FinancialApps, LLC v. Envestnet, Inc.

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FINANCIALAPPS, LLC, Plaintiff, v. ENVESTNET, INC. and YODLEE, INC., Defendants.

Civil Action No. 19-1337-GBW-CJB

United States District Court, D. Delaware

July 31, 2023

REPORT AND RECOMMENDATION

CHRISTOPHER J.. BURKE UNITED STATES MAGISTRATE JUDGE

Plaintiff FinancialApps, LLC (“Plaintiff” or “FinApps”) filed this action against Defendants Envestnet, Inc. (“Envestnet”) and Yodlee, Inc. (“Yodlee” and collectively with Envestnet “Defendants”) asserting various federal and state law causes of action. (D.I. 2) Presently pending before the Court is Envestnet's motion for summary judgment No. 1 in which it moves for summary judgment on FinApps' Counts 1, 2, 4, 5, 8 and 14 pursuant to Federal Rule of Civil Procedure 56 (the “Motion”). (D.I. 446) FinApps opposes the Motion. For the reasons set forth below, the Court recommends that the District Court GRANT-IN-PART and DENYIN-PART Envestnet's Motion.

I. BACKGROUND

A. Factual Background

FinApps is a Florida limited liability company with its principal place of business in Fort Lauderdale, Florida. (D.I. 2 at ¶ 22) Founded in 2014, FinApps is a software development company in the financial technology space-a technological area in which consumers can access financial services digitally. (Id. at ¶¶ 1-2, 31)

Defendant Envestnet is a publicly held Delaware corporation with its principal place of business in Berwyn, Pennsylvania. (D.I. 448 at ¶ 1; D.I. 493 at ¶ 1) Defendant Yodlee is a California corporation with its principal place of business in San Mateo, California. (D.I. 448 at ¶ 3; D.I. 493 at ¶ 3) Yodlee provides consumer-permissioned financial data aggregation services. (D.I. 2 at ¶¶ 1, 70; D.I. 448, ex. 2 at ¶ 6) Yodlee has been a wholly-owned subsidiary of Envestnet since 2015. (D.I. 448, ex. 2 at ¶ 7)

FinApps alleges that by 2016, it had created a software platform (the “Platform”) that was capable of analyzing vast amounts of consumer financial data in real time; the Platform was also able to generate credit risk reports for underwriters to use in making decisions on loan issuances and extensions of credit. (D.I. 2 at ¶¶ 4, 35-36) On January 31, 2017, FinApps and Yodlee executed a Software License and Master Services Agreement (“MSA”) and other related agreements. (Id. at ¶¶ 7, 83 & exs. 1-3; D.I. 160 at ¶¶ 34-35) Pursuant to the MSA, FinApps would develop a product called Risk Insight 2.0 (“Risk Insight”) that would generate financial reports for use by financial institutions in deciding whether to issue loans, and Yodlee would market and sell the product. (D.I. 2 at ¶¶ 6, 75; D.I. 160 at ¶¶ 36-37)

Over the next few years, the relationship between FinApps and Defendants deteriorated. The Court has previously set out the parties' allegations in that regard in its July 6, 2020 Report and Recommendation (“July 6 R&R”) and July 30, 2020 Report and Recommendation (“July 30 R&R”). (D.I. 109 at 1-4; D.I. 113 at 1-3) The Court assumes familiarity with the factual background set out in its July 6 R&R and July 30 R&R. (D.I. 109 at 1-4; D.I. 113 at 1-3)

Further relevant facts related to resolution of the Motion will be discussed as needed in Section III.

B. Procedural Background

On July 17, 2019, FinApps filed its Complaint in this matter. (D.I. 2) The case was thereafter referred to the Court to conduct all proceedings and to hear and determine all motions, pursuant to 28 U.S.C. § 636(b). (D.I. 18; D.I. 437) Envestnet filed the instant Motion on January 6, 2023, (D.I. 446), and briefing was completed on April 13, 2023, (D.I. 547).

Because FinApps waived its right to a jury trial against Yodlee by entering into the MSA, the case will be decided in two separate trials (both of which are to be scheduled): first, a jury trial on FinApps' claims against Envestnet, to be followed by a bench trial on FinApps' claims against Yodlee. (D.I. 250 at 4, 10; see also D.I. 442; D.I. 445 at 5, 7)

II. STANDARD OF REVIEW

The Court incorporates by reference the standard of review for summary judgment motions set out in its July 25, 2023 Report and Recommendation in this case. (D.I. 582 at 2-3)

III. DISCUSSION

FinApps' Complaint alleges six remaining claims against Envestnet: Counts 1 and 2 (claims for misappropriation of trade secrets brought under federal and state law), Count 4 (tortious interference with prospective business opportunities), Counts 5 and 8 (unfair competition claims brought pursuant to common law and state statute) and Count 14 (unjust enrichment). (D.I. 2 at ¶¶ 207-40, 259-68, 280-85, 332-38; see also D.I. 126 at 9-10) As to these counts, FinApps contends that Envestnet is vicariously liable for the acts of its agent, Yodlee, and that Envestnet also directly engaged in the alleged misconduct. (See D.I. 447 at 1; D.I. 492 at 9-14)

Envestnet moves for summary judgment on all six of these claims. (D.I. 447 at 2) It asserts that it is the “wrong defendant”-i.e., that Envestnet was not a party to the MSA, that it did not enter into any other contract with FinApps, and that it was not involved in the Risk Insight project in any meaningful way. (Id. at 1-3)

In order to prevail on its claims against Envestnet, FinApps must either: (1) pierce the corporate veil to hold Envestnet vicariously liable for the misconduct of its subsidiary Yodlee; or (2) demonstrate that Envestnet directly participated in the misconduct. With its Motion, Envestnet first argues that FinApps cannot pierce the corporate veil to hold Envestnet vicariously liable for Yodlee's misconduct because Envestnet is merely a holding company that does not dominate Yodlee's actions. (Id. at 6-8; D.I. 547 at 5-6) It then argues that there can be no direct liability for Envestnet because: (1) there is no evidence that any Envestnet employee was involved in the alleged misconduct; (2) there is no evidence that an Envestnet employee forced Yodlee to engage in the misconduct; and (3) there is no evidence that an Envestnet employee held a position at Yodlee but was acting for Envestnet when engaging in the misconduct. (D.I. 447 at 8-20; D.I. 547 at 6-10) Finally, Envestnet makes more specific arguments about each of the counts against it. The Court will take up Envestnet's arguments in turn.

A. Vicarious Liability

It is well-settled that, as a general principle of corporate law that is “deeply ingrained in our economic and legal systems[,] . . . a parent corporation . . . is not liable for the acts of its subsidiaries.” United States v. Bestfoods, 524 U.S. 51, 61 (1998) (internal quotation marks and citations omitted). Piercing the corporate veil is an “extraordinary remedy.” Round Rock Rsch. LLC v. ASUSTeK Comput. Inc., 967 F.Supp.2d 969, 978 (D. Del. 2013) (internal quotation marks and citation omitted). That said, courts at times have pierced the corporate veil (that is, disregarded the corporate form) and held a parent corporation responsible for the conduct of its subsidiary. One way courts have done so is pursuant to a particular type of agency theory; this agency theory considers the “amount of control the parent corporation exercises over the actions of the subsidiary.” Phx. Can. Oil Co. v. Texaco, Inc., 658 F.Supp. 1061, 1084 (D. Del. 1987), aff'd in relevant part, 842 F.2d 1466, 1477 (3d Cir. 1988).^[1] If the parent corporation is found to “dominated” the activities of the subsidiary, then the parent corporation will be held liable for such activities. Phx. Can. Oil, 658 F.Supp. at 1084.^[2] Factors to consider in determining whether “domination” exists can include “stock ownership, officers and directors, financing, responsibility for day-to-day operations, arrangements for payment of salaries and expenses, and origin of subsidiary's business and assets.” Id. (internal quotation marks and citations omitted). The existence of an agency relationship is a question of fact. Japan Petroleum Co. (Nigeria) Ltd. v. Ashland Oil, Inc., 456 F.Supp. 831, 840-41 (D. Del. 1978); Lang v. Morant, 867 A.2d 182, 186 (Del. 2005) (“Although a legal concept, agency depends on the presence of factual elements. It is thus a question usually reserved to the factfinder.”) (footnotes omitted).

Envestnet's primary argument is that FinApp's agency theory must fail because there is no evidence that Envestnet has “dominate[d]” Yodlee's activities. (D.I. 447 at 7-8; D.I. 547 at 6)^[3] Instead, according to Envestnet, the evidence definitively demonstrates that:

• Envestnet is a holding company and does not sell products, (D.I. 448, ex. 2 at ¶¶ 4, 23; id., ex. 3 at 20);

• Yodlee is a separate company with its own management structure that conducts business through its own departments, (id., ex. 2 at ¶¶ 7, 9); • Yodlee maintains its own corporate books, bank accounts and records and pays its own expenses, (id., ex. 2 at ¶¶ 10, 14-16); and

• Envestnet has never provided financing to Yodlee, and Yodlee is responsible for payment of its own debts and liabilities and bears the expenses of employing its own personnel, (id., ex. 2 at ¶¶ 15, 18, 21).

Envestnet's evidentiary support for these assertions is found in a declaration submitted by Envestnet's Deputy General Counsel, Patrick Marr (the “Marr Declaration”), as well as in Mr. Marr's deposition testimony. (See D.I. 447 at 8 n.2)

Mr Marr asserts that beginning in January 2019, simply for purposes of Envestnet's public financial reporting, Envestnet organized its operating subsidiaries, including Yodlee, into two business segments: Envestnet Wealth Solutions and Envestnet Data & Analytics (“Envestnet Data & Analytics” or “Envestnet D&A”), with Yodlee and its subsidiaries falling under the latter segment. (D.I. 448, ex. 2 at ¶¶ 27-28; see also id., ex. 3 at 27-28, 39-40)^[4] Mr. Marr explains that this January 2019 organization effort “did not alter the corporate structure...