First Nationwide Bank v. Florida Software Services

• Decision Date: 19 July 1991
• Docket Number: No. 89-188-CIV-ORL-18,89-189-CIV-ORL-18.,89-188-CIV-ORL-18
• Citation: 770 F. Supp. 1537
• Parties: FIRST NATIONWIDE BANK, a Federal Savings Bank, and Pathway Financial, a Federal Association, a federal savings and loan association, Plaintiffs/Counterdefendants, v. FLORIDA SOFTWARE SERVICES, INC., a Florida corporation and The Kirchman Corporation, a Georgia corporation, Defendants/Counterplaintiffs, v. FIRST NATIONWIDE FINANCIAL CORPORATION, Additional Counterclaim Defendant. KIRCHMAN CORPORATION and Florida Software Services, Inc., Plaintiffs, v. PATHWAY FINANCIAL, F.A., and First Nationwide Financial Corporation, Defendants.
• Court: U.S. District Court — Middle District of Florida

770 F. Supp. 1537

FIRST NATIONWIDE BANK, a Federal Savings Bank, and Pathway Financial, a Federal Association, a federal savings and loan association, Plaintiffs/Counterdefendants, v. FLORIDA SOFTWARE SERVICES, INC., a Florida corporation and The Kirchman Corporation, a Georgia corporation, Defendants/Counterplaintiffs, v. FIRST NATIONWIDE FINANCIAL CORPORATION, Additional Counterclaim Defendant.

KIRCHMAN CORPORATION and Florida Software Services, Inc., Plaintiffs, v. PATHWAY FINANCIAL, F.A., and First Nationwide Financial Corporation, Defendants.

Nos. 89-188-CIV-ORL-18, 89-189-CIV-ORL-18.

United States District Court, M.D. Florida, Orlando Division.

July 19, 1991.

Jonathan Cohen, Shutts & Bowen, Miami, Fla., for plaintiffs/counterdefendants.

Alan M. Gerlach, Litchford, Christopher & Milbrath, Orlando, Fla., for defendants/counterplaintiffs.

ORDER AND OPINION

KELLAM, Senior District Judge, Sitting by Designation.

First Nationwide Bank ("FNB") and Pathway Financial, A Federal Association ("Pathway") filed this declaratory judgment action on March 3, 1989 against The Kirchman Corporation ("Kirchman") and Florida Software Services ("FSS"). FNB and Pathway seek a determination by the Court that they are not in breach of antiassignment clauses contained in certain computer software licensing agreements with Kirchman and FSS. Kirchman and FSS subsequently filed a breach of contract counterclaim against FNB and Pathway on March 24, 1989. By Order of May 29, 1989 the two cases were consolidated, and after lengthy discovery, they were tried on February 26 & 27, 1991.

I.

This case is based largely on undisputed facts. In December 1988, the Federal Home Loan Bank Board ("FHLBB") approved the acquisition of two insolvent savings and loan associations by FNB. With federal assistance, FNB purchased substantially all of the assets and liabilities of the insolvent Bloomfield Savings and Loan Association, F.A. ("Bloomfield") from the Federal Savings and Loan Insurance Association ("FSLIC"). Also in December of 1988, pursuant to a federally supervised conversion, First Nationwide Financial Corporation ("FNFC") purchased 100% of the common stock of Pathway, which was also insolvent. These facts were stipulated.

Bloomfield had been declared in "default" pursuant to 12 U.S.C. § 1724(d), and the FSLIC, as receiver, was authorized to liquidate Bloomfield.¹ Upon the appointment of the FSLIC as receiver, FNB applied for permission to acquire substantially all of the assets of Bloomfield. The FHLBB approved the acquisition as the most desirable alternative to liquidation.

Pathway was converted from a mutual savings association to a stock association under the supervision of the FHLBB. The FHLBB determined that such a supervisory conversion was required under 12 U.S.C. § 1464(p) since Pathway was insolvent. Pursuant to 12 U.S.C. § 1730a(e), FNB applied for prior written approval to acquire Pathway through a supervisory conversion. The FHLBB approved the acquisition because Pathway was a failing institution and the acquisition of Pathway would lessen the risk to the taxpayer.

Prior to their acquisition, Pathway and Bloomfield had licensed computer software packages from Kirchman and FSS.² The terms of Pathway's basic license agreements were from December 1986 to December 1991; and the term of Bloomfield's was from April 1985 to April 1990. In addition to regular quarterly payments, the license agreements required Pathway to pay Kirchman and FSS $561,995 in license fees upon execution of the license agreements; Bloomfield, in addition to the quarterly payments, was required to pay $200,000 in license fees. The license agreements contained anti-assignment clauses which were substantially identical and stated as follows:

"Customer shall not, without prior written consent of FSS, sell, lease, transfer or assign its interest as Licensee under this Agreement, or sell, lease, assign, transfer, sublicense or permit the duplication, reproduction or copying of the FSS Property (except as a part of standard computer industry backup procedures), or otherwise make available for any purpose, whether gratuitously or for consideration, the FSS Property or any part thereof or any information pertaining thereto, to any person or entity whatsoever other than (i) employees of the Customer for use by them solely in connection with the performance of data processing services by customer, (ii) independent Certified Public Accountants for auditing purposes, or (iii) for compliance with governmental regulatory authorities. The transfer of more than sixty percent (60%) of the common stock of Customer, without the prior written consent of FSS, shall be deemed an attempted transfer of this License Agreement and the license granted herein, which is in violation of the prohibitions against transfer contained in this Paragraph.... Such consent shall not be unreasonably withheld."

In January 1989, Kirchman and FSS sent letters to FNB and Pathway which asserted that the acquisition by FNB violated the anti-assignment clauses contained in the license agreements. The letters advised that Kirchman and FSS would terminate the license agreements within twenty days, and that the computer system was to be returned within ten days of the Notice of Termination. The letters went on to state that Pathway could continue using the computer system if they executed a new License Agreement and paid a new license fee of $1,187,000; Bloomfield could continue using the system for a new license fee of $754,000. After receiving these letters, Pathway and FNB initiated this action for declaratory relief; Kirchman and FSS filed immediately thereafter.

Regardless of the termination letters, FNB and Pathway continued using the computer software and making the quarterly payments to Kirchman and FSS. At first, Kirchman and FSS continued to accept the quarterly payments under the original license agreements and continued to send software information to Pathway and FNB. Kirchman and FSS subsequently refused to accept the quarterly payments; as a result, FNB and Pathway have continued to deposit the remainder of the quarterly payments into the Court registry. Upon the scheduled termination of Bloomfield's contract in April of 1990, all of the software materials and equipment were returned to FSS.

Although Bloomfield and Pathway never sought the consent of Kirchman or FSS before the acquisitions, the evidence at trial establishes that to do so would have been both improper and futile. Testimony at trial showed that information concerning the acquisitions of the assets and converted stock of said institutions was highly confidential, and any dissemination of that information was strictly regulated: the reason being that if information of the proposed acquisition leaked out, the insolvent institutions' depositors may have become concerned and made a run on the institutions' deposits. Such an occurrence would devastate the value of the institutions. Furthermore, testimony at trial established that even if FNB and Pathway had requested consent prior to the acquisitions, consent still would have been withheld until the payment of the higher license fees.

The evidence further established that no expansion of the software's use occurred and no one gained access to Kirchman and FSS trade secrets other than the parties to the original agreements; this fact is illustrated by Kirchman and FSS's withdrawal of allegations of trade secret violations in their counterclaim. Although Kirchman and FSS received assurances that no unauthorized use of the software would occur, they still refused to consent to the assignment of the license agreements unless FNB and Pathway would agree to pay the increased license fees. Furthermore, the evidence established that Kirchman and FSS suffered no damages.

II.

In 1989, Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), which amended 12 U.S.C. § 1821. The statute was obviously passed with the public welfare in mind. According to a House Report on the subject of FIRREA,

The interests of the American taxpayer demand an expedited resolution to the monumental problems involved with the unprecedented costs of dealing with hundreds of insolvent thrifts and the orderly disposition of the assets of these failed institutions.

H.R.Rep. No. 54, 101st Cong., 1st Sess., pt. 1 at 308 (1989), U.S.Code Cong. & Admin.News 1989, pp. 86, 104.³ Several courts have held FIRREA to be applicable to cases, such as the instant case, pending at the time of FIRREA's enactment. See FDIC v. 232, Inc., 920 F.2d 815 (11th Cir. 1991).

In Bayshore Executive Plaza Partnership v. Federal Deposit Insurance Corporation, 750 F.Supp. 507 (S.D.Fla.1990), the Court was presented with the question of retroactive application of FIRREA. In that case, the plaintiff entered into two lease agreements with Bayshore Bank. In August of 1987, approximately eleven months after the lease agreements were entered into, Bayshore Bank was declared insolvent and the FDIC was named as liquidator. As liquidator, the FDIC decided to disaffirm the lease agreements which Bayshore Bank had entered into with the plaintiff. The plaintiff subsequently sued the FDIC for the value of the leases. The Court held that 12 U.S.C. § 1821(e), as amended in August of 1989, applied retroactively to the facts of the case and, therefore, granted summary judgement in favor of the FDIC.⁴

In the present case, the Court is presented with an issue similar to that in Bayshore: the issue being whether 12 U.S.C. § 1821(d) should be applied retroactively to the facts of this case. Although this case was filed in March of 1989, and FIRREA was not signed into law until August of 1989, it is well established that a court is to apply the law in effect at the time it renders its decision unless manifest injustice would result. Bradley v. Richmond School Board, 416 U.S. 696, 716, 94 S.Ct. 2006,...