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By Yin Wilczek
Fuel-card provider Comdata Inc. breached an agreement with truck service station operator TA Operating LLC by charging it higher fees to process fueling transactions, a Delaware state judge found.
Chancellor Andre Bouchard of the Delaware Chancery Court Sept. 11 ordered Comdata to pay damages that may total more than $6.8 million, according to the amount estimated by TA’s expert witness ( TA Operating LLC v. Comdata Inc. , Del. Ch., No. 12954-CB, 9/11/17 ).
However, the judge found that TA can’t pierce the corporate veil—look behind the corporate structure—to hold FleetCor Technologies Inc., which acquired Comdata in November 2014, liable for the breach.
The judge applied Tennessee law as required by the parties’ contract. The case provides further insight as to how courts in Delaware—which is home to more than half of all U.S. public companies—handle breach of contract cases that are controlled by the laws of other states.
Brentwood, Tenn.-based Comdata is one of the nation’s largest fuel card providers for the trucking industry. The company has a longstanding agreement with Westlake, Ohio-based TA—which operates truck service centers along America’s highways—in which TA accepts Comdata fuel cards and Comdata processes, and sometimes funds, transactions made at TA locations in exchange for transaction fees.
According to the court’s decision, Comdata is TA’s largest single processor of transactions, dealing with more than 40 percent, or about $2 billion, of TA’s diesel fuel transactions in 2016.
In 2010, after tough negotiations, TA and Comdata executed a new “merchant agreement” in which TA was able to significantly reduce the price increase proposed by Comdata and to retain an option to pay a flat fee for each transaction. The agreement could only be terminated for an unremediated “material breach.”
In 2011, Comdata approached TA with a proposal to implement a cardless fueling process, which it said would help combat fraudulent fuel transactions. The discussions led to a new agreement between the companies in which TA would implement the cardless process at its travel centers. At the same time, the companies also signed a new pact to extend their merchant agreement for another six years and to reduce the transaction fees TA had to pay Comdata.
In September 2016, Comdata sent TA a default notice saying that TA breached their cardless fueling agreement by failing to install the technology at its travel centers. Claiming that the cardless fueling agreement was the consideration for it to enter the amended merchant agreement, Comdata said it would terminate the merchant agreement unless TA cured the default within 30 days.
TA said the next month that it had installed the technology at 90 percent of its centers. Nonetheless, Comdata notified TA shortly after that it was terminating the amended merchant agreement. It also starting charging TA substantially higher transaction fees starting from Feb. 1 of this year.
The chancery court held a four-day trial during which it heard from six fact witnesses and one expert witness. The court concluded in its Sept. 11 ruling that TA didn’t materially breach its obligation in the cardless fueling implementation agreement. It also concluded that even if TA had committed a material breach, Comdata’s breach of the agreement by, among other actions, failing to share the necessary information so TA could complete the technology integration, excused TA’s failure to carry out its side of the bargain. Under Tennessee law, “Comdata was not entitled to terminate the merchant agreement, as amended,” Bouchard wrote.
The court held that TA is entitled to damages for the difference between what it paid under the February rates and what it should have paid under the amended merchant agreement. It said that TA’s expert witness estimated the damages at around $30,715 per day, excluding interest. Based on that estimate, Comdata’s damages to date would amount to more than $6.8 million. The court asked the parties to confer and quantify TA’s actual damages.
However, the court declined to award TA treble damages under the Tennessee Consumer Protection Act. It said that TA hadn’t shown deception or coercion that warranted such an award.
As to FleetCor’s liability, the court said that under both Tennessee and Delaware law, TA failed to prove the exceptional facts necessary for a court to go behind the corporate veil.
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