Applied v. Discount

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

APPLIED MERCHANT SYSTEMS WEST COAST LLC, Plaintiff/Appellee,

v.

DISCOUNT PAYMENT SERVICES LLC, et al., Defendants/Appellants.

No. 1 CA-CV 20-0031
FILED 1-12-2021

Appeal from the Superior Court in Maricopa County
No. CV2019-000922
The Honorable Timothy J. Thomason, Judge

AFFIRMED

COUNSEL

DLA Piper LLP (US), Phoenix
By Craig M. Waugh
Counsel for Plaintiff/Appellee

Alexander R. Arpad Esq., Phoenix
By Alexander R. Arpad

Covault Law, Phoenix
By Jason Covault

The Hallstrom Law Firm, PLLC, Phoenix
By Kyle Hallstrom
Co-Counsel for Defendants/Appellants Discount Payment Services, LLC and
Marshall Greenwald
 APPLIED v. DISCOUNT, et al.
Decision of the Court

Honor Law Group PLLC, Tempe
By James M. Cool
Counsel for Defendant/Appellant Aimee Greenwald

MEMORANDUM DECISION

Chief Judge Peter B. Swann delivered the decision of the court, in which
Presiding Judge Jennifer B. Campbell and Judge Lawrence F. Winthrop
joined.

S W A N N, Chief Judge:

¶1 Appellants Discount Payment Services, LLC (“Discount”)
and Aimee Greenwald challenge the superior court’s grant of summary
judgment to Appellee Applied Merchant Systems West Coast, LLC
(“Applied”). For the reasons that follow, we affirm.

FACTUAL AND PROCEDURAL HISTORY

¶2 Discount sells credit card processing solutions to businesses.
Each business account generates processing fees that merchants pay to
Discount’s processing servicer, Paya, who pays residuals to Discount each
month based on the amount of fees collected.

¶3 On November 15, 2013, Discount borrowed $475,000 from
Applied’s predecessor-in-interest, BlueAcre Ventures LLC (“BlueAcre”),
under a Secured Residual Loan Agreement (the “Loan Agreement”).
Discount granted BlueAcre a security interest in its agreements with Paya
and assigned the residuals it received from those agreements “to allow for
all the Residuals to be paid directly to [BlueAcre] to satisfy [Discount’s]
Loan Obligations.” Discount, BlueAcre, and Paya also executed an
Authorization to Pay Residuals (the “Authorization”) under which
Discount collaterally assigned “all of [its] Residuals due and payable” from
Paya and authorized Paya “to make payments of the Assigned Residuals
directly to [BlueAcre].” Discount and BlueAcre also executed an Option
Agreement granting BlueAcre an option to identify and purchase certain
accounts from Discount’s portfolio that, when combined, would average
$18,581.79 of residuals per calendar month, matching Discount’s monthly
payment on the BlueAcre loan (the “Option Agreement”).

2
 APPLIED v. DISCOUNT, et al.
Decision of the Court

¶4 Section 1.02 of the Option Agreement provided the method
by which BlueAcre could exercise its option:

The Option may be exercised by the Company [BlueAcre]
delivering a notice of intent to exercise to owner [Discount]
(a) no later than thirty (30) calendar days after the Owner pays
the Loan in full (as determined by Company in Company’s
sole discretion); or (b) subject to Owner’s right to cure under
the Loan Agreement, upon any material breach by Owner of
the Loan Agreement or any other Loan Document between
Owner and Company (as such breach is determined by
Company in Company’s reasonable discretion) and at any
time following such breach. Such notice shall identify this
Agreement and shall be sent to Owner at the addresses set
forth in Section 2.06. Within a reasonable period of time
thereafter not to exceed forty-five (45) days (subject to Section
1.06 of this Agreement), Owner and Company shall execute
and enter into a portfolio purchase agreement for the
Purchased Merchants in substantially the form attached
hereto as Exhibit A (the “Portfolio Purchase Agreement”).

¶5 On July 12, 2016, Discount and BlueAcre entered a
Supplemental Agreement to the Option Agreement (“Supplemental
Agreement”). There, the parties agreed to reduce BlueAcre’s purchase
price under the option from $90,000 to $72,000 if paid by the next day, which
BlueAcre did. The parties also agreed that BlueAcre had given notice of its
intent to exercise its option:

By executing this Agreement and delivering said reduced
purchase price to Owner [Discount], Owner hereby
acknowledges that the notice of intent to exercise of the option
granted under the Option Agreement has been given by
Company [BlueAcre] to Owner as required under the Option
Agreement.

The Supplemental Agreement also provided that the parties would “enter
into a portfolio purchase agreement . . . within thirty (30) calendar days after
payment in full of the Loan . . . as required by the Loan Agreement” but left
all other Loan Agreement and Option Agreement terms unchanged.
BlueAcre assigned its interests under the agreements to Applied in a
Consent to Assignment Agreement (“Consent to Assignment”) executed by
BlueAcre, Applied, Discount, and Paya’s predecessor.

3
 APPLIED v. DISCOUNT, et al.
Decision of the Court

¶6 Discount fully repaid the BlueAcre loan on or about
November 15, 2016. Applied provided Discount with its selection of
accounts on December 22, 2016, six days after the deadline to do so under
the Supplemental Agreement. At Discount’s request, Applied made
revised selections on or about January 10, 2017, and Discount asked that the
list “be attached as an Exhibit to the Portfolio Purchase Agreement. The
parties did not, however, execute a Portfolio Purchase Agreement”
(referred to hereinafter as “PPA”).

¶7 Paya paid the November 2016, December 2016, and January
2017 residuals to Applied. Discount wrote to Applied on January 18, 2017,
contending the sale could not close without a PPA but that it remained
willing to execute a PPA if Applied remitted these residuals. Applied did
not turn over the residuals; it instead sent Discount a revised draft PPA
under which it would keep all funds it had retained from when it paid the
reduced purchase price in July 2016. Discount did not sign the revised
draft.

¶8 Applied sued Discount in January 2019, alleging Discount
had wrongly instructed Paya to direct March 2018 and April 2018 residuals
to itself.1 On cross-motions for summary judgment, the superior court
ruled Applied had properly exercised its option by “[p]roviding the notice
of intent to exercise,” at which point “[a] bilateral contract was created.” It
further determined that “[t]he language about signing the [PPA] is in a later
clause that does not describe the actual exercise of the option” and that the
parties’ failure to execute any such agreement did not give Discount the
right to terminate the option. The court ordered Discount “to execute a
[PPA] evidencing Applied’s purchase and Discount’s sale of the residual
rights” associated with the accounts identified on January 10, 2017. The
court also directed Paya to pay residuals it had held pending resolution of
the dispute on a stipulated list of accounts to Applied and pay all other held
residuals to Discount.

¶9 Discount appeals.

DISCUSSION

¶10 We review the superior court’s interpretation of the parties’
contracts de novo. Dunn v. Fast Med. Urgent Care PC, 245 Ariz. 35, 38, ¶ 10
(App. 2018). Regarding the rulings on cross-motions for summary

1 Applied also sued on a second option that is not at issue in this
appeal.

4
 APPLIED v. DISCOUNT, et al.
Decision of the Court

judgment, we review questions of law de novo but review the facts in a
light most favorable to the parties against whom summary judgment was
granted. Nelson v. Phx. Resort Corp., 181 Ariz. 188, 191 (App. 1994). The
court may grant summary judgment only if it finds there are no genuine
issues of material fact and that one party is entitled to judgment as a matter
of law. Grain Dealers Mut. Ins. Co. v. James, 118 Ariz. 116, 118 (1978).
Summary judgment is inappropriate if the facts, even if undisputed, would
allow reasonable minds to differ on the appropriate legal result. Nelson, 181
Ariz. at 191.

I. APPLIED PROPERLY EXERCISED THE OPTION.

¶11 Discount contends Applied did not properly exercise the
option, arguing it only could be exercised by (1) delivering notice of the
intent to exercise and (2) entering a PPA. An option must be exercised in
strict compliance with its terms and conditions. Best v. Miranda, 229 Ariz.
246, 248, ¶ 7 (App. 2012).

¶12 Section 1.02 of the option states that it “may be exercised by
. . . delivering a notice of intent to exercise” to Discount, which the parties
agreed took place. But the obligation to “execute and enter into a [PPA]”
comes “[w]ithin a reasonable period of time thereafter not to exceed forty-
five (45) days” and the responsibility to execute the PPA falls on both
parties, not just Applied. Section 1.02 also references section 1.06, which
provides:

If [Discount] the Owner and [BlueAcre] Company fail to enter
into the [PPA] within forty-five (45) days after Company
delivers a notice of intent to exercise . . . then, upon Company
request, the Owner will pay to Company . . . a termination fee
in an amount equal to $50,000.00.

And section 1.05 allows Applied to request “such further instruments as [it]
may reasonably require in order to confirm . . . the rights, licenses,
privileges and property which are the subject of the Option.” Indeed, no
part of the option suggests that exercise of the option becomes invalid or
incomplete if the parties do not timely execute a PPA. Applied therefore
did not have to complete a PPA to exercise its option.

¶13 Discount also contends Applied had to identify the specific
accounts it would purchase before executing a PPA, citing section 1.04 of
the Option Agreement. Applied did so on December 22, 2016, and January
10, 2017. Discount accepted the latter selections, thereby waiving any
objection to their timeliness under the Supplemental Agreement. And

5
 APPLIED v. DISCOUNT, et al.
Decision of the Court

Discount does not challenge the court’s finding that “when Applied elected
the purchased accounts, it accounted for and paid [Discount] for all
Residuals other than those generated by accounts actually purchased.”

¶14 Discount also contends Applied could not own the purchased
accounts until a PPA was in place, again citing section 1.04 of the Option
Agreement:

Upon the execution of the [PPA] and payment of the purchase
price thereunder, the Purchased Merchants, which shall be
jointly identified by Owner and the Company (subject to
Company’s final selection) shall be owned by the Company.

Even assuming this is correct, Discount had already assigned its right to
receive the residuals. The Loan Agreement authorized “residual redirection
or assignment” with Applied taking monthly loan payments “upon receipt
of Residuals and pay[ing] any balance remaining to [Discount],” defining
“Residuals” as “payments and rights to payments,” not accounts. And the
Authorization documents Discount’s assignment of “all of [its] Residuals
due and payable . . . from [Paya]” so that Paya could “make payments . . .
directly to [BlueAcre].”

¶15 The Loan Agreement also obligated Applied, if it exercised
the option, to “take all necessary actions to assign the non-purchased
Residuals . . . back to [Discount]” once the loan was paid in full. The parties
did not agree on which accounts Applied would purchase until January
2017, and Discount does not challenge the court’s finding that Applied
subsequently paid Discount for all residuals other than those generated by
those accounts.

II. APPLIED DID NOT BREACH OR REPUDIATE THE PARTIES’
CONTRACTS BY RETAINING THE NOVEMBER 2016 THROUGH
JANUARY 2017 RESIDUALS.

¶16 Discount’s contention that Applied breached or repudiated
the parties’ agreements by retaining the November 2016, December 2016,
and January 2017 residuals fails for the same reason. Discount again argues
Applied never took ownership of the accounts because there is no PPA, but
as previously noted, Applied retained the residuals, not accounts.

¶17 Discount also cites section 3.1(a) of the Loan Agreement,
which gave it the right to receive residuals in the time between “the
payment in full of the Loan” and “the date that said Residuals are assigned
back to Borrower or purchased by Lender pursuant to the Option

6
 APPLIED v. DISCOUNT, et al.
Decision of the Court

Agreement.” That section also requires, as quoted above, that Applied take
any necessary steps to assign non-purchased residuals and merchant
agreements back to Discount if it exercised the option. This requirement
would be meaningless if Discount would have been entitled to receive all
residuals upon repaying the remaining balance of the loan. Again, it is
undisputed that Applied paid Discount the residuals for accounts it did not
select under the Option Agreement in January 2017.

¶18 The Option Agreement calls for specific performance “of the
terms hereof and the [PPA]” if it is breached. We therefore affirm the
superior court’s order directing the parties to execute a PPA evincing
Applied’s purchase of the accounts identified in the court’s amended
judgment.

III. ATTORNEY FEES AND COSTS ON APPEAL.

¶19 Both parties request their attorney fees and costs incurred in
this appeal under the Option Agreement:

Should suit or arbitration be brought to enforce or interpret
any part of this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys’ fees and costs,
including expert witness fees and fees on any appeal.

Generally, we enforce a contractual attorney’s fees provision according to
its terms. Harle v. Williams, 246 Ariz. 330, 333, ¶ 10 (App. 2019). Applied is
the prevailing party in this appeal and may recover its reasonable attorney’s
fees and taxable costs upon compliance with ARCAP 21.

CONCLUSION

¶20 We affirm the judgment.

AMY M. WOOD • Clerk of the Court
FILED: AA

7