Hindsight Solutions, LLC v. Citigroup Inc.
| Citation | 53 F.Supp.3d 747 |
| Decision Date | 20 October 2014 |
| Docket Number | No. 11 Cv. 5368 JGK.,11 Cv. 5368 JGK. |
| Parties | HINDSIGHT SOLUTIONS, LLC, Plaintiff, v. CITIGROUP INC., et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
Derek S. Sells, Stephanie Rose Correa, Tracey Lyn Brown, The Cochran Firm, New York, NY, for Plaintiff.
Marshall Howard Fishman, Samuel Joseph Rubin, Timothy P. Harkness, Freshfields Bruckhaus Deringer LLP, New York, NY, for Defendants.
This lawsuit arises from a contract between the plaintiff, Hindsight Solutions, LLC, (“Hindsight”) and the defendant CitiMortgage, Inc. (“CitiMortgage”). Hindsight agreed to provide CitiMortgage with a proposal to reduce the overall maintenance costs that CitiMortgage paid annually to IBM for the use of IBM's FileNet software. CitiMortgage agreed to pay Hindsight 30% of the actual savings that CitiMortgage recognized over a two-year period compared to the annual maintenance costs that were currently billed by IBM. Hindsight claims that CitiMortgage failed to pay amounts that were owed under the contract. Hindsight also claims that CitiMortgage failed to pay amounts that Hindsight was owed for its work in connection with an audit by KPMG. Hindsight argues that, to the extent any amounts were not owed under the contract, Hindsight is entitled to payment under various quasi-contractual theories. Hindsight also contends that CitiMortgage defrauded it by misrepresenting that there was a “software deployment freeze” that caused Hindsight to withdraw its efforts to obtain compensation based on alleged software savings under the contract. CitiMortgage denies that there were any misrepresentations and contends that Hindsight was paid exactly what it was owed under the contract.
Various claims and defendants were dismissed over the course of the litigation. Hindsight's remaining claims are for breach of contract, fraudulent misrepresentation, fraudulent inducement, and quasi-contractual claims for unjust enrichment, quantum meruit, and promissory estoppel. Hindsight has sued CitiMortgage and Citigroup, as well as individual defendants, Gil Scheibelhut and Harold Hatter.
The Court has jurisdiction over this case pursuant to 28 U.S.C. § 1332 based on complete diversity of citizenship.
The Court conducted a non-jury trial in this case from September 8, 2014 through September 16, 2014. Having considered all of the evidence and assessed the credibility of the witnesses, the Court makes the following findings of fact and reaches the following conclusions of law pursuant to Federal Rule of Civil Procedure 52.
1. Hindsight is a Delaware limited liability company that was formed in January 2007. Pl. Trial Ex. (“PTX”) 1. Its three members are citizens of South Carolina, Kansas, and California. Am. Comp. ¶ 1. Michael Hinds is Hindsight's chief executive officer, founder, and sole employee. Tr. 64, 293. Hinds, a certified engineer, began working at FileNet in 2000 as a technical engineering consultant. Tr. 61. He worked in compliance to curb software piracy and developed a program to track compliance with software licenses. Tr. 61–62. Hinds continued to work at FileNet after it was acquired by IBM in 2006, until he left to start Hindsight in 2007. Tr. 63, 87.
2. Defendant Citigroup is a Delaware corporation with its principal place of business in New York. Am. Comp. ¶¶ 3–4. Defendant CitiMortgage is a New York corporation with its principal place of business in Missouri. Am. Comp. ¶ 6. (Defendants Citigroup and CitiMortgage are referred to collectively as “Citi”).
3. Defendants Scheibelhut and Hatter are employees of Citigroup with offices in Texas and Florida respectively. Scheibelhut and Hatter are citizens of those respective states. See Am. Compl. ¶¶ 3–8, 11–12; Answer ¶¶ 3–8, 11–12. Scheibelhut is a Director of Production Software Support for Citigroup. Tr. 535. He is responsible for keeping the applications that support Citi's mortgage business up and running. Tr. 541. Hatter is a Director of Supplier Governance in Citigroup's Global Technology Resource Strategy group. Tr. 912. Hatter's role is to facilitate the contracting process by assisting internal clients at Citi such as Scheibelhut with the vendor procurement process. Tr. 913–15.
4. CitiMortgage uses FileNet software to manage images stored in a computerized document repository under licenses purchased from IBM. Tr. 669. In 2008, FileNet was one of three different platforms CitiMortgage used to store document images. Tr. 527. CitiMortgage's FileNet licenses are perpetual; once purchased CitiMortgage continues to own the license in perpetuity. Tr. 76; PTX 6, at 95974. In addition to the one-time license purchase, IBM charges CitiMortgage ongoing annual “maintenance” fees. Tr. 670–71, 843. The annual maintenance fees are the only ongoing fees charged after a license is purchased. Tr. 844.
5. Maintenance is the annual fee paid to IBM for continued use of existing licenses and technical support once the customer owns the license. Tr. 670. Once purchased, a customer cannot recoup the cost of a license but it can deactivate ongoing maintenance. Tr. 300–01, 778. If a user deactivates ongoing maintenance, the user may reactivate it later. Tr. 778.
6. CitiMortgage's FileNet licenses are governed by a contract (the “IBM–FileNet Contract”) dated August 5, 2003. PTX 6. The IBM–FileNet Contract states that it permits CitiMortgage affiliates to use CitiMortgage's FileNet system. PTX 6, at 95961, 95975. The IBM–FileNet Contract was the governing contract that Hindsight eventually reviewed for purposes of its work. Def. Ex. (“DX”) 136; DX 150.
7. In December 2007, before Hindsight approached CitiMortgage, CitiMortgage owned FileNet licenses that permitted over 49,000 internal users and two million external users to use its FileNet system. Tr. 784–85.
8. Prior to the contract between CitiMortgage and Hindsight, CitiMortgage paid IBM $1,557,493.98 annually for maintenance on FileNet licenses. DX 160. In December 2007, Hinds contacted Citi's James Ford to propose that Hindsight could assist in reducing Citi's ongoing FileNet costs. Tr. 65–66.
9. On January 29, 2008, Hinds again approached Ford with a “specific goal” of reducing Citi's “annual IBM–FileNet ECM maintenance.” PTX 2; Tr. 841. On March 16, 2008, Hindsight contacted Ford and provided a summary of its “no cost” proposed engagement to enable CitiMortgage to save on its annual maintenance. DX 3; Tr. 842.
10. Hindsight offered to perform an initial analysis at no cost or obligation to CitiMortgage. DX 3; Tr. 295, 842. Hindsight agreed that at the conclusion of that analysis, it would present Citi with a summary of projected maintenance savings at which point CitiMortgage could elect to retain Hindsight or not. Tr. 68–70, 674–75, 842; DX 3.
11. To enable Hindsight to perform its no cost analysis, CitiMortgage provided Hindsight with reports generated directly from the FileNet system. DX 25. The reports CitiMortgage provided to Hindsight showed the users who accessed the FileNet system. Tr. 770–75. Hindsight used these reports to determine the number of users accessing FileNet so it could recommend reductions in CitiMortgage's FileNet maintenance costs without any negative impact on CitiMortgage's usage of the FileNet system. DX 17; DX 25; DX 27; Tr. 843.
12. On May 22, 2008, Hindsight advised CitiMortgage that the reports CitiMortgage provided to Hindsight to analyze the system were “perfect” and “exactly what [Hindsight] needed.” DX 25.
13. On May 8, 2008, after its initial no cost analysis, Hindsight presented Ford with an “approximate 24–month savings projections” with respect to annual maintenance for CitiMortgage and CitiMortgage's affiliate CBNA. DX 17. CBNA used the CitiMortgage FileNet system before Hindsight was retained. DX 17; Tr. 846.
14. The “approximate savings projections” were based on reducing Citi's “overall software maintenance.” DX 17. The “approximate 24–month minimum savings projections” were $1,116,774 (reflecting a 30% reduction in Citi's “current 24–Month software maintenance calculation”). DX 17, at 86735. The proposed compensation to Hindsight was based on “30% of Citigroup's actual 24–month savings projections (Though, actual customer savings should continue well beyond 24–months).” DX 17, at 86735; Tr. 844–46.
15. On May 13, 2008, Hindsight sent Ford its Standard Terms and Conditions. DX 19. The Hindsight Standard Terms and Conditions provided compensation based on savings of annual software maintenance. Hindsight's Standard Terms and Conditions provide:
None of the Services referenced under this MSA guarantee Hindsight will be successful in reducing Customers annual software maintenance. However, if using Hindsight's restructuring recommendations, Hindsight and/or Customer are unable to successfully negotiate at least a 20 percent cost reduction off the current annual software maintenance (as referenced in the ‘Scope of Services Delivery Document’), Customer will not be required to compensate Hindsight for the Service Fees outlined in the Agreement.
DX 19, at 87796. Hindsight's Standard Terms and Conditions did not provide for compensation based on new users or software deployments. DX 19; Tr. 331, 846–48.
16. Hindsight's Standard Terms and Conditions contained a merger clause providing that “[t]his Agreement constitutes the entire agreement between the parties regarding the subject matter hereof and supersedes all prior or contemporaneous agreements, negotiations, representations, and proposals (whether oral or written) between Hindsight Solutions and Customer.” DX 19, at 87797. Hinds considered it good business practice to include a merger clause in Hindsight's Standard Terms and Conditions and not to rely upon oral discussions. Tr. 412–13.
17. On May 28, 2008, Hindsight sent Citi its proposed work order outlining the scope of Hindsight's engagement. DX 32. Hindsight's May 28 proposed work...
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