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CAUSE NO. DC-15-02582
xxxxxxxxxxx xxxxxxxxx, LLC, IN THE DISTRICT COURT OF
Plaintiff,
v.
DALLAS COUNTY, TEXAS
DELL MARKETING, LP; DELL
SERVICES; DELL, INC.; and
DELL USA, L.P.,
Defendants. 116TH JUDICIAL DISTRICT
DEFENDANTS’ REPLY IN SUPPORT OF MOTION TO QUASH JURY DEMAND
Defendants’ Motion to Quash Jury Demand should be granted in its entirety. As a
threshold matter and as xxxxxxxxxxx xxxxxxxxx, LLC (“ECS”) concedes, this Court already
dismissed ECS’s jury demand with prejudice as to ECS’s claims against Dell Marketing, LP
(“Dell Marketing”). While conceding that all of its claims were covered in its earlier pleading,
ECS argues its tweaked allegations – styling certain claims as being connected to information
from Dell Marketing’s subcontractor under the Reseller Agreement – somehow do not qualify as
“issues arising out of or related to this Agreement.” They do for the simple and undeniable fact
that ECS’s assertions about CTS Systems, Inc. (“CTS”) relate to the Reseller Agreement.
The jury waiver is also effective as to ECS’s asserted causes of action against the other
Defendants. The Texas Supreme Court has made it plain that jury waivers are viewed in the
same way as other dispute resolution provisions. Accordingly, the substantial body of Texas
case law indicating non-signatories can exercise contractual remedies is persuasive. In re
Guggenheim Corp. Funding, LLC, 380 S.W.3d 879, 886 (Tex. App.—Houston [14th Dist.] 2012,
no pet.). Moreover, ECS should be equitably estopped from seeking a jury trial as to any claims
that may survive the Dell Entities’ summary judgment hearing because the claims are
inextricably bound to the Reseller Agreement.
EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page
I. ECS’s Re-characterized Tortious Interference and Trade Secret Misappropriation
Claims Are Covered by the Contractual Jury Waiver.
ECS’s argument that a jury should hear any claims against Dell Marketing is taken nearly
verbatim from its earlier unsuccessful opposition. The sole difference is that ECS now asserts
that certain causes of action connected to information “obtained through CTS” – Causes F
(tortious interference), I (trade secret misappropriation), and L (conspiracy) – are outside of the
jury waiver’s scope. E.g. Fifth Am. Pet. at 19 (Cause F), ¶¶ 64-75, 82-87, 100-104. When the
Court earlier struck ECS’s jury demand with prejudice, ECS’s live pleading included claims for
tortious interference, trade secret misappropriation, and conspiracy. See Third Am. Pet. ¶¶ 31-
65. Because ECS has merely recast its prior theories, the Court’s prior ruling remains
controlling. In fact, ECS had already alleged those claims were based on alleged misuse of
ECS’s pricing information. Id. ¶¶ 27-30. There is nothing “new” for this Court to assess: ECS’s
claims are, at bottom, the same.
The substance of ECS’s argument, premised on CTS being disconnected from the
Reseller Agreement, does not hold water. CTS was Dell Marketing’s subcontractor that helped
deliver the services contemplated by the Reseller Agreement; in fact, in its summary judgment
opposition, ECS emphasizes that under the Reseller Agreement “Dell Marketing did nothing
more than reseller [sic] CTS’s reconciliation services.” ECS’s Resp. to Defs.’ Mot. for Sum. J.
at 4, n.8. Also, ECS argues it should be excused from paying more than $2,000,000 in invoices
because of CTS’s performance in connection with the Reseller Agreement. See ECS’s Orig.
Answer & Aff, Defs. to Dell’s Counterclaim.
ECS’s argument further is belied by its allegations against CTS in the Southern District
ECS concedes that ECS has waived its right to a jury trial as to Causes A-E, G, J, and M of its Fifth Amended
Petition as to claims asserted against Dell Marketing.
See Resp. at 1.
EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page
of New York, which makes plain that the Reseller Agreement served as the backbone of ECS-
CTS communications. See Am. Compl., May 29, 2015, ECF. No. 13 (S.D.N.Y. 1:15-cv-
02671). For example, ECS alleges that, “[i]n response to CTS’s repeated service issues and
CTS’s misuse of ECS’s Proprietary Information [defined to include ECS’s pricing] to compete
with ECS, in or around October 2013, ECS, Dell, and CTS began to negotiate an amendment to
the Reseller Agreement to better reflect the relationship between the parties.” Id. ¶ 47. ECS
cannot credibly argue that information CTS allegedly received in confidence while working as
Dell Marketing’s subcontractor does not arise out of or relate to the Reseller Agreement. All of
ECS’s claims here are encompassed by the Reseller Agreement’s contractual jury waiver and
accordingly ECS’s jury demand should be quashed.
II. All Defendants Are Entitled To Enforce The Contractual Jury Waiver.
a. Texas Supreme Court precedent indicates Texas arbitration cases are analogous.
ECS deliberately ignores the Texas Supreme Court’s 2009 decision in In re Bank of
America when it challenges Defendants’ Texas authority evaluating the effect of arbitration
provisions on non-signatories. 278 S.W.3d 342, 344 (Tex. 2009). The Supreme Court
emphasized “our jurisprudence ‘should be the same for all similar dispute resolution
agreements’” and “that a presumption against contractual jury waivers is antithetical to
Prudential’s jurisprudence with regard to private dispute resolution agreements.” Id. at 344,
346.
ECS argues that “it is unsurprising that courts have allowed non-signatories to enforce
arbitration provisions, given the strong public policy and presumption in favor of arbitration” and
The Court may take judicial notice of ECS’s pleading, which Defendants do not submit for the truth of the matter
asserted. Krishnan v. Ramirez, 42 S.W.3d 205, 222-223 (Tex. App.—Corpus Christi 2001, pet. denied) (“So long as
a party provides proof of another court’s records, a court can take judicial notice of another court’s records.”). ECS’s
amended complaint is attached as Exhibit A to this reply.
EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page
contending “[t]he same is not true of jury waiver provisions.” Resp. at 12. The Texas Supreme
Court disagrees with ECS: “Statutes compel arbitration if an arbitration agreement exists … and
more importantly, ‘Texas law has historically favored agreements to resolve such disputes by
arbitration.’ We see no reason why there should be a different rule for contractual jury waivers.”
Bank of Am., 278 S.W.3d at 346 (internal citations omitted; emphasis added). Accordingly, the
arbitration cases indicating the non-signatory Defendants can enforce the jury waiver dispute
resolution provisions here are entirely appropriate and compelling.
b. ECS’s cases miss the mark.
The cases upon which ECS relies are unpersuasive. The first case ECS emphasizes – In
re Credit Suisse First Boston Mortgage Capital, LLC – is no longer good law in light of In re
Bank of America. See Resp. at 9-10. In re Guggenheim Corp. Funding, LLC, which ECS cites,
underscores this point: the non-movant “cites a 2008 decision from this court [Credit Suisse]
refusing to enforce a contractual jury waiver against a non-signatory, stating that jury waivers
‘are strictly construed and will not be lightly inferred or extended.’ The Texas Supreme Court
has since made it clear that jury waivers are not disfavored and they should be enforced just as
other dispute resolution agreements.” 380 S.W.3d 879, 885 n.4 (Tex. App.—Houston [14th
Dist.] 2012, no pet.) (citations to Credit Suisse and Bank of America omitted). Accordingly, the
strict construction and presumption against enforcement in Credit Suisse is inapplicable.
In re Wild Oats Markets, Inc. is distinguishable because of both the jury waiver’s text and
the claims at issue. 286 S.W.3d 499 (Tex. App.—Beaumont 2009, no pet.) The jury waiver
provision there did not employ the “arising out of or relating to” language commonly held to
For example, the Texas Supreme Court has held that when a signatory to an arbitration agreement asserts “tortious
interference claims [against] a signatory to an arbitration agreement and” nonsignatory “affiliates,” the nonsignatory
affiliate defendants can enforce the arbitration clause against the signatory plaintiff.
See In re Vesta Ins. Grp., Inc.,
192 S.W.3d 759, 762 (Tex. 2006).
EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page
broaden a provision’s reach. Compare id. at 500 with RSR Corp. v. Siegmund, 309 S.W.ed 686,
701 (Tex. App.—Dallas 2010, no pet.) (discussing breadth of “arising out of or related to”
language). Also, unlike here, the plaintiff’s single claim against the non-signatory was separate
and unique from the breach of contract claim asserted against the counterparty – that is, the
plaintiff did not assert identical tortious interference against related defendants but claimed
different conduct created liability for the defendants. See id.
ECS also suggests a Fort Worth appellate case backs its position. But the court in In re
Go Colorado 2007 Revocable Trust, 319 S.W.3d 880, 883 (Tex. App.—Ft. Worth 2010, no pet.)
focused on whether an entity could waive its right to a jury trial before it came into existence.
Notably, that court expressly avoided an analysis of the substantive arguments made by the
movant which “may or may not have merit” – the waiver applied because (i) a “close nexus”
exists between the signatory and non-signatory; (ii) arbitration principles apply to jury waivers;
and (iii) equity demands the waiver would apply. Id. at 883-884.
Finally, ECS’s referenced federal cases about jury waivers are inapposite for the same
reason Credit Suisse is: In re Bank of America. While federal law, which is applied to jury
waivers in federal courts, favors arbitration clauses but disfavors contractual jury waivers, Texas
law does not. Compare, e.g., Tracinda Corp. v. Daimlerchrysler Ag, 502 F.3d 212, 222-223
(3rd. 2007) (noting both “[f]ederal courts apply federal law in determining whether a contractual
jury trial waiver is enforceable” and “the tension between the cases favoring arbitration clauses
and those disfavoring jury waivers”) with Bank of Am., 278 S.W.3d at 346. Indeed, the Texas
Supreme Court has held “[w]e see no reason why there should be a different rule for contractual
jury waivers” than for arbitration clauses, which are favored under Texas law. Bank of Am., 278
S.W.3d at 346.
EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page
c. ECS should be equitably estopped from seeking a jury trial against the non-Dell
Marketing Defendants in this case.
Equitable estoppel applies “when the signatory to a written contract relies on the terms of
the written agreement asserting its claims against the nonsignatory.” Chandler Mgmt. Corp. v.
First Specialty Ins. Corp., Vericlaim, Inc., 452 S.W.3d 887, 891 (Tex. App.—Dallas 2014, no
pet.). In the context of arbitration, the Texas Supreme Court has held that this principle applies
when claims “depend on the existence of” a contract, such as when “damages cannot be
calculated without reference to the” contract, and that “[w]hen a party’s right to recover and its
damages depend on the agreement containing the arbitration provision, the party is relying on the
agreement for its claims.” Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 306 (Tex. 2006).
As addressed more fully in Defendants’ motion, ECS’s claims against the non-Dell
Marketing Defendants depend on the existence of the Reseller Agreement. In agreeing that the
jury waiver controls most of its claims, ECS concedes that numerous of its claims plead as torts
relate to the Reseller Agreement. See Resp. at 1. Defendants also have indicated they are
relying on the Reseller Agreement’s terms in defense. For example, Defendants will argue that
Reseller Agreement Sections 3 (affording Dell Marketing the right to reject and to terminate any
end user) and 7 (indicating Dell Marketing is not restricted from directly providing services as a
result of the Reseller Agreement) establish that Defendants cannot tortiously interfere as ECS
alleges and that, in any event, Section 10 limits the type and caps the amount of any damages
ECS could hope to recover. ECS has pointed to nothing outside of the Reseller Agreement that
would limit how any information during the period of the Reseller Agreement could be used,
whether pricing information or customer information. See generally Fifth Am. Pet. & Resp. As
set forth above, CTS’s involvement depends on the existence of the Reseller Agreement.
EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page
These examples are matters that depend on the existence of a contract and trigger
equitable estoppel. ECS’s frequent invocation of “completely independent from and unrelated to
the Reseller Agreement,” sprinkled throughout its Petition, is nothing more than ipse dixit that
does not comport with ECS’s allegations and the legal issues. In light of these facts, all of ECS’s
claims depend on the existence of the Reseller Agreement, meaning ECS should be equitably
estopped from demanding a jury hear its claims. See Meyer, 211 S.W.3d at 306 (Tex. 2006).
Accordingly, all Defendants can invoke ECS’s voluntary and knowing waiver of a jury
trial “as to any and all issues arising out of or related to this Agreement.” Reseller Agreement
§ 12(b). And this Court should strike ECS’s jury demand as to all of its claims and causes of
action asserted.
EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page
Dated: April 11, 2016. Respectfully submitted,
/s/ Jared M. Slade
ARREN L. ARTY
State Bar No. 24007631
ARED M. LADE
State Bar No. 24060618
ALSTON & BIRD LLP
2828 N. Harwood Street, Suite 1800
Dallas, Texas 75201
(214) 922-3400 – Telephone
(214) 922-3899 – Facsimile
darren.mccarty@alston.com
jared.slade@alston.com
ARL EERCKEN
New York State Bar No. 2536662
Admitted Pro Hac Vice
ALSTON & BIRD LLP
90 Park Avenue, 15th Floor
New York, NY 10016
(212) 210-9471 – Telephone
(212) 922-3931 – Facsimile
karl.geercken@alston.com
Attorneys for Defendants Dell Marketing LP,
Dell, Inc., and Dell USA, L.P.
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a true and correct copy of the foregoing was served
in accordance with the Texas Rules of Civil Procedure on the following counsel of record on this
11th day of April, 2016:
Hugh. G. Connor (hugh.connor@kellyhart.com)
Michael D. Anderson (michael.anderson@kellyhart.com)
Caleb B. Bulls (caleb.bulls@kellyhart.com)
Kelly Hart & Hallman LLP
201 Main Street
Suite 2500
Fort Worth, Texas 76102
/s/ Jared M. Slade
ARED M. LADE
TX State Bar No. 24060618
EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
xxxxxxxxxxx xxxxxxxxx, LLC, Civil Action No. 15-2671
Judge Analisa Torres
Plaintiff,
AMENDED COMPLAINT
v.
CTS HOLDINGS, INC. and CTS SYSTEMS, INC.
Defendants.
Plaintiff xxxxxxxxxxx xxxxxxxxx, LLC (“ECS”), by its attorneys, DAY ITNEY LLP, as and
for its Amended Complaint against defendants CTS Holdings, Inc. (“CTS Holdings”) and CTS
Systems, Inc. (“CTS Systems,” and together with CTS Holdings “CTS”), alleges as follows:
NATURE OF THE ACTION
This action arises out of a scheme perpetrated by ECS’s business partner CTS to
mislead and defraud ECS, obtain proprietary information belonging to ECS, use that information
to improperly solicit ECS’s clients, and ultimately drive ECS out of business.
Through February 2015, ECS and CTS were business partners in providing
commissions reconciliation services to travel agencies throughout the world. Notwithstanding
this business relationship, CTS engaged in a widespread scheme to steal clients from ECS and
drive ECS from the commissions reconciliation market.
Specifically, CTS caused severe and pervasive service issues that impacted ECS
and ECS’s clients, made false and misleading statements about ECS to ECS’s clients, and used
information obtained from ECS to compete with ECS for clients while also operating as a
subcontractor for ECS.
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4. Additionally, for approximately a year beginning in March 2014, CTS
intentionally defrauded and misled ECS into negotiating the acquisition of CTS by ECS for the
sole purpose of terminating the negotiations in the final hour in an attempt to put ECS at a
commercial disadvantage and drive ECS from the market.
5. As a result of CTS’s conduct, ECS’s business operations have been disrupted and
ECS’s business, reputation, and client relations have been harmed. In addition, ECS incurred
significant financial losses stemming from CTS’s conduct and in an effort to replace the services
provided by CTS.
PARTIES
6. Plaintiff ECS is a limited liability company organized pursuant to the laws of the
State of New York, with its principal place of business at 1350 Broadway, New York, New
York, 10018.
7. Upon information and belief, defendant CTS Holdings is a corporation organized
pursuant to the laws of the State of Delaware with its principal place of business in Alpharetta,
Georgia.
8. Upon information and belief, defendant CTS Systems is a corporation organized
pursuant to the laws of the State of Georgia with its principal place of business in Alpharetta,
Georgia.
9. Upon information and belief, defendant CTS Holdings is the principal and alter
ego of defendant CTS Systems and stands in the shoes of CTS Systems in its dealings with ECS.
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JURISDICTION AND VENUE
This Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1331 and
1367 because ECS asserts a claim under the Lanham Act and the state law claims arise from the
same common nucleus of operative facts as the claim under the Lanham Act.
This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332 because
the parties are located in different states and the amount in controversy exceeds $75,000.00.
Venue is proper pursuant to 28 U.S.C. § 1391 because a substantial part of the
events giving rise to the claims occurred in this District.
FACTS COMMON TO ALL CAUSES OF ACTION
A. The Business Relationship Between ECS and CTS.
13. ECS plays a vital role in the collection and reconciliation of commissions from
hotels within the travel agency industry. Generally, whenever a consumer uses a travel agency
to book reservations at a hotel, the hotel will pay the travel agency a commission. However, the
travel agency is traditionally not made aware of whether the reservation was actually fulfilled.
Without having such knowledge, the travel agency cannot discern whether or not it is owed a
commission. ECS was formed to address the travel agencies’ needs. Specifically, ECS
streamlined a process wherein it would identify and collect outstanding commissions that were
owed to travel agencies.
In order to accomplish that objective, ECS developed an integrated process that
achieved maximum commission recovery for its clients. Specifically, in conjunction with its
business partners, ECS: (i) consolidates data from hosts of different sources, including the
Global Distribution System (“GDS”) for automated transactions, travel agency accounting
systems, payment consolidators, and hotels; (ii) determines for which transactions the travel
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agencies have received commission payments; (iii) makes dunning inquiries to hotels for
transactions for which the travel agencies have not received commission payments; and (iv)
provides a complete reconciliation to the client based on the responses to the inquiries so that the
client has a complete understanding of the hotel volume. It is through this four-step process that
ECS runs its business.
As part of its ongoing business operations, ECS (through its predecessor CNG
USA, Inc.) and Dell Marketing, LP (“Dell”) (through its predecessor Perot Systems, Inc.)
executed a “Reseller Agreement” on March 11, 2005. Pursuant to the terms of the Reseller
Agreement as amended and through a course of conduct, Dell provided certain services to assist
ECS in delivering reconciliation and commissions recovery services to its clients.
Pursuant to a subcontractor agreement with Dell, of which ECS is a third-party
beneficiary, CTS provided dunning and invoicing services on behalf of ECS’s clients to support
ECS’s commissions reconciliation services (the “Subcontract”). CTS also operated a software
platform to complement ECS’s services.
For many of the services provided by CTS for the benefit of ECS, ECS directly
compensated CTS.
Specifically, ECS directly compensated CTS for World Payment Services
(“WPS”) dunning and for CTS’s services provided for ECS’s clients, including but not limited to
rental car transactions by Atlas Travel and Travel Leaders and all transactions for American
Express Platinum Cruise.
With respect to other services provided by CTS, ECS paid Dell, and Dell
compensated CTS pursuant to the Subcontract.
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B. Service Issues Caused By CTS.
20. Beginning in or around 2011, ECS began to experience a substantial spike in
service issues originating with the services provided by CTS for the benefit of ECS, including
the following non-exhaustive list:
a. CTS’s practices caused numerous invoicing issues for ECS, including late
delivery of invoices to ECS’s clients due to CTS’s delays, and
inconsistencies in invoices caused by CTS’s system failures;
b. The transaction totals provided by CTS failed to match the transactions for
which ECS and ECS’s clients were invoiced;
c. CTS failed to timely provide reconciled transaction files for ECS clients,
which prevented ECS from invoicing its clients on a timely basis;
d. CTS repeatedly overbilled ECS for transactions that CTS did not perform;
e. Several ECS clients have challenged ECS invoice transaction totals due to
processing irregularities caused by CTS;
f. Corrupted files on CTS’s system, caused by a CTS update to the system,
resulted in an ECS client missing over $300,000 in transaction totals such
that the commissions on those transactions could not be recovered in a
timely manner;
g. CTS had consistent data integrity issues, including repeated and extended
platform outages that prevented ECS from completing the commissions
reconciliation process in a timely fashion;
h. On numerous occasions from September 2013 through the ultimate
termination of CTS’s services, ECS’s clients experienced substantial and
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pervasive service interruptions on the platform provided by CTS,
including full system outages, inability to log on to the platform, system
crashes, and unreliable service; and
i. CTS failed to have contingency plans in place, such that when events such
as an ice storm in Atlanta impacted the CTS platform, CTS was unable to
resolve the system outage in a timely fashion.
Despite repeated requests from ECS to CTS, CTS failed to inform ECS on the
occasions when the CTS platform caused service issues that impacted ECS’s clients. As a result,
ECS often learned about CTS service issues from ECS’s clients instead of CTS.
As a result of CTS’s service issues, ECS’s clients were unable to meet financial
reporting deadlines and were unable to timely make commissions payments to their travel agents.
CTS’s service issues caused significant client relations issues for ECS, including the ultimate
loss of at least one major client.
As a result of CTS’s pervasive service issues, ECS alone had to make financial
concessions to some of its clients.
CTS’s service issues were highlighted in an audit of ECS conducted in February
2015 by one of ECS’s largest clients, Carson Wagonlit Travel (“CWT”).
In 2014, CWT experienced significant issues with the reconciliation process for
commissions caused by deficiencies in CTS’s services. As a result of this disruption, CWT
demanded an audit of the reconciliation process.
In furtherance of the audit, ECS and CWT requested specific invoice and dunning
information from CTS.
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CTS failed to provide any information in response to the requests from ECS or
CWT in time for the audit conducted in February 2015.
As a result of CTS’s failure to comply, CWT was unable to complete its audit of
ECS and provided ECS with a notice of breach.
Despite being informed of the notice of breach and ECS’s intent to hold CTS
responsible for resulting damages, CTS has refused to comply with the demands for information
to date.
C. CTS Misrepresented Its Data Security to ECS.
Throughout the course of the parties’ approximately eight-year relationship, ECS
constantly looked for new opportunities to sign additional clients. Many of ECS’s clients and
prospective clients, including BCD Travel (“BCD”), CWT, and American Express (“Amex”),
required ECS to confirm that it and its business partners complied with certain data security and
storage minimum requirements.
In or around July 2010, when ECS sought to obtain CWT as a client, CWT
required assurances from ECS that ECS and its business partners would store all servers
containing CWT data in a secure location protected against catastrophes.
In furtherance of this requirement, Paul Hoffmann (“Hoffmann”), the President
and CEO of ECS, contacted Mark Lewington (“Lewington”), the CEO of CTS, to inquire
regarding CTS’s data security and storage measures. Lewington assured Hoffmann that CTS
stored its servers at “Peak 10,” a secure data facility protected against catastrophes.
On numerous occasions since July 2010, and in conjunction with ECS obtaining
new clients, Lewington made identical representations to Hoffmann regarding CTS’s data
security and storage measures, including but not limited to: (a) in or around November 2011 in
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connection with ECS securing BCD as a client; and (b) in or around October 2010 and
November 2013 in connection with ECS securing additional business from Amex.
In reliance on the statements by Lewington, Hoffmann assured ECS’s clients that
ECS and its partners stored client data in a secure facility.
In or around February 2014, ECS discovered that the statements by Lewington
regarding CTS’s data storage and security measures were false.
On or about February 27, 2014, there was a fire at CTS’s headquarters in Atlanta,
which entirely destroyed the headquarters. As a result of the fire, ECS learned that: (a) CTS did
not have a disaster recovery plan in place; and (b) CTS’s servers containing data for many of
ECS’s clients were stored at the CTS headquarters, not in a secure data facility as previously
represented by Lewington.
As a result of the fire, approximately 12 servers containing ECS client data,
including data of BCD, CWT, and Amex, were damaged, and for at least three days, CTS was
unable to provide ECS with any information regarding the extent of the damage to the servers.
Ultimately, CTS was able to recover some, but not all, of the data stored on those
servers.
Lewington, while standing outside the CTS headquarters as the fire destroyed the
building, called Hoffmann in tears and admitted that he had lied about CTS’s data storage and
security measures and repeatedly apologized for destroying ECS’s business that CTS serviced
because the servers housing ECS’s clients’ data remained on the CTS premises.
CTS’s failure to have a disaster recovery plan in place and to maintain its servers
in a secure facility cause a prolonged service interruption, which adversely impacted ECS’s
ability to complete the commissions reconciliation process and invoice its clients.
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D. CTS’s Misuse of ECS’s Proprietary Information During the Relationship.
Over the course of the eight-year relationship between ECS and CTS, CTS had
access to significant proprietary information of ECS, including ECS’s client lists, ECS’s business
and pricing models, and ECS’s client volume data (“ECS Proprietary Information”).
On numerous occasions while CTS provided services to ECS for the benefit of
ECS’s clients, CTS misused its inside knowledge of the ECS Proprietary Information to directly
compete against ECS for clients.
Specifically, CTS used its knowledge of ECS’s client base and ECS’s pricing
model to undercut ECS’s prices and provide predatory bids to ECS’s clients to steal the clients
from ECS.
On one such occasion, in or around December 2014, CTS attempted to steal
Travel Leaders, an ECS client, from ECS. To do so, CTS used its knowledge of ECS’s pricing
structure to undercut ECS’s contract with Travel Leaders. CTS obtained this competitive
advantage through the misuse of the ECS Proprietary Information.
Compounding its deceit, CTS affirmatively told ECS that CTS did not make a
direct bid to Travel Leaders. However, ECS was informed by Travel Leaders that it had received
a bid from CTS.
CTS repeatedly misused ECS’s Proprietary Information in a similar manner to
attempt to steal additional clients from ECS, including but not limited to Balboa Travel, Tzell
(including numerous associated branches), and Direct Travel. In some cases, CTS succeeded,
which resulted in significant harm to ECS.
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E. Negotiations with CTS and Dell to Address Issues with CTS
In response to CTS’s repeated service issues and CTS’s misuse of the ECS
Proprietary Information to compete with ECS, in or around October 2013, ECS, Dell, and CTS
began to negotiate an amendment to the Reseller Agreement to better reflect the actual
relationship between the parties.
After the fire at the CTS headquarters in February 2014, ECS determined that it
could no longer rely on CTS, and ECS changed its negotiating tactics. Instead of negotiating an
amendment to the Reseller Agreement to address CTS’s deficiencies, ECS proposed the
acquisition of CTS by ECS. The acquisition would permit ECS to upgrade the CTS platform to
address the service issues and prevent misuse of the ECS Proprietary Information.
Dell and CTS supported this proposal, and beginning in or around March 2014,
the negotiations focused on the acquisition of CTS by ECS.
Through numerous telephone calls, e-mails, and in-person meetings through
December 2014, ECS and CTS, with input from Dell, discussed the acquisition of CTS,
including terms of the acquisition and valuation methods. CTS and ECS also signed a
nondisclosure agreement and shared documents relevant to the acquisition.
While these negotiations were ongoing, Dell encouraged ECS to acquire CTS and
assured ECS that Dell would negotiate an amendment to the Reseller Agreement or a new
agreement to better reflect the actual relationship between the parties.
Throughout the course of the negotiations, the parties all continually expressed a
commitment to a long-term working relationship to better serve the travel agency clients.
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F. The Letters of Intent.
53. On or about October 8, 2014, ECS delivered the first formal Letter of Intent to
CTS for the acquisition of CTS, which CTS ultimately declined.
ECS and CTS, with the support and input of Dell, continued to negotiate the terms
of a formal Letter of Intent, and on or about December 10, 2014, ECS submitted a second Letter
of Intent to CTS reflecting the renegotiated terms.
Throughout the course of numerous telephone calls and e-mails in January 2015,
CTS reaffirmed its commitment to the acquisition and CTS and ECS continued to discuss the
second Letter of Intent.
After final negotiations, on or about January 19, 2015, ECS provided CTS with
executable copies of the final Letter of Intent reflecting the terms verbally agreed upon by ECS
and CTS.
On or about January 27, 2015, ECS contacted CTS to determine the status of the
executable Letter of Intent. In a shocking reversal of its position and after refusing to address the
status of the Letter of Intent, CTS informed ECS that CTS was no longer willing to proceed with
the final Letter of Intent or the acquisition.
On or about January 28, 2015, when ECS communicated CTS’s bad faith
rejection of the agreed-upon Letter of Intent to Dell, Dell reaffirmed its commitment to
amending the Reseller Agreement or preparing a new agreement with ECS.
However, shortly thereafter, on or about February 5, 2015, Dell terminated its
Reseller Agreement negotiations with ECS and notified ECS that Dell would not renew the
Reseller Agreement, which purportedly expired on March 10, 2015.
-11-
91424730
Dell’s non-renewal of the Reseller Agreement was completely contrary to Dell’s
repeated commitments to a long-term relationship between Dell and ECS.
Upon information and belief, CTS’s negotiations with ECS were in bad faith and
the false and misleading statements by CTS regarding the acquisition were in furtherance of a
scheme with Dell to steal ECS’s clients, drive ECS out of the market, and prevent ECS from
deve
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CAUSE NO. DC-15-02582 xxxxxxxxxxx xxxxxxxxx, LLC, IN THE DISTRICT COURT OF Plaintiff, v. DALLAS COUNTY, TEXAS DELL MARKETING, LP; DELL SERVICES; DELL, INC.; and DELL USA, L.P., Defendants. 116TH JUDICIAL DISTRICT DEFENDANTS’ REPLY IN SUPPORT OF MOTION TO QUASH JURY DEMAND Defendants’ Motion to Quash Jury Demand should be granted in its entirety. As a threshold matter and as xxxxxxxxxxx xxxxxxxxx, LLC (“ECS”) concedes, this Court already dismissed ECS’s jury demand with prejudice as to ECS’s claims against Dell Marketing, LP (“Dell Marketing”). While conceding that all of its claims were covered in its earlier pleading, ECS argues its tweaked allegations – styling certain claims as being connected to information from Dell Marketing’s subcontractor under the Reseller Agreement – somehow do not qualify as “issues arising out of or related to this Agreement.” They do for the simple and undeniable fact that ECS’s assertions about CTS Systems, Inc. (“CTS”) relate to the Reseller Agreement. The jury waiver is also effective as to ECS’s asserted causes of action against the other Defendants. The Texas Supreme Court has made it plain that jury waivers are viewed in the same way as other dispute resolution provisions. Accordingly, the substantial body of Texas case law indicating non-signatories can exercise contractual remedies is persuasive. In re Guggenheim Corp. Funding, LLC, 380 S.W.3d 879, 886 (Tex. App.—Houston [14th Dist.] 2012, no pet.). Moreover, ECS should be equitably estopped from seeking a jury trial as to any claims that may survive the Dell Entities’ summary judgment hearing because the claims are inextricably bound to the Reseller Agreement. EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page I. ECS’s Re-characterized Tortious Interference and Trade Secret Misappropriation Claims Are Covered by the Contractual Jury Waiver. ECS’s argument that a jury should hear any claims against Dell Marketing is taken nearly verbatim from its earlier unsuccessful opposition. The sole difference is that ECS now asserts that certain causes of action connected to information “obtained through CTS” – Causes F (tortious interference), I (trade secret misappropriation), and L (conspiracy) – are outside of the jury waiver’s scope. E.g. Fifth Am. Pet. at 19 (Cause F), ¶¶ 64-75, 82-87, 100-104. When the Court earlier struck ECS’s jury demand with prejudice, ECS’s live pleading included claims for tortious interference, trade secret misappropriation, and conspiracy. See Third Am. Pet. ¶¶ 31- 65. Because ECS has merely recast its prior theories, the Court’s prior ruling remains controlling. In fact, ECS had already alleged those claims were based on alleged misuse of ECS’s pricing information. Id. ¶¶ 27-30. There is nothing “new” for this Court to assess: ECS’s claims are, at bottom, the same. The substance of ECS’s argument, premised on CTS being disconnected from the Reseller Agreement, does not hold water. CTS was Dell Marketing’s subcontractor that helped deliver the services contemplated by the Reseller Agreement; in fact, in its summary judgment opposition, ECS emphasizes that under the Reseller Agreement “Dell Marketing did nothing more than reseller [sic] CTS’s reconciliation services.” ECS’s Resp. to Defs.’ Mot. for Sum. J. at 4, n.8. Also, ECS argues it should be excused from paying more than $2,000,000 in invoices because of CTS’s performance in connection with the Reseller Agreement. See ECS’s Orig. Answer & Aff, Defs. to Dell’s Counterclaim. ECS’s argument further is belied by its allegations against CTS in the Southern District ECS concedes that ECS has waived its right to a jury trial as to Causes A-E, G, J, and M of its Fifth Amended Petition as to claims asserted against Dell Marketing. See Resp. at 1. EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page of New York, which makes plain that the Reseller Agreement served as the backbone of ECS- CTS communications. See Am. Compl., May 29, 2015, ECF. No. 13 (S.D.N.Y. 1:15-cv- 02671). For example, ECS alleges that, “[i]n response to CTS’s repeated service issues and CTS’s misuse of ECS’s Proprietary Information [defined to include ECS’s pricing] to compete with ECS, in or around October 2013, ECS, Dell, and CTS began to negotiate an amendment to the Reseller Agreement to better reflect the relationship between the parties.” Id. ¶ 47. ECS cannot credibly argue that information CTS allegedly received in confidence while working as Dell Marketing’s subcontractor does not arise out of or relate to the Reseller Agreement. All of ECS’s claims here are encompassed by the Reseller Agreement’s contractual jury waiver and accordingly ECS’s jury demand should be quashed. II. All Defendants Are Entitled To Enforce The Contractual Jury Waiver. a. Texas Supreme Court precedent indicates Texas arbitration cases are analogous. ECS deliberately ignores the Texas Supreme Court’s 2009 decision in In re Bank of America when it challenges Defendants’ Texas authority evaluating the effect of arbitration provisions on non-signatories. 278 S.W.3d 342, 344 (Tex. 2009). The Supreme Court emphasized “our jurisprudence ‘should be the same for all similar dispute resolution agreements’” and “that a presumption against contractual jury waivers is antithetical to Prudential’s jurisprudence with regard to private dispute resolution agreements.” Id. at 344, 346. ECS argues that “it is unsurprising that courts have allowed non-signatories to enforce arbitration provisions, given the strong public policy and presumption in favor of arbitration” and The Court may take judicial notice of ECS’s pleading, which Defendants do not submit for the truth of the matter asserted. Krishnan v. Ramirez, 42 S.W.3d 205, 222-223 (Tex. App.—Corpus Christi 2001, pet. denied) (“So long as a party provides proof of another court’s records, a court can take judicial notice of another court’s records.”). ECS’s amended complaint is attached as Exhibit A to this reply. EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page contending “[t]he same is not true of jury waiver provisions.” Resp. at 12. The Texas Supreme Court disagrees with ECS: “Statutes compel arbitration if an arbitration agreement exists … and more importantly, ‘Texas law has historically favored agreements to resolve such disputes by arbitration.’ We see no reason why there should be a different rule for contractual jury waivers.” Bank of Am., 278 S.W.3d at 346 (internal citations omitted; emphasis added). Accordingly, the arbitration cases indicating the non-signatory Defendants can enforce the jury waiver dispute resolution provisions here are entirely appropriate and compelling. b. ECS’s cases miss the mark. The cases upon which ECS relies are unpersuasive. The first case ECS emphasizes – In re Credit Suisse First Boston Mortgage Capital, LLC – is no longer good law in light of In re Bank of America. See Resp. at 9-10. In re Guggenheim Corp. Funding, LLC, which ECS cites, underscores this point: the non-movant “cites a 2008 decision from this court [Credit Suisse] refusing to enforce a contractual jury waiver against a non-signatory, stating that jury waivers ‘are strictly construed and will not be lightly inferred or extended.’ The Texas Supreme Court has since made it clear that jury waivers are not disfavored and they should be enforced just as other dispute resolution agreements.” 380 S.W.3d 879, 885 n.4 (Tex. App.—Houston [14th Dist.] 2012, no pet.) (citations to Credit Suisse and Bank of America omitted). Accordingly, the strict construction and presumption against enforcement in Credit Suisse is inapplicable. In re Wild Oats Markets, Inc. is distinguishable because of both the jury waiver’s text and the claims at issue. 286 S.W.3d 499 (Tex. App.—Beaumont 2009, no pet.) The jury waiver provision there did not employ the “arising out of or relating to” language commonly held to For example, the Texas Supreme Court has held that when a signatory to an arbitration agreement asserts “tortious interference claims [against] a signatory to an arbitration agreement and” nonsignatory “affiliates,” the nonsignatory affiliate defendants can enforce the arbitration clause against the signatory plaintiff. See In re Vesta Ins. Grp., Inc., 192 S.W.3d 759, 762 (Tex. 2006). EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page broaden a provision’s reach. Compare id. at 500 with RSR Corp. v. Siegmund, 309 S.W.ed 686, 701 (Tex. App.—Dallas 2010, no pet.) (discussing breadth of “arising out of or related to” language). Also, unlike here, the plaintiff’s single claim against the non-signatory was separate and unique from the breach of contract claim asserted against the counterparty – that is, the plaintiff did not assert identical tortious interference against related defendants but claimed different conduct created liability for the defendants. See id. ECS also suggests a Fort Worth appellate case backs its position. But the court in In re Go Colorado 2007 Revocable Trust, 319 S.W.3d 880, 883 (Tex. App.—Ft. Worth 2010, no pet.) focused on whether an entity could waive its right to a jury trial before it came into existence. Notably, that court expressly avoided an analysis of the substantive arguments made by the movant which “may or may not have merit” – the waiver applied because (i) a “close nexus” exists between the signatory and non-signatory; (ii) arbitration principles apply to jury waivers; and (iii) equity demands the waiver would apply. Id. at 883-884. Finally, ECS’s referenced federal cases about jury waivers are inapposite for the same reason Credit Suisse is: In re Bank of America. While federal law, which is applied to jury waivers in federal courts, favors arbitration clauses but disfavors contractual jury waivers, Texas law does not. Compare, e.g., Tracinda Corp. v. Daimlerchrysler Ag, 502 F.3d 212, 222-223 (3rd. 2007) (noting both “[f]ederal courts apply federal law in determining whether a contractual jury trial waiver is enforceable” and “the tension between the cases favoring arbitration clauses and those disfavoring jury waivers”) with Bank of Am., 278 S.W.3d at 346. Indeed, the Texas Supreme Court has held “[w]e see no reason why there should be a different rule for contractual jury waivers” than for arbitration clauses, which are favored under Texas law. Bank of Am., 278 S.W.3d at 346. EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page c. ECS should be equitably estopped from seeking a jury trial against the non-Dell Marketing Defendants in this case. Equitable estoppel applies “when the signatory to a written contract relies on the terms of the written agreement asserting its claims against the nonsignatory.” Chandler Mgmt. Corp. v. First Specialty Ins. Corp., Vericlaim, Inc., 452 S.W.3d 887, 891 (Tex. App.—Dallas 2014, no pet.). In the context of arbitration, the Texas Supreme Court has held that this principle applies when claims “depend on the existence of” a contract, such as when “damages cannot be calculated without reference to the” contract, and that “[w]hen a party’s right to recover and its damages depend on the agreement containing the arbitration provision, the party is relying on the agreement for its claims.” Meyer v. WMCO-GP, LLC, 211 S.W.3d 302, 306 (Tex. 2006). As addressed more fully in Defendants’ motion, ECS’s claims against the non-Dell Marketing Defendants depend on the existence of the Reseller Agreement. In agreeing that the jury waiver controls most of its claims, ECS concedes that numerous of its claims plead as torts relate to the Reseller Agreement. See Resp. at 1. Defendants also have indicated they are relying on the Reseller Agreement’s terms in defense. For example, Defendants will argue that Reseller Agreement Sections 3 (affording Dell Marketing the right to reject and to terminate any end user) and 7 (indicating Dell Marketing is not restricted from directly providing services as a result of the Reseller Agreement) establish that Defendants cannot tortiously interfere as ECS alleges and that, in any event, Section 10 limits the type and caps the amount of any damages ECS could hope to recover. ECS has pointed to nothing outside of the Reseller Agreement that would limit how any information during the period of the Reseller Agreement could be used, whether pricing information or customer information. See generally Fifth Am. Pet. & Resp. As set forth above, CTS’s involvement depends on the existence of the Reseller Agreement. EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page These examples are matters that depend on the existence of a contract and trigger equitable estoppel. ECS’s frequent invocation of “completely independent from and unrelated to the Reseller Agreement,” sprinkled throughout its Petition, is nothing more than ipse dixit that does not comport with ECS’s allegations and the legal issues. In light of these facts, all of ECS’s claims depend on the existence of the Reseller Agreement, meaning ECS should be equitably estopped from demanding a jury hear its claims. See Meyer, 211 S.W.3d at 306 (Tex. 2006). Accordingly, all Defendants can invoke ECS’s voluntary and knowing waiver of a jury trial “as to any and all issues arising out of or related to this Agreement.” Reseller Agreement § 12(b). And this Court should strike ECS’s jury demand as to all of its claims and causes of action asserted. EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page Dated: April 11, 2016. Respectfully submitted, /s/ Jared M. Slade ARREN L. ARTY State Bar No. 24007631 ARED M. LADE State Bar No. 24060618 ALSTON & BIRD LLP 2828 N. Harwood Street, Suite 1800 Dallas, Texas 75201 (214) 922-3400 – Telephone (214) 922-3899 – Facsimile darren.mccarty@alston.com jared.slade@alston.com ARL EERCKEN New York State Bar No. 2536662 Admitted Pro Hac Vice ALSTON & BIRD LLP 90 Park Avenue, 15th Floor New York, NY 10016 (212) 210-9471 – Telephone (212) 922-3931 – Facsimile karl.geercken@alston.com Attorneys for Defendants Dell Marketing LP, Dell, Inc., and Dell USA, L.P. CERTIFICATE OF SERVICE The undersigned hereby certifies that a true and correct copy of the foregoing was served in accordance with the Texas Rules of Civil Procedure on the following counsel of record on this 11th day of April, 2016: Hugh. G. Connor (hugh.connor@kellyhart.com) Michael D. Anderson (michael.anderson@kellyhart.com) Caleb B. Bulls (caleb.bulls@kellyhart.com) Kelly Hart & Hallman LLP 201 Main Street Suite 2500 Fort Worth, Texas 76102 /s/ Jared M. Slade ARED M. LADE TX State Bar No. 24060618 EFENDANTS EPLY IN UPPORT OF HEIR OTION TO UASH URY EMAND Page UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK xxxxxxxxxxx xxxxxxxxx, LLC, Civil Action No. 15-2671 Judge Analisa Torres Plaintiff, AMENDED COMPLAINT v. CTS HOLDINGS, INC. and CTS SYSTEMS, INC. Defendants. Plaintiff xxxxxxxxxxx xxxxxxxxx, LLC (“ECS”), by its attorneys, DAY ITNEY LLP, as and for its Amended Complaint against defendants CTS Holdings, Inc. (“CTS Holdings”) and CTS Systems, Inc. (“CTS Systems,” and together with CTS Holdings “CTS”), alleges as follows: NATURE OF THE ACTION This action arises out of a scheme perpetrated by ECS’s business partner CTS to mislead and defraud ECS, obtain proprietary information belonging to ECS, use that information to improperly solicit ECS’s clients, and ultimately drive ECS out of business. Through February 2015, ECS and CTS were business partners in providing commissions reconciliation services to travel agencies throughout the world. Notwithstanding this business relationship, CTS engaged in a widespread scheme to steal clients from ECS and drive ECS from the commissions reconciliation market. Specifically, CTS caused severe and pervasive service issues that impacted ECS and ECS’s clients, made false and misleading statements about ECS to ECS’s clients, and used information obtained from ECS to compete with ECS for clients while also operating as a subcontractor for ECS. A 91424730 4. Additionally, for approximately a year beginning in March 2014, CTS intentionally defrauded and misled ECS into negotiating the acquisition of CTS by ECS for the sole purpose of terminating the negotiations in the final hour in an attempt to put ECS at a commercial disadvantage and drive ECS from the market. 5. As a result of CTS’s conduct, ECS’s business operations have been disrupted and ECS’s business, reputation, and client relations have been harmed. In addition, ECS incurred significant financial losses stemming from CTS’s conduct and in an effort to replace the services provided by CTS. PARTIES 6. Plaintiff ECS is a limited liability company organized pursuant to the laws of the State of New York, with its principal place of business at 1350 Broadway, New York, New York, 10018. 7. Upon information and belief, defendant CTS Holdings is a corporation organized pursuant to the laws of the State of Delaware with its principal place of business in Alpharetta, Georgia. 8. Upon information and belief, defendant CTS Systems is a corporation organized pursuant to the laws of the State of Georgia with its principal place of business in Alpharetta, Georgia. 9. Upon information and belief, defendant CTS Holdings is the principal and alter ego of defendant CTS Systems and stands in the shoes of CTS Systems in its dealings with ECS. -2- 91424730 JURISDICTION AND VENUE This Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1331 and 1367 because ECS asserts a claim under the Lanham Act and the state law claims arise from the same common nucleus of operative facts as the claim under the Lanham Act. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1332 because the parties are located in different states and the amount in controversy exceeds $75,000.00. Venue is proper pursuant to 28 U.S.C. § 1391 because a substantial part of the events giving rise to the claims occurred in this District. FACTS COMMON TO ALL CAUSES OF ACTION A. The Business Relationship Between ECS and CTS. 13. ECS plays a vital role in the collection and reconciliation of commissions from hotels within the travel agency industry. Generally, whenever a consumer uses a travel agency to book reservations at a hotel, the hotel will pay the travel agency a commission. However, the travel agency is traditionally not made aware of whether the reservation was actually fulfilled. Without having such knowledge, the travel agency cannot discern whether or not it is owed a commission. ECS was formed to address the travel agencies’ needs. Specifically, ECS streamlined a process wherein it would identify and collect outstanding commissions that were owed to travel agencies. In order to accomplish that objective, ECS developed an integrated process that achieved maximum commission recovery for its clients. Specifically, in conjunction with its business partners, ECS: (i) consolidates data from hosts of different sources, including the Global Distribution System (“GDS”) for automated transactions, travel agency accounting systems, payment consolidators, and hotels; (ii) determines for which transactions the travel -3- 91424730 agencies have received commission payments; (iii) makes dunning inquiries to hotels for transactions for which the travel agencies have not received commission payments; and (iv) provides a complete reconciliation to the client based on the responses to the inquiries so that the client has a complete understanding of the hotel volume. It is through this four-step process that ECS runs its business. As part of its ongoing business operations, ECS (through its predecessor CNG USA, Inc.) and Dell Marketing, LP (“Dell”) (through its predecessor Perot Systems, Inc.) executed a “Reseller Agreement” on March 11, 2005. Pursuant to the terms of the Reseller Agreement as amended and through a course of conduct, Dell provided certain services to assist ECS in delivering reconciliation and commissions recovery services to its clients. Pursuant to a subcontractor agreement with Dell, of which ECS is a third-party beneficiary, CTS provided dunning and invoicing services on behalf of ECS’s clients to support ECS’s commissions reconciliation services (the “Subcontract”). CTS also operated a software platform to complement ECS’s services. For many of the services provided by CTS for the benefit of ECS, ECS directly compensated CTS. Specifically, ECS directly compensated CTS for World Payment Services (“WPS”) dunning and for CTS’s services provided for ECS’s clients, including but not limited to rental car transactions by Atlas Travel and Travel Leaders and all transactions for American Express Platinum Cruise. With respect to other services provided by CTS, ECS paid Dell, and Dell compensated CTS pursuant to the Subcontract. -4- 91424730 B. Service Issues Caused By CTS. 20. Beginning in or around 2011, ECS began to experience a substantial spike in service issues originating with the services provided by CTS for the benefit of ECS, including the following non-exhaustive list: a. CTS’s practices caused numerous invoicing issues for ECS, including late delivery of invoices to ECS’s clients due to CTS’s delays, and inconsistencies in invoices caused by CTS’s system failures; b. The transaction totals provided by CTS failed to match the transactions for which ECS and ECS’s clients were invoiced; c. CTS failed to timely provide reconciled transaction files for ECS clients, which prevented ECS from invoicing its clients on a timely basis; d. CTS repeatedly overbilled ECS for transactions that CTS did not perform; e. Several ECS clients have challenged ECS invoice transaction totals due to processing irregularities caused by CTS; f. Corrupted files on CTS’s system, caused by a CTS update to the system, resulted in an ECS client missing over $300,000 in transaction totals such that the commissions on those transactions could not be recovered in a timely manner; g. CTS had consistent data integrity issues, including repeated and extended platform outages that prevented ECS from completing the commissions reconciliation process in a timely fashion; h. On numerous occasions from September 2013 through the ultimate termination of CTS’s services, ECS’s clients experienced substantial and -5- 91424730 pervasive service interruptions on the platform provided by CTS, including full system outages, inability to log on to the platform, system crashes, and unreliable service; and i. CTS failed to have contingency plans in place, such that when events such as an ice storm in Atlanta impacted the CTS platform, CTS was unable to resolve the system outage in a timely fashion. Despite repeated requests from ECS to CTS, CTS failed to inform ECS on the occasions when the CTS platform caused service issues that impacted ECS’s clients. As a result, ECS often learned about CTS service issues from ECS’s clients instead of CTS. As a result of CTS’s service issues, ECS’s clients were unable to meet financial reporting deadlines and were unable to timely make commissions payments to their travel agents. CTS’s service issues caused significant client relations issues for ECS, including the ultimate loss of at least one major client. As a result of CTS’s pervasive service issues, ECS alone had to make financial concessions to some of its clients. CTS’s service issues were highlighted in an audit of ECS conducted in February 2015 by one of ECS’s largest clients, Carson Wagonlit Travel (“CWT”). In 2014, CWT experienced significant issues with the reconciliation process for commissions caused by deficiencies in CTS’s services. As a result of this disruption, CWT demanded an audit of the reconciliation process. In furtherance of the audit, ECS and CWT requested specific invoice and dunning information from CTS. -6- 91424730 CTS failed to provide any information in response to the requests from ECS or CWT in time for the audit conducted in February 2015. As a result of CTS’s failure to comply, CWT was unable to complete its audit of ECS and provided ECS with a notice of breach. Despite being informed of the notice of breach and ECS’s intent to hold CTS responsible for resulting damages, CTS has refused to comply with the demands for information to date. C. CTS Misrepresented Its Data Security to ECS. Throughout the course of the parties’ approximately eight-year relationship, ECS constantly looked for new opportunities to sign additional clients. Many of ECS’s clients and prospective clients, including BCD Travel (“BCD”), CWT, and American Express (“Amex”), required ECS to confirm that it and its business partners complied with certain data security and storage minimum requirements. In or around July 2010, when ECS sought to obtain CWT as a client, CWT required assurances from ECS that ECS and its business partners would store all servers containing CWT data in a secure location protected against catastrophes. In furtherance of this requirement, Paul Hoffmann (“Hoffmann”), the President and CEO of ECS, contacted Mark Lewington (“Lewington”), the CEO of CTS, to inquire regarding CTS’s data security and storage measures. Lewington assured Hoffmann that CTS stored its servers at “Peak 10,” a secure data facility protected against catastrophes. On numerous occasions since July 2010, and in conjunction with ECS obtaining new clients, Lewington made identical representations to Hoffmann regarding CTS’s data security and storage measures, including but not limited to: (a) in or around November 2011 in -7- 91424730 connection with ECS securing BCD as a client; and (b) in or around October 2010 and November 2013 in connection with ECS securing additional business from Amex. In reliance on the statements by Lewington, Hoffmann assured ECS’s clients that ECS and its partners stored client data in a secure facility. In or around February 2014, ECS discovered that the statements by Lewington regarding CTS’s data storage and security measures were false. On or about February 27, 2014, there was a fire at CTS’s headquarters in Atlanta, which entirely destroyed the headquarters. As a result of the fire, ECS learned that: (a) CTS did not have a disaster recovery plan in place; and (b) CTS’s servers containing data for many of ECS’s clients were stored at the CTS headquarters, not in a secure data facility as previously represented by Lewington. As a result of the fire, approximately 12 servers containing ECS client data, including data of BCD, CWT, and Amex, were damaged, and for at least three days, CTS was unable to provide ECS with any information regarding the extent of the damage to the servers. Ultimately, CTS was able to recover some, but not all, of the data stored on those servers. Lewington, while standing outside the CTS headquarters as the fire destroyed the building, called Hoffmann in tears and admitted that he had lied about CTS’s data storage and security measures and repeatedly apologized for destroying ECS’s business that CTS serviced because the servers housing ECS’s clients’ data remained on the CTS premises. CTS’s failure to have a disaster recovery plan in place and to maintain its servers in a secure facility cause a prolonged service interruption, which adversely impacted ECS’s ability to complete the commissions reconciliation process and invoice its clients. -8- 91424730 D. CTS’s Misuse of ECS’s Proprietary Information During the Relationship. Over the course of the eight-year relationship between ECS and CTS, CTS had access to significant proprietary information of ECS, including ECS’s client lists, ECS’s business and pricing models, and ECS’s client volume data (“ECS Proprietary Information”). On numerous occasions while CTS provided services to ECS for the benefit of ECS’s clients, CTS misused its inside knowledge of the ECS Proprietary Information to directly compete against ECS for clients. Specifically, CTS used its knowledge of ECS’s client base and ECS’s pricing model to undercut ECS’s prices and provide predatory bids to ECS’s clients to steal the clients from ECS. On one such occasion, in or around December 2014, CTS attempted to steal Travel Leaders, an ECS client, from ECS. To do so, CTS used its knowledge of ECS’s pricing structure to undercut ECS’s contract with Travel Leaders. CTS obtained this competitive advantage through the misuse of the ECS Proprietary Information. Compounding its deceit, CTS affirmatively told ECS that CTS did not make a direct bid to Travel Leaders. However, ECS was informed by Travel Leaders that it had received a bid from CTS. CTS repeatedly misused ECS’s Proprietary Information in a similar manner to attempt to steal additional clients from ECS, including but not limited to Balboa Travel, Tzell (including numerous associated branches), and Direct Travel. In some cases, CTS succeeded, which resulted in significant harm to ECS. -9- 91424730 E. Negotiations with CTS and Dell to Address Issues with CTS In response to CTS’s repeated service issues and CTS’s misuse of the ECS Proprietary Information to compete with ECS, in or around October 2013, ECS, Dell, and CTS began to negotiate an amendment to the Reseller Agreement to better reflect the actual relationship between the parties. After the fire at the CTS headquarters in February 2014, ECS determined that it could no longer rely on CTS, and ECS changed its negotiating tactics. Instead of negotiating an amendment to the Reseller Agreement to address CTS’s deficiencies, ECS proposed the acquisition of CTS by ECS. The acquisition would permit ECS to upgrade the CTS platform to address the service issues and prevent misuse of the ECS Proprietary Information. Dell and CTS supported this proposal, and beginning in or around March 2014, the negotiations focused on the acquisition of CTS by ECS. Through numerous telephone calls, e-mails, and in-person meetings through December 2014, ECS and CTS, with input from Dell, discussed the acquisition of CTS, including terms of the acquisition and valuation methods. CTS and ECS also signed a nondisclosure agreement and shared documents relevant to the acquisition. While these negotiations were ongoing, Dell encouraged ECS to acquire CTS and assured ECS that Dell would negotiate an amendment to the Reseller Agreement or a new agreement to better reflect the actual relationship between the parties. Throughout the course of the negotiations, the parties all continually expressed a commitment to a long-term working relationship to better serve the travel agency clients. -10- 91424730 F. The Letters of Intent. 53. On or about October 8, 2014, ECS delivered the first formal Letter of Intent to CTS for the acquisition of CTS, which CTS ultimately declined. ECS and CTS, with the support and input of Dell, continued to negotiate the terms of a formal Letter of Intent, and on or about December 10, 2014, ECS submitted a second Letter of Intent to CTS reflecting the renegotiated terms. Throughout the course of numerous telephone calls and e-mails in January 2015, CTS reaffirmed its commitment to the acquisition and CTS and ECS continued to discuss the second Letter of Intent. After final negotiations, on or about January 19, 2015, ECS provided CTS with executable copies of the final Letter of Intent reflecting the terms verbally agreed upon by ECS and CTS. On or about January 27, 2015, ECS contacted CTS to determine the status of the executable Letter of Intent. In a shocking reversal of its position and after refusing to address the status of the Letter of Intent, CTS informed ECS that CTS was no longer willing to proceed with the final Letter of Intent or the acquisition. On or about January 28, 2015, when ECS communicated CTS’s bad faith rejection of the agreed-upon Letter of Intent to Dell, Dell reaffirmed its commitment to amending the Reseller Agreement or preparing a new agreement with ECS. However, shortly thereafter, on or about February 5, 2015, Dell terminated its Reseller Agreement negotiations with ECS and notified ECS that Dell would not renew the Reseller Agreement, which purportedly expired on March 10, 2015. -11- 91424730 Dell’s non-renewal of the Reseller Agreement was completely contrary to Dell’s repeated commitments to a long-term relationship between Dell and ECS. Upon information and belief, CTS’s negotiations with ECS were in bad faith and the false and misleading statements by CTS regarding the acquisition were in furtherance of a scheme with Dell to steal ECS’s clients, drive ECS out of the market, and prevent ECS from deve