A Fulton County jury awarded nearly $6.6 million in damages and fees to a credit card processing company that accused the owner of another company of running off with millions of dollars after inking a deal to service its customers.
The award for the fraud and conspiracy verdict includes $750,000 in punitive damages and more than $1.8 million in attorney fees for the team of winning lawyers from commercial real estate and business litigation firm Stanley, Esrey & Buckley.
Greg Michell, who heads the firm’s litigation practice, said the hard-fought case was filed in Fulton Superior Court, removed by the defense to federal court and then remanded back to the state court after a judge ruled in the U.S. District Court for the Northern District of Georgia that the defendants deliberately misrepresented their legal residency.
“They fought us hammer and tongs,” said Michell, who represents plaintiff Priority Payment Systems with colleagues James Sherman and Garrett Land.
Michell said the prospects of collecting the judgment are unknown, given that defendant Jody Wallace, the CEO of now-defunct Connect Merchant Payment Services, or CMPS, made it clear he stashed his assets out of reach.
“After we filed the lawsuit, he called our client’s CEO and said he was moving to Florida as part of his asset protection plan,” said Michell. “He said, ‘I’ve had plenty if time to lock all this up.’”
The defendants also included Wallace’s wife, Michelle, and the Wallace Family Trust, of which both Wallaces are co-trustees. They are defended by Thomas “TJ” Mihill and Leslie Hartnett of Owen, Gleaton, Egan, Jones & Sweeney.
In an email, Mihill said they “respectfully disagree with the jury’s verdict, and we are currently weighing all our options for post-trial motions and appeal.”
As detailed in court filings, Priority processes checks and credit and gift cards for merchants. CMPS served as a marketer for such services, soliciting merchants to contract with companies like Priority.
In 2012, CMPS and a competitor were engaged in litigation that ultimately resulted in CMPS having no marketing staff and a shrinking business. Priority agreed to buy CMPS’ portfolio of business and the rights to its residual commissions.
“As part of the transaction, CMPS was to continue providing customer service to the portfolio after the closing,” the complaint said. “Wallace represented to Priority that CMPS would continue to service the portfolio after the transaction closed.”
The deal closed on Dec. 12, 2012, with Priority paying $4.3 million to CMPS.
“The very next day,” it said, Wallace transferred “the entire $4.3 million into the Wallace Living Trust. Wallace deliberately put these funds out of reach so that Priority would be unable to recover them once it discovered the fraud.”
“Wallace used much of the $4.3 million to purchase travel, homes, property, stocks, and gold coins for his family, and to invest in several new businesses,” the complaint said. “He moved the remaining funds into several other trusts, including an offshore ‘Cook Island’ trust that he formed within days of the transaction.”
CMPS was left “insolvent and judgment proof,” it said.
Michell said it took Priority several months to realize what happened after it bought CMPS’ portfolio, as the deal with Wallace included provisions that would allow him to earn bonuses if his company met certain performance goals.
“I don’t think we fully understood what happened,” said Michell. “He’d been in business for more than a decade, and leading up to the deal he was telling us how he planned to stay in business.”
“Then three or four months later, he shut everything down and said ‘I let everybody go. Good luck.’”
The defendants filed their own counterclaims, arguing among other things that Priority’s mishandling of the accounts CMPS provided resulted in the latter’s inability to realize up to $1 million in performance bonuses.
Michell said there were never any serious settlement discussions, and a daylong mediation before retired Seyfarth Shaw partner John Sherrill proved fruitless.
Following a weeklong trial before Judge Eric Dunaway, Michell said the jury took about four hours to declare both Wallaces and CMPS liable for fraud, fraudulent inducement, breach of contract, violation of the Uniform Fraudulent Transfer Act, breach of contract and civil conspiracy, awarding $4,000,887 in damages—“exactly what we asked for,” Michell said.
The panel also agreed that punitive damages and an award of attorney fees and expenses were warranted. After minitrials on each issue, the jury took about 10 minutes to award $1.845 million in fees and another 10 minutes to deliver $750,000 in a punitive damages.
Jody Wallace participated in the trial but did not return from Florida for the verdict, Michell said.
In conversation with jurors afterward, Michell said they “were very smart, and they clearly got it.”
“I think it boiled down to credibility,” he said, noting that key evidence included thousands of emails the defendants failed to provide until ordered to by a special master.
“On the last day of discovery, they turned over a hard drive with 93,000 emails on it,” he said.
The messages “showed that they were telling two different stories right to the end: one to us, and another to third parties,” he said.
Michell said he had told the jury he wasn’t sure the award would be collectible.
“We told the jury we didn’t know, that why Priority may have spent its money chasing a dry hole is because they felt that they’d been wronged,” he said. “They felt that it was worth seeing the case through.”