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United States Court of Appeals, they enter into with them.
Third Circuit.
SOVEREIGN BANK, Appellant No: 06-3392 Fifth Third Bank is also a member of the Visa net-
v. work, and it also has a Membership Agreement with
BJ'S WHOLESALE CLUB, INC.; Fifth Third Ban- Visa. Within the network, Fifth Third is referred to as
corp. an “Acquirer,” which means that Fifth Third enters
Pennsylvania State Employees Credit Union, Appel- into contractual relationships with businesses that
lant No: 06-3405 agree to accept Visa cards as payment for their goods
v. and services (“Merchants”). Acquirers process those
Fifth Third Bank; Bj's Wholesale Club, Inc. transactions on behalf of the Merchants. BJ's Whole-
Bj's Wholesale Club, Inc., Defendant/Third-Party sale Club, Inc., is a Merchant. Accordingly, Fifth
Plaintiff Third and BJ's have entered into a Merchant Agree-
v. ment. Although Merchants participate in the Visa
International Business Machines Corporation, Inc., network, they are not members. Only financial insti-
Third-Party Defendant. tutions are eligible for membership. Therefore, Mer-
Nos. 06-3392, 06-3405. chants have no contractual relationship directly with
Visa.
Argued: June 19, 2007.
Opinion Filed: July 16, 2008. Every time a cardholder uses a Visa card to pay a
Merchant for goods or services, the Issuer, Acquirer
OPINION and Merchant must interact to process and complete
the transaction. The Merchant's computer scanners
McKEE, Circuit Judge. first “read” the “Cardholder Information” contained in
the magnetic stripe on the back of Visa cards as they
In these consolidated appeals, Sovereign Bank and the are swiped through the familiar terminal at the
Pennsylvania State Employees Credit Union appeal checkout. The Merchant then sends the pertinent ac-
orders dismissing claims that arose from the theft of count information through the Visa network to the
certain credit card information from a retailer's com- Issuer. The Issuer reviews the Cardholder Information
puter files. For the reasons that follow, we will reverse and, assuming the card is valid with sufficient availa-
in part, and affirm those orders in part. ble credit, the Issuer authorizes the transaction, and so
notifies the Merchant. Upon receiving that notifica-
tion,*165 the Merchant completes the transaction with
I. BACKGROUND the cardholder, and then forwards the receipt to the
Acquirer who pays the Merchant pursuant to their
These consolidated appeals involve two law suits that agreement. The Acquirer then notifies the Issuer that
arose from the theft of credit card information from payment has been received, and the Issuer pays the
the computer files of a prominent retailer. Visa Acquirer and charges the cardholder.
U.S.A., Inc., is a corporation, comprised of an asso-
ciation of financial institutions, which operates a cre- Visa has created an extensive set of “Operating Reg-
dit card payment system known as “Visa.” Sovereign ulations” to both govern and facilitate transactions
Bank and the Pennsylvania State Employees Credit involving Visa cards. Those Regulations address vir-
Union (“PSECU”) are both members of the Visa tually every aspect of the Visa payment system, and
network. Sovereign and PSECU have a Membership impose both general and specific requirements on
Agreement with Visa that allows them to issue Visa participants in the network.
cards to their respective customers and members.
Within the Visa network, Sovereign and PSECU are
referred to as “Issuers,” which means that they issue The disputes in these appeals center on certain security
Visa cards to cardholders pursuant to the contracts regulations including the Cardholder Information
Security Program (“CISP”). The CISP provisions
apply to Issuers and Acquirers and include broad Pursuant to their Membership Agreements with Visa,
security requirements intended to protect Cardholder all Members of the Visa network including Insurers
Information. Those requirements include a prohibition and Acquirers, agree to be bound by the Operating
against retaining or storing the data encoded in the Regulations. In addition, before an Acquirer can enter
familiar magnetic stripe on the back of credit cards, into a Merchant Agreement with a Merchant, the
i.e., Cardholder Information, after a consumer trans- Acquirer must first determine that the Merchant will
action is completed. abide by the Operating Regulations. Given the im-
portance attached to uniform compliance, an Acquir-
One provision of the Operating Regulations, entitled er's initial determination is deemed insufficient. Ra-
“Enforcement,” defines procedures by which Visa can ther, an Acquirer must agree to ensure continued
enforce compliance with the Operating Regulations. compliance with the Operating Regulations. Finally,
That provision expressly allows Visa to take specified the Acquirer must have a Merchant Agreement with
remedial actions against Members who do not comply each of its Merchants. The Merchant Agreements may
with the Operating Regulations, including levying generally contain whatever extraneous provisions the
fines and penalties. Enforcement actions can be ap- Acquirer and Merchant agree upon, but, the Agree-
pealed to Visa's Board of Directors, but the Board's ment must, at a minimum, contain the provisions of
decision is final. The Operating Regulations give Section 5.2 of the Operating Regulations. These dis-
Visa, and only Visa, the right to interpret and enforce putes involve § 5.2.h.3.b. That subdivision prohibits a
the Operating Regulations, and only Visa can deter- Merchant from retaining or storing Cardholder In-
mine whether a violation of the Operating Regulations formation after an Issuer authorizes a transaction. Like
has occurred. all Visa Members, Fifth Third's predecessor agreed to
be bound by the Visa Operating Regulations and
The Operating Regulations also impose extensive By-Laws, which are incorporated by reference into the
security requirements on Issuers and Acquirers. Sec- Membership Agreement.
tion 2.3 of the Operating Regulations requires Issuers
and Acquirers to ensure that their agents, service The seeds that sprouted this litigation were sewn in
providers and Merchants comply with the Operating February 2004, when Visa identified a potential
Regulations. compromise of electronically stored Cardholder In-
formation pertaining to certain Visa cards issued by
The Visa Operating Regulations also include com- Sovereign, PSECU and other financial institutions.
prehensive provisions for resolving disputes between Electronic data on some credit cards had been copied
Visa members. These provisions allow members to and used to fraudulently obtain goods and services
challenge disputed charges through “chargeback” and after cardholders had used the cards at various BJ's
representment procedures, in accordance with risk stores. Visa responded by issuing a “CAMS alert” to
allocation judgments made by Visa. Disputes about potentially affected Issuers. Such CAMS alerts notify
the use of these procedures are resolved by arbitration. Visa members that Cardholder Information may have
been compromised. The CAMS alert here notified the
Issuers that Visa cards which had been properly pre-
Finally, the Operating Regulations also include sented for payment at BJ's stores from July 2003
“Compliance” provisions that apply when a Member's through February 2004 had been compromised and
violation of a Regulation causes a financial loss to could be used to make fraudulent purchases.
another Member who cannot be made whole by re-
sorting to chargeback or representment. For example,
a loss resulting from fraudulent charges using stolen Sovereign responded to the February 2004 alert by
data is allocated to the Issuer. However, the Issuer cancelling some Visa cards and issuing new Visa
may use the Compliance proceedings to shift that loss cards to the affected cardholders. Sovereign claims
to the Acquirer if it resulted from the Acquirer's vi- that the fraud was only possible because BJ's impro-
olation of an Operating Regulation. The Compliance perly retained and stored the Cardholder Information
provisions do not eliminate any rights a Member may from its customers' cards instead of deleting the data
have to pursue any legal remedies that may otherwise immediately after a sales transaction was completed,
be available. as required by Visa Operating Regulation § 5.2.h.3.b.
In Sovereign's view, BJ's failure to comply with the
requirements of § 5.2.h.3.b. breached a duty owed to United States District Court for the Middle District of
Sovereign. Sovereign further contends that Fifth Third Pennsylvania to allow consolidation with Pennsylva-
failed to comply with the Operating Regulations by nia State Employees Credit Union v. Fifth Third Bank
failing to ensure that BJ's complied with § 5.2.h.3.b. and BJ's Wholesale Club, Inc. That action had been
brought by the PSECU to recover the costs it incurred
FN3. The alert is purely informational and in replacing its members' Visa cards that had been
does not mean that the accounts listed had compromised by the fraud.
been compromised. Fifth Third claims that
an Issuer has discretion in choosing how it Following the transfer, BJ's and Fifth Third separately
will respond to a CAMS alert. It can respond moved to dismiss the claims against them pursuant to
by monitoring the affected accounts for Fed.R.Civ.P. 12(b)(6). The district court denied BJ's
fraudulent activity, cancelling the accounts motion on the negligence claim, but granted it on the
and reissuing new Visa cards, or taking other breach of contract and equitable indemnification
measures based on the potential for fraud. claims. The court granted Fifth Third's motion on the
negligence and equitable indemnification claims, but
According to Sovereign, BJ's failure to delete the denied it on the breach of contract claim. Sovereign
Cardholder Information magnetically stored in Visa Bank v. BJ's Wholesale Club, Inc., 395 F.Supp.2d 183
cards, and Fifth Third's failure to ensure that BJ's (M.D.Pa.2005).
complied with § 5.3.h.3.b, allowed the unauthorized
and fraudulent use of Cardholder Information. Sove- Fifth Third moved for reconsideration on the sole
reign maintains that it was legally obligated to reim- remaining claim for breach of contract. Sovereign's
burse its cardholders for the resulting fraudulent breach of contract claim is based on a third-party or
charges, and that it incurred expenses, and lost income intended beneficiary theory and depends, in part, upon
and fees from doing so. This purportedly included the whether Fifth Third and Visa intended to give Sove-
costs of issuing replacement cards to Cardholders (in reign enforceable rights under their separate contract
an effort to mitigate further losses), and loss of even though Sovereign is not a party to it. Ultimately,
goodwill of its customer base. the district court converted Fifth Third's motion for
reconsideration into a motion for summary judgment
After it discovered the breach of security of Card- and ordered the parties to conduct discovery on the
holder Information that had been retained in BJ's third-party beneficiary issues, i.e., whether Fifth
system, PSECU also canceled approximately 20,000 Third's contractual obligation to Visa to comply with
Visa cards that it had issued to its members who had the Visa Operating Regulations was intended to ben-
used the cards at BJ's. It then reissued Visa cards with efit Issuers like Sovereign.
new account numbers and new Cardholder Informa-
tion at a cost of approximately $98,000. In the meantime, Sovereign filed an amended com-
plaint asserting claims against BJ's for negligence,
II. Sovereign Bank v. BJ's Wholesale Club and Fifth breach of fiduciary duty and promissory estoppel. The
Third Bank (No. 06-3392) amended complaint restated the breach of contract
claim against Fifth Third and added a claim for
On January 10, 2005, Sovereign sued Fifth Third and promissory estoppel. Fifth Third and BJ's again
BJ's in state court asserting a claim for negligence, moved to dismiss the claims under Rule 12(b)(6), and
breach of contract, and equitable indemnification the district court dismissed all claims against BJ's and
against each defendant. The suit was brought to re- dismissed all claims against Fifth Third except the
cover the losses that resulted from the fraudulent use breach of contract claim. Sovereign Bank v. BJ's
of Cardholders' Information, lost fees and commis- Wholesale Club, Inc., 427 F.Supp.2d 526
sions, the value of the unauthorized purchases and (M.D.Pa.2006).
sales, and the cost of replacing Visa cards.
In accordance with the district court's order directing
BJ's and Fifth Third removed the action to the United limited discovery on the third-party beneficiary issues,
States District Court for the Eastern District of Penn- the parties exchanged paper discovery and took the
sylvania. Venue was subsequently transferred to the deposition of Visa's designated representative, Alex
Miller. After discovery was completed, the district
court granted summary judgment in favor of Fifth (1) Unless otherwise agreed between promisor and
Third on the third-party beneficiary claim, holding promisee, a beneficiary of a promise is an intended
that Sovereign was not an intended beneficiary of the beneficiary if recognition of a right to performance
Visa-Fifth Third Member Agreement. Sovereign Bank in the beneficiary is appropriate to effectuate the
v. BJ's Wholesale Club, Inc., 2006 WL 1722398 intentions of the parties and either
(M.D.Pa. June 16, 2006).
(a) the performance of the promise will satisfy an
This appeal followed. With respect to Fifth Third, obligation of the promisee to pay money to the be-
Sovereign appeals only the district court's Rule neficiary; or
12(b)(6) dismissal of its equitable indemnification
claim and the district court's grant of summary judg- (b) the circumstances indicate that the promisee
ment in favor of Fifth Third on its breach of contract intends to give the beneficiary the benefit of the
claim. With respect to BJ's, Sovereign appeals only promised performance.
the district court's Rule 12(b)(6)'s dismissal of its
negligence and equitable indemnification claims.
(2) An incidental beneficiary is a beneficiary who is
not an intended beneficiary.
We discuss each of Sovereign's arguments in turn.
Under § 302, Sovereign's contract claim depends on
A. Sovereign's Breach of Contract Claim Against whether the “recognition of a right to performance” in
Fifth Third. Sovereign “is appropriate to effectuate the intentions
of” both Visa and Fifth Third in entering into their
As noted, Sovereign's contract claim is based on the member agreement and whether “the circumstances
theory that it is a third-party beneficiary of Fifth indicate that” Visa (the promisee) “intend[ed]” to give
Third's Member Agreement with Visa. As also noted, Sovereign “the benefit of the promised performance.”
that agreement required Fifth Third to ensure that BJ's
complied with the Visa Operating Regulations, and § As noted earlier, the district court converted Fifth
5.2.h.3.b. of that agreement prohibits Merchants from Third's Rule 12(b)(6) motion to dismiss to a motion
retaining Cardholder Information. Sovereign contends for summary judgment and ordered limited discovery.
that Fifth Third breached that contract by not ensuring The ensuing discovery included production of nu-
BJ's compliance. merous documents as well as the deposition of Visa's
designated representative, Alex Miller. Fifth Third
Historically, under Pennsylvania law, “in order for a relies in part on Miller's testimony that he was not
third party beneficiary to have standing to recover on a aware that Visa intended to create a direct right of
contract, both contracting parties must have expressed enforcement under the Operating Regulations among
an intention that the third-party be a beneficiary, and Members and he has never seen a document that
that intention must have affirmatively appeared in the would allow a Member “to step into Visa's shoes
contract itself.” Scarpitti v. Weborg, 530 Pa. 366, 609 under its contract with other members” and enforce
A.2d 147, 149 (1992) (citation omitted). Sovereign the Operating Regulations. Miller testified in part as
appropriately concedes that it is not an express follows:
third-party beneficiary of the Visa-Fifth Third Mem-
ber Agreement. However, in Scarpitti, the Pennsyl- [T]he core purpose of the Operating Regulations is
vania Supreme Court adopted § 302 of the Restate- to set up the conditions for participation in the sys-
ment (Second) of Contracts. Id. That provision allows tem, to set up the rules and standards that apply to
an “intended beneficiary” to recover for breach of that ultimately for the benefit of the Visa payment
contract even though the actual parties to the contract system, the members that participate in it and other
did not express an intent to benefit the third party. stakeholders such as cardholders, merchants, and
Section 302 provides as follows: others who may participate in the system as well.
Intended and Incidental Beneficiaries Fifth Third further contends that Miller also made it
clear that the Operating Regulations' prohibition benefit the Visa system as a whole and not Sovereign
against retaining Cardholder Information, which Fifth or any particular Issuer in particular. Accordingly,
Third claims was enacted long after it entered into its Fifth Third argues that it is entitled to summary
agreement with Visa, was not to benefit any individual judgment on Sovereign's breach of contract claim.
member or class of members. Rather, according to
Miller: Sovereign responds that there is a genuine issue of
[t]he purpose of the CISP program ... is to maximize material fact as to Visa's intent which precludes
the value to the Visa system as a whole. That can summary judgment. Sovereign notes that in August
include the protection of any entity that may be 1993, Visa wrote a memorandum entitled “Retention
involved in the use or-or handling of cardholder of Magnetic-Stripe Data Prohibited.” The memoran-
data, so it's to protect a cardholder, the privacy of dum described a new section of the Operating Regu-
their information, to protect their confidence in us- lations prohibiting the storage of magnetic-stripe data,
ing the Visa system, to protect issuers, to protect i.e., Cardholder Information. It read in part as follows:
acquirers, to protect merchants; and by creating a
system that protects cardholder data, generally it's to To protect the Visa system and Issuers from poten-
maximize the usage and value of the Visa payment tial fraud exposure created by databases of mag-
system for all of those participants. netic-stripe information, Section 6.21 has been re-
vised. Effective September 1, 1993, the retention or
Miller was asked whether, even though there may storage of magnetic stripe data subsequent to the
have been multiple purposes for requiring the Ac- authorization of a transaction is prohibited. Ac-
quirer to ensure Merchant compliance with the regu- quirers are obligated to ensure that their merchants
lations, at least one such reason was to protect Issuers. do not store the magnetic-stripe information from
Miller responded as follows: Visa Cards for any subsequent use.
The part of your question I'm struggling with is to Sovereign contends that this August 1993 memo-
say whether that was the purpose or not. I think I randum shows that Visa understood and clearly in-
summarized what the purpose was. tended that Issuers such as Sovereign (and PSECU)
would obtain direct benefits from the requiring
One of the entities that is impacted by the Card- members to ensure that magnetic-stripe data was not
holder Information Program is issuers, as well as retained.
acquirers, merchants and cardholders. So my un-
derstanding was the purpose was not directed at any Sovereign further contends that other evidence ob-
one of those entities but to maximize the value of tained from Visa shows that Visa expressly unders-
the system in protecting cardholder information for tood and intended that the prohibition would provide
all of the participants. direct benefits to Issuers and that the type of harm
suffered by Sovereign was specifically intended to be
Finally, Fifth Third notes that in responding to a avoided by compliance with the prohibition. Visa
question about whether Visa intended to give Issuers published an on-line article entitled “Issuers and Ac-
the benefit of the Acquirer's compliance with the quirers Are At Risk When Magnetic-Stripe Data Is
CISP, Miller testified: Stored,” in May 2003. The article stated that the CISP
Visa designed the CISP program to benefit the Visa “was established to preclude a compromise that could
system as a whole, to drive confidence in the inte- lead to the duplication of valid magnetic-stripe data on
grity of the Visa system, to drive greater, greater counterfeit or altered cards,” because such a data
efficiency, to drive cardholder security, and to do compromise “impacts Issuers, Acquirers, cardholder
that from requirements that apply to all Visa mem- goodwill and the integrity of the payment system.”
bers that designed ultimately to yield a more effi- Sovereign submits that this article is additional evi-
cient system on behalf of all those participants. dence that the prohibition against retaining Cardholder
Information contained in the magnetic strip was in-
In sum, Fifth Third contends that Miller's deposition tended to directly benefit Issuers.
testimony clearly shows that the intent of the Operat-
ing Regulations, and more particularly the prohibition Finally, Sovereign relies on the following exchange
on Merchant retention of Cardholder Information, is to during Miller's deposition:
that the single August 1993 reference to benefiting
Q: [by Fifth Third's counsel] Is it fair to say that the issuers nor the ambiguous “core purpose” statement
operating regulations are not intended to benefit a is sufficient evidence to lead a reasonable jury to
single group of participants, but the Visa payment find for [Sovereign] on the contract claim.
system as a whole?
2006 WL 1722398 at *12 (emphasis added). It further
Objection. Leading. commented:
It cannot be disputed that Sovereign benefits from
A: [by Miller] It's fair to say that the core purpose of the prohibition on the retention of magnetic-stripe
the operating regulations is to set up the conditions data. It is probably also true that as an issuer it has
for participation in the system, to set up rules and the greatest need for such a prohibition, and benefits
standards that apply to that ultimately for the benefit the most from it, since its cardholders' information
of the Visa payment system, the members that par- is at risk if a merchant or other entity retains such
ticipate in it and other stakeholders such as card- data so that it is subject to theft. But one essential
holders, merchants and others who may participate part of the test for third-party-beneficiary status is
in the system as well. (emphasis added). that the promisee, here Visa, must have intended to
benefit the third party. There is sufficient evidence
on summary judgment to state that Visa had no such
Q: They may have some incidental benefit; is that intent. In sum, as Fifth Third argues, Sovereign is at
correct? most an incidental beneficiary of the member
agreement between Visa and Fifth Third, and an
Objection incidental beneficiary has no right to enforce a
contract, no matter how great a stake it might have
Leading, and calls for a legal conclusion. in doing so.
A: The bylaws and operating regulations, by their Id. (emphasis added).
terms, apply only to members. So to the extent you
mean they might have benefits beyond the rules that ***
apply to other stakeholders, that's correct. They're
not directly parties to these rules. (emphasis added) In order to be an intended beneficiary of the Visa-Fifth
Third Member Agreement, Sovereign has the burden
Sovereign argues that, despite the best efforts of Fifth of producing, inter alia, sufficient evidence that Visa
Third's counsel, the italicized portions of Miller's intended to give it the benefit of the Fifth Third's
testimony demonstrate that Visa understood that Is- promise to Visa to ensure that BJ's complied with the
suers are more than incidental beneficiaries of the provision of the Member Agreement prohibiting
Member Agreements. Rather, it shows that Visa ex- Merchants from retaining Cardholder Information.
pressly understood that other classes of participants, We believe that Sovereign met that burden.
such as Issuers, were intended and foreseeable bene-
ficiaries of a Member Agreement, even though they We do not, however, regard the May 2003 on-line
are not parties to a particular agreement. article entitled “Issuers and Acquirers Are At Risk
When Magnetic-Stripe Is Stored” as indicative of an
Sovereign also argues that in granting summary intent to benefit a particular Issuer such as Sovereign
judgment to Fifth Third, the district court did not or PSECU. That article simply states the reason for the
apply well-settled summary judgment standards. Ra- prohibition against retention of Cardholder Informa-
ther, according to Sovereign, the district court acted tion, viz., a data compromise that could result from
like a fact-finder by weighing conflicting or ambi- storage of magnetic-stripe data “impacts Issuers,
guous evidence and making credibility determina- Acquirers, cardholder goodwill, and the integrity of
tions. The district court explained: the system.” However, we do believe that Visa's Au-
gust 1993 memorandum, entitled “Retention of
In the face of this evidence of Visa's intent [i.e., Magnetic-Stripe Date Prohibited,” and Miller's “core
Miller's deposition testimony], we do not believe purpose” deposition testimony raise a genuine issue of
material fact regarding the intent of the Visa and Fifth F.Supp.2d at 533.
Third Member Agreement. That was sufficient to
preclude the grant of summary judgment on Sove- “The Economic Loss Doctrine provides that no cause
reign's breach of contract claim. of action exists for negligence that results solely in
economic damages unaccompanied by physical or
In his deposition, Miller testified that the core purpose property damage.” Adams v. Copper Beach Town-
of the Operating Regulations was to benefit the Visa home Communities, L.P., 816 A.2d 301, 305
system and “the members that participate in it.” Ad- (Pa.Super.2003). “[T]he Economic Loss Doctrine is
mittedly, any indication of an intent by Visa to spe- concerned with two main factors: foreseeability and
cifically benefit Issuers is arguably undermined by limitation of liability.” Id. at 307
Miller's references to “other shareholders such as
cardholders, merchants and others who may partici- Pennsylvania appellate courts first discussed this
pate in the system as well.” Nonetheless, his testimony doctrine in Aikens v. Baltimore & Ohio R.R. Co., 348
clearly suggests an intent by Visa to benefit Issuers. Pa.Super. 17, 501 A.2d 277 (1985). There, employees
An argument to the contrary is tantamount to claiming of a manufacturing company sued a railroad company
that since Visa intended to benefit 35 everyone who to recover wages lost when their plant had to close
was part of the Visa system, it did not specifically because of damage inflicted by a derailment allegedly
intend to benefit anyone. However, the fact that it caused by the railroad company's negligence. The
intended to benefit several Members or classes of employees did not suffer any personal injuries or loss
Members does not negate the possibility that it in- of property. In appealing the trial court's judgment on
tended to benefit individual Issuers such as Sovereign. the pleadings in favor of the railroad, the employees
argued that the Pennsylvania Superior Court should
Moreover, as recited earlier, the August 1993 memo- recognize “a cause of action to compensate a party
randum provides, in relevant part: “To protect the Visa suffering purely economic loss, absent any direct
system and Issuers from potential fraud exposure physical injury or property damage, as a result of the
created by databases of magnetic-stripe information negligence of another party.” 501 A.2d at 278. The
.... Acquirers are obligated to ensure that their mer- Superior Court declined the invitation; instead, the
chants do not store the magnetic-stripe information court adopted the general rule set forth in the Res-
from Visa Cards for any subsequent use.” (emphasis tatement (Second) of Torts § 766C. That rule provides
added). Thus, the memorandum clearly states that as follows:
Acquirers must act to protect Issuers by ensuring that
their Merchants do not retain Cardholder Information. Negligent Interference with Contract or Prospective
Accordingly, the August 1993 memorandum is suffi- Contractual Relation.
cient evidence by itself to create a genuine issue about
whether Visa intended to give Sovereign the benefit of One is not liable to another for pecuniary harm not
Fifth Third's promise to Visa to ensure BJ's com- deriving from physical harm to the other, if that
pliance with the provisions of the Visa-Fifth Third harm results from the actor's negligently
Member Agreement. Therefore, we will reverse the
district court's grant of summary judgment to Fifth
Third on the breach of contract claim and remand for (a) causing a third person not to perform a contract
further proceedings on that claim. with the other, or
(b) interfering with the other's performance of his
contract or making the performance more expensive
*** or burdensome, or
C. Sovereign's Negligence Claim Against BJ's. (c) interfering with the others acquiring a contrac-
tual relation with a third person.
The district court dismissed Sovereign's negligence
claim pursuant to Fed.R.Civ.P. 12(b)(6) because the The Superior Court noted that under § 766C, “recov-
claim was barred by the economic loss doctrine. 427 ery for purely economic loss occasioned by tortuous
interference with contract or economic advantage is A.2d 270 (2005). Sovereign claims that Bilt-Rite se-
not available under a negligence theory.” 501 A.2d at verely weakened the economic loss doctrine as first
278 (citation omitted). announced in Aikens v. Baltimore & Ohio R.R. Co.,
supra.
As the Superior Court explained, the “roots of this
well-established rule” reach back to the U.S. Supreme Sovereign first claims that the district court erred in
Court's decision in Robins Dry Dock and Repair Co. v. assessing its losses in purely economic terms, because
Flint, 275 U.S. 303, 48 S.Ct. 134, 72 L.Ed. 290 it also incurred a loss of property, i.e. money, because
(1927). The Superior Court quoted from the Supreme of BJ's alleged negligence. The argument is meritless.
Court's decision in Flint, in concluding that: Not surprisingly, Sovereign cites no authority to
support its contention that its financial loss negates the
negligent harm to economic advantage alone is too economic loss doctrine. Indeed, the argument would
remote for recovery under a negligence theory. The totally eviscerate the economic loss doctrine because
reason that a plaintiff cannot recover stems from the any economic loss would morph into the required loss
fact that the negligent actor has no knowledge of the of property and thereby furnish the damages required
contract or prospective relation and thus has no for a negligence claim.
reason to foresee any harm to the plaintiff's interest.
Sovereign also attempts to pirouette around the eco-
501 A.2d at 279. nomic loss doctrine by arguing that it only applies
when the plaintiff has suffered an unforeseeable loss,
and then claiming that its loss was clearly a foreseea-
Moreover, as the Superior Court stressed, there are ble result of BJ's negligence. We do not doubt that
sound public policy reasons to condition tort recovery Sovereign's loss was a foreseeable result of not taking
on injury to person or property. appropriate precautions to protect its cardholders'
information. However, that does not advance Sove-
[A]llowance of a cause of action for negligent in- reign's claim to the extent that Sovereign believes. We
terference with economic advantage would create agree that the court in Aikens did explain that the
an undue burden upon industrial freedom of action, economic loss doctrine was partly the result of a pol-
and would create a disproportion between the large icy consideration to not impose loss for an unfore-
amount of damages that might be recovered and the seeable result. However, that is of no consequence
extent of defendant's fault. See Restatement here because Sovereign did not incur any loss of
(Second) of Torts Sec. 766c, comment a (1979). To property. Moreover, Sovereign's argument ignores the
allow a cause of action for negligent cause of purely thrust of the public policy rational explained in Aikens.
economic loss would be to open the door to every
person or business to bring a cause of action. Such
an outstanding burden is clearly inappropriate and a
***
danger to our economic system.
Thus, the district court correctly held that Sovereign's
Id. Accordingly, the Superior Court held “that no negligence claim against BJ's was barred by the eco-
cause of action exists for negligence that causes only nomic loss doctrine.
economic loss.” Id.
D. CONCLUSION
In its negligence claim against BJ's, Sovereign is
seeking to recover the costs associated with replace- For the above reasons, we will reverse the district
ment of some of its customers' Visa cards and the court's grant of summary judgment to Fifth Third on
amounts it paid to reimburse customers whose mag- Sovereign's breach of contract claim and remand for
netic-stripe data was used for fraudulent purchases. further proceedings. However, we will affirm the
Sovereign tries to get around the fatal limitation of the district court's dismissal of Sovereign's equitable in-
economic loss doctrine by relying on the Pennsylvania demnification claims against Fifth Third and BJ's and
Supreme Court's decision in Bilt-Rite Contractors, its dismissal of Sovereign's negligence claim against
Inc. v. The Architectural Studio, 581 Pa. 454, 866 BJ's.
members to resume using their cards for retail pur-
III. Pennsylvania State Employees Credit Union v. chases. PSECU's actions also limited the liability that
Fifth Third Bank and BJ's Wholesale Club, Inc. BJ's and Fifth Third would otherwise have incurred to
(No. 06-3405) PSECU and its members. Thus, argues PSECU, BJ's
and Fifth Third's acceptance and retention of the
The Pennsylvania State Employees Credit Union is benefits conferred without compensation to PSECU,
the Issuer of Visa cards to it members, Fifth Third is would be inequitable. Accordingly, BJ's and Fifth
the Acquirer and BJ's is the Merchant. After disco- Third were unjustly enriched by PSECU's cancelling
vering the breach of Cardholder Information retained and replacing its members' Visa cards. We cannot
in BJ's system, PSECU canceled approximately agree.
20,000 of its Visa cards that had been used at BJ's. It
then reissued Visa cards with new account numbers The district court held that BJ's and Fifth Third re-
and new Cardholder Information at a cost of ap- ceived no benefit from PSECU's cancelling and reis-
proximately $98,000. PSECU brought this action to suing of its members' Visa cards because PSECU
recover related costs. replaced the cards pursuant to its contractual obliga-
tion with its cardholders. The district court relied on
Allegheny Gen. Hosp. v. Philip Morris, Inc., 228 F.3d
*** 429 (3d Cir.2000), in holding that any benefit that BJ's
or Fifth Third may have derived was purely incidental,
C. PSECU's Claims For Unjust Enrichment and could not form the basis of an unjust enrichment
Against Fifth Third and BJ's. claim. 398 F.Supp.2d at 331.
The elements of unjust enrichment under Pennsylva- In Allegheny Gen. Hospital, a group of hospitals sued
nia law have been defined as follows: various tobacco companies asserting an unjust
enrichment claim for unreimbursed medical care the
(1) benefits conferred on defendant by plaintiff; (2) hospitals had provided to nonpaying, diseased
appreciation of such benefits by defendant; and (3) smokers. The hospitals claimed that “by paying for the
acceptance and retention of such benefits under medical services required by nonpaying patients, the
such circumstances that it would be inequitable for Hospitals discharged the Tobacco Companies' legal
defendant to retain the benefit without payment of duties and saved them from bearing costs caused by
value. their fraudulent and wrongful conduct.” 228 F.3d at
447. We held that a claim for unjust enrichment may
Limbach Co. LLC v. City of Philadelphia, 905 A.2d not be based on the performance of an obligation that
567, 575 (Pa.Cmwlth.2006) (citation omitted). The is independently owed to third parties:
cause of action is similar to a claim for equitable in-
demnification that we discussed in No. 06-3392. “To In addition, since the Hospitals had an independent
sustain a claim of unjust enrichment, a claimant must obligation to provide health care to the nonpaying
show that the party against whom recovery is sought patients [through Medicaid], incidental benefit to
either wrongfully secured or passively received a the Tobacco Companies is not enough to maintain
benefit that it would be unconscionable for her to an action; the nonpaying patients get the main ben-
retain.” Torchia v. Torchia, 346 Pa.Super. 229, 499 efit, not the Tobacco companies. See Restatement of
A.2d 581, 582 (1985) However, a claim for unjust Restitution § 106 (1937) (“A person who, inciden-
enrichment requires more than a showing that the tally to the performance of his own duty ... has
defendant may have benefited in some way from the conferred a benefit upon another, is not thereby en-
disputed conduct. Walter v. Magee-Womens Hosp., titled to contribution.”).
876 A.2d 400, 407 (Pa.Super.2005).
Id.
PSECU argues that BJ's and Fifth Third benefited
from PSECU's cancellation and replacement of its PSECU's unjust enrichment claims against BJ's and
Visa cards because the cancellation stopped the Fifth Third are analogous to the hospital's failed unjust
fraudulent use of those cards and permitted PSECU's enrichment claim against the tobacco companies.
PSECU attempts to distinguish Allegheny by arguing PSECU argues that it entered into the series of con-
that, unlike the hospitals, it did not replace its mem- tracts that make up the Visa system with BJ's and Fifth
bers' Visa cards pursuant to an independent obligation. Third, but it does not have any “prior duty of perfor-
However, PSECU's amended complaint fatally un- mance” within the Visa system. PSECU concedes that
dermines that contention. There, PSECU alleged that it did allege that it replaced its members' cards pur-
it replaced its members' Visa cards “to fulfill a con- suant to its contractual obligations within the Visa
tractual obligation to its customers.” Am. Compl. ¶ 65. system. However, it submits that Visa's designated
Although PSECU's attempt to salvage its unjust representative's deposition testimony establishes that
enrichment claim now requires that it take a contrary cancellation and reissuance of its members cards is
position, the allegation in the amended complaint is a only one of a number of options an Issuer may take in
binding judicial admission. See Parilla v. IAP response to a breach of Cardholder Information by a
Worldwide Serv., VI, Inc., 368 F.3d 269, 275 (3d Merchant or Acquirer.
Cir.2004) (“Judicial admissions are formal conces-
sions in the pleadings, or stipulations by the party or According to PSECU, this establishes that it had no
its counsel, that are binding upon the party making obligation to cancel and reissue the cards; rather,
them.”). Accordingly, the district court properly dis- doing so was just one of PSECU's options under the
missed the unjust enrichment claim. Visa system. PSECU claims that by promptly cancel-
ling and replacing cards, it protected BJ's and Fifth
Finally, PSECU tries to distinguish this case from Third from greater fraud losses, which would have
Allegheny. According to PSECU, this case should be been shifted to Fifth Third's compliance process (and
governed by the Restatement of Restitution § 81, then shifted to BJ's for indemnification to Fifth Third).
which provides:
PSECU concludes that it, BJ's and Fifth Third are all
Unless otherwise agreed, a person who has dis- “interested in an enterprise [the Visa system, and its
charged more than his proportionate share of a duty associated network of contracts] out of which [obli-
owed by himself and another as to which, between gations] arise,” as to which none of the three have a
the two, neither had a prior duty of performance, is prior duty of performance. PSECU's Br. at 55 (quoting
entitled to contribution from the other, except where Restatement of Restitution § 81, comment (b)). It
the payor is barred by the wrongful nature of his further says that by cancelling and reissuing its
conduct. members' Visa cards, it “discharged more than [its]
proportionate share of a duty owed by [PSECU, BJ's
Comment (b) offers the following guidance: and Fifth Third]” “as to which, between the [three],
The rule stated in this Section applies where two or neither had a prior duty of performance.” Id. (quoting
more persons are interested in an enterprise out of Restatement of Restitution § 81). Therefore, PSECU
which the obligation arises, whether as primary or contends that it is entitled to contribution from BJ's
secondary obligors, and where neither of them with and Fifth Third on its unjust enrichment theory, re-
respect to the other has a prior duty of performance, gardless of whether PSECU, BJ's or Fifth Third “ap-
irrespective of the question whether, as between pears to be primarily responsible” for reissuance of
them and the creditor, one of them appears to be Visa cards. Id. (quoting Restatement of Restitution §
primarily responsible. 81, comment (b)).
Comment (c) explains the limited scope of § 81: This argument has some facial appeal. However,
The rule stated in this Section is limited to those PSECU did not make this argument in the district
who are parties to a single transaction or series of court, and we therefore need not determine its merit
transactions. If there is but one debt or duty, the fact now. “Generally, barring exceptional circumstances,
that there are a number of separate agreements like an intervening change in the law or the lack of
which guarantee its performance does not prevent representation by an attorney, this Court does not
contribution between all the secondary obligors. review issues raised for the first time at the appellate
level.” Gleason v. Norwest Mortgage, Inc., 243 F.3d
Id. at comment (c). 130, 142 (3d Cir.2001). PSECU does not contend that
there are exceptional circumstances present here, and
we do not find any. Accordingly, this argument has
been waived, and we will reject it without discussion.
We conclude that the district court did not err in dis-
missing PSECU's unjust enrichment claim against
either BJ's or Fifth Third.
****
