Bessemer Sys. Fed. Credit Union v. Fiserv Solutions, LLC

• Decision Date: 14 July 2020
• Docket Number: 2:19-cv-00624-RJC
• Citation: 472 F.Supp.3d 142
• Parties: BESSEMER SYSTEM FEDERAL CREDIT UNION, on behalf of itself and members, Plaintiff, v. FISERV SOLUTIONS, LLC and Fiserv, Inc., Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

472 F.Supp.3d 142

BESSEMER SYSTEM FEDERAL CREDIT UNION, on behalf of itself and members, Plaintiff,

v.FISERV SOLUTIONS, LLC and Fiserv, Inc., Defendants.

2:19-cv-00624-RJC

United States District Court, W.D. Pennsylvania.

Signed July 14, 2020

Alexander Mirkin, Pro Hac Vice, Charles J. Nerko, Offit Kurman, P.A., Joel S. Forman, Pro Hac Vice, New York, NY, Richard J. Parks, Pietragallo, Gordon Alfano, et al., Sharon, PA, for Plaintiff.

Andrew J. Wronski, Pro Hac Vice, Jesse L. Byam-Katzman, Pro Hac Vice, Timothy J. Patterson, Pro Hac Vice, Foley & Lardner LLP, Milwaukee, WI, Brian C. Bevan, Efrem M. Grail, The Grail Law Firm, Pittsburgh, PA, for Defendants.

OPINION

Robert J. Colville, United States District Judge

Before the Court are the Motion to Strike Plaintiff's Jury Demand and Prayer for Punitive Damages (ECF No. 50) and the Motion to Dismiss Second Amended Complaint (ECF No. 52) filed by Defendants Fiserv Solutions, LLC, f/k/a Fiserv Solutions, Inc. ("Fiserv Solutions") and Fiserv, Inc. ("Fiserv, Inc.") (collectively, "Fiserv").¹ In its Motion to Dismiss, Fiserv requests dismissal pursuant to Fed. R. Civ. P. 12(b)(6) and Fed. R. Civ. P. 9(b) of each of the thirteen claims set forth in Bessemer's Second Amended Complaint (ECF No. 48) ("Complaint"). In its Motion to Strike, Fiserv asserts that Fiserv Solutions and Plaintiff Bessemer System Federal Credit Union ("Bessemer") entered into a master agreement (the "Master Agreement") through which Bessemer agreed to not seek or recover punitive damages for disputes arising out of the agreement and through which the parties both waived their right to a jury trial for disputes arising out of the agreement. The Motions at issue have been fully briefed, and are ripe for disposition.

I. Factual Background & Procedural History

In its Complaint, Bessemer sets forth the following allegations relevant to Fiserv's Motions:

Bessemer is a member-owned, federally chartered not-for-profit credit union. Compl. ¶ 10, ECF No. 48. Bessemer provides financial services to its more than 4,000 members.² Id. at ¶ 11. Fiserv provides technology solutions to credit unions, banks, and other financial services providers. Id. at ¶ 20. Bessemer and Fiserv Solutions were parties to the Master Agreement, pursuant to which Fiserv provided services and products to Bessemer.³ Id. at ¶ 26. Fiserv provided account processing services to Bessemer, including a core processing system referred to as "Charlotte." Id. at ¶ 21. Core processing systems process and record all financial transactions for a financial institution. Id. Fiserv also hosted Bessemer's online banking website, "Virtual Branch," through which Fiserv processed Bessemer members’ online account transactions. Id. at ¶ 22.

Prior to entering into the Master Agreement, Fiserv represented to Bessemer, by way of a February 27, 2012 email, that the Virtual Branch online banking website satisfied Federal Financial Institutions Examination Council ("FFIEC") requirements despite the fact that Virtual Branch did not satisfy these requirements. Compl. ¶ 29-33, ECF No. 48. Despite several representations and advertisements asserting that Fiserv's services were of a certain quality, as well as secure and private, Fiserv's performance was not in accordance with such representations or the Master Agreement. Id. at ¶¶ 34-43. Fiserv implemented lax and weak security controls to protect the accounts and valuable confidential information of Bessemer's members, and Fiserv was put on notice on several occasions such that Fiserv knew that its security measures were insufficient. Id. at ¶¶ 47-79. Fiserv suffered a security breach in 2016 which caused Fiserv to provide confidential Bessemer member information to another financial institution. Id. at ¶ 48, ECF No. 48. Fiserv also placed the wrong return address on biannual account verifications in 2017, placing the confidential information of Bessemer members who had moved at risk because the mail could not be delivered to the member or returned to the sender. Id. at ¶ 49. Fiserv also ceased installing and updating antivirus software on Bessemer's systems at some point without explanation. Id. at ¶ 50. Despite being aware of the aforementioned security lapses, and despite receiving notice from Bessemer, other customers, and the media that Fiserv's security measure were inadequate, Fiserv only took action to remedy its security deficiencies after receiving negative press coverage. Id. at ¶¶ 47-79. Fiserv's attempts to fortify its security after receiving notice of its security deficiencies were also ineffective and deficient. Id. at ¶¶ 64-65; 78.

Fiserv has also falsified and misrepresented confidential member information to Bessemer, its members, and other authorized individuals. Compl. ¶ 87, ECF No. 48. In July 2018, Fiserv falsely represented to Bessemer that a member's account had been closed and made changes to that member's account, temporarily depriving the member of dividends and access to the member's account. Id. at ¶ 88. On several occasions, Fiserv's system provided inaccurate and falsified loan information and documents to Bessemer and its members. Id. at ¶¶ 90-96. Despite being aware of problems with its system which caused these inaccuracies, Fiserv did not take action to remedy these problems. Id. at ¶¶ 93-94, 98.

Fiserv's account processing system suffered from a number of bugs and defects which resulted in, inter alia, Bessemer's and its members’ inability to access account processing services, system crashes and errors, latency in the account processing services, errors in the information reported by Fiserv's system, and failure to perform the necessary services which the system was supposed to provide. Compl. ¶¶ 99-115, ECF No. 48. Fiserv repeatedly issued erroneous invoices to Bessemer that contained incorrect balances and also charged for services that did not function properly or that Bessemer had asked Fiserv to cease providing. Id. at ¶ 128. Fiserv represented that certain hardware upgrades would remedy the issues Bessemer was experiencing with Fiserv's system. Id. at ¶¶ 129-131. Bessemer made the recommended upgrades, but they did not remedy the issues Bessemer was experiencing with respect to Fiserv's system. Id. Fiserv also misrepresented the cost for an additional service under the Master Agreement requested by Bessemer. Id. at ¶ 134. Fiserv stopped providing Office of Foreign Assets Control scans for Bessemer, did not provide the requisite written notice to Bessemer regarding this service, and tasked Bessemer with performing these scans. Id. at ¶ 135. Fiserv did not adequately address support requests submitted by Bessemer with respect to issues with Fiserv's system. Id. at ¶ 137.

On January 8, 2018, Bessemer sent Fiserv Solutions a "Notice of Breach" invoking the dispute resolution provision of the Master Agreement. Compl. ¶ 139, ECF No. 48. By way of this Notice, Bessemer also requested that Fiserv provide documents to Bessemer related to Fiserv's security measures and to invoices that had been provided by Fiserv to Bessemer. Id. at ¶¶ 140-145. Fiserv failed to provide ay such documentation to Bessemer, and failed to participate in good faith in the dispute resolution process set forth in the Master Agreement. Id. at ¶ 146.

Bessemer sent a notice of termination of the Master Agreement to Fiserv on April 11, 2018. Compl. ¶ 152, ECF No. 48. Fiserv continued to send invoices to Bessemer after this notice of termination, did not provide documentation related to the invoices in a timely manner when the same was requested by Bessemer, and ultimately did not provide all of the requested documentation. Id. at ¶¶ 153-158. Despite Bessemer's demand that Fiserv return Bessemer's account records and member information, Fiserv has not returned all of the requested information. Id. at ¶ 152. In an attempt to recover this information, Bessemer filed a replevin action in the Court of Common Pleas of Mercer County (the "Replevin Action"). Id. at ¶ 159. The parties agreed to settle the Replevin Action, and Fiserv's counsel sent what Bessemer characterizes as a settlement agreement to Bessemer, who executed the purported agreement.⁴ Id. at ¶ 160. Under the purported settlement agreement: (1) the parties were required to work in good faith toward settling Bessemer's claim for damages; (2) Bessemer was required to withdraw the Replevin Action, pay outstanding invoices, and pay for deconversion of Bessemer's records by the date of deconversion; and (3) Fiserv was required to provide deconversion services to Bessemer.⁵ Id. at ¶ 161.

Fiserv failed to perform in accordance with the purported Replevin Action settlement agreement by: (1) initially rejecting Bessemer's payment of outstanding invoices; (2) requiring Bessemer to pay for deconversion services before beginning the process of deconversion; (3) stalling the deconversion process; and (4) sending an amendment to the terminated Master Agreement in an attempt to modify the terms of the Replevin Action settlement agreement. Compl. ¶¶ 164-179, ECF No. 48. Bessemer asserts that Fiserv misrepresented the amount of time that would be required for deconversion services in the correspondence which Bessemer claims constitutes the Replevin Action settlement agreement, and that, but for Fiserv's delays in providing deconversion services in breach of that agreement, the process could have been completed much sooner. Id. at ¶ 179. Fiserv stated that it could not provide credit reporting records containing Bessemer members’ loan histories to Bessemer before ultimately providing these records. Id. at ¶ 188. Fiserv failed to return Bessemer member information contained in Fiserv's eFichency archive in a timely and efficient manner, initially withheld certain eFichency documents without reason only to provide them at a later date, and has not returned Fiserv images of Bessemerr's documents maintained in the eFichency archive to date. Id. at ¶¶ 189-199. Bessemer asserts that...