The Green Sheet Online Edition
January 26, 2015 • Issue 15:01:02
ISO goes to court: What to expect
Once in a while, ISOs have to go to court. Sometimes they need to enforce rights they have under contracts, such as rights to residuals or non-solicitation. Other times, ISOs go to court to defend against their exercise of certain rights or remedies. Whatever the case, it's usually the first time an ISO has seen the inside of a courtroom, other than, perhaps, traffic court.
I am not a trial attorney, and I am not trained in the subtle arts of filing procedures or wooing juries. I do, however, serve as an expert witness from time to time in trials involving ISOs, and I'd like to share some of what I have learned from that experience.
Always tell the truth
This may seem too obvious to state, but some parties think that they can outsmart the other side and the court by cobbling together a fabricated version of the facts. Apart from being a moral blunder, lying exposes the party to a chance of being convicted of perjury. On a more subtle level, when witnesses lie, they jeopardize their own credibility and therefore the chances of succeeding in the case.
Of course, each witness who is to testify should be properly prepared by trial counsel and should be familiar with the material on which they will be examined and know what to expect in terms of questions. When a well-prepared trial attorney and witness walk into the courtroom they do not experience very much in the way of surprises.
Everything will come out
Once upon a time, a long, long time ago, people did things and had only their memories to evidence what they did or did not do. Now, every move we make, right down to our GPS location and heart rate are tracked and recorded in one way or another for all to see at one point or another.
The learning point here is that during the discovery process, where parties exchange with each other all documents and records that are relevant to the case, an ever-growing body of digital material is available to learn about someone's thoughts, intentions, meetings, agreements and everything in between.
For better or for worse, a lot of what you do is discoverable – meaning that a party opposing you in court can oblige parties with relevant information to disclose it.
Lawyer-client privilege is almost sacred. It is a legally mandated duty on the part of your attorney to guard your secrets and indeed everything in your file, including correspondence and notes. Except under narrow circumstances, privileged materials are not subject to discovery in litigation.
One of the purposes of privilege is to put clients at ease, knowing that they can communicate freely with and obtain advice from their lawyers without fear of recrimination from that process. And lawyers are obligated to zealously advocate on behalf of their clients' interests, using the information and instructions given to them by their clients and other sources.
In movies or dramas, trials unfold within 20 minutes or so. Those dramatizations spare the viewers the numerous procedural filings, motions, depositions, conferences with judges and other banal steps involved in a trial that can spread out over months or even years.
Courts are overloaded with cases, and each case has to wait its turn unless it is a matter of an emergency, in which case a hearing can be expedited. The point to note here is that trials take time. An ISO suing to recover unpaid residuals might have to budget a number of months without residuals pending the outcome of the case – all the while the ISO still has to pay the lawyer leading the case either immediately or through a payment plan. ISOs often overlook the agony of these delays when beginning litigation.
Parties seeking to assert their rights, must expect that the parties opposite will engage counsel whose job it is to defend them – and perhaps mount counter-claims. The legal system is adversarial – meaning it is fit and proper for parties to "battle" before the court, in a civilized and polite manner, in order to achieve a just outcome.
When entering the adversarial arena of a courtroom, a plaintiff must be ready to become a defendant and vice versa. Before starting a claim, an ISO should review his or her own performance vis-à-vis the party opposite to make sure that there are no credible counter-claims or that the ISO has a defense strategy for any that may exist.
A trial for an ISO can cost as much as hundreds of thousands of dollars in legal fees, if not more. There is no guarantee that these fees will be recovered from the other side, even if the ISO prevails. This is so partly because the other side might not have the money to pay. Trial counsel will be able to advise an ISO regarding the likelihood of success so that the ISO can make an educated decision as to whether litigation is worth the gamble.
Your Honor, an ISO is …
Every ISO has tried explaining the ISO business model to someone from outside the industry. It usually takes about ten seconds for the person to be almost entirely lost in the subtleties of interchange, residuals and merchant fees. Judges, although educated and articulate, are no better than other people at understanding our business.
ISO trials, in particular, force the parties to spend a good deal of time educating the presiding judge about the case. This is not so in more well known industries or industries that are not as complicated.
For example, how is it that an ISO "owns" a merchant while the processor and bank say, at the same time, that they also own it? These are the kind of subtle industry-specific facts that have to be explained to the bench. For better or for worse, judges do not always fully understand our industry and they may also bring their own preconceptions about what it really is – rightly or (with respect) wrongly.
In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, email Adam Atlas, Attorney at Law, at firstname.lastname@example.org or call him at 514-842-0886.
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