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Harken Financial Services v. Broadridge Financial Solutions

October 29, 2009


The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge


For the following reasons, the Court grants Defendants Broadridge Financial Solutions, Inc. ("BFS") and Ridge Clearing and Outsourcing, Inc.'s ("Ridge") Motion to Dismiss the Complaint ("Motion to Dismiss") without prejudice.


Plaintiff Harken Financial Services ("Harken") is a company that developed a Federal Deposit Insurance Corporation ("FDIC") Insured Bank Deposit Program (the "Program") to allow Harken's clients, primarily securities brokerage firms, to offer their account holders the option to have cash balances in their accounts "swept" to and from FDIC insured banks. (R. 1-1, Complaint, ¶¶ 1, 8.) Defendant BFS is a corporation that provides technology-based outsourcing solutions to the financial services industry, including securities processing solutions and clearing and outsourcing solutions. Id. at ¶ 2. Prior to March 30, 2007, BFS was a wholly-owned subsidiary of Automatic Data Processing, Inc., a division of Securities Industries Software ("ADP/SIS"). Defendant Broadridge Securities Processing Solutions, Inc. ("BSPS") is a wholly-owned subsidiary of BFS, through which BFS conducts some of its securities processing solutions business. Id. at ¶ 4. Defendant Ridge is a wholly-owned subsidiary of BSPS, through which BFS conducts its clearing and outsourcing solutions. Id. at ¶ 5. The Court will refer to BSPS, BFS, and Ridge collectively as "Defendants."

On November 21, 2005, Terrence McBride, the developer of the Program, entered into a letter of intent with ADP/SIS. Id. at ¶ 10 (the "Letter of Intent"). The Letter of Intent "recorded the mutual understandings" of ADP/SIS and Terrence McBride and others, who were in the processing of organizing Harken, regarding the "contemplated distribution, processing, and development relationship" between ADP/SIS and Harken. Id. The Letter of Intent contemplated that Harken would provide ADP/SIS the opportunity to offer the Program as a service to ADP/SIS clients. Id. at ¶ 11. In return, ADP/SIS would "exclusively and actively promote and market the Program to" its brokerage firm clients who would offer the Program to their account-holders. Id. The Letter of Intent was non-binding with the exception of its non-compete provision which provided that ADP/SIS would not "form or participate in a similar Program," "develop similar services," or "develop similar software or provide similar data processing functionality as that contemplated by the Program." Id. at ¶ 12. On June 30, 2006, Harken entered into an agreement with ADP/SIS that "formalized the relationship contemplated by the Letter of Intent" (the "June 30, 2006 Agreement"). Id. at ¶ 13. The June 30, 2006 Agreement also contained non-compete provisions similar to those contained in the Letter of Intent. Id.

After ADP "spun-off" BFS on March 30, 2007, Harken and SIS, now a division of BSPS, entered into a Development, Distribution and Processing Agreement effective March 24, 2007 (the "Contract"). The initial term of the Contract is five years. Id. at ¶ 15. The Contract contains a non-compete provision which provides: "[SIS]*fn1 , its affiliates, successors and permitted assigns agree not to (i) form or participate in a similar Program, (ii) provide similar services for itself or any of its affiliates as those contemplated by this Program, or (iii) develop similar software as that contemplated by this Program. This provision shall apply during the term of the Agreement and for one-year after the termination of this Agreement." (R. 1-2, Contract, § 12). In the case of a breach of the non-compete provision, the Contract provides that the non-breaching party may recover damages, as well as any other rights or remedies available to it. Id. The Contract also contains a provision stating that "[SIS] represents and warrants that it and its affiliates will continuously, actively and exclusively market, promote, offer and sell Harken's Program to its current and prospective clients." Id. at § 5(b). New York law governs the contract. Id. at § 17(i).

In Count I of its complaint, Harken alleges that Defendants breached the non-compete provisions of the Contract by "(i) participating in a bank deposit program similar to Harken's Program and (ii) providing services similar to those contemplated by the Harken Program to support a competing program during the term of the [Contract]." (R. 1-1, Complaint, ¶¶ 21-27.) Specifically, Harken alleges that "Ridge actively marketed to its brokerage clients, and participated in, a bank deposit program offered by a large international financial institution, which, on information and belief, was one of BSPS' largest clients." Id. at ¶ 25. Harken further alleges that "BSPS and/or its affiliates provided services in support of the competitor's bank deposit program that were similar to those that BSPS and its affiliates were to perform under the [Contract] exclusively in support of the Harken Program." Id. In Count II, Harken alleges that Defendants breached the warranty provisions of the contract by "failing to continuously, actively and exclusively market, promote, offer and sell Harken's Program to their current and prospective clients" and by "participating in, marketing, promoting, offering, and selling a competitor's bank deposit program." Id. at ¶¶ 29-32.


"A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). Pursuant to Rule 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). As the Seventh Circuit recently explained, this "[r]ule reflects a liberal notice pleading regime, which is intended to 'focus litigation on the merits of a claim' rather than on technicalities that might keep plaintiffs out of court." Brooks v. Ross, 578 F.3d 574, 580 (7th Cir. 2009) (quoting Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002)). This short and plain statement must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)).

Under the federal notice pleading standards, a plaintiff's "factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555. Put differently, a "complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 570); see also Limestone Dev. Corp. v. Village of Lemont, Ill., 520 F.3d 797, 803 (7th Cir. 2008) (amount of factual allegations required to state a plausible claim for relief depends on complexity of legal theory). "[W]hen ruling on a defendant's motion to dismiss, a judge must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007).


Harken brings counts for breach of contract against each of the three corporate defendants named in this action, BSPS, BFS and Ridge. In their Motion to Dismiss, Defendants BFS and Ridge argue that Harken has no breach of contract claim against them because neither entity is in privity of contract with Harken. (R. 17-1, Motion to Dismiss, p. 3). Because Harken's Complaint contains no allegations to support breach of contract claims against BFS and Ridge, the Complaint must be dismissed.

I. New York Contract Law

"In order to succeed on a breach of contract claim under New York law, a plaintiff must demonstrate: (1) the existence of a valid agreement; (2) adequate performance of the contract by the plaintiff; (3) breach of the contract by the defendant; and (4) damages." Gelfman Int'l Enters. v. Miami Sun Int'l Corp., 2009 WL 2242331 (E.D.N.Y. July 27, 2009) (citing Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1998)). "In order to be bound by the terms of a contract, one must be a party to a contract, a signatory to a contract, or have expressly agreed to be bound by the terms of the contract." Id. (citing D'Andrea v. Rafla Demetrious, 3 F.Supp.2d 239 (E.D.N.Y. 1996)). Here, the Contract is between Harken and SIS, a division of BSPS. (R. 1-2, Contract, p. 1). Neither BFS or Ridge signed the Contract. Id. at p. 9. Only SIS, a division of BSPS, is a signatory to the Contract. Id. In its response to BFS and Ridge's ...

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