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ACI Worldwide Corp. v. Churchill Lane Associates, LLC

United States District Court, D. Nebraska

February 7, 2018

ACI WORLDWIDE CORP., Plaintiff,
v.
CHURCHILL LANE ASSOCIATES, LLC, Defendant.

          MEMORANDUM AND ORDER

          Laurie Smith Camp Chief United States District Judge

         This matter is before the Court on the Motion for Partial Summary Judgment, ECF No. 150, filed by Plaintiff ACI Worldwide Corp. (ACI), the Motion to Deny or Defer Ruling, ECF No. 159, on the Motion for Partial Summary Judgment, filed by Defendant Churchill Lane Associates, LLC (Churchill), and the Objection to Declarations of La Dell Diaz, Jerod L. Sands, and Minja Herian, ECF No. 175, filed by Churchill. For the reasons stated below, the Motion for Summary Judgment will be denied, in part with prejudice, and in part without prejudice to reassertion; the Motion to Deny or Defer Ruling will be granted; and the Objection will be overruled, without prejudice to reassertion.

         BACKGROUND

         The following facts are those stated in the parties' briefs, supported by pinpoint citations to evidence in the record, and admitted, or not properly resisted, by the opposing party as required by NECivR 56.1[1] and Federal Rule of Civil Procedure 56.

         The Court has also drawn facts from its prior summary judgment order, ECF No. 109, and the Eighth Circuit Court of Appeals' opinion, ECF No. 115.

         I. Factual Background

         In February 2001, Nestor, Inc., (Nestor) entered into an agreement (Licensing Agreement) for ACI to use, modify, enhance, market, sublicense, maintain, and support, certain credit card fraud detection software (Licensed Software Technology), [2]developed by Nestor. Under the Licensing Agreement, Nestor would own any new technology (New Technology) ACI developed using the Licensed Software Technology. ACI agreed to pay royalties on any fees paid by its customers for use of the New Technology.

         Section 2.1 of the Licensing Agreement stated:

Nestor hereby grants to ACI a world-wide, perpetual (except as provided in article 9.0), non-revocable (except as provided in article 9.0), non-transferable, non-exclusive license (the “License”) to copy, use, modify, enhance, market, sub-license (directly or through its customary and usual distribution channels for its other products), maintain and support the Software Products, all subject to the terms and conditions of this Agreement and the Attachments.

ECF No. 52, Page ID 398.

         Section 2.4 of the Licensing Agreement stated:

ACI shall be limited to distributing (sub-licensing) the Software Programs in object-code format. Except pursuant to the escrow terms in the customer's Software Agreement (which terms for the Software Programs shall be no different from ACI's standard escrow terms for its other software which it licenses to customers), ACI shall be prohibited from (i) sub-licensing or otherwise distributing, transferring or disclosing the Software Programs source code or its proprietary design to any third-party and (ii) licensing the Software Programs to any third-party for use as a development platform. ACI shall prohibit all Software Program licensees from translating, reverse engineering, decompiling or disassembling the Software Program object code or otherwise attempting to derive its source code or its proprietary design therefrom. ACI [unreadable] distributors shall sub-license the Software Products under the terms of the license agreement set forth on Attachment C. ACI may modify or replace the license agreement at any time, in whole or in part, provided no modification or replacement will diminish protection of Nestor's confidentiality or intellectual property rights or increase Nestor's potential liability. ACI will effectively enforce against all customers that obtained the Software Products from ACI the provisions of the Software Agreement that affect Nestor's confidentiality or intellectual property rights in the Products.

ECF No. 52, Page ID 398-99.

         Section 9.3 of the Licensing Agreement stated:

Upon the termination of this Agreement by either party, ACI shall (a) cease all marketing and sublicensing activities under the Agreement, (b) within (10) calendar days pay all amounts due and amounts due and outstanding hereunder and (c) deliver to Nestor or its designee all copies of the Software Products within ACI's possession, custody or control (together with a certificate of an officer of ACI certifying such delivery); provided ACI may retain sufficient copies of the Software Products to be able to support, maintain and enhance the Software Products that have been sublicensed to customer prior to the termination until such time as such sublicenses shall expire or terminate.
Notwithstanding any termination of this Agreement, the License and any sublicenses shall continue in effect with respect to any sublicense granted to ACI prior to termination and ACI shall remain liable to Nestor for royalties accruing with respect thereto. Termination of this Agreement and the License shall not release ACI from any of its obligations, or liabilities accrued, or licensed under this Agreement, or rescind or give rise to any right to rescind any payment made or other consideration given hereunder.

Id., Page ID 402.

         In 2002, Nestor and ACI executed Amendment 2 to the Licensing Agreement, by which ACI consented to an assignment by Nestor “to a third party of Royalties due Nestor under the [Licensing] Agreement.” ECF No. 52, Page ID 417. Nestor eventually entered into an agreement (Assignment of Royalty Stream) with Churchill, by which Nestor assigned to Churchill Nestor's right to future royalties under the Licensing Agreement.

         In 2008, Nestor and ACI executed Amendment 5 to the Licensing Agreement, by which Nestor assigned and transferred all rights in the New Technology to ACI. Amendment 5 also stated that Nestor had “irrevocably assigned all monies due and to become due under the [Licensing] Agreement” to Churchill, id., Page ID 426, and that ACI would continue to pay royalties to Churchill on fees it collected for customers' use of the New Technology, id. Page ID 425-26.

         In 2009, Nestor became insolvent and entered receivership. The court-appointed receiver sold Nestor's rights in the Licensing Agreement and the Licensed Software Technology to American Traffic Solutions (ATS). On July 20, 2014, ACI purchased those same rights from ATS. The next day, ACI executed a document terminating the Licensing Agreement. ECF No. 52, Page ID 428-29. The document stated “Licensor and Licensee hereby terminate the Licensing Agreement as of the Effective Date and agree that all provisions of the Licensing Agreement that were designated to survive termination are likewise terminated as of the Effective Date.” ECF No. 52, Page ID 428. Several weeks later, ACI sent Churchill a letter stating that ACI had terminated the Licensing Agreement, and with it, ACI's obligation to pay royalties on the Licensed Software Technology and New Technology. With the letter, ACI also included a check, which represented the full balance of royalties due Churchill. Churchill disputed that ACI was no longer obligated to pay royalties.

         II. Procedural Background

         On October 20, 2014, ACI filed this action, seeking a declaratory judgment that, among other things, ACI validly amended the Licensing Agreement to remove any post-termination obligation to Churchill; ACI validly terminated the Licensing Agreement; and ACI rendered full and final payment to Churchill on all remaining royalties.

         This Court granted summary judgment in favor of ACI on March 9, 2016, finding that ACI validly amended and terminated the Licensing Agreement and therefore was not liable to Churchill for any additional royalties after the Licensing Agreement's termination. Churchill appealed, and on January 27, 2017, the Eighth Circuit Court of Appeals issued an opinion affirming the Court's order, in part; reversing it, in part; and remanding for further proceedings. The Eighth Circuit held that although ACI validly terminated the Licensing Agreement, ACI's amendment of the agreement to eliminate § 9.3's post-termination royalty obligation was invalid because it violated Churchill's rights as an assignee to the Licensing Agreement without Churchill's consent. Therefore, ACI remained obligated to pay royalties to Churchill on any sublicenses granted before the termination of the Licensing Agreement on July 21, 2014, but ACI did “not owe Churchill royalties on any sublicenses that ACI has granted since July 21, 2014 or that it will grant in the future.” ECF No. 115, Page ID 1738.

         ACI filed the present Motion for Partial Summary Judgment, ECF No. 150, on October 19, 2017, asking this Court to find that:

(1) when ACI validly terminated the License Agreement on July 21, 2014, the rights granted to and the obligations assumed by both ACI and the ACI Affiliates likewise terminated; (2) ACI does not owe Churchill any Royalties for any licenses granted since July 21, 2014, regardless of whether the license was between ACI and an ACI Affiliate or ACI and a customer; (3) ACI and its customers could terminate the sublicenses that were in place before July 21, 2014 and enter into new licenses after July 21, 2014 that are free of the Royalties obligation; (4) ACI and ACI Affiliates could execute the Mutual Terminations effective July 21, 2014; (5) the termination of the License Agreement did not impair Churchill's rights, and likewise the termination of sublicenses between ACI and ACI Affiliates and ACI and its customers, cannot impair Churchill's rights; and (6) when ACl's customers purchased Annual Product Support that expired or terminated sometime post-July 21, 2014, the obligation to pay Royalties to Churchill on such Annual Product Support expired or terminated as well.

Id., Page ID 2211-12.

         In its Statement of Material Facts, ECF No. 151, Page ID 2218-23 (Statement), ACI cited primarily to the Eighth Circuit Opinion[3] and the Licensing Agreement, [4] as well as a ...


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