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Alaska Travel Specialists, Inc. v. First National Bank of Anchorage (7/19/96), 919 P 2d 759
1 Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the
attention of the Clerk of the Appellate Courts, 303 K Street,
Anchorage, Alaska 99501, phone (907) 264-0607, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
ALASKA TRAVEL SPECIALISTS, )
) Supreme Court No. S-6246
) Superior Court No.
v. ) 3AN-92-8185 CI
THE FIRST NATIONAL BANK OF )
ANCHORAGE, ) O P I N I O N
Appellee. ) [No. 4369 - July 19, 1996]
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Mark C. Rowland, Judge.
Appearances: John F. McGee, Anchorage, for
Appellant. John R. Beard, Anchorage, for
Before: Compton, Chief Justice, Rabinowitz,
Eastaugh, Justices, and Shortell, Justice, pro
tem. [Matthews, Justice, not participating.]
SHORTELL, Justice pro tem.
This case involves a bank's efforts to protect itself and
credit card users from questionable marketing practices. A travel
agent claims that the bank overstepped its contractual rights and
drove the travel agent out of business. The agent sued the bank
for breaching the credit card merchant agreement between them, and
appeals an order of summary judgment against it. Because the
record does not support summary judgment, we reverse.
II. FACTS AND PROCEEDINGS
The promotion at the heart of this case arose from the
marketing practices of Commonwealth Investments, Inc.
(Commonwealth), and its two subsidiaries, West Coast Express (WCE)
and Rainbow Travel Club (RTC). WCE was to arrange air travel
between Anchorage, Seattle and San Francisco. RTC sold coupons for
$170, each exchangeable for an air ticket between Anchorage and
Seattle, to consumers who paid $20 to become RTC "members."
Although Commonwealth apparently honored some RTC coupons by
purchasing tickets on scheduled airlines at a loss, no WCE flight
ever flew. Commonwealth and its subsidiaries declared bankruptcy
in July 1988, leaving as creditors (by one party's calculation)
about 1250 RTC "members"who held about 3000 travel coupons.
Neither Commonwealth nor its subsidiaries are parties to this suit.
ATS sold RTC memberships and coupons to consumers, many
of whom used Visa and MasterCard credit cards. ATS submitted the
charge slips to First National Bank of Anchorage (FNBA) pursuant to
their merchant agreement. FNBA, concerned over a sudden increase
in credit card business from ATS and a warning to watch for
fraudulent practices involving "travel clubs,"immediately
investigated the Commonwealth companies and their owner, N. Ray
Kalyan. Unsatisfied with the information it received, FNBA
rejected the RTC charge slips submitted by ATS and refused to honor
them or future charge slips for RTC purchases.
ATS claims that FNBA also terminated the merchant
agreement so that ATS could no longer make any Visa and Mastercard
sales. According to ATS, an ATS employee called the central
authorization bureau for credit card approvals, and was told that
ATS "was no longer an authorized merchant." ATS's president then
called the authorization bureau and received a recorded message to
the same effect. FNBA's Senior Vice President Alan Lively
testified that ATS could have been told that it was an unauthorized
merchant "[b]ecause a flag had been placed on the account,"which
"was done by somebody in my office,"and that he "must have been"
aware of it. Lively said that ATS could have authorized non-RTC
credit card transactions by calling FNBA directly, though Lively
admitted, "I don't recall telling"ATS that it could do so.
FNBA denies that it terminated the merchant agreement,
claiming that its policy was to reject only charge slips from ATS
for the purchase of RTC coupons and memberships. ATS submitted no
charge slips for non-RTC purchases after January 1988. ATS went
out of business. It claims its demise was a result of sales lost
because it could not conduct credit card business.
ATS sued, claiming that FNBA breached the merchant
agreement in two ways: refusal to honor the RTC charge slips, and
termination of the agreement without the contractually required
thirty-day notice. FNBA moved for summary judgment on two grounds:
that it did not breach the contract and that ATS suffered no
legally demonstrable loss. The superior court granted FNBA's
motion without specifying its reasons for doing so. ATS appeals.
A. Standard of Review and Burden of Proof
This court applies its independent judgment in reviewing
a lower court's application of law to undisputed facts. Summers v.
Hagen, 852 P.2d 1165, 1168-69 (Alaska 1993).
To obtain summary judgment, the moving party must prove
"the absence of genuine factual disputes and its entitlement to
judgment." Shade v. Co & Anglo Alaska Serv. Corp., 901 P.2d 434,
437 (Alaska 1995). The non-moving party need not demonstrate the
existence of a genuine issue "until the moving party makes a prima
facie showing of its entitlement to judgment on established facts."
FNBA moved for summary judgment on two grounds: the
absence of a breach, and the absence of damages. Either one would
be sufficient to justify summary judgment in favor of FNBA.
Because the trial court granted summary judgment without specifying
its reasons, we must examine both possible grounds for summary
judgment, and affirm the superior court's decision if FNBA has
established, as a matter of law, either the absence of a breach or
the absence of damages. See State v. Appleton & Cox of Cal., Inc.,
703 P.2d 413, 414 (Alaska 1985) ("When a court grants summary
judgment without stating its reasons, it is presumed that the court
ruled in the movant's favor on all the grounds stated.").
B. FNBA May Have Breached the Merchant Agreement.
ATS alleged that FNBA breached the agreement in two ways:
by refusing to honor charge slips for RTC coupons and memberships,
and by terminating the agreement without notice. We conclude that
FNBA failed to establish as a matter for summary judgment the
absence of a breach on either ground.
1. Refusal to Process RTC Charge Slips
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., 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
. . . 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. (EN2)
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
FNBA argues that it proved that the RTC sales violated
Alaska's Unfair Trade Practices and Consumer Protection Act. (EN3)
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."). (EN4)
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.
2. Termination of the Agreement without Notice
ATS's second allegation of breach is that FNBA terminated
the agreement without giving proper notice. The contract required
FNBA to give "written notice of termination sent [to ATS] at least
30 days prior to [the] date of termination."(EN5) FNBA never gave
written notice of termination of the merchant agreement. ATS
claims that FNBA terminated the contract by rejecting all credit
card transactions from ATS. FNBA contends that it did not
terminate the contract and that ATS could still process non-RTC
ATS supported its termination claim in the trial court
with evidence that it could no longer have credit card transactions
approved through the central credit card authorization bureau. It
also presented evidence that FNBA flagged the ATS account and that
it did not tell ATS that non-RTC charges would be accepted.
FNBA presented evidence that the bank told ATS, orally
and in writing, that it refused to accept only RTC charge slips
rather than all charge slips, and implied a continuing contractual
relationship when its vice president wrote to the president of ATS,
"[w]e do value our relationship with you and with Alaska Travel
Specialists. . . ." FNBA further states that the central
authorization bureau told ATS only that its merchant number was no
longer valid, not that the agreement was terminated. Finally, the
distinction between refusal to accept RTC charge slips or all
charge slips seems hardly to have concerned ATS; ATS did not
investigate further than two calls to the authorization agency, it
never called FNBA to discuss the matter, and it never subsequently
tried to process any non-RTC charge slips through FNBA.
The conflicting evidence presented raised genuine factual
issues. As FNBA's evidence was not sufficient to prove the absence
of genuine issues of material fact, summary judgment should not
have been granted on ATS's termination claim.
C. FNBA Has Not Established the Absence of Damages.
ATS was an established business at the time FNBA refused
to honor its credit card sales. It claimed damages, in the form of
lost profits, of approximately $40 million because of FNBA's
actions. It also claimed damages in the form of lost revenues from
In the twenty-three months it had done business, ATS had
never made a profit. Doyle Reynolds, ATS's president, testified
that he had prepared a schedule of projected revenue which
estimated ATS's annual profit from its projected reservation center
for WCE flight operations at $1,218,393 per year. Over fifteen
years, he estimated lost profits from the reservation center at
$36,551,790. He added $12,000,820 for ATS's lost commission sales
over the same period. He admitted an $8 million mistake in his
calculations, which would have reduced the sum of his estimate by
FNBA moved for summary judgment on damages. In its
motion it conceded that it had refused to honor $27,858 in ATS
sales. It said "[d]oubtless some of those sales were lost, but
some people who had used Mastercard or VISA to buy Rainbow
memberships and coupons subsequently made payment by other means."
FNBA characterized ATS's estimate of profits as "the product of the
wildest speculation and surmise." Arguing that neither ATS nor any
other organization had previously established a reservation center
business such as ATS was planning to conduct, FNBA argued that ATS
could not show a profit history from a substantially similar
business run by plaintiff or from the same business run by a
predecessor and therefore could not recover a loss of profits. See
Guard v. P & R Enterprises, 631 P.2d 1068, 1072-73 (Alaska 1981).
FNBA also argued that ATS's failure to make a profit over its short
history should defeat its claim of lost income from commission
ATS argued that FNBA had conceded $27,858 in rejected
credit card sales. ATS recited its plans for future operations and
argued in conclusory fashion that it would have received commission
revenue and the reservation center would have been available as a
profit maker if FNBA had not breached its agreement. ATS
summarized its opposition by saying it had "shown that there is
some certainty of damages, at least with regard to the commissions
due on the credit card sales presented to [FNBA]."(EN6)
The record supports FNBA's characterization of ATS's
lost-profits claims as wildly speculative. An award of lost
profits is not appropriate if it is the result of speculation.
Guard, 631 P.2d at 1071 (citing Dowling Supply & Equip., Inc. v.
City of Anchorage, 490 P.2d 907, 909-10 (Alaska 1971)). FNBA
presented evidence sufficient to show the speculative nature of
ATS's lost-profits claim. This placed the burden on ATS to show
that it could produce evidence sufficient to establish a genuine
issue of fact. See State Dep't of Highways v. Green, 586 P.2d 595,
606 n.32 (Alaska 1978). It did not do so. Therefore, summary
judgment against ATS was appropriate with respect to its claim of
ATS claimed more than lost profits, however. It also
claimed loss of revenue arising from FNBA's rejection of $27,858 in
credit card sales. FNBA conceded that "some"sales were lost, but
argued that "some"of the damages had been mitigated by the buyers'
payment by other means. FNBA also argued that no commissions were
paid on the sales themselves, while ATS's evidence tended to
indicate that commissions would have been paid if the rejections
had not occurred and if its business had not been destroyed by
If a party moving for summary judgment does not meet its
initial burden of showing no genuine issues of fact, the opposing
party has no obligation to respond with evidence of its own.
Weaver Bros., Inc. v. Chappel, 684 P.2d 123, 126 (Alaska 1984).
The available evidence did not negate the existence of some
financial damage resulting from FNBA's rejection of the sales
slips. Summary judgment on the entire damage claim was error.
To obtain complete summary judgment, FNBA was required to
show the absence of any genuine issue of material fact on either of
two issues: that it did not breach the contract, or that ATS
suffered no damages. FNBA's evidence and arguments were
insufficient on both issues. Therefore, the court's order of
complete summary judgment in favor of FNBA was incorrect. We
REVERSE that order, and REMAND this case to the trial court for
further proceedings in accord with this opinion.
1. As part of a settlement between Alaska Travel Specialists,
Inc. (ATS), a travel agent, and Commonwealth, Commonwealth has
partial interest in the outcome of this suit and partial
responsibility for ATS's legal fees.
2. The consumer's obligation to repay is subject to claims and
defenses the consumer might have against the merchant (ATS) under
the sales contract. See Clark & Clark, supra, at 11-29 to 11-37.
ATS's failure to deliver the agreed goods or services is a defense
to payment by the consumer. 15 U.S.C. 1666(b)(3); 12 C.F.R.
226.12. As long as these defenses remain available, FNBA
characterizes the deposit credit given by virtue of the ATS
transactions as "provisional"and not "completed."
3. The provisions of the Act FNBA claims were violated are set
out in AS 45.50.471:
(b) The terms "unfair methods of
competition"and "unfair or deceptive acts or
practices"include, but are not limited to,
the following acts:
. . . .
(3) causing a likelihood of confusion or
misunderstanding as to the source,
sponsorship, or approval, or another person's
affiliation, connection, or association with
or certification of goods or services;
(4) representing that goods or services
have sponsorship, approval, characteristics,
ingredients, uses, benefits, or quantities
that they do not have or that a person has a
sponsorship, approval, status, affiliation, or
connection that the person does not have;
. . . .
(12) using or employing deception, fraud,
false pretense, false promise,
misrepresentation, or knowingly concealing,
suppressing, or omitting a material fact with
intent that others rely upon the concealment,
suppression or omission in connection with the
sale or advertisement of goods or services
whether or not a person has in fact been
misled, deceived or damaged; . . .
In the trial court, FNBA only argued that subsections (3) and (4)
were violated by RTC's coupons. FNBA's citation of subsection (12)
in its appellate brief appears to have been an afterthought. At
any rate, the trial court was placed at a disadvantage if it was
being asked to grant summary judgment on the basis of a statutory
provision FNBA felt it unnecessary to identify.
4. Briefing by both parties on this issue has been inadequate.
For example, ATS has argued that FNBA does not have standing in
this case to assert violation of the consumer protection statutes
as a defense. It cited no case law in support of its position in
the trial court and it has simply dropped the argument on appeal.
5. FNBA argues that ATS has waived this argument by not briefing
it adequately. While it is true that ATS's briefs are weak as they
discuss this issue, we do not consider them so deficient that the
argument is waived.
6. ATS's president had testified that the commissions "would have
come later when they were converted into tickets."