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Banxcorp v. Costco Wholesale Corp.

United States District Court, S.D. New York

October 17, 2013

BANXCORP d/b/a BANXQUOTE, Plaintiff,
v.
COSTCO WHOLESALE CORPORATION, et al., Defendants

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For Plaintiff: Kristen E. Renzulli, Esq. (argued), Law Offices of Kristen Renzulli, P.C., Chappaqua, NY; Mordechai I. Lipkis, Esq., New York, NY.

For Defendants: Nancy J. Mertzel, Esq. (argued), Stacy Ceslowitz, Esq., Schoeman Updike Kaufman Stern & Ascher LLP, New York, NY; Sarah Kickham, Esq., Donovan & Lee, LLP, New York, NY.

OPINION

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OPINION AND ORDER [REDACTED][1]

KENNETH M. KARAS, UNITED STATES DISTRICT JUDGE.

Consider the percentage " 3.95%." It seems to be a totally ordinary percentage.

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It is the amount by which Eastern Michigan University increased its tuition and fees for the 2012-13 school year relative to the previous one.[2] It is how much the Mayor of Poughkeepsie proposes to increase the city tax levy for 2014.[3] It is the amount by which sugar prices rose in India one day in November 2012.[4] And, according to Plaintiff Banxcorp, it was the United States national average interest rate for five-year certificates of deposit as of December 21, 2005.[5]

For Plaintiff, then, 3.95% is not such an ordinary percentage. Rather, Plaintiff initiated this lawsuit in part because it claims it has a valid federal copyright in that particular percentage -- or, at least, that it has a copyright in its series of percentages of national average interest rates, of which 3.95% on December 21, 2005 is one part. And it claims that it is entitled to substantial money damages because Defendants Costco and Capital One -- a large retailer and a large bank, respectively -- unlawfully copied those percentages in a series of individual advertisements touting how much higher their particular deposit rates were than the national average, as reported by Plaintiff. Defendants' copying of individual averages is conceded; at issue for the copyright claim in this case is whether the percentages themselves are entitled to federal protection under the Copyright Act.

The Court previously determined, on Defendants' motion to dismiss, that Plaintiff plausibly had alleged that its works of authorship had certain features that could, drawing all inferences in Plaintiff's favor, lead to the conclusion that its works of authorship were entitled to copyright protection. See BanxCorp v. Costco Wholesale Corp., 723 F.Supp.2d 596, 601-09 (S.D.N.Y. 2010). But now the evidence is in, and, on cross-motions for summary judgment, the Court determines that, even drawing all reasonable inferences from the evidence in Plaintiff's favor, the averages are unprotectable because they are uncopyrightable facts, because they are too short to be copyrighted, and because the so-called merger doctrine -- which applies where there is " only one . . . or so few ways of expressing an idea, that protection of the expression would effectively accord protection to the idea itself," id. at 608 (internal quotation marks and alterations omitted) -- bars copyright protection.

But that is not the only claim in this case. Plaintiff also contends that Defendant Capital One exceeded the scope of a License Agreement it signed that allowed it to use Plaintiff's data for certain marketing purposes. The Court finds that the

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contract is ambiguous in relevant part and that a reasonable jury could decide in favor of either Party on this claim. Accordingly, summary judgment is not appropriate for either party on the contract claim.

I. Background

A. Factual Background

1. The Parties

Plaintiff Banxcorp is a Delaware corporation that does business under the name " Banxquote." [6] (Pl's. Resp. to DSUF ¶ 131 (citing Lipkis Decl. Ex. 76).)[7] Plaintiff touts online that it " provides a family of widely followed indices and benchmarks that measure the rates and performance of banking, depository, mortgage, home equity and consumer loan markets." (Mertzel Decl. Ex. O, at BX 0048.) In other words, Plaintiff regularly surveys the interest rates or other prices offered by particular financial institutions across the country, and then compiles this data into various indices that represent " national averages" of the rates.

Defendant Capital One Financial Corporation is a Delaware corporation that is the parent company of co-Defendants Capital One Bank (USA), N.A., and Capital One, N.A., which are nationally chartered banks with principal places of business in Virginia. (DSUF ¶ ¶ 1-4.) The Court refers to these entities collectively as " Capital One" except where expressly noted. Capital One, a well-known national bank, provides so-called national direct banking products and services directly to consumers from its national headquarters. (DSUF ¶ ¶ 5, 8.)

Defendant Costco Wholesale Corporation, a Washington corporation, is the second largest retailer in the United States. (DSUF ¶ 11.) Costco operates over 600 warehouse-style retail stores worldwide and has approximately 66.5 million cardholders. (DSUF ¶ 12.) In addition to the products sold at its warehouses, Costco markets a variety of services to its members. (DSUF ¶ 16.) Nearly all of these services are provided by third parties that have marketing agreements with Costco. (DSUF ¶ 17.)

2. The Use of Plaintiff's Data in Capital One and Co-Branded Advertisements and Marketing Materials

Capital One markets its banking products nationally. During the time period relevant to this case, its marketing materials frequently provided the Capital One rate being offered for a particular financial product alongside one or more comparison rates, such as a competing bank's rates or a national average rate. (DSUF ¶ ¶ 65, 67.) Capital One used comparison rates in many ads because it found that consumers often responded favorably to advertisements that provided a point of reference. (DSUF ¶ 71.)

Beginning in May 2003, Costco and Capital One entered into a series of marketing agreements. (DSUF ¶ ¶ 22, 24.) Costco and Capital One referred to this relationship as a " partnership," whereby Costco would facilitate the marketing of Capital One products and services to Costco members,

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and Capital One would provide Costco members with certain financial products and services at a " premium" rate. (DSUF ¶ 36.)

Prior to January 2004, Capital One had been using national averages provided by a company called Bankrate in many of its advertisements. (DSUF ¶ 76.) But, for a variety of reasons -- including the fact that Plaintiff published its rates for free online, which allowed potential consumers to verify the accuracy of the national averages, (DSUF ¶ ¶ 80, 81) -- Capital One decided to switch to Plaintiff's averages. (DSUF ¶ 84.) On January 28, 2004, Capital One entered into a license agreement with Plaintiff to use Plaintiff's savings and jumbo CD averages, as well as its savings and jumbo money market averages, in many of its marketing materials, both online and in print. (DSUF ¶ ¶ 94, 115.) Capital One agreed to pay $6,000 per year for this privilege. (DSUF ¶ 115.) During the course of the agreement, Capital One obtained the national averages by copying the relevant data directly from Plaintiff's website. (DSUF ¶ 99.)

Soon after the license agreement became effective, Capital One began using Plaintiff's data in its standard national marketing materials. (DSUF ¶ 97.) Later, Capital One began using Plaintiff's averages in marketing materials, both online and in print, that were created and distributed as part of the partnership agreement with Costco. (DSUF ¶ 98.)

The record contains many examples of these partnership advertisements. An entirely typical one from 2006 states at the top: " Earn more with exclusive rates for Costco members!" (Decl. of Michael Kiernan, Ex. C, at COB0000194.) On the left side of the ad, there are several bullet points touting features of the account, and an offer stating that " Costco Executive Members receive $25 credited to their first new account opened." ( Id.) On the right side are two bar graphs. The first says " Money Market Account ($5,000 account balance)," and below that are two bars of different heights. ( Id.) The left bar, in large numbering, states that Capital One's rate is 4.26%, and, in smaller print to the right of this, the ad notifies the reader that 4.26% is the " Annual Percentage Yield," or " APY," and there is a single asterisk next to that definition. ( Id.) The right bar is much lower, and, above it in slightly smaller lettering and numbering, the ad states that the " National Average" is 1.20% APY, and there are two asterisks next to " APY." ( Id.) The second bar graph, which is reproduced just below, is similar to the first, except the second graph gives the Capital One and national average rate for a " Certificate of Deposit ($5,000 deposit, 5-year term)." ( Id.) In this graph, the Capital One rate is 5.16% APY, and the National Average is 3.95% APY. ( Id.) The comparative height of the bars is adjusted accordingly.

(Decl. of Michael Kiernan, Ex. C, at COB0000194.)

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The single asterisk and the double asterisk are defined in small print on the left side of the page. ( Id.) The text following the single asterisk gives further details of the offer. ( Id.) It is typical of the fine print that many people have encountered in the industry: the minimum daily balance requirement, minimal initial deposits, and the obligatory disclosures that the " terms and conditions of this offer" and the " rates" advertised are " subject to change without notice." ( Id.) Meanwhile, more relevant for purposes of this case, the text following the double asterisk contains the source of the national average representation. It reads, in full: " National average of APYs for CDs and money market accounts as published by Banxquote.com as of 12/21/05." ( Id.)

Below the two graphs on the right side of the ad is marketing copy. " I love the exclusive perks Capital One offers Costco Executive Members, like the $25 I received when I opened my account," says " Jeffrey S." who is, presumably, a satisfied customer. ( Id.) On the left side of the page, the ad implores the reader that he or she should " Open an account today!", and it instructs the reader either to visit costco.com or call a toll-free number to do so. ( Id.) The logos of both Capital One and Costco are featured, and there are additional disclosures, fine print -- i.e., " Member FDIC" -- and even a copyright invocation by " Capital One Services, Inc." ( Id.)

Defendants used the national average data reported by Plaintiff frequently and essentially continuously during the 2004-08 period that is at issue in this suit. (PSUF ¶ ¶ 96, 100.) In particular, the then-current Capital One interest rate was continually displayed next to a relevant national average rate from Plaintiff on a

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co-branded website, and Defendants regularly distributed brochures and marketing campaigns similar to the advertisement described above during the relevant time period. This co-branded website, which Defendants acknowledge was initially subject to Costco's approval, was advertised to the public as being accessible solely by visiting Costco's website at costco.com and clicking on " Services." (Defs.' Resp. to PSUF, ¶ ¶ 89, 97.)

B. Procedural History

1. Prior Determinations

Originally, Plaintiff's CEO Norbert Mehl was also a Plaintiff in this case, and, proceeding pro se, Plaintiffs filed their Complaint on February 25, 2009. Banxcorp, 723 F.Supp.2d at 600. After retaining counsel, Plaintiffs filed the SAC on September 2, 2009. Id.

The SAC alleges seven causes of action. Id. There are two federal causes of action: Count One, which alleges copyright infringement based upon Defendants' improper use of the BanxQuote Indices, ( id. ¶ ¶ 106-16); and Count Three which alleges violation of the Digital Millennium Copyright Act (" DMCA" ), based on allegations that when Defendants copied the BanxQuote Indices they altered or removed the copyright management information BanxCorp had associated with the data, ( id. ¶ ¶ 126-33). The remaining five causes of action arise under New York law: Count Two alleges hot news misappropriation of the time-sensitive data contained in the BanxQuote Indices, ( id. ¶ ¶ 117-25); Count Four alleges fraud based on allegations that Defendants materially misrepresented their intentions with respect to their use of the BanxQuote Indices pursuant to the license agreement, ( id. ¶ ¶ 134-43); Count Five alleges breach of contract against Capital One only, based on the alleged distribution to, and use of the BanxQuote Indices by, Costco in violation of the License Agreement, ( id. ¶ ¶ 144-51); Count Six alleges unfair competition based on allegations that Defendants' use of the BanxQuote Indices gave Defendants an unfair competitive advantage both in terms of decreased web traffic at Plaintiffs' websites and in terms of direct competition in providing savings accounts and CDs, ( id. ¶ ¶ 121, 152-57); and Count Seven alleges unjust enrichment based on allegations that Defendants received value due to their wrongful use of the BanxQuote Indices, ( id. ¶ ¶ 158-61).

Defendants moved to dismiss each claim for failure to state a claim, and the Court granted the motion in part and denied the motion in part. In particular, the Court dismissed as preempted by the Copyright Act Count Four, alleging fraud; Count Six, alleging unfair competition; and Count Seven, alleging unjust enrichment. Banxcorp, 723 F.Supp.2d at 617-20. The Court also dismissed Mehl personally as a Plaintiff, because Mehl conceded he lacked standing. Id. at 621.

On July 8, 2011, the Parties stipulated that Count Two, alleging hot news misappropriation, and Count Three, alleging the DMCA violation, would be dismissed with prejudice. (Dkt. No. 68.) Thus, two claims now remain in the case: Count One, the federal claim for copyright infringement; and Count Five, the state claim for breach of contract against Capital One only.

2. Copyright Registrations

Plaintiff's copyrights were unregistered during the time of Defendants' allegedly infringing activity. On March 5, 2009, after Plaintiff filed this lawsuit, Mehl submitted to the Register of Copyrights twenty applications for a federal copyright in the averages. (Mertzel Decl. Ex. T.) Each individual application covers a three-month

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span from January 1, 2004 to December 31, 2008. ( Id.; id. at Ex. U, at 1.) Each " work" consists of five tables of rates for various financial products, totaling approximately 400 different rates. ( Id. Ex. S, Ex. U, at 1.) Mehl described the set of weekly tables that comprise each individual registration as a " [g]roup registration for database titled BANXQUOTE INDEX." ( Id. at Ex. S, at BX002117.) He identified each quarterly group of tables as a derivative work, and in the space where a registrant is required to identify any " preexisting work or works that this work is based on incorporates," he wrote " Previously published database." ( Id. at BX002118.) Where he was asked to " give a brief general statement of the material that has been added to this work and in which copyright is claimed," he typed " Weekly updates." ( Id.) Later, a representative of the Copyright Office notified Mehl that " the application does not clearly describe the new material on which the claim may be based." ( Id. at Ex. U.) The representative suggested that an appropriate statement of the new material in the work would be " 'revised compilation,'" and Mehl agreed. ( Id.) The twenty works were then registered. ( Id. at Ex. V.)

C. The Instant Motions

The Parties conducted discovery on the remaining claims. The Parties have now cross-moved for summary judgment on both claims. Plaintiff also submitted objections under Federal Rule of Civil Procedure 56(c)(2) to the admissibility into evidence of certain materials, and it moved for sanctions against Defendants for violation of the discovery rules. The Court held oral argument on all outstanding motions on September 17, 2013.

II. Discussion

A. Standard of Review

Before the Court are cross-motions for summary judgment. Summary judgment shall be granted where the movant shows that there is " no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). " When ruling on a summary judgment motion, the district court must construe the facts in the light most favorable to the non-moving party and must resolve all ambiguities and draw all reasonable inferences against the movant." Dall. Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 780 (2d Cir. 2003); see also Tufariello v. Long Island R.R. Co., 458 F.3d 80, 85 (2d Cir. 2006) (noting that a court must draw all reasonable inferences in the nonmovant's favor).

A party seeking summary judgment bears the burden of establishing that no genuine issue of material fact exists. See Atl. Mut. Ins. Co. v. CSX Lines, L.L.C., 432 F.3d 428, 433 (2d Cir. 2005). " When the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an essential element of the nonmovant's claim. In that event, the nonmoving party must come forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment." Jaramillo v. Weyerhaeuser Co., 536 F.3d 140, 145 (2d Cir. 2008) (citations omitted).

Importantly for this case, " [w]hen the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (footnote omitted); see also Wrobel v. Cnty. of Erie, 692 F.3d 22, 30 (2d Cir. 2012) (" To survive a

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motion under Rule 56(c), [plaintiff] need[s] to create more than a metaphysical possibility that his allegations were correct; he need[s] to come forward with specific facts showing that there is a genuine issue for trial." (internal quotation marks and emphasis omitted)). A fact is material when " it might affect the outcome of the suit under governing law." McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir. 2007) (internal quotation marks omitted). At summary judgment, " [t]he role of the court is not to resolve disputed issues of fact but to assess whether there are any factual issues to be tried." See Brod v. Omya, Inc., 653 F.3d 156, 164 (2d Cir. 2011) (internal quotation marks omitted). Thus, a court's goal should be to " isolate and dispose of factually unsupported claims." Celotex, 477 U.S. at 323-24.

At the summary judgment stage, it is the " duty of district courts not to weigh the credibility of the parties." Jeffreys v. City of N.Y., 426 F.3d 549, 554 (2d Cir. 2005). Thus, even when a plaintiff has relied exclusively on his own testimony, courts have denied summary judgment -- but only as long as the plaintiff's " testimony was not contradictory or rife with inconsistencies such that it was facially implausible." Fincher v. Depository Trust & Clearing Corp., 604 F.3d 712, 726 (2d Cir. 2010); see also Bridgewater v. Taylor, 832 F.Supp.2d 337, 345 (S.D.N.Y. 2011) (denying summary judgment for plaintiff where defendant's evidence consisted " solely of his own testimony," but this testimony offered " a plausible alternate version of events" ); Bennett v. Vaccaro, No. 08-CV-4028, 2011 WL 1900185, at *7-8 (S.D.N.Y. Apr. 11, 2011) (denying summary judgment where defendants did not establish that plaintiff's " testimony is, either on its face or in light of any other statements he has made, so self-contradictory or implausible as to rule out crediting it," and there was no evidence that plaintiff " ever contradicted his current version of [events]" ).

B. Copyright Infringement Claim

1. Overview

" 'To prevail on a claim of copyright infringement, the plaintiff must demonstrate both (1) ownership of a valid copyright and (2) infringement of the copyright by the defendant.'" Cameron Indus., Inc. v. Caravan, Ltd., 676 F.Supp.2d 280, 283-84 (S.D.N.Y. 2009) (quoting Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101, 109-10 (2d Cir. 2001)); see also Porto v. Guirgis, 659 F.Supp.2d 597, 608 (S.D.N.Y. 2009) (requiring " 'ownership of a valid copyright, and [] copying of constituent elements of the work that are original'" (quoting Williams v. Crichton, 84 F.3d 581, 587 (2d Cir. 1996))). It is undisputed that Defendants actually copied Plaintiff's individual averages. But Defendants vigorously dispute that they have copied anything protectable under federal copyright laws, because, among other arguments, the individual averages are unprotectable, discovered facts; they are uncopyrightable short phrases; and, even assuming the final values are in some sense " expressions," the merger doctrine precludes their protection.

In resolving these issues, the Court first determines what material facts are in genuine dispute. Then, the Court surveys the law of copyright in factual material. Next, taking the facts in the light most favorable to the non-moving party, the Court explains why the averages are uncopyrightable facts. Finally, the Court explains additional why the averages are uncopyrightable under various other doctrines.

2. Plaintiff's Products

Because the legal lines are so carefully drawn in this area, it is vital to understand

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in detail the nature of how Plaintiff's averages are computed, how they are presented to the public, and how they are used. Despite Plaintiff's efforts to muddy some of the waters, few material facts are in genuine dispute.

a. The Computation of Plaintiff's National Average Rates

According to Plaintiff's own website, Plaintiff " provides a family of widely followed indices and benchmarks that measure the rates and performance of banking, depository, mortgage, home equity and consumer loan markets." (Mertzel Decl. Ex. O, at BX 0048.) In other words, Plaintiff regularly surveys the interest rates or other prices offered by particular financial institutions across the country, and then compiles this data into various indices that represent " averages" or other important financial benchmarks.

(Mertzel Decl. Ex. S, at BX002125.)

Plaintiff compiles tables of averages organized by date, such as the one at the top of the following page. A variety of industry and general news publications described Plaintiff's product in a manner similar to that in which Plaintiff presented

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its own data. For instance, the record reveals that, in 2001, the Wall Street Journal 's " Banxquote Banking Center" reported that Plaintiff " provides benchmark rates and pricing information of financial institutions throughout the United States." (Mertzel Decl. Ex. N, at BX0091.) Newsweek, in an article on savings rates around the country, noted that Plaintiff's CEO Norbert Mehl " surveys rates on savings deposits nationwide." (Mertzel Decl. Ex. P., at BX0105.) American Banker reported that Banxcorp is a firm that " monitors CD [i.e., certificate of deposit] rates," and featured in its front-page story a graph representing " [y]ields on 6-month CDs" from January to September of 1989, crediting " Banxquote" as the data's source. (Mertzel Decl. Ex. Q, at BX00107.) Indeed, the Wall Street Journal regularly included in its print edition a table of benchmark rates provided by Banxquote, such as one in the record titled " Banxquote Money Markets," which has a subheading stating " Average Yields of Major Banks." (Mertzel Decl. Ex. Q, at BX0065.)

The way the Banxquote indices are produced reflects their stated purpose: They are mathematical averages of the rates advertised by certain major financial institutions, updated at least weekly. Thus, a former software developer at Banxcorp named Abu Thomas testified that " if there are five banks," then, to calculate its average rate, Banxcorp would " take the average of five banks." (Lipkis Decl. Ex. 11, at 41.) The deposition continued:

Q: So you take the rate that each of the five banks is paying on money markets, add it up, and divide?

A: Yes.

Q: Simple mathematical average?
A: Yes.
Q: Is there any weighting of the banks included in the national average?
A: No.

( Id.) This method was independently confirmed by Defendants' expert Bruce Webster, a computer scientist who examined Plaintiff's source code.[8] ( See Webster Decl. Ex. A, at 1.) Webster noted that the national average values copied by Defendants " are simple mathematical averages of reported rates, with no weighting or other calculations involved." ( Id.) In fact, only one actual computational function is used: a built-in database function called " AVG()," which adds up the total of the values and divides by the number of entries. ( Id. at 20.)[9] Plaintiff has proffered no evidence that would show that the computation process is any more complex.

So the computational process is uncomplicated, and the output is but a single number on any given date. It turns out the inputs are equally straightforward: Plaintiff maintains a database into which someone inputs the interest rate or other relevant, publicly available financial information from one big bank in each state,

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plus one in Washington, DC, and then the software calculates an average. ( Id. at 27.) From November 2002 to May 2007, for instance, the set of banks remained entirely consistent for the 5-year national average CD rate. ( Id. at 28.) That is, the input is simply the 5-year CD rate from " exactly the same set of banks, week after week, for 233 weeks." ( Id.) The story is nearly the same for the other average relevant to this case, the national money market rate. For that average, Plaintiff made only three changes to the input banks from November 2002 to May 2007. ( Id.; see also Mertzel Reply Decl. Ex. K, at 1 (Mehl, in an email to Capital One representatives, stating that " BanxQuote calculates the average rates based on the largest banks in each of the 50 states and DC" ); Mertzel Decl. Ex. S, at BX002125 (Plaintiff's submission to the Copyright Office stating that the data consisted of the " U.S. national average rates quoted by the largest banks in all 50 states and Washington DC" ).)

The evidence supporting many of the facts above comes primarily from Plaintiff's own website, the deposition of its own former employee, and the sole expert report submitted on this issue. Plaintiff in its 56.1 statement and Mehl in his deposition dispute some aspects of this account, but -- in addition to being extremely confusing and rife with legal propositions couched as factual differences -- Plaintiff's factual account, to the extent it differs from anything discussed above, is " contradictory [and] rife with inconsistencies such that it [is] facially implausible." Fincher, 604 F.3d at 726. In other words, Plaintiff's deposition testimony fails to create any genuine dispute regarding the facts of how ...


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