United States District Court, D. Massachusetts
REPORT AND RECOMMENDATION ON MOTION TO DISMISS
[DOCKET NO. 39]
JENNIFER C. BOAL, UNITED STATES MAGISTRATE JUDGE
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. For the reasons
set forth below, the Court recommends that the District Judge
assigned to this case grant in part and deny in part that
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.
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.
SCOPE OF THE RECORD
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).
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)).
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
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
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,
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.
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.
KeyCorp Plans To Merge With FNFG
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. ¶¶
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.
Defendants Allegedly Access ACI's Confidential
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.
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
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.
Defendants Unsuccessfully Seek A Short Term Extension, Merge
And Ultimately Execute The Five-Year OLB Amendment
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.
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.
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.
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.
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.
Defendants Allegedly Breach The OLB And EB
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.
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.
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. ¶ 39. Once that work was complete, ACI
contends that Key breached the agreements and manufactured
its allegations of misconduct, ...