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Hummingbird USA Inc. v. Texas Guaranteed Student Loan Corp.

July 25, 2008

HUMMINGBIRD USA INC., PLAINTIFF,
v.
TEXAS GUARANTEED STUDENT LOAN CORPORATION, DEFENDANT.



MEMORANDUM OPINION AND ORDER

Plaintiff Hummingbird USA, Inc. ("Plaintiff" or "Hummingbird") brings this action seeking a declaratory judgment regarding certain provisions of its various service contracts with Defendant Texas Guaranteed Student Loan Corporation ("Defendant" or "TG"). Defendant asserts counterclaims for breach of contract, negligence, conversion and breaches of Plaintiff's duties arising from a purported bailment relationship between the two parties. The Court has jurisdiction of this case pursuant to 28 U.S.C. §§ 1332.

Defendant moves for partial summary judgment pursuant to Rule 56(b) of the Federal Rules of Civil Procedure on Plaintiff's declaratory judgment claim and Defendant's breach of contract claims. Plaintiff cross-moves for summary judgment in its favor on its claim for a declaratory judgment and on all of Defendant's counterclaims pursuant to Rule 56(a) of the Federal Rules of Civil Procedure. For the reasons explained below, Plaintiff's motion for summary judgment on its declaratory judgment claim is granted in part and denied in part, Plaintiff's motion for summary judgment is denied in all other respects, and Defendant's motion is denied in its entirety.

BACKGROUND

The following material facts are undisputed unless otherwise indicated. In December 2005, Defendant, a non-profit corporation that guarantees the payment of loans for defaulting student borrowers, contracted with Plaintiff, a content management software provider, to design and install a Records and Information Management System for Defendant. The agreement was comprised of three relevant contracts: the Master Terms and Conditions ("Master Terms"), the Software License, Support and Maintenance Agreement ("License Agreement") and a form of Confidentiality Agreement that was executed by individuals working on the project as well as by Plaintiff.

The confidentiality provisions of the Master Terms and License Agreement, as well as those of the Confidentiality Agreements, mandated that Plaintiff's employees not disclose or reproduce any of Defendant's confidential borrower information without Defendant's authorization (Master Terms ¶ 6 and License Agreement ¶ 7.1(a)). These provisions also mandated that all confidential information be returned to Defendant upon termination of the agreement (License Agreement ¶ 7.4(d) and Master Terms ¶ 6).

The Master Terms and License Agreement further provided that Plaintiff would be "fully liable" for any breaches of the Confidentiality Agreements by Plaintiff's representatives (including subcontractors and, presumably, employees) (Master Terms ¶ 6 and License Agreement ¶ 7.4).*fn1 However, the Master Terms and the License Agreement also each contained a provision limiting the Plaintiff's liability to direct damages for any contract or tort claim arising out of the agreement, and further limiting the amount recoverable in connection with such direct damages to the amount of payments made to Plaintiff by Defendant for Plaintiff's services -- in this case, $239,242. (Master Terms ¶ 9 and License Agreement ¶ 8.2; referred to hereinafter as the "Liability Limitation Provisions").*fn2

The Liability Limitation Provisions also provided that Plaintiff was relieved of any liability with respect to consequential damages arising from breaches of the agreement, torts arising from the agreement, or lost data (see supra n.2). The Confidentiality Agreement provides that "All files, records...and similar items relating to [TG's] business...shall not be removed under any circumstances from the premises where [TG's] work is being carried out without the prior approval of [the] immediate [TG supervisor]. . ." (Conf. Agreement ¶ 13).

During a kickoff meeting with Defendant in January 2006, a Hummingbird employee ("the Employee" or "the Hummingbird Employee"), met with TG engineers and asked for TG's data so he could "clean it up." TG agreed to provide him with the data but it is disputed as to whether the employee had authorization, pursuant to the Confidentiality Agreement, to use this data outside of Hummingbird's premises, which were located in Tallahassee, Florida. Plaintiff proffers a declaration wherein the Employee avers that he made it clear that he did not work in a fixed location and would be traveling while working on TG's projects. The Employee avers that TG assented to the Employee's use of the data while traveling and that its consent was demonstrated by TG's provision of the data to the Employee in a portable form (i.e., on a DVD) and later via electronic file transfer protocol to a location outside Hummingbird's work premises. Defendant counterproffers a declaration disputing the Employee's recollection that TG agreed to his use of the data while traveling.

On or about May 24, 2006, the Employee lost a piece of computer equipment ("the Hard Drive") that contained the data the Employee had obtained from TG, including names and social security numbers of 1.8 million of TG's borrowers, in a Detroit airport. The information on the Hard Drive was protected by various security measures that made the data difficult to access. After Hummingbird notified TG of the loss, TG took steps to notify its borrowers through various measures, including mailings and the creation of a hotline and a website. TG also hired outside counsel to help TG comply with the notification measures TG asserts it believed it was required to undertake under federal statutes and regulations. As of the briefing of these motions, there had been no reported cases of identity theft involving anyone whose data was on the lost Hard Drive, and the Court has not been notified of any subsequent such reports.

On July 13, 2006, TG demanded $1,132,689.15 from Hummingbird, representing the damages TG asserted were owed to it as a result of the notification procedures it undertook after the Hard Drive was lost. On September 22, 2006, Hummingbird commenced this action, seeking a declaration that the Liability Limitation Provisions control, and that Defendant's notification costs did not constitute direct damages within the meaning of the contracts. Defendant filed counterclaims, and this summary judgment motion practice followed.

DISCUSSION

Summary Judgment

Summary judgment shall be granted when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The facts will be viewed in the light most favorable to the party opposing the motion and all reasonable inferences drawn in the non-movant's favor. Consarc Corp. v. Marine Midland Bank., N.A., 996 F.2d 568, 572 (2d Cir. 1993). In opposing a motion for summary judgment, the non-moving party must "set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e)(2). No genuine issue of fact exists ...


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