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United Federal Credit Union v. Wolters Kluwer Financial Services, Inc.

United States District Court, D. Minnesota

June 30, 2017

United Federal Credit Union, Plaintiff,
v.
Wolters Kluwer Financial Services, Inc., Defendant.

          Brandon J. Wilson, Stephen Paul Dunn, Howard & Howard Attorneys, PLLC, Royal Oak, Missouri, Brent A. Lorentz, Winthrop & Weinstine PA, Minneapolis, Minnesota, for Plaintiff.

          Kenneth S. Ulrich, Julie F. Stewart, Goldberg Kohn, Ltd., Chicago, Illinois, Judah Druck, R. Christopher Sur, Maslon LLP, Minneapolis, Minnesota, for Defendant.

          MEMORANDUM OPINION AND ORDER

          RICHARD H. KYLE, UNITED STATES DISTRICT JUDGE

         INTRODUCTION

         Plaintiff United Federal Credit Union (“United”) is a Michigan-based bank. Previously, it purchased standardized or “form” account agreements from Defendant Wolters Kluwer Financial Services, Inc. (“Wolters”), which warranted the forms complied with applicable law. After a United customer sued over the forms, it commenced this action, alleging Wolters breached its warranty and seeking a judgment declaring Wolters's liability. Wolters now moves to dismiss United's breach-of-contract claim and stay its declaratory-judgment claim. For the reasons set forth below, the Court will grant the Motion.

         BACKGROUND

         The Amended Complaint alleges the following facts, which are taken as true for purposes of the Motion.

         As its name suggests, United is a federally chartered credit union. (Am. Compl. ¶ 1.) Wolters “help[s] financial institutions manage their risk . . . by [preparing and] providing form account agreements” that financial institutions use to establish contractual relationships with their customers. (Id. ¶ 8.) On November 1, 2002, United and Wolters entered into a “Deposit Disclosures Program Master Agreement” (the “Master Agreement”), under which Wolters supplied United with form account agreements that United used with its customers. (Id. ¶¶ 9-10.)

         The Master Agreement included a Compliance Warranty, in which Wolters warranted that certain “Covered Documents” “complie[d] with all federal and state laws and regulations in effect when the Covered Document [was] produced.” (Id. ¶ 11; see also id. Ex. B.)[1] If a Covered Document failed to comply with applicable law-a “Compliance Failure”-Wolters agreed to pay up to $1, 000, 000 per year of United's “Actual Loss, ” defined to include “court costs and reasonable attorney fees [United was] required to pay to defend claims against [it].” (Am. Compl. Ex. B.) The Compliance Warranty explained that Wolters

will not pay simply because [United is] sued and a Covered Document is involved. Litigation is unfortunately commonplace in our society and we will only pay if there is in fact a Compliance Failure. Specifically, [Wolters] will not pay any Compliance Failure claim until [it] is satisfied, based on its own investigation or the final order of a court . . . that a Compliance Failure has occurred and that [United has] suffered Actual Loss in the amount claimed.

(Id.)

         On September 21, 2015, Tonya Gunter sued United in the United States District Court for the District of Nevada (the “Nevada Lawsuit”), alleging “that the form share draft account agreement that Wolters had sold to United violates both federal and Nevada state law.” (Id. ¶ 17.) United has defended the action and, on October 15, 2015, it tendered a “Notice of Compliance Failure Claim” to Wolters. (Id. ¶¶ 19-20.) United takes issue with Wolters's response. The Amended Complaint alleges that, on December 8, Wolters responded that it had sent the claim to its legal department for review. (Id. ¶ 21.) Months passed with no response from Wolters, and, on March 24, 2016, United inquired. (Id. ¶ 23.) On April 19, an attorney representing Wolters called United. The Amended Complaint provides few details of this conversation, averring only that Wolters's attorney “refused to confirm” the Compliance Warranty covered United's claim. (Id. ¶ 30.) Two months later, an attorney representing United wrote to Wolters demanding that it “confirm its obligation under the [Compliance] Warranty to pay for United's defense of the Nevada Lawsuit.” (Id. ¶ 34.) Wolters did not respond. (Id. ¶ 36.) The Nevada Lawsuit remains pending, and United continues to incur defense-related fees and costs.

         As a result, United commenced this action on October 4, 2016, seeking a judgment declaring, inter alia, that (1) Wolters is obligated to investigate United's claim; (2) the Compliance Warranty covers the form language at issue in the Nevada Lawsuit; and (3) Wolters is obligated to indemnify United for attorneys' fees and costs incurred defending the Nevada Lawsuit “if a Compliance Failure has occurred.” (Id. ¶ 44.) On November 10, in a letter to United, Wolters took the position that the Compliance Warranty “does not impose any affirmative obligation on Wolters[] to conduct an investigation to determine whether the underlying [form] agreement violates federal and Nevada law and constitutes a ‘Compliance Failure' covered by the [Compliance] Warranty.” (Id. Ex. C.)[2] The letter then set forth Wolters's determination that, legality aside, the language at issue in the Nevada Lawsuit was excluded from the Compliance Warranty. (Id.) After receiving this letter, on February 9, 2017, United amended its Complaint to add a breach-of-contract claim. (Doc. No. 35.)

         Wolters now moves to dismiss United's breach-of-contract claim and stay its declaratory-judgment claim pending resolution of the Nevada Lawsuit. The Motion has been fully briefed, and the Court heard ...


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