland is informed and believes that Mercury engages in
this practice with many, if not most, of the merchants to which it provides card processing
services.
23. While a mark-up of 4 cents per transaction may not seem significant in the
abstract, any single Mercury merchant may have hundreds of credit and debit card
transactions per day. Assuming just 100 transactions per day, this results in a $4.00 per day
overcharge to the merchant. Assuming the merchant is open for business 25 days a month, the
result is a monthly overcharge of $100 for that single merchant. In 2012, Mercury provided
payment processing services for nearly 76,000 merchants.
24. For the type of merchants serviced by Mercury, small and medium sized
restaurants and stores, the inflated network charges result in increased costs that eat significantly
into the merchants’ profit margins. This is especially true for merchants with a large volume of
small transactions, such as a coffee or sandwich shop, where card transactions are often in
amounts of less than $10.00. These types of merchants are disproportionately impacted by
Mercury’s fraudulent and deceptive billing practices.
25. Heartland, which competes with Mercury in the small and medium sized restaurant
and retail market, has lost and will continue to lose merchants to Mercury as a result of its
fraudulent and deceptive billing practices. Merchants, unaware of the inflated network fees, are
electing to use Mercury’s service because Mercury is claiming to charge a lower cost-plus mark-
up than Heartland and other processors. In other cases, Heartland has had to reduce its cost-plus
mark-up, and therefore reduce its profit margin, in order to retain merchants who have been
quoted deceptively low and false pricing by Mercury. However, Mercury is in fact charging
significantly more than Heartland as a result of these disguised, inflated network fees. The
merchants are being deceived because they are unaware of what the actual network fees are and
cannot easily determine based on Mercury’s statements that those fees have been inflated.
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Although many merchants elect not to inform Heartland of their reasons for cancelling
Heartland’s services, Heartland has been able to identify nearly 30 merchants who have cancelled
their contracts with Heartland to switch to Mercury, in the past six month alone. Heartland was
able to retain additional merchants by lowering Heartland’s pricing to compete with Mercury’s
claimed pricing.
26. In late 2008, a California-based restaurant chain to which Heartland then provided
processing services decided to bid out to various payment processing companies. Heartland
submitted a bid in response, as did Mercury.
27. Heartland stated in its bid that it would charge the restaurant chain its costs -- i.e.,
interchange and network fees -- plus 7 cents per transaction (plus .02% of the dollar value of
transactions and a $7.50 monthly service fee). Heartland is informed and believes that Mercury
represented that it would charge costs plus 6.5 cents per transaction (and plus .02% of the dollar
value of transactions and a similar monthly service fee). In October 2008, the headquarters of the
chain announced that it had “recently switched our preferred credit processing company from
Heartland Payment Systems to Mercury Payment Systems” because, in part, “Mercury by far
provided the best rates.” As a result, 50 of the 57 outlets in the restaurant chain switched their
processing business from Heartland to Mercury.
28. In November 2013, a Heartland representative spoke to the manager at one
California outlet of the above-discussed restaurant chain that had switched processors to Mercury.
The representative asked to see an example of Mercury’s monthly statement to the merchant, and
the merchant provided it. That statement showed that Mercury was charging its “plus” of 6.5
cents per card transaction -- but that Mercury falsely inflated network charges to impose an
additional 4 cent fee per card transaction. While Mercury had represented to the merchant that
it would charge less than Heartland -- 6.5 cents per transaction, versus Heartland’s charge of 7
cents -- Mercury in fact was charging significantly more -- 10.5 cents per transaction, versus
Heartland’s proposed charge of 7 cents. Heartland is informed and believes that Mercury
represented to the merchant that it would charge interchange and network fees at costs and did not
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disclose to the merchant that it intended to mark-up those fees beyond the 6.5 cents per card
transaction that it offered in response to the merchant’s bid request.
29. Mercury deceived the merchant by falsely disguising the additional charges as part
of the card brand or network fees. During the period covered by the statement in question,
MasterCard’s NABU fee was $.0195 per transaction, while Visa’s APF fee was $.0195 per credit
card transaction and $.0155 per debit card transaction. However, Mercury inflated these fees in
the statement to the merchant, claiming that the MasterCard and Visa fees were actually $.0595
per transaction. Mercury’s Operating Guide, as described in paragraph 21 above, represent that
these particular fees are card brand “assessments” that are separately billed. Based on Mercury’s
representations, the merchant would conclude that these were the actual fees charged by the card
brands, which Mercury was passing through at cost as represented, when in fact the fees were
significantly inflated by Mercury.
30. The inflated fees may seem small -- 4 cents per transaction (or 4.4 cents per Visa
debit card transaction) -- but they are significant. For just one of this merchant’s locations for a
single month, the inflated fees resulted in more than $54.00 in additional and improper charges to
the merchant for that month. As discussed above, Mercury won the business of 50 outlets of this
restaurant chain by underbidding Heartland -- or falsely advertising that it was underbidding
Heartland -- by a half-cent per transaction, when in fact Mercury ended up charging the merchant
an extra 4 cents or more per transaction by secretly inflating the network fees.
31. Mercury’s conduct is not limited to a single merchant or a single statement, but is
widespread. Mercury broadly promotes itself as a low-cost provider of processing services,
through means including its website, social media, and direct communication with merchants
through solicitations and bids made through authorized third-party agents of Mercury. For
example, Mercury represents on its website and through its agents that its payment processing
services are “low cost” and that it offers a “Best Rate Promise” or a rate match guarantee.
Merchants are likely to be deceived by such statements into believing that interchange fees will
be the same no matter which acquirer they go with and that Mercury’s lower disclosed mark-ups
and/or monthly fees will therefore result in an overall lower cost to the merchant.
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32. Mercury also compares its pricing to Heartland’s pricing, falsely claiming that
Mercury provides processing services at a cost lower than does Heartland. Through these means,
Mercury has caused merchants to terminate or not renew contracts with Heartland and to contract
with Mercury rather than Heartland to provide processing services. In other cases, Heartland has
had to reduce its own interchange-plus mark-up, and therefore reduce its profit margin, in order to
retain merchants who have been quoted deceptively low and false pricing by Mercury.
33. Heartland has obtained hundreds of Mercury statements to merchants in which
Mercury falsely represents the network fees, showing rates that are significantly higher than the
actual fees set by the card brands. A random sampling of Mercury merchant statements from
recent months indicates that Mercury inflates and falsely represents network fees to at least 75%
of the merchants to which it provides processing services.
34. Even when merchants learn that Mercury has been unfairly and deceptively
inflating network fees, they are unable to change to Heartland or another processor that honestly
represents its fees and actually charges less than Mercury. This is because Mercury imposes
significant costs and barriers to changing providers. These costs and barriers include, but are not
limited to, contractual terms such as a substantial early termination fee if the merchant switches
processors during the term of its contract with Mercury.
35. In addition, Heartland is informed and believes that Mercury and certain of its
agents falsely inform merchants that Mercury is the only processor that supports the POS
equipment the merchants have purchased, in order to further lock the merchants into Mercury’s
payment processing services. Mercury uses this deceptive conduct to compete unfairly with
Heartland, by convincing merchants that the equipment they have purchased will only work with
Mercury’s processing system, and not with Heartland’s.
36. In instances where Heartland has been able to convince merchants that this is not
true, that Heartland’s services are compatible with the merchants’ POS equipment, Mercury and
certain of its agents either perpetuate the misrepresentation, falsely informing the merchant that
Heartland’s services are not compatible with their equipment or, alternatively, charge or threaten
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to charge the merchants thousands of dollars to connect the merchants’ POS equipment to
Heartland’s services -- a process that in fact takes only minutes.
37. Mercury has leveraged the inflated network charges, and the inflated profits it
makes through such misconduct, into a further unfair competitive advantage. When a merchant
acquirer works with POS dealers to sell processing services, the acquirer typically shares a
portion of the revenue that it receives from the merchant with the POS dealer. On several
occasions, Heartland has sought to partner with POS dealers in order to expand Heartland’s sales
efforts, but Heartland has been unable to do so because, according to the POS dealers, the revenue
share they receive from Mercury is greater than what Heartland can offer. Heartland is informed
and believes that Mercury is able to outbid Heartland solely because Mercury is charging inflated
network fees to merchants, thus inflating its revenues per transaction, and using that inflated
revenue to secure relationships with POS dealers that Mercury would be unable to secure if it
were not deceptively passing inflated network charges onto its merchants.
38. Heartland is further informed and believes that Mercury may be securing
relationships with POS dealers through deceptive practices that are to the detriment of Heartland,
as well as to the detriment of such dealers. Merchant acquirers often pay POS dealers with a
percentage-based commission (i.e., a percentage of the revenue that the merchant acquirer earns
from a particular merchant). On information and belief, Mercury promotes itself to POS dealers
by pointing to its high profit margins, and suggesting that POS dealers will share in those margins
through the commissions they will receive. Mercury does not disclose, however, that a
substantial portion of those profit margins consists of inflated interchange fees. Because those
inflated interchange fees are characterized as pass-through costs on merchant statements, rather
than as part of Mercury’s own mark-up, they are not included in the revenue shared with the POS
dealer, and the POS dealer does not receive the benefits it expected to receive.
FIRST CAUSE OF ACTION (False Advertising in Violation of 15 U.S.C. § 1125(a)(1)(B))
39. Plaintiff hereby adopts and incorporates by reference each of the allegations
contained in paragraphs 1 through 38 above, as though set forth in full herein.
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40. Defendant’s action described above and herein constitute unfair competition and
false advertising in violation of 15 U.S.C. § 1125(a)(1)(B).
41. Plaintiff is informed and believes and on that basis alleges that Defendant has
made and will continue to make, in commercial advertising or promotion throughout the United
States including in California, false and/or misleading statements of fact that misrepresent the
nature, characteristics and/or qualities of Defendant’s and Plaintiff’s services, including the
representations alleged above.
42. Defendant’s representations have deceived and/or have a tendency to deceive a
substantial segment of the relevant public to whom the statements have been made.
43. Defendant’ representations have influenced and/or are likely to influence relevant
customers to purchase services from Defendant instead of from Plaintiff or other payment
processors.
44. By reason of the foregoing, Defendant has intentionally and willfully violated 15
U.S.C. § 1125(a)(1)(B).
45. As an actual and proximate result of Defendant’s wilful and intentional actions,
Plaintiff has suffered damages in an amount to be proven at trial, and unless Defendant is
enjoined, Plaintiff will continue to suffer irreparable harm.
46. Pursuant to 15 U.S.C. § 1117, Plaintiff is entitled to recover damages in an amount
to be determined at trial, profits made by Defendant, and the costs of this action. Furthermore,
because Defendant’s actions were undertaken willfully and maliciously, Plaintiff is entitled to
recover exemplary damages up to three times the amount of actual damages, as well as attorneys’
fees.
SECOND CAUSE OF ACTION (Unfair Competition in Violation of Bus. & Prof. Code § 17200 et. seq.)
47. Plaintiff hereby adopts and incorporates by reference each of the allegations
contained in paragraphs 1 through 46 above, as though set forth in full herein.
48. Defendant’s acts and practices as described herein constitute unfair competition in
violation of California Business & Professions Code §17200, et seq. in the following respects:
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(a) They are unlawful in that they violate Section 5 of the Federal Trade
Commission Act and constitute false advertising under the Lanham Act and California Business
& Professions Code §17500;
(b) They are unfair in that they threaten an incipient violation of a consumer or
antitrust law, including but not limited to Section 5 of the Federal Trade Commission Act, violate
the policy or spirit of such law, and/or otherwise significantly threaten or harm competition;
(c) They are fraudulent in that they are likely to mislead the general public;
(d) They constitute acts of untrue and misleading advertising, which are, by
definition, violations of Business & Professions Code §17200.
49. Defendant’s unlawful, unfair, and fraudulent business acts and practices and its
unfair, deceptive, untrue, and misleading advertising presents a continuing threat to members of
the public in that merchants who purchase payment processing services from Mercury are paying
inflated network fees which were not disclosed to them and/or are being dissuaded from
switching to other processors as a result of false statements and cost-prohibitive termination and
switching charges.
50. As a direct and proximate result of the foregoing conduct, Plaintiff has suffered
damages, including damage to reputation, lost goodwill, disruption to business, and lost profits,
and is entitled to restitution of all profits unjustly gained by Defendant, or alternatively, all sums
lost by Plaintiff.
51. Defendant’s wrongful acts, unless and until enjoined and restrained by order of
this Court, will cause irreparable injury to Plaintiff. Plaintiff has no adequate remedy at law in
that damages may be difficult to ascertain, and monetary damages alone will be inadequate to
compensate Plaintiff for the harm caused by the Defendant if the Defendant is not enjoined.
THIRD CAUSE OF ACTION (False Advertising in Violation of Bus. & Prof. Code § 17500 et. seq.)
52. Plaintiff hereby adopts and incorporates by reference each of the allegations
contained in paragraphs 1 through 51 above, as though set forth in full herein.
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53. Defendant’s acts as described herein constitute untrue and misleading advertising
in violation of California Business & Professions Code §17500, et seq.
54. Defendant violated Business & Professions Code section 17500 by publicly
making or disseminating untrue or misleading statements, and/or by causing untrue or misleading
statements to be made or disseminated to the public, in or from California, with the intent to
induce members of the public to purchase credit card processing and other services from
Defendant.
55. As a direct and proximate result of the foregoing conduct, Plaintiff has suffered
damages, including damage to reputation, lost goodwill, disruption to business, and lost profits,
and is entitled to restitution of all profits unjustly gained by Defendant, or alternatively, all sums
lost by Plaintiff.
56. Defendant’s wrongful acts, unless and until enjoined and restrained by order of
this Court, will cause irreparable injury to Plaintiff. Plaintiff has no adequate remedy at law in
that damages may be difficult to ascertain, and monetary damages alone will be inadequate to
compensate Plaintiff for the harm caused by the Defendant if the Defendant is not enjoined.
FOURTH CAUSE OF ACTION (Intentional Interference With Contractual Relations)
57. Plaintiff hereby adopts and incorporates by reference each of the allegations
contained in paragraphs 1 through 56 above, as though set forth in full herein.
58. By virtue of its reputation, goodwill and hard work, Plaintiff has developed
valuable contractual relationships with its merchants to provide credit and debit card processing
services for them.
59. Plaintiff is informed and believes and thereon alleges that Defendant, with
knowledge of these contractual relationships, engaged in intentional actions to interfere with them
by inducing merchants to terminate their contracts with Heartland and instead engage the services
of Defendant.
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60. As a proximate result of Defendant’s intentional interference with Plaintiff’s
contractual relationships, Plaintiff has suffered and will continue to suffer substantial injury and
damage to its business, goodwill, reputation and profits in an amount to be proven at trial.
61. Plaintiff is informed and believes and thereon alleges that the acts of Defendant, in
interfering with Plaintiff’s contractual relations with its merchants, were willful and malicious
and designed to obtain an unfair competitive advantage over Plaintiff. Plaintiff is therefore
entitled to recover exemplary and punitive damages in a sum sufficient to punish Defendant.
FIFTH CAUSE OF ACTION (Intentional Interference With Prospective Economic Advantage)
62. Plaintiff hereby adopts and incorporates by reference each of the allegations
contained in paragraphs 1 through 61 above, as though set forth in full herein.
63. By virtue of its reputation, goodwill and hard work, Plaintiff has developed
valuable business relationships with its merchants to provide credit and debit card processing
services for them, as well as prospective opportunities which are likely to benefit Plaintiff in the
future.
64. Plaintiff is informed and believes and thereon alleges that Defendant, with
knowledge of these business relationships and future economic opportunities, engaged in
wrongful and intentional actions to interfere with them by inducing existing and prospective
merchants to sever their present or prospective business relationships with Plaintiff and instead
engage the services of Defendant.
65. As a proximate result of such wrongful actions, Plaintiff has suffered and will
continue to suffer substantial injury and damage to its business, goodwill, reputation and profits
in an amount to be proven at trial.
66. Plaintiff is informed and believes and thereon alleges that the acts of Defendant, in
interfering with Plaintiff’s business relationships and future economic opportunities as described
herein, were willful and malicious and designed to obtain an unfair competitive advantage over
Plaintiff. Plaintiff is therefore entitled to recover exemplary and punitive damages in a sum
sufficient to punish Defendant.
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PRAYER
WHEREFORE, Plaintiff Heartland prays for judgment against Defendant Mercury as
follows:
1. That Defendant and all of its respective officers, agents, servants, representatives,
employees, attorneys, and all other persons acting in concert with them be enjoined from:
(a) representing to merchants that Mercury is passing through interchange fees
on an at cost basis, when Mercury is marking up those fees;
(b) charging merchants with undisclosed inflated interchange fees;
(c) disparaging Heartland or the services Heartland provides, including falsely
claiming that Heartland’s services are more expensive than Mercury’s or that Heartland marks-up
interchange and network fees more than does Mercury;
(d) representing to merchants that the merchant’s POS equipment cannot be
connected to Heartland’s processing system; and
(e) taking any other actions or making any other false representation to
merchants that would prevent the merchant from switching from Mercury’s services to
Heartland’s.
2. That Defendant be ordered to correct any erroneous impressions persons may have
derived concerning the characteristics and qualities of Defendant’s services or the characteristics
and qualities of Plaintiff’s services, including without limitation the sending of a registered letter
(with a copy to Plaintiff) to all merchants currently using Defendant’s services informing them:
(a) that Mercury has been inflating certain interchange fees;
(b) that unlike Mercury some of its competitors, including Heartland, pass
those interchange fees through at cost which could result in the merchant paying less;
(c) that contrary to what the merchants may have been told by Mercury or its
agents, the merchants’ POS equipment may be compatible with those of other card processing
companies, including Heartland, and can be switched over at minimal cost; and
(d) that Mercury has been adjudged to have competed unfairly against
Heartland and to have engaged in false advertising towards merchants.
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3. That Defendant file, within ten (10) days from entry of an injunction, a declaration
with this Court signed under penalty of perjury certifying the manner in which Defendant has
complied with the terms of the injunction;
4. That Plaintiff be awarded damages pursuant to 15 U.S.C. § 1117, sufficient to
compensate it for the damage caused by Defendant’s false and misleading statements;
5. That Plaintiff be awarded Defendant’s profits derived by reason of said acts under
15 U.S.C. § 1117;
6. That such damages and profits be trebled and awarded to Plaintiff and that Plaintiff
be awarded its costs, attorneys’ fees and expenses under 15 U.S.C. § 1117, as a result of
Defendant’s willful, intentional, and deliberate acts in violation of the Lanham Act;
7. That Defendant be adjudged to have unlawfully and unfairly competed under the
laws of the State of California, Cal. Bus. & Prof. Code § 17200, et seq.;
8. That Defendant be adjudged to have unlawfully and unfairly competed by
engaging in false or misleading advertising under the laws of the State of California, Cal. Bus. &
Prof. Code § 17500, et seq.;
9. For an accounting, disgorgement and/or restitution of all gains, profits, and
advantages derived by Defendant from the activities alleged in this Complaint;
10. On the Fourth and Fifth Causes of Action, that Plaintiff be awarded compensatory
and consequential damages against Defendant, according to proof;
11. On the Fourth and Fifth Causes of Action, that Plaintiff further be awarded
exemplary and punitive damages against Defendant in a sum sufficient to punish and make an
example of said Defendant;
12. That Plaintiff be granted prejudgment and post judgment interest;
13. That Plaintiff be granted costs of suit; and
14. That Plaintiff be granted such other and further relief as the Court may deem just
and proper.
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Dated: January 29, 2014 SHARTSIS FRIESE LLP /s/ Frank A. Cialone
By: FRANK A. CIALONE
Attorneys for Plaintiff HEARTLAND PAYMENT SYSTEMS, INC.
DEMAND FOR JURY TRIAL
In accordance with Rule 38(b) of the Federal Rules of Civil Procedure, Plaintiff Heartland
Payment Systems, Inc. hereby demands a trial by jury on all issues triable by a jury.
Dated: January 29, 2014 SHARTSIS FRIESE LLP /s/ Frank A. Cialone
By: FRANK A. CIALONE
Attorneys for Plaintiff HEARTLAND PAYMENT SYSTEMS, INC.
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