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ACI Worldwide Corp. v. KeyBank National Association

United States District Court, D. Massachusetts

June 15, 2018

ACI WORLDWIDE CORP., Plaintiff,
v.
KEYBANK NATIONAL ASSOCIATION, and KEYCORP, Individually and as successor in interest to FIRST NIAGARA FINANCIAL GROUP, INC., Defendants.

          REPORT AND RECOMMENDATION ON MOTION TO DISMISS [DOCKET NO. 39]

          JENNIFER C. BOAL, UNITED STATES MAGISTRATE JUDGE

         ACI Worldwide Corporation (“ACI”) brings this action against defendants KeyBank National Association (“KeyBank”) and KeyCorp (collectively referred to as “Key”) for breach of contract, fraudulent inducement, civil conspiracy and conversion. Key has moved to dismiss five of the eight counts in the second amended complaint (“SAC”). Docket No. 39.[1] For the reasons set forth below, the Court recommends[2] that the District Judge assigned to this case grant in part and deny in part that motion.

         I. PROCEDURAL HISTORY

         On April 19, 2017, ACI filed a complaint, which it subsequently amended two times. Docket Nos. 1, 5, 36. The operative complaint contains eight causes of action: breach of the “Internet Banking System Licensing and Web Technologies Agreement (Data Center)” (“OLB Agreement”) (Count I); fraudulent inducement in connection with the OLB Agreement (Count II); civil conspiracy in connection with the OLB Agreement (Count III); breach of the “ACI Application Services Master Agreement No. D-212” (“EB Agreement”) (Count IV); breach of Addendum 54 to Schedule 1 of the EB Agreement (Count V); breach of the confidentiality provisions of the OLB and EB Agreements (Count VI); breach of the OLB and EB Agreements by continued use (Count VII); and conversion of proprietary software (Count VIII). Docket No. 36.

         On October 30, 2017, the defendants moved to dismiss counts II, III, VI, VII and VIII of the SAC, Docket No. 39, which ACI opposed. Docket No. 44. The defendants filed a reply brief on November 28, 2017. Docket No. 50. After several adjournments at the parties' request, the Court heard oral argument on April 24, 2018.

         II. SCOPE OF THE RECORD

         In considering the merits of a motion to dismiss, the Court may look only to the facts alleged in the pleadings and documents attached as exhibits or incorporated by reference in the complaint and matters of which judicial notice can be taken. See Trans-Spec Truck Serv., Inc. v. Caterpillar Inc., 524 F.3d 315, 321 (1st Cir. 2008) (citing Fed.R.Civ.P. 10(c)). If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. Fed.R.Civ.P. 12(d).

         In addition, “under certain ‘narrow exceptions,' some extrinsic documents may be considered without converting a motion to dismiss into a motion for summary judgment.” Freeman v. Town of Hudson, 714 F.3d 29, 36 (1st Cir. 2013) (citing Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993)). “These exceptions include documents the authenticity of which are not disputed by the parties; official public records; documents central to plaintiffs' claim; and documents sufficiently referred to in the complaint.” Id. (internal quotations, modifications, and citations omitted). Accordingly, if “a complaint's factual allegations are expressly linked to- and admittedly dependent upon-a document (the authenticity of which is not challenged), that document effectively merges into the pleadings and the trial court can review it in deciding a motion to dismiss under Rule 12(b)(6).” Trans-Spec Truck Serv, 524 F.3d at 321 (quoting Beddall v. State St. Bank & Trust Co., 137 F.3d 12, 16-17 (1st Cir. 1998)).

         Here, Key refers to its answer to ACI's first amended complaint, as well as a shareholder class action complaint challenging the FNFG-KeyCorp merger. Docket No. 40 at 2 n.2, 6. The parties also jointly submitted the following documents, the authenticity of which is not challenged: the OLB Agreement; the 2009 Amendment to the OLB Agreement; the 2016 Amendment to the OLB Agreement; the EB Agreement; and the 2014 Amendment to the EB Agreement. Docket No. 76. The defendants also submitted a March 20, 2016 transmittal email attaching the executed copy of the 2016 Amendment to the OLB Agreement. Id.

         This Court will consider only the agreements and amendments submitted as part of Docket No. 76. Those documents are central to ACI's claims and are sufficiently referred to in the SAC. The remaining documents do not meet any of the exceptions listed above. Accordingly, the Court declines to consider any of them for the purposes of this report and recommendation.

         III. FACTS[3]

         On December 21, 2001, KeyCorp's predecessor-in-interest First Niagara Financial Group, Inc. (“FNFG”) entered into the OLB Agreement with ACI's predecessor-in-interest, S1, Inc. SAC ¶ 11. The OLB Agreement has a Texas choice-of-law provision. OLB Agreement § 17, Docket No. 76-1 at 6. The amendments to the OLB Agreement have no separate choice-of-law provisions and refer back to the original agreement. See Docket No. 76-2, 76-3.

         On March 31, 2009, ACI's predecessor-in-interest, ACI Worldwide (MA), Inc., entered into the EB Agreement with First Niagara Bank, a subsidiary of FNFG. Id. ¶ 12. The EB Agreement has a Delaware choice-of-law provision. EB Agreement § 14.21, Docket No. 76-4 at 10. The amendment to the EB Agreement has no separate choice-of-law provision and refers back to the original agreement. See Docket No. 76-5. The OLB and EB Agreements enabled FNFG to provide online banking services to its customers. Id. ¶ 13.

         In June 2015, ACI began the process of renewing the OLB Agreement, which was set to expire on March 20, 2016. Id. ¶ 14. That process usually took between nine months to one year, and so ACI typically offered five-year renewal terms. Id. Consistent with this practice, in October 2015, ACI offered FNFG a discounted five-year renewal term for the OLB and EB Agreements, but FNFG declined. Id. ¶ 15.

         A. KeyCorp Plans To Merge With FNFG

         On October 30, 2015, KeyCorp announced that it intended to acquire FNFG. Id. ¶ 16. Around that time, KeyCorp began to publicly voice its expectation that the merger would yield significant annual cost savings. Id. ¶¶ 16-17. It specifically identified a shift away from technology and third party vendor contracts as a source of major savings. Id. ¶¶ 17-18.

         At the time, KeyBank had a legacy online banking system that it used with all of its retail and commercial customers. Id. ¶ 20. For this reason, ACI alleges that KeyCorp knew early on in the due diligence process that FNFG's contracts with ACI would be one of the places where KeyCorp intended to reduce vendor costs. Id.

         B. The Defendants Allegedly Access ACI's Confidential Information

         In its November 30, 2015 S-4 Registration Statement, KeyCorp reported that it was given access to an electronic data room containing FNFG's non-public contract and vendor information. Id. ¶ 19. As a result, KeyCorp was also privy to the proprietary software licensed under the OLB and EB Agreements. Id. ¶ 20. ACI's proprietary systems and contract terms are non-public and protected by confidentiality provisions in both the OLB and EB Agreements. Id. ¶ 20.[4]

         ACI alleges that “FNFG's disclosure of the Agreements and access to ACI's technology” violated these confidentiality provisions, and the defendants' receipt and use of the “improperly obtained information” constituted misappropriation of trade secrets. Id. ¶ 23. ACI also alleges that FNFG understood and disregarded its legal obligations, and the defendants accessed ACI's confidential information to perform the synergy evaluations necessary to make aggressive cost-savings projections to shareholders. Id. ¶ 23. ACI alleges further that, on January 7, 2016, KeyCorp asked for permission to access ACI's confidential and proprietary information, after KeyCorp had already completed its analyses. Id.

         Similarly, on April 28, 2016, Northwest Bank (“Northwest”) executed a purchase and sale agreement to acquire eighteen FNFG branches. Id. ¶ 24. FNFG provided Northwest with the same proprietary and confidential information it had provided to KeyCorp, which purportedly enabled Northwest to determine whether to proceed with that acquisition. Id. ¶¶ 24-25. FNFG did not request ACI's permission to disclose this information to Northwest. Id. ¶ 25. Northwest decommissioned ACI's services at each of the eighteen branches it ultimately acquired. Id. ¶ 24.

         C. The Defendants Unsuccessfully Seek A Short Term Extension, Merge And Ultimately Execute The Five-Year OLB Amendment

         ACI alleges that the defendants knew they would need ACI's cooperation in transitioning FNFG customers to KeyBank's legacy platforms. Id. ¶ 26. However, ACI's insistence on the five-year renewal term proved problematic. Id. ¶ 27. FNFG implied that the five-year renewal term could prevent the KeyCorp merger from going forward. Id. FNFG therefore attempted to persuade ACI to allow it to enter into a shorter term extension of the OLB Agreement. Id. For a number of reasons, including ACI's interest in generating predictable recurring revenue, ACI was unwilling to deviate from its established practice of five-year renewal terms. Id. ¶ 28.

         FNFG and KeyCorp signed the merger agreement on October 30, 2015. Id. ¶ 29. Pursuant to that agreement, KeyCorp assumed all property, rights, privileges, powers, franchises, debts, liabilities and duties of FNFG and First Niagara Bank, which was subsequently merged into KeyBank. Id. ¶ 4. The agreement also prohibited FNFG from entering into any contract with a liability in excess of $10 million without KeyCorp's approval. Id. ¶ 29. The OLB Agreement has a $17, 750, 000 minimum commitment. Id. ¶¶ 31, 45. Accordingly, FNFG needed KeyCorp's permission to enter into a five-year extension of the OLB Agreement (“the OLB Amendment”). Id. ¶¶ 29-30.

         In March 2016, KeyCorp approved FNFG's execution of the OLB Amendment. Id. ¶ 30. By that time, KeyCorp and FNFG were in the final stages of concluding the merger. Id.

         On or about March 20, 2016, FNFG's Frank Polino informed ACI that KeyCorp had reluctantly approved FNFG's entry into the OLB Amendment. Id. ¶ 32. ACI alleges that, by entering into that agreement, FNFG also was promising implicitly to abide by the terms of the renewal. Id. Relying on that promise, ACI began to take the steps necessary to continue to provide maintenance and service to FNFG and KeyCorp, including the allocation of resources. Id. The OLB Amendment was fully executed on March 21, 2016. Id.

         ACI claims that neither FNFG nor KeyCorp intended to honor the OLB Amendment. Id. ¶ 33. ACI alleges that FNFG and KeyCorp only signed the amendment to induce ACI to continue to provide services that would facilitate their merger. Id. By signing the OLB Amendment, moreover, ACI maintains that KeyCorp ensured it would have continued access to ACI's resources, intellectual property and confidential and proprietary business information. Id.

         D. The Defendants Allegedly Breach The OLB And EB Agreements

         Within two months of the merger, KeyBank directed ACI to decommission FNFG's online banking system, which ACI claims was effectively a breach of the EB and OLB Agreements. Id. ¶ 34. KeyBank's daily operation of ACI's systems was intended to effectively cease on October 10, 2016. Id. KeyBank requested that those systems remain online until December 31, 2016 so that it could access static historical data. Id.

         Well in advance of notifying ACI of their intentions, the defendants allegedly invented justifications for KeyBank's breach of the OLB Amendment. Id. ¶ 35. ACI contends that none of these justifications have merit, and signify an “abrupt” change in tone. Id. ¶ 38. According to ACI, FNFG made its complaints at the time Key signed the amendment, but later dropped them to ensure ACI's assistance in effectuating the merger. Id. ¶ 35. By letter dated August 23, 2016, for example, KeyBank's chief information officer lauded ACI, stating how much KeyBank valued the “important role” ACI played “in making the merger a success.” Id. ¶ 36. Less than two months later, however, ACI alleges that KeyBank renewed its accusations of coercion. Id. ¶ 37. In particular, in a November 4, 2016 response to an invoice, KeyBank insisted that ACI had not negotiated in good faith and FNFG had been coerced into entering the OLB Amendment, rendering that agreement unenforceable. Id. ¶ 37. ACI alleges that Key is a sophisticated entity that knowingly alleged coercion so as to justify its own fraud. Id. ¶ 38.

         The defendants allegedly deceived ACI into believing they would honor their contractual commitments just long enough to ensure ACI's completion of the work they needed. Id. ΒΆ 39. Once that work was complete, ACI contends that Key breached the agreements and manufactured its allegations of misconduct, ...


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