FinancialApps, LLC v. Envestnet, Inc. et al

Filing 139

MEMORANDUM ORDER ADOPTING REPORT AND RECOMMENDATIONS granting in part and denying in part 46 Motion to Dismiss. Count I of Defendants' Counterclaim (D.I. 21) is DISMISSED WITHOUT PREJUDICE. Defendants shall have until September 30, 2020 to file an amended complaint. Signed by Judge Colm F. Connolly on 9/15/2020. (nmf)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
FINANCIALAPPS, LLC,
Plaintiff,
v.

ENVESTNET, INC. and
YODLEE, INC.,
Defendants.

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Civil Action No. 19-1337-CFC/CJB

MEMORANDUM ORDER
Pending before me are Plaintiffs objections (D.I. 118) to the Magistrate
Judge's Report and Recommendation issued on July 30, 2020 (D.I. 113). The
Magistrate Judge recommended in his Report and Recommendation that I grant in
part and deny in part Plaintiffs Motion to Dismiss Defendants' Counterclaims
(D.I. 46). Specifically, the Magistrate Judge recommended that I grant the motion
to dismiss Count One of the Counterclaims (for breach of contract) and deny the
motion to dismiss the remaining three counts of the Counterclaims. I have
reviewed the Repmi and Recommendation, the objections, and Defendants'
response (D.I. 128).
The Magistrate Judge had the authority to make his findings and
recommendation under 28 U.S.C. § 636(6 )(1 )(B). I review his findings and

recommendations de novo. § 636(6)(1); see also Fed. R. Civ. P. 72(6)(3); Brown
v. Astrue, 649 F.3d 193, 195 (3d Cir. 2011).

The Fraudulent Inducement Counterclaim (Count Four)
Plaintiff objects first to "the Report's erroneous recommendation" that
Plaintiffs motion to dismiss "be denied with respect to Defendants' fraudulent
inducement claim insofar as it relates to the 2018 Amended and Restated MSA
[i.e., Master Services Agreement]." D.I. 118 at 1. The Magistrate Judge,
however, did not recommend that the motion to dismiss this fraud counterclaim be
denied "insofar as it relates to" the 2018 MSA. He simply-and appropriatelyrecommended that I deny the motion to dismiss the counterclaim-period, full
stop. See D.I. 113 at 25 (recommending that the motion to dismiss be "denied
with respect to Yodlee' s counterclaim for fraud (Count Four)").
To be clear, Defendants alleged only one claim of fraudulent inducementi.e, Count Four. That claim is based on alleged statements by Plaintiffs that
purportedly induced Defendants to enter both the 2018 MSA and the original, 201 7
MSA. D.I. 21 ,I,I 42, 98, 99, 101, 102. 1 Plaintiffs objection, like Defendants'

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Defendants state in their response that "Yodlee has always maintained that its
fraud counterclaim relates only to the 2017 MSA." D.I. 128 at 2. Count Four,
however, expressly alleges that Plaintiff made false statements that induced Y odlee
to enter "the Contracts." D.I. 21 ,I,I 98, 99, 101, 102. And "Contracts" is defined
by the Counterclaims to include both the 2017 and 2018 MSAs. Id. ,I 42.
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objection to a previous Repmi and Recommendation issued by the Magistrate in
this case, see D.I. 137 at 6, conflates a claim with the/acts alleged in support of
that claim. Plaintiff does not dispute that Defendants alleged facts sufficient to
sustain Count Four. Indeed, Plaintiff expressly states that it "does not object to
[the Magistrate's] recommendation as it relates to the 2017 MSA." D.I. 118 at 4
n.2. What Plaintiff seemingly wants is either an advisory opinion that Count Four
could not be sustained based solely on allegations relating to the 2018 MSA or an
order striking from Count Four the allegations relating to the 2018 MSA. But like
district comi judges, magistrate judges are not tasked with issuing advisory
opinions; and Plaintiff did not file a motion to strike. Accordingly, I will adopt
the Magistrate Judge's recommendation that I deny the motion to dismiss the
fraudulent inducement counterclaim.
The Defamation Counterclaim {Count Three)

Plaintiff next objects to the Magistrate Judge's recommendation that I deny
the motion to dismiss Defendants' defamation counterclaim. According to the
Counterclaims, the alleged defamatory statements were made by Plaintiffs counsel
and repmied in aiiicles about this lawsuit posted on three websites directed to
investment advisors. In each of the aiiicles, which were attached to the
Counterclaims as exhibits, counsel is quoted as stating that "[Defendants] have
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deliberately stolen [Plaintiff's] technology, which is entirely unwarranted and
unlawful." D.I. 21-5 at 4; D.I. 21-6 at 2; D.I. 27-1 at 3. In two of the articles,
counsel is also reported to have said that "[w]e look forward to proving [in this
case] that [Defendants] are liable for significant damages to our client, and
persuading the court to issue a permanent injunction enjoining defendants from
fmther unlawful activity." D.I. 21-5 at 4; D.I. 21-6 at 2.
The Magistrate Judge concluded that "the key language here ("[Defendants]
have deliberately stolen [Plaintiff's] technology, which is entirely unwarranted and
unlawful") sure reads as if it is a flat statement of fact, one that is subject to
objective verification" and therefore is actionable for defamation without
transgressing the First Amendment. D.I. 128 at 20. Plaintiff's sole objection to
this conclusion is that "there is no question that an ordinary reader would, in
context, understand the statement to be the [non-actionable] opinion of [Plaintiff's]
counsel." D.I.118at7.
Neither the Counterclaims nor the articles in question, however, provide
clarity about the context in which the alleged defamatory statements were made.
It is impossible to tell from the Counterclaims or the aiticles when the statements

were made, to whom they made, or how they were made. The statements could
have been made orally in response to media inquiries. But they also could have
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been made as part of a written press release. The statements could have been
made once or they could have been made on multiple occasions. It is possible that
every time Plaintiff's counsel asserted that Defendants deliberately stole Plaintiff's
technology, he immediately thereafter qualified the asse1iion by stating that "we
look forward" to proving that assertion in comi. But it is also reasonable to infer
from one of the articles that counsel did not so qualify his asse1iion that
Defendants stole Plaintiff's technology; and it would not be unreasonable to
interpret that unqualified assertion as an asse1iion of fact.
For purposes of a Rule 12(b)(6) motion, I am required to assume that the
allegations in the Counterclaims are true and to take those allegations in the light
most favorable to Defendants. Erickson v. Pardus, 551 U.S. 89, 94 (2007).
Applying that standard here, I agree with the Magistrate Judge's finding that "it is
at least plausible that the statement at issue can be construed as a provably false
assertion of fact," D.I. 113 at 20. Accordingly, I will adopt the Magistrate Judge's
recommendation that I deny the motion to dismiss Defendants' defamation claim.

The Implied Covenant of Good Faith and Fair Dealing Claim {Count Two)
Finally, Plaintiff objects to the Magistrate Judge's recommendation that I
deny the motion to dismiss Count Two of Defendants' Counterclaims.
Defendants allege in Count Two that Plaintiff "violated the implied covenant of

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good faith and fair dealing by threatening to terminate the Contracts unless Yodlee
paid the unsubstantiated amount demanded by [Plaintiff and by] then abruptly
shutting off service to [Yodlee's] clients." D.I. 21

,r 87.

Plaintiff argues that

dismissal of this claim is required because it is duplicative of a breach of contract
claim.
It is undisputed that under Delaware law (which the parties agree governs

this claim) the implied covenant of good faith is inherent in every contract but does
not apply to matters that are expressly addressed in the contract in question. See
D.I. 118 at 8. Plaintiff argues that because the allegations underlying Count Two
"concern[ ] termination of the 2017 and 2018 MS As" and because the MSAs have
provisions that "concern termination," Count Two addresses a matter that is
expressly governed by the MSAs and therefore should be dismissed. D.I. 118 at
8-10. But the termination provisions of the MSAs cited by Plaintiff do not
expressly bar, let alone address, the termination of service to Yodlee's clients;
instead they address the termination of services to Yodlee itself, see, e.g., D.I. 2-1
§ 4( d). Thus, the allegations here fall into "that narrow band of cases where the

contract as a whole speaks sufficiently to suggest an obligation and point' to a
result, but does not speak directly enough to provide an explicit answer." Stewart
v. BF Bolthouse Holdco, LLC, 2013 WL 5210220, at 15 (Del. Ch. Aug. 30, 2013).
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Accordingly, I agree with the Magistrate Judge's recommendation that I deny
Plaintiffs motion to dismiss Count Two.
NOW THEREFORE, on this 15th day of September in 2020, IT IS
HEREBY ORDERED that:
1. Plaintiffs Objections to the Magistrate Judge's Rep01i and
Recommendation (D.I. 118) are OVERRULED;
2. The Repmi and Recommendation (D.I. 113) is ADOPTED;
3. Plaintiffs motion to dismiss (D.I. 46) is GRANTED IN PART AND
DENIED IN PART; and
4. Count I of Defendants' Counterclaim (D.I. 21) is DISMISSED
WITHOUT PREJUDICE.
5. Defendants shall have until September 30, 2020 to file an amended
complaint.

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