Riverside Acquisition Grp. LLC v. Vertis Holdings, Inc. (In re Vertis Holdings, Inc.)

• Decision Date: 11 September 2015
• Docket Number: Adv. Pro. No. 12–51176 CSS,Case No. 12–12821 CSS Jointly Administered
• Citation: 536 B.R. 589
• Parties: In re: Vertis Holdings, Inc., et al., Debtors. Riverside Acquisition Group LLC d/b/a Com–Pak Services, Plaintiff, v. Vertis Holdings, Inc., Vertis, Inc., 5 Digit Plus, LLC, and, Quad/Graphics Marketing, LLC, Defendants.
• Court: U.S. Bankruptcy Court — District of Delaware

536 B.R. 589

In re: Vertis Holdings, Inc., et al., Debtors.Riverside Acquisition Group LLC d/b/a Com–Pak Services, Plaintiff

v.Vertis Holdings, Inc., Vertis, Inc., 5 Digit Plus, LLC, and, Quad/Graphics Marketing, LLC, Defendants.

Case No. 12–12821 CSS Jointly Administered

Adv. Pro. No. 12–51176 CSS

United States Bankruptcy Court, D. Delaware.

Signed September 11, 2015

Adam Hiller, Brian Arban, Johnna Darby, Hiller & Arban, LLC, Wilmington, DE, Gary N. Elkind, Elkind & DiMento, P.A., Cherry Hill, NJ, Anthony Meola, The Law Offices of Anthony L. Meola, Purchase, NY, Counsel to Riverside Acquisition Group LLC d/b/a Com–Pak Services.

M. Blake Cleary, Michael S. Neiburg, Young Conaway Stargatt & Taylor, LLP, Wilmington, DE, Michael J. Canning, Stuart D. Aaron, Kevin T. Sullivan, Arnold & Porter LLP, New York, NY, Counsel to Defendant Quad/Graphics Marketing, LLC.

Mark D. Collins, Jason M. Madron, Richards, Layton & Finger, P.A., Wilmington, DE, Israel Dahan, Cadwalader, Wickersham & Taft LLP, New York, NY, William E. Corum, Aaron J. Mann, John J. Curciani, Husch Blackwell, LLP, Kansas City, MO, Counsel to Debtors/Defendants Vertis Holdings, Inc., Inc.; Vertis, Inc.; and 5 Digit Plus, LLC.

OPINION

Sontchi, J.

INTRODUCTION

Before the Court are two related motions. First, plaintiff filed a motion to amend the complaint to allow the assertion of 11 additional counts. Plaintiff's request to amend would substantially prejudice defendants, has occurred after undue delay and is a result of bad faith. Moreover, allowing plaintiff to amend the complaint would be futile as none of the additional counts satisfy the plausibility test under Bankruptcy Rule 7012(b)(6). Thus, the Court will deny the motion to amend.

Second, defendants filed two separate motions seeking summary judgment on the existing six counts of the complaint. As there are no genuine issues of material fact and defendants are entitled to judgment in their favor as a matter of law on all counts of the complaint, the Court will grant the motions and enter summary judgment in favor of defendants.

STATEMENT OF FACTS

There are a number of important terms and a roster of persons that must be identified to understand the issues before the Court.

I. Important Terms

Pitney Bowes' Group 1 Software: Pitney Bowes' Group 1 Software, such as, MailStream Plus, in most basic terms, “analyzes lists of many names and addresses to produce an optimized plan for mailing to achieve the best postage discount.”¹ Pitney Bowes licenses Group 1 Software to its customers,² including RAG.³ 5 Digit⁴ and Com–Pak also licensed this product from Pitney Bowes.⁵ Quad also licensed Group 1 Software prior to the purchase of Debtors' assets.⁶ After it acquired the assets, it did not renew 5 Digit's license; it instead continued with its original license.⁷

Pitney Bowes' Engineer, David Glowny testified:

Keeping in mind that I am neither a lawyer nor a sales person involved in actual contracts, my general understanding is that as a universal rule Pitney Bowes retained ownership of the software that we develop. And therefore when we enable a customer to use it, we license it to them for their use on a non exclusive basis.⁸

Single Pass Commingling or One Pass Commingling: A process under which a piece of mail has to run through the sorter only once (compared to a “Dual Pass or Two Pass System”).⁹

Pitney Bowes Modified Two Pass Sortation or Modified Two Pass System: This is Pitney Bowes mechanism for providing “Single Pass Commingling.”¹⁰

Pitney Bowes Custom Software (Modules): The Pitney Bowes Custom Software is also referred to as “Pdr–Driven sortation,” “Pdr–Driven software,” and “the 16 modules.”¹¹ Pitney Bowes licenses these products to multiple entities, including 5–Digit¹² and Quad.¹³ Com–Pak licensed at least 15 out of the 16 modules prior to RAG's acquisition of the assets.¹⁴

Pitney Bowes Software Patches: These patches, created and issued by Pitney Bowes, serve to “correct [software] logic ... including fixing a bug or defect or perhaps ... [to] enhance[e] its functionality.”¹⁵ In some cases, the patches constitute an “addition to,” or “modification” or “enhancement” of the software.¹⁶ They can even constitute a minor “customization” of a software packet.¹⁷ Mr. Glowny, a Pitney Bowes software engineer, wrote the codes for the software patches.¹⁸ The patches were created in connection with the Pitney Bowes Custom Software described above.¹⁹

Programming Scripts (“Charlie's Programs”): Charlie Saccarelli wrote the scripts, which were used by Com–Pak and later by RAG.²⁰ Pursuant to Mr. Saccarelli, the scripts were not used by 5 Digit.²¹ They are sometimes referred to as “Charlie's Programs,” “patches” (not to be confused with “Pitney Bowes Software Patches” described above), “shortcuts,” “macros,” “scripts,” and “programming scripts.”²² They were written in the Visual Basic programming language. The scripts only interacted with the Pitney Bowes Custom Software Modules in a “limited sense,” such as “orchestrating the order in which the modules might be invoked, for example, or stipulating the input files that were being supplied to those modules, but not otherwise delving inwards into the internal operation of the modules.”²³ Pursuant to Mr. Saccarelli, the programs did not alter the Pitney Bowes software in any way.²⁴

Mr. Glowny, the Pitney Bowes software engineer, explained the differences between the Pitney Bowes Software Patches for Pitney Bowes Custom Software and the Programming Scripts as follows:

There have been programming scripts written to surround or interact with these modules at both Com–Pak and 5 Digit Plus but I would use the word interact sparingly here. Keep in mind that 16 modules are precompiled software for which the source code is not provided to the customer. Therefore, the actual modules themselves are not readily capable of being altered [by the customer.]²⁵

Mr. Saccarelli himself testified that it would be easy to create alternatives to the Charlie's Programs as they are “not very sophisticated.”²⁶ He stated that “[t]here's 1 million different ways” to accomplish the same.²⁷ Charlie's Programs, although received by 5 Digit, were not used by 5 Digit.²⁸ Quad did not receive Charlie's Programs as a result of its purchase of all of Debtors assets.²⁹

5 Digit Programs created by Larry Zimmerman: Mr. Zimmermann created programs that allowed 5 Digit “to manage mail job pools and job schedules and automate the intake and processing of client data files for mail jobs.”³⁰ Unlike Charlie's Programs, which are desktop programs that require manual operation, the Zimmerman programs were web-based platforms written in the PHP hypertext programming language.³¹

Mixed Mail Software: This term appears in RAG's complaint. RAG alleges, “that Patricia Pizzutillo ... worked with the third-party vendor to develop the proprietary software to qualify mixed mail into a single pool....”³² However, RAG was neither able to define the term nor name the third-party vendor.³³ Pitney Bowes' engineer testified that he develops, along with a colleague, “software that combines mixed mail into a single pool.”³⁴ Thus, “Mixed Mail Software” refers to the “Pitney Bowes Modified Two Pass Solution,” that enables “single pass commingling” described above.

Monticello Software: Commercially available, third party software, that “reads mail.dat files and performs data processing functions.”³⁵ Com–Pak, as well as Monitcello coders³⁶ were involved in the development of patches for Monitcello software and modifications to Monticello's software.³⁷ Com–Pak licensed Monticello software for its use.³⁸ RAG³⁹ and 5–Digit⁴⁰ also licensed it for their use.

Heavy Mail Program: “Heavy Mail refers to standard letters greater than 3.3 ounces and up to 3.5 ounces which when submitted to the post office incur additional postage charges above and beyond the ordinary standard mailer charges.”⁴¹ Only businesses authorized to commingle heavy mail, can engage in this type of business.⁴²

Lettershop: A business that “assembles materials into finished pieces of mail for large volume mailings and certifies them to the U.S. Postal Service.” Some lettershops also offer commingling services.

Mail Commingling: A “process whereby a mailer can combine mail pieces on behalf of several different other businesses to create a consolidated mailing with the hope of yielding better postage savings in the combined mailing rather than several individual mailings.”⁴³

II. The Players

Com–Pak Services, Inc. (“Com–Pak”) —Com–Pak was a lettershop that also offered commingling services.⁴⁴ Com–Pak faced financial difficulties and surrendered its assets to Plaintiff on November 16, 2011.⁴⁵

Riverside Acquisition Group LLC (“RAG” or “Plaintiff”) —RAG was formed specifically for the purpose of acquiring Com–Pak's assets.⁴⁶ It did not own any assets prior to November 16, 2011, the date it acquired the assets.⁴⁷ It was not a successor to Com–Pak.⁴⁸ RAG paid Com–Pak $0.00 for the assets.⁴⁹ RAG offers lettershop and mail commingling services. RAG's managers are Robert McDonald and Scott Mangan.

Debtor/Defendants Vertis Holdings, Inc., Vertis, Inc. and 5 Digit Plus, LLC —Vertis, Inc., a wholly owned subsidiary of Vertis Holdings, Inc., was one of the largest printing and direct marketing companies in the US. Vertis Holdings, Inc., through a subsidiary, jointly owned 5 Digit along with Clemmer, its founder and CEO.⁵⁰ 5 Digit offered commingling services only.⁵¹

Defendant Quad/Graphics Marketing, LLC (“Quad” and together with Debtor/Defendants “Defendants”) —Quad, a global provider of print and media solutions as well as logistics services, purchased substantially all of the assets of Vertis and its subsidiaries, including the assets of 5 Digit, through a Section 363 asset sale. The Court approved the sale on December 6, 2012.⁵² The sale closed on January 16, 2013. Quad, among other things, offers commingling services.⁵³

Pitney Bowes: Pitney Bowes is a manufacturer of mail sorting equipment.⁵⁴...