Bankruptcy software contract lawsuit continues as court caps damages

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(Reuters) – A New York appeals court upheld MUFG Union Bank’s claim that Axos Bank falsely interfered with its deal with a bankrupt software company, but capped its potential payout well below of the $ 100 million it would have lost in profits.

A panel of four judges from the New York Appeals Division, First Department ruled Thursday that a lower court judge correctly dismissed Axos ‘motion to dismiss MUFG’s claim for tortious interference in a contract, rejecting Axos’ argument that such a claim is prohibited because the contract was terminable at will.

The ruling stems from MUFG’s 2019 lawsuit accusing bankruptcy software provider Epiq Systems of violating a joint services agreement when it sold its Chapter 7 fiat software business to Axos in 2018.

MUFG attorney David Keyko of Pillsbury Winthrop Shaw Pittman, Epiq attorney Zack Tripp of Weil Gotshal & Manges and Axos attorney Jeremy Deutsch of Cozen O’Connor did not immediately respond to requests for comment .

MUFG and Epiq had previously been parties to an agreement whereby they “would jointly promote their products and services to bankruptcy and insolvency professionals,” according to court documents. While Epiq provided the software for the Chapter 7 bankruptcy trustees, the bank provided banking and depository services. services.

MUFG alleged that Epiq and Axos devised a scheme to transfer the contract for services under the sale without his consent and in breach of the contract. The bank says the sale left it “without any Chapter 7 fiduciary banking activity” as Axos, which also provided custodian services, subsequently terminated the deal and lured MUFG customers. MUFG said it had $ 500 million in deposits before the sale.

In September 2020, Justice Barry Ostrager of the New York State Supreme Court dismissed most of Epiq and Axos’ motions to dismiss the breach of contract claims. He also rejected Epiq’s request to cap potential damages at $ 20 million, saying the joint services agreement only caps damages at that figure if a jury finds a limited number of unintentional violations under certain clauses of the contract.

But the appeal panel ruled Thursday that damages should be capped at $ 5 million or $ 10 million, depending on the nature of the alleged violation, because MUFG has not shown that Epiq’s alleged violation was ” caused willfully “or by” gross negligence “as described in the contract.

“In this case, there is no evidence that Epiq violated the [agreement] intend to willfully inflict damage on MUFG; rather the evidence is that Epiq sold its bankruptcy software business to Axos in order to promote its own economic interests, ”the panel wrote.

The panel was not persuaded by Axos’ argument that the joint services agreement could be terminated at will and therefore could not be the basis for a tort interference claim, arguing that MUFG’s allegations do not relate to the termination, but to its alleged encouragement of Epiq to violate the Contracts.

Judges Dianne Renwick, Barbara Kapnick, Anil Singh and Tanya Kennedy were on the panel.

The case is MUFG Union Bank NA v Axos Bank et al., New York Supreme Court Appeals Division – First Department, No. 2020-03991.

For MUFG Union Bank: David Keyko of Pillsbury Winthrop Shaw Pittman

For Epiq: Zack Tripp from Weil Gotshal

For Axos: Jeremy Deutsch from Cozen O’Connor

Read more:

Bankruptcy software company Epiq to be tried for Chapter 7 business sale

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