TA Operating LLC v. Comdata, Inc.
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Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
TA OPERATING LLC, ) ) Plaintiff, Counterclaim-Defendant, ) ) v. ) C.A. No. 12954-CB ) COMDATA, INC., and FLEETCOR ) TECHNOLOGIES, INC., ) ) Defendants, Counterclaimants. )
MEMORANDUM OPINION
Date Submitted: June 16, 2017 Date Decided: September 11, 2017
Robert S. Saunders, Joseph O. Larkin, and Jessica R. Kunz, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; Jane E. Willis, Matthew L. McGinnis, and C. Thomas Brown, ROPES & GRAY LLP, Boston, Massachusetts; Attorneys for Plaintiff.
David E. Ross, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; Evan R. Chesler, Kevin J. Orsini, CRAVATH, SWAINE & MOORE LLP, New York, New York; Attorneys for Defendants.
BOUCHARD, C. This post-trial decision resolves a contractual dispute between TA Operating
LLC and Comdata, Inc., which have been business partners for more than two
decades. TA is one of the three largest operators of travel centers in the United
States, specializing in providing fuel and other amenities to professional truck
drivers along America’s highways. Comdata is one of the largest fuel card providers
to the trucking industry.
In early 2011, in response to competitive pressures, Comdata wanted to
implement a cardless fueling solution, which was touted as a way to combat
fraudulent fuel transactions. Comdata adopted as its solution a radio frequency
identification (“RFID”) technology known as SmartQ and, in the fall of 2011,
approached TA with a proposal for TA to implement SmartQ at its travel centers.
The discussions quickly led to simultaneous negotiations of a new RFID agreement
to implement SmartQ and, at TA’s request, an amendment to the then-governing
merchant agreement between TA and Comdata, which sets the prices TA must pay
Comdata for the fueling transactions it processes.
A new RFID agreement and the amendment were signed together in
December 2011. The amendment extended the term of the merchant agreement for
another six years, replacing the original expiration date of January 2, 2016 with a
new expiration date of January 2, 2022, and reduced the transaction fees Comdata
was entitled to charge TA. The amendment expressly referred to the RFID
1 agreement as part of the consideration for the amendment. The RFID agreement did
not include a specific deadline for implementing SmartQ or indicate that time was
of the essence for its implementation. Instead, it provided that TA and Comdata
would “reasonably cooperate” to complete the integration of the RFID system with
TA’s point of sale system “as soon as reasonably practical.”
The parties performed under the RFID agreement and the merchant
agreement, as amended, for almost five years, during which TA encountered a
number of difficulties implementing SmartQ. In particular, TA ran into problems
integrating the SmartQ technology with its point of sale system, which TA decided
to replace when its point of sale system became unstable. During this five-year
period, Comdata never suggested to TA that it had failed to comply with its
obligations under the merchant agreement or the RFID agreement. That changed in
2016, after FleetCor Technologies, Inc. had acquired Comdata and installed a new
CEO at Comdata, who was intent on raising the revenues Comdata derived from its
three largest travel center customers.
On September 7, 2016, as part of the new CEO’s revenue-enhancement
strategy, Comdata sent TA a notice of default, asserting (1) that TA had breached
the RFID agreement by failing to install SmartQ at all of its travel centers, (2) that
TA’s agreement to purchase and install the RFID technology was the consideration
for Comdata to enter into the amendment to the merchant agreement in 2011, and
2 thus (3) that Comdata would terminate the merchant agreement amendment unless
TA cured the alleged default within thirty days. On October 13, 2016, the last day
of the cure period, TA reported to Comdata that it had successfully installed SmartQ
at approximately 90% of its travel centers and thus had substantially performed its
obligations under the RFID agreement. Comdata disagreed and notified TA a few
weeks later that it had failed to cure its breach of the RFID agreement, and thus that
the merchant agreement, as amended, was terminated immediately. Contending it
no longer was contractually limited in the fees it could charge TA, Comdata began
charging TA significantly higher transaction fees effective February 1, 2017.
Soon after receiving the notice of default, TA filed this action asserting,
among other claims, that Comdata breached the merchant agreement, as amended.
For the reasons explained below, I conclude based on the weight of the evidence
adduced at trial, (1) that the RFID agreement was partial consideration for Comdata
to enter into the amendment, (2) that TA did not materially breach its obligation in
the RFID agreement to reasonably cooperate to complete the integration of SmartQ
with TA’s point of sale system as soon as reasonably practical, and, in any event, (3)
that Comdata’s own material breach of the RFID agreement excused any purported
failure of TA to cure an alleged breach of the RFID agreement. Thus, under
Tennessee law, which governs the claims in this case, Comdata was not entitled to
terminate the merchant agreement, as amended.
3 The net result of this decision is that TA is entitled to, among other things, an
order requiring Comdata to specifically perform under the merchant agreement, as
amended, as well as damages against Comdata for the difference between the
transaction fees TA has paid to Comdata since February 1, 2017 and what it would
have paid during this period under the fee structure in the amendment to the
merchant agreement.
I. BACKGROUND
The facts recited in this opinion are my findings based on the testimony and
documentary evidence of record from a four-day trial held in April 2017 during
which six fact witnesses and one expert witness testified. I accord the evidence the
weight and credibility I find it deserves.
A. The Parties
Plaintiff TA Operating LLC (“TA”) is a Delaware limited liability company
with its principal place of business in Westlake, Ohio.1 TA operates a nationwide
network of 225 full-service travel centers that are primarily located along the
interstate highway system. These centers offer a broad range of fuel and nonfuel
products and services, such as diesel fuel, gasoline, truck repair and maintenance,
sit-down restaurants, convenience stores, showers, and other amenities.2 TA’s two
1 Pre-Trial Order (“PTO”) ¶ 10. 2 PTO ¶ 38.
4 major competitors are Pilot Travel Centers LLC (“Pilot”) and Love’s Travel Stops
& Country Stores, Inc. (“Love’s”),3 which, together with TA, are the three largest
travel center operators in the United States.4 Tom O’Brien was the Chief Executive
Officer of TA during all times relevant to the issues in this case.5
Defendant Comdata, Inc. (“Comdata”) is a Delaware corporation with its
principal place of business in Brentwood, Tennessee.6 Comdata provides payment
methods for a number of industries, and currently is a leading provider of fuel cards
to the trucking industry.7 Fuel cards function like charge cards and allow truckers
to purchase fuel, lodging, food, and related products and services at participating
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
TA OPERATING LLC, ) ) Plaintiff, Counterclaim-Defendant, ) ) v. ) C.A. No. 12954-CB ) COMDATA, INC., and FLEETCOR ) TECHNOLOGIES, INC., ) ) Defendants, Counterclaimants. )
MEMORANDUM OPINION
Date Submitted: June 16, 2017 Date Decided: September 11, 2017
Robert S. Saunders, Joseph O. Larkin, and Jessica R. Kunz, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; Jane E. Willis, Matthew L. McGinnis, and C. Thomas Brown, ROPES & GRAY LLP, Boston, Massachusetts; Attorneys for Plaintiff.
David E. Ross, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; Evan R. Chesler, Kevin J. Orsini, CRAVATH, SWAINE & MOORE LLP, New York, New York; Attorneys for Defendants.
BOUCHARD, C. This post-trial decision resolves a contractual dispute between TA Operating
LLC and Comdata, Inc., which have been business partners for more than two
decades. TA is one of the three largest operators of travel centers in the United
States, specializing in providing fuel and other amenities to professional truck
drivers along America’s highways. Comdata is one of the largest fuel card providers
to the trucking industry.
In early 2011, in response to competitive pressures, Comdata wanted to
implement a cardless fueling solution, which was touted as a way to combat
fraudulent fuel transactions. Comdata adopted as its solution a radio frequency
identification (“RFID”) technology known as SmartQ and, in the fall of 2011,
approached TA with a proposal for TA to implement SmartQ at its travel centers.
The discussions quickly led to simultaneous negotiations of a new RFID agreement
to implement SmartQ and, at TA’s request, an amendment to the then-governing
merchant agreement between TA and Comdata, which sets the prices TA must pay
Comdata for the fueling transactions it processes.
A new RFID agreement and the amendment were signed together in
December 2011. The amendment extended the term of the merchant agreement for
another six years, replacing the original expiration date of January 2, 2016 with a
new expiration date of January 2, 2022, and reduced the transaction fees Comdata
was entitled to charge TA. The amendment expressly referred to the RFID
1 agreement as part of the consideration for the amendment. The RFID agreement did
not include a specific deadline for implementing SmartQ or indicate that time was
of the essence for its implementation. Instead, it provided that TA and Comdata
would “reasonably cooperate” to complete the integration of the RFID system with
TA’s point of sale system “as soon as reasonably practical.”
The parties performed under the RFID agreement and the merchant
agreement, as amended, for almost five years, during which TA encountered a
number of difficulties implementing SmartQ. In particular, TA ran into problems
integrating the SmartQ technology with its point of sale system, which TA decided
to replace when its point of sale system became unstable. During this five-year
period, Comdata never suggested to TA that it had failed to comply with its
obligations under the merchant agreement or the RFID agreement. That changed in
2016, after FleetCor Technologies, Inc. had acquired Comdata and installed a new
CEO at Comdata, who was intent on raising the revenues Comdata derived from its
three largest travel center customers.
On September 7, 2016, as part of the new CEO’s revenue-enhancement
strategy, Comdata sent TA a notice of default, asserting (1) that TA had breached
the RFID agreement by failing to install SmartQ at all of its travel centers, (2) that
TA’s agreement to purchase and install the RFID technology was the consideration
for Comdata to enter into the amendment to the merchant agreement in 2011, and
2 thus (3) that Comdata would terminate the merchant agreement amendment unless
TA cured the alleged default within thirty days. On October 13, 2016, the last day
of the cure period, TA reported to Comdata that it had successfully installed SmartQ
at approximately 90% of its travel centers and thus had substantially performed its
obligations under the RFID agreement. Comdata disagreed and notified TA a few
weeks later that it had failed to cure its breach of the RFID agreement, and thus that
the merchant agreement, as amended, was terminated immediately. Contending it
no longer was contractually limited in the fees it could charge TA, Comdata began
charging TA significantly higher transaction fees effective February 1, 2017.
Soon after receiving the notice of default, TA filed this action asserting,
among other claims, that Comdata breached the merchant agreement, as amended.
For the reasons explained below, I conclude based on the weight of the evidence
adduced at trial, (1) that the RFID agreement was partial consideration for Comdata
to enter into the amendment, (2) that TA did not materially breach its obligation in
the RFID agreement to reasonably cooperate to complete the integration of SmartQ
with TA’s point of sale system as soon as reasonably practical, and, in any event, (3)
that Comdata’s own material breach of the RFID agreement excused any purported
failure of TA to cure an alleged breach of the RFID agreement. Thus, under
Tennessee law, which governs the claims in this case, Comdata was not entitled to
terminate the merchant agreement, as amended.
3 The net result of this decision is that TA is entitled to, among other things, an
order requiring Comdata to specifically perform under the merchant agreement, as
amended, as well as damages against Comdata for the difference between the
transaction fees TA has paid to Comdata since February 1, 2017 and what it would
have paid during this period under the fee structure in the amendment to the
merchant agreement.
I. BACKGROUND
The facts recited in this opinion are my findings based on the testimony and
documentary evidence of record from a four-day trial held in April 2017 during
which six fact witnesses and one expert witness testified. I accord the evidence the
weight and credibility I find it deserves.
A. The Parties
Plaintiff TA Operating LLC (“TA”) is a Delaware limited liability company
with its principal place of business in Westlake, Ohio.1 TA operates a nationwide
network of 225 full-service travel centers that are primarily located along the
interstate highway system. These centers offer a broad range of fuel and nonfuel
products and services, such as diesel fuel, gasoline, truck repair and maintenance,
sit-down restaurants, convenience stores, showers, and other amenities.2 TA’s two
1 Pre-Trial Order (“PTO”) ¶ 10. 2 PTO ¶ 38.
4 major competitors are Pilot Travel Centers LLC (“Pilot”) and Love’s Travel Stops
& Country Stores, Inc. (“Love’s”),3 which, together with TA, are the three largest
travel center operators in the United States.4 Tom O’Brien was the Chief Executive
Officer of TA during all times relevant to the issues in this case.5
Defendant Comdata, Inc. (“Comdata”) is a Delaware corporation with its
principal place of business in Brentwood, Tennessee.6 Comdata provides payment
methods for a number of industries, and currently is a leading provider of fuel cards
to the trucking industry.7 Fuel cards function like charge cards and allow truckers
to purchase fuel, lodging, food, and related products and services at participating
travel centers. They also allow trucking companies to access data that helps the
trucking companies control and monitor their fleet operations.8
Defendant FleetCor Technologies, Inc. (“FleetCor”) is a Delaware
corporation headquartered in Norcross, Georgia. Its stock is publicly traded on the
New York Stock Exchange under the ticker symbol “FLT.” FleetCor and its
subsidiaries provide credit and debit payment services to third parties, including
3 Tr. 8-9 (O’Brien). 4 PTO ¶ 39. 5 PTO ¶ 20. 6 PTO ¶ 11. 7 PTO ¶¶ 40, 42. 8 PTO ¶¶ 40-41.
5 truckers, trucking companies, and merchants that sell goods and services to truckers
and trucking companies.9
On November 14, 2014, FleetCor acquired Comdata. Since the acquisition,
Comdata has been a wholly owned subsidiary of FleetCor. 10 During the period
relevant to this case, Comdata has had four different presidents. Steve Stevenson
was the President of Comdata from February 2011 to December 2013,11 when he
was succeeded by Stuart Harvey. 12 After FleetCor’s acquisition of Comdata in
November 2014, Randy Morgan replaced Harvey as the President of North
American Trucking.13 In July 2015, Gregory Secord replaced Morgan as President
of Comdata and President of North American Trucking at FleetCor.14
B. TA and Comdata Negotiate the 2010 Merchant Agreement
The business relationship between TA and Comdata spans more than two
decades and involves a succession of merchant agreements. 15 These merchant
agreements require TA to accept Comdata fuel cards and Comdata to process, and
9 PTO ¶ 13. 10 PTO ¶ 12. 11 PTO ¶ 27. 12 Tr. 504 (Morgan). 13 PTO ¶ 19; Tr. 503-04 (Morgan). 14 PTO ¶ 25. 15 PTO ¶ 43; Tr. 11-12 (O’Brien).
6 sometimes fund, transactions made at TA locations in exchange for transaction
fees.16 Comdata is TA’s largest single processor of transactions, processing more
than 40% or roughly $2 billion of TA’s diesel fuel transactions in 2016.17
In early 2010, with the then-operative merchant agreement set to expire,
Comdata and TA began negotiating a new agreement.18 Before 2010, TA paid a flat
transaction fee to Comdata.19 During the 2010 negotiations, Comdata proposed that
TA pay a percentage fee based on the dollar value of each transaction, subject to a
cap, for certain categories of transactions. 20 Comdata’s proposal roughly would
have tripled TA’s cost of acceptance on those transactions.21
On December 15, 2010, after almost one year of “tough” negotiations,22 TA
and Comdata executed a new merchant agreement (the “Merchant Agreement”).23
The Merchant Agreement reflects that TA was able to significantly limit the price
increase that Comdata had proposed and to retain an option to pay a flat fee for each
16 Tr. 11-13 (O’Brien). 17 Tr. 10, 207 (O’Brien). 18 JX0007; Tr. 12 (O’Brien). 19 Tr. 136 (O’Brien); JX0009 at 4. 20 Tr. 136-37 (O’Brien); JX0009 at 4. 21 Tr. 137-38 (O’Brien); JX0009 at 1. 22 Tr. 12 (O’Brien). 23 PTO ¶¶ 1, 44; see JX0001.
7 transaction—an option TA always utilized.24 The Merchant Agreement had a five-
year term and could be terminated only for an uncured material breach:
This Agreement shall remain in effect for a period beginning on the Effective Date and expiring on January 2, 2016. . . . Notwithstanding the term of this Agreement, in the event either party defaults in the performance of any material obligations, covenants, or conditions contained in this Agreement, and does not cure such default within thirty (30) days following receipt by such party of written notice describing such default from the other party to this Agreement, . . . the other party shall have the right, in its sole discretion, to terminate this Agreement immediately.25
C. Cardless Technology Emerges
Sometime between 2010 and 2011, Comdata learned that a fuel card
competitor, Electronic Funds Source LLC (“EFS”), was partnering with Pilot—the
largest truck stop chain at the time26—and a company called Zonar Systems, Inc.
(“Zonar”) to develop a cardless fueling technology for use by truckers and truck
stops.27 Zonar’s system, known as “Z-Con,” was marketed as a way for fleets to
combat fraudulent fuel transactions and reduce expenses, and caused an “uproar” in
the market at a time when fuel costs were at “an all-time high.”28
24 JX0001 at 8-9; Tr. 140-42 (O’Brien). 25 JX0001 § 8. 26 Tr. 451 (Morgan); Tr. 253 (Stevenson). 27 Tr. 234 (Stevenson); Tr. 448 (Morgan); PTO ¶ 35. 28 Tr. 448-49 (Morgan); Tr. 250-51 (Stevenson).
8 The announcement of Z-Con sparked a sense of urgency in Comdata as its
customers began to ask what Comdata was doing to combat fraudulent fuel
transactions.29 Comdata was concerned that it would lose market share if it did not
develop its own competing solution because fleets typically do not carry more than
one payment card.30
After conducting some research, Comdata decided to develop a competing
product using radio frequency identification (as defined above, “RFID”) technology
developed by a company called QuikQ, LLC and its affiliate QuikFIM LLC
(together, “QuikQ”). 31 QuikQ’s RFID software is known both as “Fuel Island
Manager” (or “FIM”) and as “SmartQ.”32 I use these terms interchangeably in this
opinion.
In basic terms, an RFID system consists of an RFID tag, a corresponding
RFID reader, and control and application software.33 Similar to the Zonar system,
the primary goal of the RFID system is to reduce fraud in fuel transactions by
ensuring that only the truck with a unique RFID tag, which is associated with a
29 Tr. 448-49 (Morgan); Tr. 18 (O’Brien). 30 Tr. 262-64 (Stevenson); Tr. 449-50 (Morgan); Tr. 125-26 (O’Brien). 31 Tr. 450-51 (Morgan); Tr. 254-55 (Stevenson). 32 JX0027 at 1; PTO ¶ 29; Tr. 25 (O’Brien). 33 PTO ¶ 46.
9 unique fuel card number, receives the fuel being purchased.34 The RFID system,
however, does not allow truck drivers to purchase anything other than fuel.35
On August 24, 2011, Comdata entered into an agreement with QuikQ to
become the “limited exclusive reseller” of QuikQ’s RFID technology. 36 The
agreement had an initial term of five years, and would automatically renew for
successive terms of one year each unless either party provided the other party with
written notice of its intention not to renew.37 Section 5 of the agreement provides
that Comdata and QuikFIM shall each work to integrate the RFID technology with
“(i) Comdata’s current SmartDesq POS system . . . and (ii) the Fiscal and Retalix
POS systems, all with the goal to provide Comdata customers a cardless fueling
solution.”38
“POS system” refers to the “point of sale” system used by Comdata’s
merchants, such as TA.39 The core functionality of a POS system is to authorize and
record all electronic transactions.40 The RFID software is an add-on feature that
34 Tr. 255 (Stevenson). 35 PTO ¶ 50. 36 PTO ¶ 51; JX0027. 37 JX0027 at 13-14. 38 JX0027 at 5. 39 Tr. 22 (O’Brien). 40 Tr. 424-25 (Rowe); Tr. 720-22 (Secord).
10 cannot operate without a functioning POS system.41 Fiscal System, Inc. (“Fiscal”)
and Retalix Ltd. were two major providers of POS systems,42 and Comdata had its
own POS system called SmartDesq.43 Evidence at trial suggests that Comdata did
not perform proper due diligence on QuikQ’s RFID system before signing its
agreement with QuikQ.44
Also in August 2011, Love’s announced that it would roll out QuikQ’s RFID
technology at all of its locations nationwide.45 Love’s negotiated its contract directly
with QuikQ, rather than through Comdata.46
41 Tr. 425 (Rowe); Tr. 722 (Secord). 42 PTO ¶¶ 32-33. 43 Tr. 244 (Stevenson); 720-21(Secord). 44 Tr. 540-41 (Morgan); JX0221 (email from Ken Patton, Comdata’s then-Vice President of Merchant Solutions Sales, to Randy Morgan, Comdata’s then-Executive Vice Present, dated Oct. 10, 2012) at 1 (“as the year progressed, it became very apparent the proper due diligence on [SmartQ] was not done on the front end. The requirements to install this system, derived by QuikQ, were based on just a couple site reviews. This small sample size has been a major problem.”). 45 JX0029. 46 Tr. 273 (Stevenson); Tr. 569-70 (Morgan); see also JX0027 at 3.
11 D. TA and Comdata Negotiate the RFID Agreement and the Merchant Agreement Amendment
1. Comdata Approaches TA Regarding RFID Technology
Around late 2010, QuikQ approached TA to discuss its RFID technology, but
nothing materialized between the two companies. 47 In September 2011, Steve
Stevenson, then-President of Comdata, reached out to Tom O’Brien, Chief
Executive Officer of TA, to discuss initiatives on which TA and Comdata might
work together. 48 One proposed initiative was to implement a “POS solution,
including cardless options.”49 As Stevenson testified:
Pilot being the largest merchant out there . . . They had already gone down the path of installing the Zonar solution, which would not work with a Comdata card. It only worked with the EFS card . . . And so our whole strategy, Comdata’s whole strategy, was, if we could secure Love’s and TA, Number 2 and 3 in the industry, we could have a nice nationwide network to go out and sell to our fleets a pretty good story.50
O’Brien recognized that TA was “potentially an important piece” to
Comdata’s cardless strategy,51 and that Comdata was “anxious” to sign an RFID deal
47 See, e.g., JX0015; JX0018; JX0021; Tr. 302 (Rowe). 48 JX0034. 49 JX0034 at 1. 50 Tr. 272-73 (Stevenson). 51 Tr. 127-28 (O’Brien).
12 with TA to stay competitive.52 O’Brien, however, had reservations about the RFID
technology and “wasn’t anxious at all” “about getting RFID up and running.”53
In an internal memorandum dated September 13, 2011, O’Brien wrote to TA’s
Chief Financial Officer Andy Rebholz and Chief Information Officer Michael Rowe
outlining his goals for an upcoming meeting with Comdata about QuikQ:
I may or may not be in the meeting with QuikQ tomorrow. Here’s what the meeting goals should be:
1. A proposal from Comdata to outfit the entire network with the equipment, including cost.
It is important that they be made to appreciate the fact that [Zonar] is also very interested in install and may be offering equipment at a lower price, possibly zero.
2. Find out what, if anything, they have done to address the interface with Fiscal and if they are planning to propose to fund this cost.
...
The general tone should be that the process will take time. We need time to test the product and to compare proposals and competing product (Zonar).54
Around the same time TA was engaging in discussions with Comdata over the RFID
technology, TA also solicited proposals from Zonar.55
52 Tr. 126, 130 (O’Brien). 53 Tr. 131-32 (O’Brien). 54 JX0032; see also Tr. 18-19, 129-30(O’Brien). 55 JX0035; JX0037; JX0051; Tr. 18 (O’Brien).
13 On November 10, 2011, as a follow-up to an in-person meeting, Stevenson
emailed O’Brien a formal proposal “related to Comdata’s card-less and POS
solutions.” 56 The proposal had three key terms concerning Comdata’s cardless
solution, i.e., the RFID technology. First, Comdata offered to front
all capital required for the hardware and software installation necessary to bring TA merchant locations into a production mode for the card- less payment solution—an outlay that Comdata estimates to be between $3.0 and $4.0 million in aggregate. TA would be responsible for the installation of the hardware at its locations.57
Second, in order for Comdata to recoup the above-mentioned capital outlay,
Comdata proposed to retain $0.05 per transaction (or $0.06 per transaction if TA
used Comdata’s cardless solution in a non-exclusive manner) on all TA transactions
processed through Comdata (cardless or otherwise) for a six-year period.58
Third, recognizing that its “relationship with TA [was] very strategic in the
market place and in the transformation to a card-less environment” and to “incent
TA to be an early adopter,” Comdata proposed that if “TA agrees by December 31,
2011, for Comdata to be its exclusive provider of card-less solutions,” Comdata
would pay TA “20% of net proceeds (revenue less direct out-of pocket costs) of all
hardware and software installations for the card-less solutions” during the first two
56 JX0049 at 1; Tr. 151-52 (O’Brien). 57 JX0049 at 2. 58 JX0049 at 2.
14 years after execution of the proposal and 10% during the third year, “a revenue
stream Comdata estimates to be between $0.7 million and $1.0 million over the full
three year period.”59
Stevenson also informed O’Brien that “Quik-Q today is only fully interfaced
with Retalix” and “is currently being integrated to Comdata’s POS solution,”
SmartDesq, which integration “is planned to be completed in early 2012.” 60
Stevenson knew that TA used a different POS system developed by Fiscal called
TravStar1.61 Thus Stevenson proposed that, should TA choose to install Comdata’s
SmartDesq POS system, “Comdata would absorb 50% of TA’s one-time license
fees,” estimated at approximately $1.2 to $1.5 million, and integrate the RFID
technology into SmartDesq “at no additional investment to TA.”62
On November 17, 2011, a week after O’Brien received the email proposal
from Stevenson, O’Brien wrote an internal memorandum to Barry Portnoy, co-
managing director of TA, in which he summarized TA’s recent discussions with
EFS, Comdata, and QuikQ over their respective cardless solutions. 63 O’Brien
recited the Comdata proposal described above, noting that “for reasons previously
59 JX0049 at 2. 60 JX0049 at 1. 61 JX0049 at 1. 62 JX0049 at 2. 63 JX0051; Tr. 148 (O’Brien).
15 discussed,” TA did not want to use Comdata’s “SmartDesk POS system,” 64 and
continued:
I think I should respond to Comdata as follows:
a. TA will purchase all necessary Fuel Island Manager equipment from Comdata for $4 million and install it in every site at TA’s cost.
b. TA will cause its point of sales programs to interface with the Fuel Island Manager, at TA’s cost.
c. The Comdata/TA contract will be amended as follows:
i. Term extension to May 21, 2031 (one day after my 65 th birthday).
ii. Fees charged to TA for transactions will be revised [to be six cents lower per transaction than the current rate.]
iii. The schedule for “normal” settlements with TA will be revised [to shorten the settlement period.]
. . . At the “end of the day” though, I don’t think a few million dollars is too much to pay for a long-term contract.65
2. Comdata and TA Engage in Simultaneous Negotiations
On December 2, 2011, Randy Morgan, then-Executive Vice President of
Comdata, emailed O’Brien a proposed RFID agreement, noting that “it would be
great if” O’Brien could announce TA’s adoption of the RFID technology at an
64 JX0051 at 6. 65 JX0051 at 7-8.
16 upcoming Comdata sales meeting.66 The email also stated: “On another note, we
have talked with Lisa (Legal). She is on holiday until Tuesday, but our goal would
be to get you something next week addressing the merchant agreement.”67 O’Brien
responded on the same day: “We will review straight away. It’s important to me to
have all the agreements done simultaneously . . . If you want us to take a first crack
at the merchant agreement changes, we can do that and have a mark up for you before
Lisa gets back.” 68 Morgan replied: “That would be fine on the merchant
agreement.”69
On December 5, 2011, O’Brien emailed Stevenson TA’s initial markups of
both the Merchant Agreement and the proposed RFID agreement. 70 O’Brien
proposed to extend the Merchant Agreement to May 20, 2036,71 and to reduce TA’s
transaction fees payable to Comdata by $0.06 per transaction for locations that have
completed initial installation of the RFID technology.72 O’Brien also made changes
to the proposed RFID agreement,73 including the following changes to Section 5:
66 JX0056 at 1. 67 JX0056 at 1. 68 JX0055 at 1 (emphasis added). 69 JX0055 at 1. 70 JX0058; Tr. 31-32 (O’Brien). 71 JX0058 at 7; Tr. 32: (O’Brien). 72 JX0058 at 12; Tr. 32-33 (O’Brien). 73 Tr. 26 (O’Brien).
17 Subsequent to the date of this agreement, Comdata and Customer will reasonably cooperate to integrate the FIM system and TA’s point of sale and/or other relevant systems and to complete that integration as soon as reasonably practical. Comdata understands that a portion of the process of integration will need to be coordinated between Customer and Customer’s vendors and that Customer will direct its vendors in Customer’s discretion and at Customer’s cost. Comdata will ship the System to theeach location designated by Customer, and Customer will be billed for the shipping and handling charges. Customer is responsible for installation of all System hardware and equipment or any hardware and equipment required to utilize the System. Comdata will assist Customer in locating a qualified installer. Comdata will install the FIM Software and assist Customer with the initial setup of the FIM Software.Comdata and Customer will reasonably cooperate regarding the installation and initial set up of the FIM Software.74
At trial, O’Brien explained the purpose of his revisions as follows:
I wanted to make sure that everybody reading this was—and Comdata at the time—understood that this was going to need cooperation between the two companies. And also to express that this was not like a hair dryer that you plug in and it turns on. There is integration activity that needs to take place to connect their software for RFID to our point of sale system, which, again, is the lifeblood of our system and other systems besides. . . . This was to alert them that we all needed to rely upon people that were not us. Other vendors had to cooperate in order to get this done. Then it ends with assurances that we’ll pay for it, meaning TA, but that we needed the discretion to direct those vendors, you know, as we saw fit. . . . I was really trying to make it abundantly clear that we were going to need to cooperate on all aspects of this, and that it, as I said before, was not a simple thing.75
74 JX0058 at 14-15 (deletions are shown by strikethrough and insertions by underline). In this agreement, “Customer” refers to TA. JX0058 at 13. 75 Tr. 26-29 (O’Brien).
18 On December 8, 2011, Stevenson emailed O’Brien that “[t]here were a couple
of open items” related to the two agreements.76 Among other things, Comdata’s
General Counsel Lisa Peerman “was a little concerned with the length of the
[Merchant Agreement].”77 Stevenson nevertheless told O’Brien that “I told Lisa my
intent was to make [the Merchant Agreement] as long as we could.”78
On December 9, 2011, after a call between O’Brien and Stevenson, Mark
Young, the Executive Vice President and General Counsel of TA, sent another
markup of both the Merchant Agreement and the proposed RFID agreement to
Peerman.79 The markup of the Merchant Agreement removed the condition in the
prior markup tying TA’s rate reduction to the installation of the RFID technology.80
In other words, under this markup, TA would see its transaction fees payable to
Comdata reduced by $0.06 per transaction for all transactions, effective
immediately.81 O’Brien testified that Stevenson proposed this change—even though
it was not in Comdata’s financial interest—presumably because technological issues
76 JX0059 at 1. 77 JX0059 at 1. 78 JX0059 at 1. 79 JX0065. 80 JX0065 at 11. 81 This markup had an effective date for the rate reduction of “December 31, 2012,” but that appears to be a typo, and was corrected in later drafts to “December 31, 2011.” See JX0074 at 1.
19 at Comdata prevented Comdata from being able to lower transaction fees on a
location-by-location basis to apply only to locations with RFID technology.82 Other
evidence corroborates O’Brien’s testimony on this point.83
On the morning of December 12, George Burke, a Comdata in-house attorney,
emailed Young a revised draft of the RFID agreement.84 In this revision, Comdata
substantially accepted TA’s modifications to Section 5 of the proposed RFID
agreement quoted above.85
Around the same time, Peerman converted O’Brien’s revisions to the
Merchant Agreement into a standalone amendment, with certain modifications,86
which Morgan emailed to O’Brien in the afternoon of December 12.87 Section 3 of
the draft amendment proposed to change the expiration date of the Merchant
Agreement from January 2, 2016, to January 2, 2022 (as opposed to TA’s proposal
of May 20, 2036).88 Sections 1 and 4 of the draft amendment proposed to reduce the
82 Tr. 103-05, 121 -22 (O’Brien). 83 Tr. 456-58 (Morgan); JX0071 (December 9, 2011 email from O’Brien to Stevenson) at 3 (“We start the new (6 cent lower) rates on Day 1 . . . as you suggested.”). 84 JX0069. 85 There are a few non-substantive changes that relate to uses of defined terms. Compare JX0058 at 14-15 with JX0069 at 3. 86 Peerman Dep. 53-54. 87 JX0073. 88 JX0073 at 4.
20 transaction fees payable by TA to Comdata by $0.08 per transaction for transactions
at all TA-owned locations (whether or not the RFID technology had been installed)
as well as at TA franchisees that had installed the RFID technology.89
On December 13, 2011, Young sent Peerman additional edits on the Merchant
Agreement amendment.90 Significantly, Young added a new recital to the proposed
amendment:
WHEREAS, on or about the date hereof, Merchant and Comdata entered into the FIM Solution Agreement pursuant to which Merchant has agreed to purchase and install RFID (Radio Frequency Identification), a technology distributed exclusively by Comdata, at all of its locations nationwide.91
Young also revised the paragraph immediately after the recitals to the following by
inserting the underlined phrase: “NOW, THEREFORE, in consideration of the
foregoing and the other mutual covenants and agreements described in this
Amendment, the parties hereby agree as follows.” 92 Young did not change
Comdata’s proposed expiration date of January 2, 2022.93
On December 14, 2011, TA and Comdata executed the RFID agreement (the
“RFID Agreement”), which became effective on January 1, 2012, and the Merchant
89 JX0073 at 4-5. 90 JX0074. 91 JX0074 at 4. 92 JX0074 at 4. 93 JX0074 at 4.
21 Agreement Amendment (the “Original Amendment”). 94 O’Brien signed both
documents before attending a Comdata sales meeting at roughly the same time in
the same conference room.95
On January 5, 2012, Comdata and TA replaced the Original Amendment with
an Amended and Restated Amendment to Comdata Merchant Agreement (the
“Amendment”) 96 The only change was to remove the term in the Original
Amendment conditioning the reduced transaction fees at TA franchise locations on
installation of the RFID system.97 The Amendment referenced the execution date of
the Original Amendment in the recitals, stating that it was “made and entered into as
of the 14th day of December, 2011.”98
TA was “the first travel center to contract with Comdata to install the QuikQ
RFID technology.”99 Rowe testified that before the RFID Agreement was signed,
TA “did no testing of the SmartQ product.”100 Rowe also testified, however, that
based on a personal visit to QuikQ offices in Tennessee in early 2011, and a meeting
94 PTO ¶¶ 52-53; JX0003 (RFID Agreement); JX0004 (Original Amendment). 95 Tr. 124-25 (O’Brien). 96 JX0005; PTO ¶ 54. 97 Compare JX-0004 with JX-0005; Tr. 41-42 (O’Brien). 98 JX0005 at 1. 99 JX0110 at 32; JX0647 at 4. 100 Tr. 355 (Rowe).
22 with Comdata representatives in summer 2011, he believed at that time that although
the QuikQ system was “based on older technology,” it was “technically sound.”101
Rowe apprised O’Brien of his views of the RFID technology after his meetings with
QuikQ and Comdata.102
E. TA Begins the RFID Installation and Encounters Difficulties
After the parties executed the RFID Agreement, TA promptly formed an
internal team to work on the installations. 103 It also selected, at Comdata’s
recommendation, a company called Velociti, Inc. to assist with the installations.104
On February 29, 2012, TA and Comdata held a kickoff meeting for the RFID
project.105 Lisa Spikes, a Senior Implementation Project Manager at Comdata,106
wrote a project management plan that was reviewed at the kickoff meeting. 107
According to the project management plan, Spikes was the “Project Manager” and
had “the overall authority and responsibility for managing and executing [the RFID]
project according to this Project Plan and [its] Subsidiary Management Plans.”108
101 Tr. 302-05 (Rowe). 102 Tr. 304 (Rowe). 103 JX0107 at 1-2; Tr. 307-08 (Rowe). 104 JX0108; Tr. 29 (O’Brien). 105 Tr. 308-09 (Rowe); JX0110. 106 PTO ¶ 26. 107 Tr. 308-10 (Rowe); see also JX0105. 108 JX0110 at 33; Tr. 310-11 (Rowe).
23 The project plan marked all deliverable dates for major tasks as “TBD.” 109 Rowe
testified that the dates were to be determined because “[t]his was the very beginning
of the project . . . We did not know how long the work would take. We did not know
how complex the work would be.”110
Rowe brought twenty questions to the kickoff meeting for discussion.111 One
of those questions asked: “Will SmartQ be launch [sic] before installation is
complete at 100% of the sites?”112 TA and Comdata discussed this question at the
kickoff meeting and agreed that:
if you’re going to be selling this to fleets, this needs to be something that’s available at all sites in all lanes, not just at a small number in the network or a few diesel lanes at each location. . . . The plan was to roll out the software . . . and then activate the software, the solution, at all the sites at the same time.113
As O’Brien testified, “it would have been pointless” to roll out RFID on a location-
by-location basis because TA focused on “long-haul drivers” who tended to be “on
the road for weeks” and “need[] to be able to fuel at any of [TA’s] locations,” not
just one or a handful of locations in a particular area.114 Morgan also testified that
109 JX0110 at 34. 110 Tr. 311-12 (Rowe). 111 JX0109 at 2-3; Tr. 337-38 (Rowe). 112 JX0109 at 3. 113 Tr. 338-39 (Rowe). 114 Tr. 96-97 (O’Brien).
24 in order to make a credible offer to fleet customers to use the RFID technology, “it
would be nice to have every location equipped with every lane.”115
Following the kickoff meeting, Spikes led weekly RFID project meetings,
during which project team members provided updates on the RFID installation
process.116 Around June 2012, Mia McCain, another project manager at Comdata,
replaced Spikes as the RFID project manager.117 Both Spikes and McCain circulated
meeting minutes after the weekly meetings to keep all stakeholders informed. 118 TA
regularly attended these meetings and provided updates.119
As of early 2012, both TA and Comdata expected to complete the RFID
rollout at all sites by the end of 2012 or early 2013.120 After TA began the RFID
installation in April 2012,121 however, it encountered three major challenges that
ultimately led to a significant delay of the RFID launch: (1) problems with locating
the RFID antennas in the canopies over the fueling stations, (2) instability in TA’s
POS system, and (3) water damage to the boxes that housed the RFID readers.
115 Tr. 566-68 (Morgan). 116 Tr. 314 (Rowe). 117 See Tr. 315 (Rowe); JX0163. 118 Tr. 314 (Rowe); see, e.g., JX0120; JX0137; JX0147; JX0185; JX0241; JX0243; JX0251. 119 Tr. 315 (Rowe). 120 See Tr. 468 (Morgan); Tr. 366 (Rowe); JX0122 at 4. 121 JX0127.
25 1. The Short Canopy Issue
In April 2012, TA discovered the so-called “short canopy” issue.122 QuikQ
initially had suggested that the ideal position to locate the RFID antenna for reading
a windshield-mounted RFID tag was seventeen feet from the fuel hose. 123 But
QuikQ’s system specifications were “based on just a couple site reviews. . . . They
did not factor in the many different canopy sizes in the market.” 124 Actual
measurements at TA locations revealed that many of TA’s travel centers could not
meet the seventeen-foot requirement.125
By September 6, 2012, QuikQ had determined that “changing the location
specification to ‘as close to’ 17 feet but not less than 15 feet was acceptable,” and
was “providing modified antenna angle calculations to accommodate this
change.”126 This change “increased the number of TA sites available for installation
from 68 to 108.”127
122 JX0132; JX0133; Tr. 326-27 (Rowe). 123 JX0207 at 5. 124 JX0221 at 1. 125 Tr. 327-28, 329-30 (Rowe). 126 JX0207 at 5. 127 JX0215 at 2.
26 By September 10, 2012, QuikQ and Comdata had come up with what Rowe
called a “breakthrough solution for sites with narrow canopies.” 128 This
“breakthrough solution” required modifications to both the QuikQ software and
TA’s TravStar1 POS system. 129 TA agreed to this solution on September 10,
2012.130
On October 4, 2012, Rowe emailed Morgan and Ken Patton, a Vice President
at Comdata, stating that: “Based on where things stand today, the SmartQ system
will not be up and running at the majority of TA and Petro locations until sometime
in Q2 2013.” 131 According to a Comdata “Technology Weekly Report,” by
November 26, 2012, TA had finished installation of RFID hardware at seventy-eight
locations, substantially completing Phase 1 of the rollout.132
On January 2, 2013, Rowe provided members of the RFID project team with
the following update for TA’s rollout of QuikQ:
Fiscal delivered the code with QuikQ and QuikQ short canopy support last week as promised. However, the code has not yet been tested in our lab. . . . Based on the schedule as it now stands, we should be ready for regional beta testing and the network-wide rollout of the QuikQ code sometime in March or April.. . . the phase 2 rollout will encompass the remaining 115 company sites . . . Phase 3, the last phase of the 128 JX0208 at 1. 129 JX0208 at 1-2; Tr. 387 (Rowe). 130 JX0209. 131 JX0219 at 1; Tr. 392-95 (Rowe). 132 JX0237 at 2; Tr. 335-36 (Rowe).
27 deployment, will cover the 37 TA and Petro Franchise locations. This phase is tentatively scheduled for Q2.133
2. The POS System Issue
In December 2010, TA announced that it would begin installing “convenient
island pumps for dispensing diesel exhaust fluid (DEF),” 134 a fuel additive that
“reduces truck emissions and allows the fleets to tune their truck to maximize
mileage.”135 TA contemplated integrating “the DEF dispenser with [its] point of sale
and other systems so that drivers can purchase fuel and diesel exhaust fluid in a
single transaction.”136
In January 2013, when TA implemented a new version of its TravStar1 POS
system to permit the simultaneous purchase of DEF and fuel, the POS system
became seriously destabilized.137 The problem came to a peak at the end of the first
quarter of 2013.138 As Rowe testified:
We had situations where they saw that we were pumping fuel, drivers were filling their tanks, but we were not being paid for those transactions. And then we had transactions where fleets were reporting they had been charged for fuel and the driver had not actually pumped that fuel, or they were being charged a second time for fuel that was
133 JX0241 at 1. 134 JX0016 at 1. 135 Tr. 370-71 (Rowe). 136 JX0016 at 1. 137 Tr. 340-41, 361, 373 (Rowe); Tr. 187-88 (O’Brien). 138 Tr. 340 (Rowe); Tr. 95-96 (O’Brien).
28 paid for previously. In addition, we were getting reports from the cashiers at the sites that the point of sale was experiencing slowdowns. . . . And then there were situations where the register was freezing entirely.139
TA regarded this as “a business critical issue” that “placed a $5 billion commercial
fuel operation at risk.”140 As a result, TA put its “other current projects,” including
the RFID project, on hold so that its technology personnel could focus on stabilizing
TravStar1.141
In mid-2013, TA decided that “the TravStar1 source code is too unstable to
support the business and TravStar1 should be replaced with Retalix, which has been
used for years by Pilot Flying J and Love’s.”142 TA initially expected the switch of
its POS system to take approximately two years, but it ultimately took three years
and four months—until the end of 2016—for the Retalix system to be fully deployed
at all TA locations.143
139 Tr. 340-41 (Rowe). 140 Tr. 342 (Rowe). 141 Tr. 373-74 (Rowe); JX0240 at 1. 142 JX0317 at 4; Tr. 342-43, 375 (Rowe). 143 JX0317 at 6; Tr. 343 (Rowe).
29 In an email dated August 28, 2013, a Shell employee who was working with
TA informed FleetCor about TA’s plan to switch its POS system from TravStar1 to
Retalix for all of TA’s sites over the next two years:
Also, important to communicate that as part of TA general strategy . . . they plan to move all site sales to new Retalix POS from existing Fiscal TravStar1 over next 2 years. The first phase for Retalix will be to bring it up for LNG only sales at TA sites with TravStar1 continuing in near term to service all other fuel sales (i.e. eventually TravStar1 phased out, and only Retalix for all sales at TA sites).144
The email was forwarded to Ken Kaley, a Vice President of Operations at Comdata,
who in turn forwarded it the same day to Morgan and Patton, writing: “Crap! Looks
like TA is moving to Retalix. I suspect . . . this could also impact what they are
doing with SmartQ roll out.”145
Rowe also informed Comdata of TA’s switch from TravStar1 to Retalix at
one of the weekly RFID status meetings in August 2013.146 Stevenson, who learned
about TA’s POS system issue through conversations with O’Brien,147 recalled that,
by December 2013, TA was
still struggling with having to get the core system up and going in their – in their merchant locations there with – as soon as that was done, the – implementing the cardless solution would be kind of the next thing to
144 JX0301 at 1. 145 JX0301 at 1. 146 Tr. 344 (Rowe). 147 Tr. 245 (Stevenson).
30 do once we got our core new processing system in place, point of sale system operating.148
Sometime around August 2013, the weekly RFID project meetings were
discontinued, apparently because Comdata’s Director of Implementation Project
Management did not “see why a standing weekly call is needed and more
importantly I need our focus to be on new customers coming on board to get them
ramped as quickly as possible to make our 2013 numbers.”149 The Comdata director
asked Patton to check if TA was “ok with cancelling the calls and just maintaining
the program through email and one off calls.”150
Over the next three years, TA and Comdata engaged in occasional discussions
about RFID.151 Comdata also learned about TA’s RFID progress through some third
parties.152 Despite its clear awareness of TA’s transition from TravStar1 to Retalix
by no later than August 2013 and the resulting significant delay it would cause to
148 Tr. 291-92 (Stevenson). 149 JX0290 at 1; Tr. 316 (Rowe); see also JX0295 at 1 (July 22, 2013 email from the Comdata director asking about the progress with convincing TA “to discontinue the structured calls in order to free up Mia’s time to focus on customer implementation”); JX0299 at 1 (August 20, 2013 email from Kevin Hill, a Comdata Vice President, to Randy Morgan, attaching meeting notes from the August 19 meeting—the last SmartQ weekly project meeting in the record—and noting that “Michael Rowe is now deferring updates on when they will be ready to begin working on RFID again to Tom O’Brien.”). 150 JX0290 at 1. 151 Tr. 101-03, 189 (O’Brien); Tr. 245 (Stevenson); Tr. 495-97, 504-10 (Morgan); Tr. 316- 17 (Rowe). 152 See JX0393; JX0421.
31 implementing QuikQ, Comdata never objected to this transition, never suggested
that TA launch the RFID system on a location-by-location basis as it rolled out
Retalix, and never claimed that TA was not reasonably cooperating toward RFID
implementation, until this litigation.153
3. The Water Damage Issue
TA completed the initial RFID hardware installation at all locations by
December 2013.154 In the summer of 2014, TA discovered that RFID readers at
approximately half of its locations were “dropping off the network.”155 TA notified
Comdata and QuikQ of the issue in an effort to secure repair parts.156
By working with QuikQ and a third-party contractor called Tolt Solutions,
Inc., TA determined that the problem mainly was caused by rain water intruding into
boxes approved by the National Electrical Manufacturer’s Association (“NEMA”)
that housed the RFID readers. 157 According to the “SmartQ RFID Equipment
Installation Guide,” the NEMA boxes were to be positioned beneath the canopy over
the fuel lanes of each truck stop.158 Rowe testified, however, that “partway through
153 Tr. 339, 344, (Rowe); Tr. 496-97, 558-59, 565-66, 568 (Morgan); Tr. 750 (Secord). 154 Tr. 344-45 (Rowe). 155 Tr. 344-45 (Rowe). 156 Tr. 346-47 (Rowe); JX0335. 157 Tr. 347-48, 397 -98 (Rowe); JX0336. 158 JX0171 at 1; Tr. 395-96 (Rowe).
32 the rollout,” TA’s installer Velociti “recommended that instead of putting the NEMA
boxes on the underside of the canopy, that they be mounted on the support poles for
the canopy to make them more accessible for repairs and to facilitate the project.
This decision was discussed with QuikQ, and they approved that change.”159 Tolt’s
inspection reports to TA showed that most of the NEMA boxes that were infiltrated
by water were mounted on the column,160 although some boxes that were mounted
under the canopy also suffered water damage.161
In response to the water damage issue, QuikQ designed a new water-resistant
NEMA box.162 TA replaced all of the old NEMA boxes at all of its locations—not
just the damaged ones—with the newly designed boxes, at its own expense.163 TA
completed the replacement at approximately 201 locations by August 2016, and was
waiting for equipment for the remaining twenty-two sites at that time.164
159 Tr. 396-97 (Rowe). 160 See, e.g., JX0343 at 2-3; JX0344 at 2; JX0345 at 2; JX0346 at 2; JX0349 at 6; JX0354 at 2; JX0361 at 3-4; JX0362 at 2; JX0364 at 5; JX0365 at 2; JX0366 at 16-18; JX0367 at 2-4. 161 See, e.g., JX0360 at 2. See also Tr. 398-404 (Rowe). 162 Tr. 347 (Rowe). 163 Tr. 348-49 (Rowe). 164 Tr. 93-94 (O’Brien); Tr. 349 (Rowe); JX0565.
33 F. FleetCor Acquires Comdata
In March 2014, FleetCor started performing due diligence on Comdata for
purposes of a potential acquisition.165 It reviewed Comdata’s contracts, including
its merchant agreements with Pilot, Love’s, and TA, as part of the due diligence
process.166 In an April 2014 presentation prepared by FleetCor, it identified a “Big
3 revenue opportunity,” which included a substantial increase in TA’s transaction
fees. 167 Right below the section of the presentation identifying “Big 3 revenue
opportunity” was a section entitled “Complications.”168 The first complication listed
was that “TA contract doesn’t renew until 2022.”169
In August 2014, FleetCor announced its agreement to acquire Comdata for
$3.45 billion.170 Comdata represented in Section 3.13(b) of the merger agreement,
which is dated as of August 12, 2014, that:
All of the Material Contracts are valid and binding and in full force and effect (except those that terminate or are terminated after the date of this Agreement in accordance with their respective terms). To the Knowledge of the Company, no Person is challenging the validity or enforceability of any Material Contract. Neither the Company nor any of its Subsidiaries, nor to the Knowledge of the Company, any of the
165 Clarke Dep. 8. 166 Clarke Dep. 9, 11. 167 JX0396 at 11; Tr. 714-15 (Secord). 168 JX0396 at 11; Tr. 716 (Secord). 169 JX0396 at 11. 170 JX0353 at 6.
34 other parties thereto, has violated any provision of, or committed or failed to perform any act which (with or without notice, lapse of time or both) would constitute a material default under any provision of, and neither the Company nor any of its Subsidiaries has received written notice that it has violated or defaulted under, any Material Contract. Company has delivered to Parent a complete copy of each Material Contract.171
The Merchant Agreement between Comdata and TA was listed in the disclosure
schedule to the merger agreement as a “Material Contract.” The disclosure schedule
did not separately list the RFID Agreement. “Knowledge” is defined in the merger
agreement to mean, with respect to Comdata, the actual knowledge of certain people,
including Lisa Peerman and Randy Morgan, “and the knowledge that such persons
would reasonably be expected to have after due inquiry of their direct reports.”172
After signing the merger agreement in August 2014, but before the transaction
closed in November 2014, FleetCor’s CEO Ronald Clarke called O’Brien to confirm
that TA’s Merchant Agreement was still valid.173
171 JX0350 at 29-30 (emphasis added). 172 JX0350 at 85; Tr. 554-57 (Morgan). 173 Tr. 62-63 (O’Brien).
35 G. Comdata and FleetCor Seek to Renegotiate the “Big Three” Merchant Agreements
In July 2015, Greg Secord became President of Comdata.174 He was given a
target annual growth rate of ten percent, and started looking for opportunities “to
increase the rates that Comdata charged the Big 3.” 175 In September 2015, he
handwrote the following “thoughts around the marketplace:”
Big 3 ... 1) We have a bad deal, want better, new ask 2) How we can help you 3) How we can hurt you ... a) terminate agreement – nuke war – bad for both176
When Secord wrote these notes, Comdata’s contract with Pilot already had expired
and its contract with Love’s was expiring shortly.177 Thus, Secord logically must
have been referring to the Merchant Agreement with TA when he wrote down
“terminate agreement – nuke war.”178
174 PTO ¶ 25. 175 Tr. 710-11 (Secord). 176 JX0667; Tr. 712-13 (Secord). 177 See JX0006 at 5 (Pilot-Comdata service center agreement, expiration date November 1, 2014); JX0022 at 3 (Love’s-Comdata service center agreement, expiration date April 15, 2016); Tr. 710-11 (Secord). 178 JX0667.
36 Secord began negotiating new contracts with Pilot and Love’s in 2015,179 and
Comdata entered into new service center agreements with Pilot and Love’s in April
and October 2016, respectively. 180 Both of these agreements include higher
transaction fees payable to Comdata than the previous agreements.181
On May 16, 2016, Secord, Morgan, and Paul Baran, a Comdata Vice
President, attended a meeting with FleetCor’s CEO Clarke.182 After the meeting,
they prepared a slide deck that summarized the discussions at the meeting and the
follow-up items.183 The first page of the slide indicates that FleetCor was interested
in acquiring QuikQ to obtain its RFID technology:
Meeting Takeaways: ... RFID—make a market . . . interested in potentially buying QuikQ
Follow-up Items: Schedule meeting with Ernie at QuikQ to discuss strategic options . . . path forward to include potential acquisition of company. - Greg/Randy meeting with Ernie on June 2nd. ...
Expected Results: Go-forward strategy for Merchant Business
179 Tr. 713-14 (Secord). 180 JX0437; JX0595. 181 Tr. 714 (Secord). 182 Tr. 728 (Secord); JX0458. 183 Tr. 728-30 (Secord); JX0458.
37 - Potential Acquisition of QuikQ…if acquired how can we leverage Big 3 RFID to make RFID market standard184
The last page of the slide deck posed questions about the potential consequences if
Comdata were to breach its contract with TA:
Meeting Takeaways: TA: - What are penalties for breaking TA contract? Other risks? - Any “outs” of contract? TA breaches? Investigate the commitment to buy and INSTALL RFID equipment ...
Follow-up Items: Schedule meeting with outside/internal counsel on TA contract . . . what are potential penalties for breach? What’s the likelihood of being sued? Maximum risk? Meeting with TA ...
Questions to Answer: What are outs of TA Contract What are financial/legal risks of terminating TA contract? Other leverage we may have with TA? What do we want from TA (install RFID, higher rate, marketing program, etc.) . . .185
184 JX0458 at 2. 185 JX0458 at 6 (emphasis added).
38 On July 7, 2016, Secord presented a Comdata three-year strategic plan to
Clarke and some other officials of Comdata and FleetCor. 186 The slides for the
presentation were finalized on July 5.187 Page 3 of the slide deck stated:
Merchant: ... RFID is a “kludgy” solution -> Not long term.
Big 3: ... TA/Petro – Meeting scheduled -> but locked in long term.188
Later in the presentation, Secord noted that QuikQ had no interest in a
potential transaction with FleetCor and questioned the wisdom of betting on
RFID technology:
What we have done: ... Made “deal” proposal to Quick Q, no interest. Site visit at Quick Q 6/17 Discussed RFID with Pilot – “no way.”
Considerations: ... Betting on RFID is a “iffy” bet -> technology is changing and not user friendly189
186 Tr. 650-52 (Secord). 187 JX0466 at 1. 188 JX0466 at 5. 189 JX0466 at 35.
39 Secord testified that by saying “RFID is a ‘kludgy’ solution” and an “‘iffy’ bet,” he
meant:
So frankly, it’s an inelegant solution. You had a cone, or a reader that’s on top of the thing and projects a cone, and a vehicle needs to be [in] it. It was great technology at the time. Like many first-time innovations, the first cardless-payment solution in the diesel, it was great technology. But, you know, it’s just not elegant. . . . It wasn’t quite the same opportunity anymore. The window had closed. So in my mind, I’m rolling around, what do we do next? There’s going to be a different payment technology.190
The presentation made no suggestion that TA might be in breach of the Merchant
Agreement or the RFID Agreement.
On July 8, 2016, Secord met in person with O’Brien and Mike Lombardi, a
Senior Vice President at TA.191 During the meeting, Secord proposed to collaborate
with TA on a new small-fleet program.192 Secord also asked O’Brien why RFID had
not been installed.193 In response, O’Brien discussed the challenges that TA and
Comdata had faced in installing the RFID system, 194 and stated that TA would
resume installation as soon as it completed the POS system switch, which probably
190 Tr. 654-56, 657 (Secord). 191 Tr. 626, 747 (Secord). 192 Tr. 625-26 (Secord). 193 Tr. 748 (Secord). 194 Tr. 748 (Secord).
40 would be in the first quarter of 2017.195 Secord did not tell O’Brien that he thought
TA was in breach of any contract—either the Merchant Agreement or the RFID
Agreement.196 He did not tell O’Brien that he thought TA had not moved as quickly
as it was obligated to under the RFID Agreement, or ask TA to activate the RFID
system location-by-location. 197 Indeed, Secord did not ask TA to do anything
differently with respect to the RFID rollout than what TA was doing.198
On August 15, 2016, Secord sent out an email entitled “Priorities” to certain
Comdata employees. 199 The attachment to the email, entitled “Secord Personal
Prioritiesv2,” contained the following entry:
TA Petro Bring TA to table (July meeting) Propose new agreement for SME…fuel & service (9/16/16 in Cleveland) Drive toward reward vs. consequence conversation200
The second bullet—“Propose new agreement for SME…fuel & service (9/16/16 in
Cleveland)”—refers to a meeting with TA that Secord had scheduled to take place
195 Tr. 627 (Secord). 196 Tr. 74-49 (Secord). 197 Tr. 748, 750 (Secord). 198 Tr. 749 (Secord). 199 JX0483 at 1. 200 JX0483 at 2; Tr. 755-57 (Secord).
41 in mid-September.201 Secord’s priority list does not refer to RFID or to TA being in
breach of any contract.202
H. Comdata Purports to Terminate the Merchant Agreement
During the summer and early fall of 2016, TA was still working on the RFID
installation.203 On September 6, 2016, Rowe of TA emailed Morgan of Comdata
projecting that SmartQ would be operational by early 2017:
We are preparing to implement Comdata SmartQ in production at the end of the year or early in Q1 2017. Since the original installation of the SmartQ hardware at our sites, we have acquired new truck stops. We are preparing a purchase order for the equipment and software licenses needed for these acquisition locations. Since there have been a number of organizational and personnel changes since our last SmartQ order, please let me know where to send the PO.204
Morgan forwarded Rowe’s email to Secord, who testified that he did not “think that
much of” it and that it was “[s]tandard course.”205 The contemporaneous record
shows, however, that Secord immediately forwarded Rowe’s purchase order to
FleetCor’s Clarke, Comdata’s in-house counsel Peerman, and FleetCor’s in-house
201 Tr. 756 (Secord). 202 Tr. 756-57 (Secord). 203 Tr. 317-20 (Rowe). 204 JX0492 at 2. 205 Tr. 632 (Secord).
42 counsel Sean Bowen,206 and that within hours of receiving Rowe’s inquiry, Peerman
had drafted a “TA default notice 9.6.16” and sent it to Secord, Clarke, and Bowen.207
On September 7, 2016, Comdata mailed TA a notice of default, in which
Comdata asserted for the first time that TA was in breach of the RFID Agreement,
and that Comdata intended to terminate the Merchant Agreement, as amended:
Pursuant to paragraph 8 of the above referenced Agreement, this letter is to provide written notice of default to TA for failing to install the Radio Frequency Identification (RFID) technology at all locations. The consideration for Comdata’s willingness to enter into the December 2011 amendment to the Agreement, which served to extend the Agreement term and reduce transaction fees, was TA’s agreement to purchase and install the RFID technology. Comdata will exercise its rights under the Agreement if TA does not cure the breach in thirty (30) days from TA’s receipt of this notice.208
Rowe testified that when TA received the default notice, they “had a plan in
place . . . to go live with SmartQ RFID after Retalix was deployed to all locations”
in December 2016, but they “accelerate[d] that timeline” and “compress[ed] it into
one month’s work” in response to Comdata’s default notice.209
206 JX0492 at 1. 207 JX0492 at 1; Tr. 780 (Secord). 208 JX0500 at 1. TA received the notice of default in the mail on September 12, 2016, although Secord informed O’Brien during a phone call on September 7 that it was being sent. See JX0506; Tr. 49-50, 54-55 (O’Brien). 209 Tr. 320 (Rowe).
43 In an internal email dated September 10, 2016 to O’Brien, Young, and
Rebholz, Rowe summarized the “current status of the SmartQ RFID
implementation” and “Next Steps.” 210 As Rowe explained in the email, as of
September 10:
The RFID hardware is installed at 202 truck stops and production ready at 170 or 84% of these sites. The remediation vendor has been tasked to repair the RFID hardware at the 32 sites where it is still not production ready. In addition, the RFID hardware was never installed at 22 sites. The SmartQ software license and hardware for these 22 locations should be purchased from Comdata according to our agreement.211
On September 16, 2016, TA sent a letter to Comdata, confirming that TA
received Comdata’s notice of default on September 12, 2016, but disputing that
Comdata had a right to terminate the Merchant Agreement based on an alleged
default under the RFID Agreement, or that TA had defaulted under the RFID
Agreement. 212 Comdata replied to this letter on September 21, maintaining its
position that “The 2011 Amendment clearly states that the purchase and installation
of RFID at all of [TA’s] locations nationwide was the consideration for Comdata’s
210 JX0504; Tr. 318-20 (Rowe). 211 JX0504 at 1. Rowe testified that when he wrote this document, he did not know that eight of the twenty-two locations “were reinstallation sites because the equipment had been damaged or destroyed” previously, and only fourteen of the sites were new acquisition sites where hardware had never been installed. Tr. 409-11 (Rowe); see also Tr. 319-20 (Rowe). 212 JX0514; Tr. 849-51 (Young).
44 agreement to reduce the merchant transaction fees and extend the term of the
Agreement” and notifying TA that the “thirty day cure period ends October 13.”213
On September 22, Rowe wrote to Secord and Morgan, urging Comdata to
process the purchase order “for the SmartQ (FIM) System for 156 diesel lanes at 21
sites” because Rowe had “not heard back from Comdata with a contact name for
[the] order.”214 By this point, however, Comdata no longer had a contract with
QuikQ.215 Although Comdata still worked with QuikQ to secure the equipment TA
ordered, the order did not arrive at TA locations until after the cure period ended.216
On September 29, a Comdata employee emailed Morgan, Secord, and several
other Comdata personnel inquiring whether Comdata had been formally notified that
TA had implemented RFID “this past Monday.”217 Morgan replied: “Should we not
do a press release or something around the activation? Pretty big news to fleets and
could influence other merchants for Matt and team.”218 Another Comdata employee
213 JX0515. 214 JX0524. 215 JX0484; JX0537 at 10. Comdata lost its exclusivity to distribute the QuikQ technology by March 2016. JX0434. 216 JX0524; JX0525; JX0526; JX0528; JX0540; JX0545; JX0554; Tr. 324 (Rowe). 217 JX0539 at 1. 218 JX0539 at 1; Tr. 526-28 (Morgan).
45 on the email chain agreed that it “[s]ounds like good news.”219 But Secord quickly
wrote back: “No press release. Please.”220
On October 13, 2016, the last day of the cure period, TA sent a letter to
Comdata, by email and Federal Express, stating that it had “substantially” completed
the RFID installation:
I am writing to update you on the status of the installation of the FIM Solution system (the “System”) at our 224 company operated travel center locations. We are substantially complete in that we are currently accepting RFID transactions at 201 travel centers. As to the remaining 23 sites, we are repairing damaged equipment at 1 site and we will install the System at 22 sites as soon as we receive the equipment and software licenses which are waiting on from Comdata.
We trust that the above resolves this matter.221
Because TA expected to complete its Retalix rollout by the end of 2016, the
201 locations that allegedly were active as of October 13 included a few sites that
were still running the TravStar1 POS system. TA determined that, although
TravStar1 had demonstrated serious issues with stability, it was an acceptable risk
to turn on RFID in sites running TravStar1 in October 2016 given the small number
of sites (under thirty) and short period of time (four to eight weeks) involved.222
219 JX0539 at 1. 220 JX0539 at 1. 221 JX0565. 222 Tr. 320-22 (Rowe).
46 After receiving TA’s October 13 letter, Comdata decided to visit a sample of
TA locations to verify TA’s assertion that the installation was substantially
complete.223 Despite the requirement in Section 4(f) of the RFID Agreement that
Comdata may audit TA for compliance with the RFID Agreement “upon reasonable
prior notice,” Comdata did not inform TA of its intention to conduct the site visits.224
Instead, Comdata instructed its employees conducting these visits to tell inquiring
TA employees that they were simply conducting “normal Comdata testing.” 225
Secord testified that when he ordered these site visits, he was not trying to solve the
problem, but was trying to gather evidence.226
On November 1, 2016, Pat O’Donnell, an independent contractor at Comdata
at the time,227 emailed Secord updated results of the RFID tests from the Comdata
employees’ visits to TA locations.228 According to the report, as of October 31,
Comdata had RFID communications with 154 TA locations and the
223 JX0568; Tr. 797 (Secord). 224 JX0003 at 2; Tr. 797 (Secord). 225 O’Donnell Dep. 76. 226 Tr. 798-800 (Secord). PTO ¶ 21. O’Donnell has served as Senior Vice President of Merchant Services at 227
Comdata since February 2017. 228 JX0805; Tr. 645 (Secord).
47 “[c]ommunication report shows 67 locations have sent no RFID
communications.”229 The report further stated that:
Visits to locations on the NEW install list produced 4 locations with no equipment installed and 1 with equipment but tests failed Visits to existing locations have produced 6 successful tests and 8 failed tests. Currently have 3 visits that we are waiting status on.230
On November 2, 2016, Comdata sent a letter to TA via Federal Express,
asserting that “TA did not cure its default under the Agreement within the 30 day
cure period.”231 The term “Agreement” is defined in the letter to mean the Merchant
Agreement, as amended.232 The November 2 letter further stated that:
Comdata has visited a number of TA and Petro travel centers since October 13 and has confirmed that, not only do some travel centers still lack any RFID hardware, but also a number of TA and Petro travel centers with RFID hardware do not process RFID transactions. . . . Accordingly, the Agreement is terminated immediately.
. . . Please let us know your interest and availability to meet over the coming weeks.
We are agreeable to continue operating on the same terms for up to 90 days as we work through the issues above.233
229 JX0805 at 1. 230 JX0805 at 1 (emphasis in original). 231 JX0604. 232 JX0604. 233 JX0604.
48 At no time did Comdata assert that it was terminating the RFID Agreement. Instead,
even after notifying TA on September 7 that it believed TA was in default of the
Merchant Agreement for failure to install the RFID system, Comdata continued to
accept payments from TA for equipment purchased under the RFID Agreement 234
and to process RFID transactions at TA locations.235 Through December 2016, TA
spent over $7.3 million on RFID installations, well over its original $4 million
budget.236 Approximately $4.6 million was spent before August 2013, and $560,000
was spent after September 2016.237
On November 15, 2016, O’Brien, Young, Clarke, Secord, FleetCor’s General
Counsel Brad Slutsky, and certain other senior officers from TA and FleetCor met
at FleetCor’s office near Atlanta, Georgia.238 Contemporaneous documents written
by Young and O’Brien to memorialize discussions at the meeting show that before
the meeting started, Young and Slutsky reached an agreement to treat the discussions
at the meeting as settlement negotiations.239 On November 18, 2016, Secord emailed
234 Tr. 852-53 (Young). 235 JX0809A. 236 JX0628; Tr. 349-50 (Rowe). Rowe prepared another summary of RFID capital expenditures that contains slightly different figures, showing the total expenditures to be approximately $7.5 million. See JX0501. 237 JX0501; Tr. Oral Arg. 45. 238 Tr. 61-62 (O’Brien). 239 JX0611 at 1; JX0613 at 1.
49 O’Brien a “TA-Comdata Settlement Proposal,” copying the other attendees at the
November 15 meeting.240 The document was marked as a “Non-Binding Settlement
Proposal Subject to Rule 408.”241
II. PROCEDURAL POSTURE
On November 30, 2016, TA filed a Verified Complaint (the “Complaint”)
against Comdata and FleetCor asserting four claims. Count I seeks a declaration
that defendants may not terminate the Merchant Agreement based on TA’s alleged
default under the RFID Agreement. Count II asserts that defendants breached the
Merchant Agreement and seeks specific performance. Count III asserts that
defendants breached the implied duty of good faith and fair dealing under the
Merchant Agreement. Count IV asserts that defendants violated the Tennessee
Consumer Protection Act by engaging in unfair and deceptive business practices.
TA simultaneously filed a motion for expedited proceedings and for preliminary
injunctive relief.
On December 9, 2016, Secord emailed O’Brien a letter representing that
“Comdata will continue to allow acceptance of Comdata payment methods at TA
locations until the final decision of the trial court,” but would impose new, higher
fees on TA, which Comdata represented were those that “a merchant similar in size
240 JX0614 at 1. 241 JX0614 at 3-6.
50 to TA would pay.”242 Comdata began charging TA those higher rates on February
1, 2017 (the “February Rates”).243
On December 14, 2016, the Court granted expedition but denied TA’s request
for a hearing on its motion for a preliminary injunction. With respect to the latter
issue, the Court explained that Comdata’s representation that it would continue to
accept Comdata cards at TA locations until the final decision of this Court mooted
the concern of irreparable harm.244
On December 22, 2016, defendants filed a counterclaim, which was amended
on February 23, 2017, asserting one claim for breach of contract and seeking
damages and declaratory relief.
On February 27, 2017, the Court denied TA’s Motion for Partial Judgment on
the Pleadings with respect to Count I of the Complaint.245
On March 27, 2017, TA filed a Verified Supplement to the Complaint, setting
forth additional allegations relating to the parties’ disputes and seeking additional
relief in the form of damages under Count II and Count IV.
242 JX0617 at 2. 243 PTO ¶ 67. 244 Dkt. 40. 245 Dkt. 112.
51 III. ANALYSIS
A. The Parties’ Contentions
The heart of the parties’ dispute concerns the validity of Comdata’s purported
termination of the Merchant Agreement, as amended, on November 2, 2016. The
Amendment extended the expiration date of the Merchant Agreement from January
2, 2016 to January 2, 2022. 246 The Merchant Agreement itself permits early
termination only if “either party defaults in the performance of any material
obligations, covenants, or conditions contained in this Agreement.”247
Defendants do not argue that TA breached any of its obligations set forth in
the Merchant Agreement. They assert instead that TA materially breached its
obligations under the RFID Agreement, that the RFID Agreement was consideration
for the Amendment, that the purported failure of consideration for the Amendment
permits termination of the Amendment,248 and that Comdata thus was free to charge
246 JX0005 at 2. 247 JX0001 § 8 (emphasis added). The Merchant Agreement also contains an integration clause. Id. § 13(e). 248 The parties dispute whether the Amendment is a standalone agreement that can be terminated alone, leaving the original Merchant Agreement in effect. Comdata contends it is; TA contends it is not. Briefing on this issue was thin, with TA citing just one case that does not directly address the issue. See Pl.’s Post-Trial Opening Br. 47-48; Defs.’ Answering Post-Trial Br. 30-31; Pl.’s Post-Trial Reply Br. 18-19 (citing Arcata Graphics Co. v. Heidelberg Harris, Inc., 874 S.W.2d 15, 28 (Tenn. Ct. App. 1993)). The answer to this question is irrelevant to the resolution of this case because, even if the Amendment is not a standalone agreement that can be terminated by itself, but instead was partial
52 TA higher transaction fees because the Merchant Agreement had expired under its
original terms on January 2, 2016.249
For its part, TA argues that the Merchant Agreement (as amended) and the
RFID Agreement are two separate agreements, and that TA’s performance under the
RFID Agreement can in no way be a ground for termination of the Merchant
Agreement. TA also argues that it did not materially breach the RFID Agreement
and that it cured any purported breach within the thirty-day cure period in any event.
According to TA, Comdata and FleetCor conjured up a dispute over the RFID
Agreement as pretext to terminate the Merchant Agreement and negotiate a new
contract with terms more favorable to Comdata. TA contends that this conduct
consideration for the Merchant Agreement, as amended, the evidence supports the conclusion I reach below that TA did not materially breach the RFID Agreement. 249 Defendants also advocated a “contemporaneous contracts theory” as an alternative to the “failure of consideration theory,” but stated during the post-trial argument that the two theories have “the same standard” and “get you the same result,” although “the failure-of- consideration doctrine is sort of the easier path.” Tr. Oral Arg. 115, 117 (June 16, 2017). My review of Tennessee law suggests that the two doctrines are not the same. As discussed below, however, because I find that the RFID Agreement was partial consideration for the Amendment, I do not need to reach defendants’ contemporaneous contracts argument. See McCall v. Towne Square, Inc., 503 S.W.2d 180, 183 (Tenn. 1973) (“Construing contemporaneous instruments together means simply that if there are any provisions in one instrument limiting, explaining, or otherwise affecting the provisions of another, they will be given effect as between the parties themselves [a]nd all persons charged with notice so that the intent of the parties may be carried out and the whole agreement actually made may be effectuated.”).
53 constitutes a breach of the Merchant Agreement, violates the implied duty of good
faith and fair dealing, and violates the Tennessee Consumer Protection Act.
B. Tennessee Contract Law Principles
The parties agree that Tennessee law governs the substantive aspects of the
claims in this case. This follows from the fact that the Merchant Agreement and the
RFID Agreement both provide that they “shall be construed in accordance with the
laws of the State of Tennessee” without regard to its conflict of law rules.250
In Planters Gin Co. v. Federal Compress & Warehouse Co., Inc., the Supreme
Court of Tennessee held that:
The central tenet of contract construction is that the intent of the contracting parties at the time of executing the agreement should govern. The intent of the parties is presumed to be that specifically expressed in the body of the contract. . . . If clear and unambiguous, the literal meaning of the language controls the outcome of contract disputes.251
But “where a contractual provision is ambiguous, i.e., susceptible to more than one
reasonable interpretation, . . . courts must resort to other rules of construction, and
only if ambiguity remains after application of the pertinent rules does the legal
meaning of the contract become a question of fact.”252 Then, the court must examine
250 JX0001 §13(g); JX0003 §15. 251 Planters Gin Co. v. Fed. Compress & Warehouse Co., Inc., 78 S.W.3d 885, 890 (Tenn. 2002). 252 Stephenson v. The Third Co., 2004 WL 383317, at *4 (Tenn. Ct. App. Feb. 27, 2004).
54 other evidence to ascertain the parties’ intention. “Such evidence might include the
negotiations leading up to the contract, the course of conduct the parties followed as
they performed the contract, and any utterances of the parties that might shed light
upon their intentions.”253 Tennessee courts repeatedly have held that “a course of
conduct pursued by the parties is the very strongest evidence of what the contracting
individuals originally intended.”254
Under Tennessee law, partial failure of consideration could be a ground for
rescission of a contract if the failure of consideration “is such as to affect the very
object of the contract or concerns a matter of such prime importance that the contract
would not have been made if the parties had expected or contemplated that particular
default.” 255 In Farrell v. Third Nat. Bank, the Tennessee Court of Appeals
explained:
There is a vast difference between inadequacy of consideration and failure of consideration. “Inadequacy of consideration” is, as the term implies, a consideration not adequate or equal in value to the thing conveyed, and where the parties contract with a knowledge of what they are doing inadequacy of consideration is no ground for avoiding the contract. . . . Failure of consideration is in fact simply a want of consideration, and if a partial failure of consideration is such as to affect
253 Id. 254 Frierson v. Int’l Agric. Corp., 148 S.W.2d 27, 37 (Tenn. Ct. App. 1940); see also Hughes v. New Life Dev. Corp., 387 S.W.3d 453, 467 n.13 (Tenn. 2012); Pinson & Assocs. Ins. Agency, Inc. v. Kreal, 800 S.W.2d 486, 487 (Tenn. Ct. App. 1990). 255 Eldredge v. Monaghan (“Eldredge I”), 1994 WL 287574, at *1 (Tenn. Ct. App. June 30, 1994).
55 the whole contract and defeat the object of the contract, then it may be a ground for rescission.256
Rescission based on a partial failure of consideration “should be exercised
sparingly” and only “under the most demanding circumstances. . . . Even a proved
partial failure of consideration is not a ground for rescission unless the failure defeats
the purpose of the contract.”257 Thus, under Tennessee law, Comdata could rescind
the Amendment and effectively terminate the Merchant Agreement if: (1) the RFID
Agreement was at least partial consideration for the Amendment; and (2) TA
breached the RFID Agreement in a way that affected “the very object” of the
Amendment or concerned “a matter of such prime importance that the [Amendment]
would not have been made if the parties had expected or contemplated that particular
default.” 258 For a breach of the RFID Agreement to meet this requirement, the
breach logically must be material, as defendants recognize.259
C. Burden of Proof
The parties disagree as to which party bears the burden to prove whether TA
materially breached the RFID Agreement and whether such breach, if proven, could
256 Farrell v. Third Nat. Bank, 101 S.W.2d 158, 163 (Tenn. Ct. App. 1936). Eldredge v. Monaghan (“Eldredge II”), 1996 WL 62104, at *2 (Tenn. Ct. App. Feb. 14, 257
1996). 258 Eldredge I, 1994 WL 287574, at *1. See Defs.’ Answering Post-Trial Br. 41-48 (arguing that TA materially breached the 259
RFID Agreement).
56 excuse Comdata’s performance under the Merchant Agreement. 260 Generally, to
succeed at trial, “Plaintiffs, as well as Counterclaim-Plaintiffs, have the burden of
proving each element, including damages, of each of their causes of action against
each Defendant or Counterclaim-Defendant, as the case may be, by a preponderance
of the evidence.” 261 Similarly, defendants and counterclaim-defendants bear the
burden to prove each element of each of their affirmative defenses by a
preponderance of the evidence.262 Specific performance, however, “is a matter of
grace that rests in the sound discretion of the court,” and the “party seeking specific
260 The parties did not brief whether Delaware or Tennessee law governs which party has the burden of proof. On this issue, plaintiff cites only Delaware authorities, but defendants cite both Delaware and Tennessee authorities. See Pl.’s Post-Trial Opening Br. 37-38; Defs.’ Answering Post-Trial Br. 28-29. “Generally, burden of proof is considered a procedural issue and the forum will apply its burden of proof unless the ‘primary purpose of the relevant rule of the state of the otherwise applicable law is to affect decision of the issue rather than to regulate conduct of the trial.’” Meyers v. Intel Corp., 2015 WL 227824, at *4 (Del. Super. Jan. 15, 2015) (citing Restatement (Second) of Conflict of Laws § 133 (1971)). Because the parties did not argue that Tennessee law on which party has the burden of proof differs in any material respect from Delaware law, I apply Delaware law on this issue. Cf. In re IBP, Inc. S’holders Litig., 789 A.2d 14, 53 (Del. Ch. 2001) (Strine, V.C.) (emphasis in original) (holding that the “question of which party has the burden of proof may be seen as purely procedural. But the question of what the burden of proof is typically constitutes a policy judgment designed to affect the outcome of the court’s decision on the merits.”). 261 Revolution Retail Sys., LLC v. Sentinel Techs., Inc., 2015 WL 6611601, at *9 (Del. Ch. Oct. 30, 2015). 262 Austin v. Judy, 2013 WL 1944102, at *2 (Del. May 9, 2013) (TABLE).
57 performance has the burden of proving entitlement by clear and convincing
evidence.”263
The parties do not disagree with the foregoing general principles, but
defendants argue that, as part of TA’s burden to prove its entitlement to specific
performance, TA also must show that it is not in default of the Merchant Agreement
due to any material breach of the RFID Agreement. For support, defendants cite the
rule in Peden v. Gray that “specific performance will not be granted to a party in
breach of the agreement sought to be enforced.”264 In Peden, the Court denied a
request to specifically enforce a land sales contract because the purported buyer was
not “ready, willing, and able to perform his obligations under the contract.”265 Peden
is readily distinguishable from this case, where defendants do not challenge TA’s
willingness or ability to perform under the Merchant Agreement, but seek to
terminate the Merchant Agreement based on a theory of failure of consideration that
is raised as an affirmative defense and in their counterclaim. 266
263 Peden v. Gray, 2005 WL 2622746, at *3 (Del. Oct. 14, 2005). 264 Id. 265 Id. 266 Dkt. 72. The other case defendants rely on, AQSR India Pvt., Ltd. v. Bureau Veritas Hldgs., Inc., is equally inapposite. The Court in AQSR India denied a motion for judgment on the pleadings by a party seeking specific performance because the party resisting specific performance alleged sufficient facts to show that the other side was in breach of the contract. AQSR India Pvt., Ltd. v. Bureau Veritas Hldgs., Inc., 2009 WL 1707910, at *6-7 (Del. Ch. June 16, 2009).
58 This case is more analogous to In re IBP, Inc. S’holders Litig., where IBP,
Inc. sued Tyson Foods, Inc. to specifically enforce a merger agreement. Tyson
argued that it was entitled to terminate the agreement because, among other things,
IBP breached certain of its contractual representations. 267 Then-Vice Chancellor
Strine held that IBP bore the burden of persuasion to justify its entitlement to specific
performance but further observed:
In this case, IBP’s and Tyson’s respective abilities to perform the Merger Agreement are not disputed. Nor is there any doubt that the Merger Agreement, on its face, is a binding contract setting forth specific rights and duties. What is most at issue is whether Tyson had a right to terminate what appears to be a valid and binding contract, or to rescind that contract because of misrepresentations or material omissions of fact in the negotiating process.268
The IBP Court went on to hold that “a defendant seeking to avoid performance of a
contract because of the plaintiff’s breach . . . must assert that breach as an affirmative
defense” and “bears the burden to show that a breach . . . excused its non-
performance.”269
As was the case in IBP, TA’s and Comdata’s respective abilities to perform
the Merchant Agreement are not disputed. Nor is there any doubt that the Merchant
Agreement, on its face, is a valid and binding contract. What is most at issue is
267 IBP, 789 A.2d at 51-52. 268 Id. at 52-53. 269 Id. at 53.
59 whether Comdata had a right to terminate the Merchant Agreement, as amended,
based on TA’s purported material breach of the RFID Agreement. Under the
reasoning of IBP, defendants bear the burden of proof on that issue.270 To the extent
TA argues that it cured any material breach alleged by defendants, however, TA will
bear the burden to prove that “its proffered cure did, in fact, conform to the terms of
the contract.”271
To be clear, although defendants bear the burden to prove their affirmative
defense to TA’s claim for specific performance (Count II), TA still bears the burden
of proof under Count I, which seeks a declaration that it is not in default of the
Merchant Agreement based on any purported breach under the RFID Agreement.272
D. The RFID Agreement Is Partial Consideration for the Amendment
“Where the language of the contract is clear and unambiguous, its literal
meaning controls the outcome of contract disputes.”273 Thus, I begin my analysis
270 Considering that IBP involved alleged breaches of contractual obligations contained in the agreement sought to be enforced, and this case involves an alleged material breach of a facially separate agreement, the facts here appear to provide stronger support for the conclusion that defendants should bear the burden of proving that Comdata was entitled to terminate the Merchant Agreement based on TA’s alleged failure to perform under the RFID Agreement and that TA indeed materially breached the RFID Agreement. 271 Sinco, Inc. v. Metro-N. Commuter R. Co., 133 F. Supp. 2d 308, 313 (S.D.N.Y. 2001); see also BellSouth Telesensor v. Info. Sys. & Networks Corp., 65 F.3d 166, at *7 (4th Cir. 1995). 272 Dkt. 1 ¶ 107. 273 Stephenson, 2004 WL 383317, at *4.
60 by examining the language of the Amendment. The Amendment’s only reference
to the RFID Agreement appears in the recital, which states, in relevant part, that:
WHEREAS, on December 14, 2011, [TA] and Comdata entered into the FIM Solution Agreement pursuant to which [TA] has agreed to purchase and install RFID (Radio Frequency Identification), a technology distributed exclusively by Comdata, at all of its locations nationwide; and
NOW, THEREFORE, in consideration of the foregoing and the other mutual covenants and agreements described in this Amendment, the parties hereby agree as follows . . . 274
Thus, the Amendment, on its face, suggests that the parties’ entry into the RFID
Agreement was partial consideration for the Amendment.
I do not end the analysis here, however, for two reasons. First, although
recitals “may have a material influence in construing the contract and determining
the intent of the parties, and in such respect they should, so far as possible, be
reconciled with the operative clauses and be given effect,” 275 recitals “do not
ordinarily form any part of the real agreement” and “do not have the force of
contractual stipulations.”276 Second, although the word “consideration” is a legal
274 JX0005 at 1 (emphasis added). 275 In re Pyramid Operating Auth., Inc., 144 B.R. 795, 814 (Bankr. W.D. Tenn. 1992). 276 Id.
61 term carrying particular significance in contract interpretation,277 it is possible that
“consideration” was used in a non-legal way in the recital quoted above. 278
Therefore, I turn to extrinsic evidence to ascertain the parties’ intentions at the time
of contracting.
When TA and Comdata negotiated the Amendment and the RFID Agreement,
they were less than one year into a five-year Merchant Agreement.279 Given this
context, the obvious question that arises is why Comdata would enter into the
Amendment, which ostensibly was against Comdata’s financial interests insofar as
the Merchant Agreement is concerned because the Amendment lowered the recently
negotiated transaction fees it could charge TA and extended the amount of time
Comdata would be locked into those lower fees. Comdata contends that the “very
object” of its entering into the Amendment was to secure TA’s promise to activate
RFID technology. 280 TA argues in response that the principal purpose of the
Amendment was to extend the payment processing relationship between the
parties.281 The great weight of the evidence supports Comdata’s position.
277 See Tr. 891-92 (Young) (discussing the definition of “consideration” in Black’s Law Dictionary). 278 See Tr. 838-39 (Young) (testifying that “in consideration of” means “in light of” as used in the recital). 279 PTO ¶ 1. 280 Defs.’ Answering Post-Trial Br. 34. 281 Pl.’s Post-Trial Opening Br. 53.
62 First, contemporaneous documentary evidence concerning the negotiation of
the Amendment and the RFID Agreement supports Comdata’s position. When TA
and Comdata started exchanging drafts of the two agreements, O’Brien told
Comdata that “[i]t’s important to me to have all the agreements done
simultaneously.”282 TA’s initial proposal for the Amendment in fact tied the lower
transaction fees directly to the deployment of RFID on a site-by-site basis. 283
Comdata removed this condition in later drafts only because of certain technological
limitations on its ability to charge TA different rates at different locations. 284
Furthermore, when Comdata sent its first draft amendment to TA, it reduced TA’s
requested extension from twenty years (until 2036) to six years (until 2022),285 an
action much more consistent with Comdata’s position than TA’s.
Second, the record is devoid of any plausible evidence that could support the
notion that Comdata was so interested in extending its relationship with TA in late
2011 that it was willing to lower the rates it contractually was entitled to charge TA
for another four years (i.e., from December 31, 2011 to January 2, 2016) just to
secure an extension of the Merchant Agreement. To the contrary, Stevenson testified
282 JX0055 at 1. 283 JX0058 at 12; Tr. 121-22 (O’Brien). 284 Tr. 122 (O’Brien); Tr. 456-58 (Morgan). 285 JX0065 at 6; JX0073 at 4.
63 that Comdata would not have agreed to the Amendment unless TA agreed to install
the RFID technology.286 Reinforcing the point, Stevenson was emphatic that when
he first pitched the RFID idea to TA, it “didn’t even cross [his] mind” to ask for an
extension of the Merchant Agreement, it “was really TA’s request to Comdata to
extend this agreement. It was, you know, as part of the discussions on the – does
TA go with Comdata’s cardless solution.”287 This is consistent with O’Brien’s own
testimony that “Comdata didn’t ask [TA] for an extension,”288 but that, having just
finished a very “tough” negotiation with Comdata over the 2010 Merchant
Agreement, O’Brien was interested in extending the Merchant Agreement to avoid
renegotiating with Comdata again four years down the road, especially if Comdata
was going to be acquired by another company. 289 The length of the Merchant
Agreement, as amended, is even more remarkable considering that Comdata’s
standard practice was to enter into three- to five-year agreements with large
merchants.290
286 Tr. 241-42 (Stevenson). 287 Tr. 284 (Stevenson). 288 Tr. 162 (O’Brien). Tr. 139; 145-47 (O’Brien). See also JX0294; Tr. 167-69 (O’Brien) (testifying that in 289
2013, TA tried to “sell” Comdata another contract extension in exchange for something Comdata wanted at that time, but it did not work). 290 Tr. 455 (Morgan).
64 Third, the circumstances in the industry surrounding the negotiation of the
two agreements support that the RFID Agreement was at least partial consideration
for the Amendment.291 In the fall of 2011, when Stevenson reached out to O’Brien
regarding the RFID technology, the biggest truck-stop chain, Pilot, already had
teamed up with Comdata’s competitor EFS in launching Zonar. In Stevenson’s own
words, “Comdata’s whole strategy” then was to “secure Love’s and TA, Number 2
and 3 in the industry.”292 O’Brien knew Comdata was anxious to launch RFID to
stay competitive, and he seized upon this opportunity to obtain what he wanted from
Comdata in return, suggesting to Comdata that it “had competition to get TA to
deploy [its] cardless solution.”293
Considering all of this evidence, as well as (1) O’Brien’s testimony that he
actually was “dubious” about the future of the RFID technology at the time TA
entered into the RFID Agreement,294 (2) Stevenson’s testimony that “it really wasn’t
a major driver of [Comdata’s] to extend” the Merchant Agreement, 295 and (3)
291 Stephenson, 2004 WL 383317, at *4 (“The language of a contract should be construed with reference to the situation of the parties, the business to which the contract relates, the subject matter of the agreement, the circumstances surrounding the transaction, and the construction placed on the contract by the parties in carrying out its terms.”). 292 Tr. 272 (Stevenson). 293 Tr. 126-30 (O’Brien). 294 Tr. 131 (O’Brien). 295 Tr. 284 (Stevenson).
65 Morgan’s testimony that based on his thirty-year experience in the business, he saw
“zero” business benefit to Comdata in agreeing to an extension of the Merchant
Agreement absent the RFID Agreement, 296 I find that when TA and Comdata
executed the Amendment and the RFID Agreement, the main bargain was that
Comdata would lower TA’s rates and extend the Merchant Agreement, in exchange
for TA’s promise to deploy the RFID technology. As O’Brien testified:
Q. They proposed RFID terms. You counter-proposed with an extension. Correct? A. That’s fair.297
In support of its position that the principal purpose of the Amendment was to
extend the parties’ payment processing relationship, TA relies on a portion of
Stevenson’s testimony and the testimony of its in-house counsel (Young), who
drafted the recitals in the Original Amendment and the Amendment referencing the
RFID Agreement.
Young testified that he added to the draft amendment the “WHEREAS” clause
memorializing the execution of the RFID Agreement only to provide context for the
term “FIM Solution,” which was referenced in Section 1 of the Original
Amendment.298 But when Young revised the Original Amendment on January 5,
296 Tr. 455 (Morgan). 297 Tr. 163 (O’Brien). 298 Tr. 836-37, 877-79 (Young); JX0074 at 4.
66 2012, taking out the reference to “FIM Solution” in Section 1, not only did he not
delete the recital referencing the RFID Agreement, he actually revised the relevant
recital to make sure it accurately reflected the date the RFID Agreement was entered
into.299 Young’s failure to remove the recital as well as his affirmative revision to
add the date of the RFID Agreement contradict his assertion that the reference to the
RFID Agreement was just to provide context.
Young also testified that he added the words “foregoing and the other” after
the phrase “NOW, THEREFORE, in consideration of the” because it was “just a
pretty standard way that [he] draft[s] agreements” to provide “reference to what
came before and the other mutual covenants which come after.” 300 When pressed
on the subject, Young admitted that he did not actually remember making these
changes, and he could only “surmise from looking at the document why [he] would
have done it.”301 In other words, Young’s testimony about his intentions when he
drafted the Original Amendment and the Amendment was an after-the-fact
reconstruction that is entitled to little weight and does not overcome the great weight
of evidence, discussed above, establishing that execution of the RFID Agreement
was at least partial consideration for the Amendment.
299 Tr. 881-89 (Young); JX0091 at 2. 300 Tr. 837-38 (Young). 301 Tr. 861-62, 836 (Young).
67 TA also points to a portion of Stevenson’s deposition testimony where he
stated that he decided to extend the Merchant Agreement because he “wanted TA to
accept the Comdata cards,” and he “personally was trying to develop a friendly
relationship” with the merchants, including TA.302 In weighing this evidence, the
circumstances under which Stevenson testified bear mention. Stevenson, who
retired from Comdata in 2013,303 did not appear at trial and was first approached
about this litigation by O’Brien in December 2016.304 His testimony was provided
through video excerpts of his deposition taken in February 2017, during which TA’s
counsel asked questions scripted from a draft affidavit they had prepared for
Stevenson to sign (he never did) in an attempt to lock down his testimony without
Comdata’s involvement shortly after this case was filed. Although Stevenson
engaged his own counsel after O’Brien approached him, his counsel did not attend
the deposition.305
Having listened carefully to the video excerpts at trial and re-reviewed the
entirety of the trial transcript of that testimony since then, I find that Stevenson’s
testimony at times was confusing and imprecise and reflected a poor recall of some
302 Tr. 288 (Stevenson). 303 Tr. 224 (Stevenson). 304 Tr. 230-31 (Stevenson). 305 Tr. 223 (Stevenson).
68 important aspects of the dealings between TA and Comdata. Stevenson, for
example, had not recalled that the Amendment reduced TA’s rates—a rather
significant fact—until he was reminded by someone shortly before his deposition.306
The one point on which Stevenson was clear and emphatic, however, and which I
credit as reflective of Comdata’s intentions at the time, is that the proposal to extend
the term of the Merchant Agreement came from TA after Comdata had approached
TA to implement the RFID technology, that it “never crossed” his mind “to extend
the contract” before then, and that Comdata would not “have agreed to amend TA’s
merchant agreement unless TA agreed to install RFID technology.” 307
In sum, based on all the evidence of record, I conclude that the RFID
Agreement was at least partial, although perhaps not full, consideration for the
Amendment. Whether the RFID Agreement was partial or full consideration is
immaterial for purposes of this case, moreover, because under Tennessee law, even
a partial failure of consideration could allow rescission of a contract if the failure
affects “the very object of the contract or concerns a matter of such prime importance
that the contract would not have been made if the parties had expected or
contemplated that particular default.”308
306 Tr. 281-82 (Stevenson). 307 Tr. 241-42, 281-82, 287 (Stevenson). 308 Eldredge I, 1994 WL 287574, at *1.
69 E. Any Purported Breach by TA of the RFID Agreement Did Not Affect the Very Object of the Amendment
At its core, defendants’ contention is that TA launched the RFID technology
too late, and that the delay constituted a failure of consideration that affected the
very object of the Amendment. Although it is not entirely clear from the record or
defendants’ submissions when they think the contractual deadline for TA’s
performance should have been, defendants contend that it already was too late by
the time Comdata sent TA the notice of default in September 2016.309
The RFID Agreement itself contains no specific deadline for TA’s launch of
the RFID technology. It provides, in Section 5, only that “Comdata and [TA] will
reasonably cooperate to integrate the FIM system and [TA]’s point of sale and/or
other relevant systems and to complete that integration as soon as reasonably
practical.”310 In their responses to TA’s first set of interrogatories, defendants assert
that TA first breached this provision of the RFID Agreement “no later than August
2013.”311 It is undisputed, however, that Comdata and FleetCor never informed TA
before the September 7, 2016 notice of default that they believed TA was in breach
of the RFID Agreement or the Merchant Agreement, or requested that TA do
309 See generally Defs.’ Answering Post-Trial Br. 39-48. 310 JX0003 §5 (emphasis added). 311 JX0648 at 10.
70 anything different with respect to the RFID technology from what TA was doing.312
Despite this apparent inconsistency, defendants contend that they have been
deprived of the benefit of their bargain in connection with the Amendment.
Defendants did not sustain their burden of proof on this issue.
1. Defendants’ “Technology Window” Argument Finds No Support in the Parties’ Negotiation History or Subsequent Conduct
Defendants first argue that the consideration Comdata received in entering
into the Amendment was TA’s promise to launch the RFID technology before the
“technology window” closed. They further argue that the technology window for
RFID had closed by 2016, and thus “[b]y definition, . . . the consideration TA
promised to Comdata in return for the Amendment failed unless” TA’s delay was
excused.313 Defendants, however, did not offer any credible evidence that could
support a finding that the concept of a “technology window” was part of the bargain
312 See, e.g., Tr. 101-03 (O’Brien); Tr. 316 (Rowe); Tr. 495-97, Tr. 504-10 (Morgan); Tr. 748-51 (Secord). Comdata also represented to FleetCor in their merger agreement, dated as of August 12, 2014, that the Merchant Agreement—which was scheduled as one of Comdata’s “Material Contracts”—was “valid and binding and in full force and effect” and that, to Comdata’s knowledge, no other party thereto has “failed to perform any act which . . . would constitute a material default under any provision” thereof. JX0350 at 29-30; JX 352 at 32. Although the Amendment was not expressly referenced in the schedule of Material Contracts, it would be reasonable to assume that the reference to the Merchant Agreement was intended to include any amendments thereto as of the date of the merger agreement, which would include the Amendment. 313 Defs.’ Answering Post-Trial Br. 40.
71 when the parties entered into the Amendment or the RFID Agreement. The
argument instead appears to be a post-hoc fabrication.
To start, the RFID Agreement itself makes no mention of any “technology
window.” Comdata also did not offer any evidence—contemporaneous with the
negotiation of the RFID Agreement and the Amendment or at any time during the
five years after the two agreements were executed—indicating that TA promised to
launch the RFID technology in all of its locations before any so-called “technology
window” would close.314 The contractual obligation that TA does have under the
RFID Agreement—to complete “integration as soon as reasonably practical”—thus
has no apparent connection to any “technology window.”
Notably, Comdata also did not refer to the allegedly closed “technology
window” in its September 7, 2016 notice of default, or in its November 2 notice of
termination to TA.315 Indeed, Comdata’s offering of a thirty-day cure period in its
September 7 notice of default and its continuing acceptance of TA’s payment for
RFID equipment after September 2016 is in tension with its litigation position that
314 See Defs.’ Answering Post-Trial Br. 39-40. TA’s counsel pointed out during oral argument that “[t]he concept of a technology window appears no place in any of the exhibits anywhere. The first time it gets inserted into the record is when Mr. Secord testified on the third day of trial.” Tr. Oral Arg. 151. Comdata’s counsel did not offer any rebuttal on this point. 315 See JX0500; JX0604.
72 cure was impossible because the window for the RFID technology had closed by
September 2016.316
The only substantive reference in the record to a “technology window” came
from Secord’s testimony at trial. Essentially, Secord testified that he concluded in
2016 that the window for the RFID technology had closed.317 Even assuming that
Secord’s conclusion with respect to the technology window is correct,318 it has no
bearing on whether Comdata failed to obtain the benefit of its bargain in connection
with the Amendment. Secord joined Comdata in July 2015. His testimony regarding
a “technology window” cannot speak to the parties’ intentions in 2011, and thus is
316 See Birkholz v. Hardy, 2004 WL 1801736, at *1 (Tenn. Ct. App. Aug. 11, 2004) (“In ascertaining the intentions of the parties, the court may look to the prior course of conduct between the parties. In this regard, a party will not be heard to take a position inconsistent with his admitted previous course of conduct.”). Comdata argues that it offered TA the cure period as an “exercise of maximum caution.” Tr. Oral Arg. 126. But this argument finds no support in the record. Cf. JX0515 (letter from Peerman to O’Brien dated September 21, 2016) at 1 (“Comdata has been and remains ready for TA to bring the system live.”); JX0617 (letter from Secord to O’Brien dated December 9, 2016) at 2 (“We are disappointed that . . . TA still did not fully implement RFID after receiving our letter providing a 30-day cure period.”). 317 See, e.g., Tr. 622-12, 650, 656-57 (Secord). 318 Secord’s testimony about a “technology window” being closed conflicts with certain contemporaneous documents. First, as recently as May 2016, Comdata considered a “Potential Acquisition of QuickQ” in order to leverage the “Big 3 … to make RFID [the] market standard” as a “Go-forward strategy for Merchant Business.” JX0458 at 2. Second, in July 2016, Secord reported to other senior officials at Comdata and FleetCor that Comdata had “[m]ade [a] ‘deal’ proposal to Quick Q. JX0466 at 35.
73 of no aid in determining what TA promised Comdata at that time with respect to the
RFID technology.
Not only does defendants’ “technology window” argument lack evidentiary
support, it seems highly improbable when considered against the background of the
relevant transactions. TA was the first trucking merchant that contracted with
Comdata to purchase and install the RFID system. 319 Both Stevenson and O’Brien
testified that as of 2011, many uncertainties existed regarding the future of the RFID
technology: it was a new product; it was subject to competition from Zonar; and it
posed certain challenges to trucking companies that otherwise might be interested in
the technology, e.g., it could only be used to purchase fuel and not for other
purchases, such as for food or lodging.320 No prediction was made in 2011 as to
when the RFID technology window—if such a concept ever was discussed—would
close.321 Thus, it seems highly unlikely in my view that TA would have committed
itself to an undetermined, and possibly undeterminable, deadline when it entered
into the RFID Agreement with Comdata.
As a last resort, defendants rely on Hifn, Inc. v. Intel Corp., a case under
Delaware law, for its position that a “technology window” is relevant to determine
319 JX0647 at 4. 320 Tr. 31, 43, 131 (O’Brien); Tr. 248-49, 256-58 (Stevenson). 321 See JX0110 at 34; Tr. 311-12 (Rowe).
74 what a reasonable time to perform should be.322 Hifn is distinguishable. In that case,
Intel Corporation entered into a contract with Hifn, Inc. in which Intel promised to
pay Hifn $2 million to develop certain network encryption technology. 323 The
contract contained “target dates” for completion of each stage of the project, which
could “be modified only upon the occurrence of certain conditions.”324 Based on a
summary judgment record, the Court found that “during the negotiations between
Intel and Hifn, both parties knew that, due to the nature of the TopCat technology,
time to market was critical for the TopCat project,” that “although the contractual
target dates called for completed performance in about eight months, it took Hifn
more than twenty-seven months to finish the job—more than three times longer than
expected,” and that “Hifn itself characterized the delays as ‘significant.’”325 As a
result, the Court concluded that Hifn “committed a total breach of the contract” for
failure to perform within a reasonable time.326
The reference to a “market window” in Hifn is logical and unsurprising
because, unlike in this case, both parties in Hifn “understood that the market window
322 Tr. Oral Arg. 96-97. 323 Hifn, Inc. v. Intel Corp., 2007 WL 1309376, at *1 (Del. Ch. May 2, 2007) (Strine, V.C.). 324 Id. at *4, 11. 325 Id. at *3, 8, 12. 326 Id. at *1.
75 for the TopCat chip would require it to be available by the end of 2003.”327 Indeed,
Hifn “missed its own estimation of the market window by over a year.”328 To put it
differently, the relevant “market window” informed the Hifn Court’s determination
of a reasonable time to perform because it formed part of the parties’ shared
expectations when they contracted with each other. Here, no credible evidence
exists that would allow the Court to make a similar finding of the parties’ shared
intentions.
2. TA Substantially Performed Its Obligation to Reasonably Cooperate to Complete the RFID Integration as Soon as Reasonably Practical
Defendants next argue that TA materially breached its obligation under
Section 5 of the RFID Agreement to complete the integration of its POS system with
the RFID system “as soon as reasonably practical.”329 Defendants bear the burden
of proof on this issue.330
The RFID Agreement does not provide any definition for the term “as soon
as reasonably practical,” and the parties provided no legal authority, under
Tennessee law or otherwise, interpreting the term.331 TA cites a Tennessee Court of
327 Id. at *12. 328 Id. at *1. 329 JX0003 at 2. 330 See supra. III.C. 331 See Tr. Oral Arg. 94.
76 Appeals decision, Madden Phillips Construction, Inc. v. GGAT Development
Corporation, which holds that “[a] party’s failure to complete a construction project
within a time for completion does not constitute material breach absent a provision
making time of the essence.”332 Defendants concede that this case does not involve
a “time-is-of-the-essence contract,”333 but that concession is not dispositive.
Citing one of its earlier decisions, Minor v. Minor, 334 the Tennessee Court of
Appeals also recognized in Madden Phillips that, under Tennessee law, “[i]f there is
no agreed date for completion, courts may imply a reasonable time for
performance.”335 As the Court stated in Minor, “[w]hat constitutes a reasonable time
within which an act is to be performed where a contract is silent upon the subject
depends on the subject matter of the contract, the situation of the parties, their
intention in what they contemplated at the time the contract was made, and the
circumstances attending the performance.”336
332 Madden Phillips Constr., Inc. v. GGAT Dev. Corp., 315 S.W.3d 800, 818 (Tenn. Ct. App. 2009). 333 Tr. Oral Arg. 94-95. 334 Minor v. Minor, 863 S.W.2d 51, 54 (Tenn. Ct. App. 1993). 335 Madden Phillips, 315 S.W.3d at 822. 336 Minor, 863 S.W.2d at 54 (quoting 17A Am. Jr. 2d Contracts § 480 (1991)).
77 Defendants did not discuss Madden Phillips or Minor in their post-trial brief,
but instead relied on non-Tennessee authorities for the proposition that even if time
was not of the essence, failing to perform within a reasonable period of time is a
material breach of contract.337 Like Minor, the cases defendants cite recognize that
determining what constitutes a reasonable amount of time for performance where
the contract is silent on the subject is a fact-specific inquiry.338 Applying the rule
defendants advocate, which appears to be consistent with Minor, I conclude that TA
did not materially breach the RFID Agreement because TA reasonably cooperated
with Comdata to complete the RFID integration into its POS system within a
reasonable period of time, i.e., “as soon as reasonably practical.”
Although, as mentioned above, the RFID Agreement does not provide any
definition for the term “as soon as reasonably practical,” the drafting history and
surrounding text are instructive. Notably, it was O’Brien who proposed this
337 Defs.’ Answering Post-Trial Br. 41-42 (citing Hifn, Inc. v. Intel Corp., 2007 WL 1309376, at *11 (Del. Ch. May 2, 2007); Lee-Scott v. Shute, 2017 WL 1201158, at *6-7 (Del. Com. Pl. Jan. 30, 2017); Hadley v. Krolick, 1999 WL 1847376, at *4 (Del. Com. Pl. May 24, 1999); Int’l Prod. Specialists, Inc. v. Schwing Am., Inc., 580 F.3d 587, 597-98 (7th Cir. 2009); Jafari v. Wally Findlay Galleries, 741 F. Supp. 64, 67-68 (S.D.N.Y. 1990)). 338 See, e.g., Int’l Prod. Specialists, 580 F.3d at 597 (“What constitutes a reasonable time for performance given the facts of the case is again a question of fact to which we defer to the district court.”); Jafari, 741 F. Supp. at 67 (“a reasonable time … depends on the nature, purpose and circumstances of such action”) (quoting New York’s UCC 1-204(2)).
78 language on behalf of TA in his initial markup of the RFID Agreement, when he
added the following:
Subsequent to the date of this agreement, Comdata and [TA] will reasonably cooperate to integrate the FIM system and TA’s point of sale and/or other relevant systems and to complete that integration as soon as reasonably practical. Comdata understands that a portion of the process of integration will need to be coordinated between Customer and [TA’s] vendors and that [TA] will direct its vendors in [TA’s] discretion and at [TA’s] cost. . . . Comdata and [TA] will reasonably cooperate regarding the installation and initial set up of the FIM Software.339
Comdata substantially accepted this insertion in a later draft.340 Therefore, TA’s
obligation to “complete the integration as soon as reasonably practical” should be
viewed in the context of the parties’ mutual obligation to “reasonably cooperate”
and TA’s discretion to direct its vendors as it sees fit.
As noted above, defendants contend that TA first failed to “reasonably
cooperate to integrate the FIM System and TA’s point of sale and/or other relevant
systems and to complete that integration as soon as reasonably practical” in August
2013.341 Thus, defendants do not challenge TA’s diligence before August 2013.
Indeed, the trial evidence establishes that TA worked closely with Comdata during
the first two years of the installation process, including on the short canopy issue
339 JX0058 at 14-15 (emphasis added). 340 JX0069 at 3. 341 JX0648 at 10.
79 that mainly was caused by Comdata’s failure to adequately diligence the RFID
system.342 TA made good progress during this period: it completed Phase 1 of the
RFID rollout by November 2012,343 Phase 2 of the rollout by April 2013,344 and
finished initial installation of the RFID hardware at all of its locations by December
2013.345
The close coordination between TA’s and Comdata’s RFID personnel ended
in August 2013, when a Comdata director suggested discontinuing the project team’s
weekly calls in order for Comdata to focus on “new customers coming on board to
get them ramped as quickly as possible to make our 2013 numbers.” 346 It is not
entirely clear from the record how often TA and Comdata engaged in discussions
about RFID from that point on,347 but it is clear that Comdata was aware of TA’s
switch from TravStar1 to Retalix no later than August 2013,348 and that Comdata
was aware of the water damage problems TA experienced in 2014.349 Despite its
342 JX0221 at 1 (internal Comdata email noting that “as the year progressed, it became very apparent the proper due diligence on this product was not done on the front end.”). 343 JX0237 at 2; Tr. 335-36 (Rowe). 344 JX0271. 345 Tr. 344-45 (Rowe). 346 JX0290 at 1; JX0295. 347 Tr. 101, 189 (O’Brien); Tr. 245 (Stevenson); Tr. 495-96 (Morgan); Tr. 316-17 (Rowe). 348 JX0301 at 1; Tr. 558 (Morgan); Tr. 245, 291-92 (Stevenson). 349 Tr. 346-47 (Rowe); JX0335.
80 awareness of these two issues that were causing delays to TA’s RFID installation,
Comdata never once expressed to TA any dissatisfaction with TA’s RFID rollout
effort until the September 2016 notice of default.350 Comdata’s three-year silence
fundamentally undermines its contention that TA did not reasonably cooperate to
complete the RFID installation as soon as reasonably practical, or that the purported
delay was material. As the Tennessee Court of Appeals stated many years ago, “a
course of conduct pursued by the parties is the very strongest evidence of what
contracting individuals originally intended.”351
It also was reasonable in my view for TA to defer launching RFID at all of its
locations until it had finished replacing TravStar1 with Retalix.352 The RFID system
350 Tr. 101-03 (O’Brien); Tr. 504-10 (Morgan); Tr. 748-50 (Secord). 351 Frierson, 148 S.W.2d at 37; see also Johnson v. Welch, 2004 WL 239756, at *8 (Tenn. Ct. App. Feb. 9, 2004) (holding as to reasonableness regarding time of performance that “[t]he course of conduct of the parties is strong evidence of the parties’ original intent.”). At oral argument, defendants’ counsel contended that no negative inference should be drawn from Comdata’s silence because if TA’s TravStar1 system was too unstable to support the RFID software, as TA now contends, then it would make no difference whether or not Comdata had asked TA to launch the RFID system earlier. Tr. Oral Arg. 84-86. The flaw in this argument is that there is no evidence suggesting that Comdata believed at the time that it was impossible for TA to run RFID on TravStar1. Indeed, defendants continued arguing, post-trial, that TA could have run RFID on TravStar1 as it was transitioning to Retalix. See Defs.’ Answering Post-Trial Br. 44; Tr. Oral Arg. 91. 352 I focus on the delay caused by TA’s POS system switch because the period of delay caused by the water damage issue substantially overlapped with, and was shorter than, the delay caused by the POS system switch. In addition, evidence at trial suggests that the water damage problem arose partially because of a deviation from the RFID equipment installation guide that was recommended by Velociti and approved by QuikQ. Thus, under Tennessee law, TA likely would be excused from liability for the resulting delay. See Anil Constr. Inc. v. McCollum, 2015 WL 4274109, at *6, 12 (Tenn. Ct. App. July 15, 2015)
81 is an add-on feature to, and thus can only operate with, a working POS system.353 In
early 2013, TA’s then-POS system—TravStar1—was “too unstable to support
[TA’s] business” and as a result TA decided to replace TravStar1 with Retalix, a
different POS system that had been used for years by Pilot and Love’s.354
The parties dispute whether TA could have run RFID on TravStar1 even as it
was transitioning to Retalix. 355 The only evidence in the record on this issue
concerns the fact that, in late 2016, after receiving Comdata’s notice of default, TA
ran RFID for approximately four to eight weeks in more than two dozen sites that
were still running TravStar1.356 Rowe testified that TA took this action because of
the small number of sites and the short period of time involved, and that TA could
not have turned RFID on before then because running the system on too many
TravStar1 sites for an extended period of time would have created an unacceptable
level of risk of further destabilizing TravStar1.357 Defendants did not put forward
(affirming trial court’s finding that defendant “did not breach the contract by failing to timely complete his obligations” because “although construction was undisputedly delayed, the delay was not solely the fault of” defendant. Instead, “unfavorable weather, the delays of other subcontractors, and [plaintiff’s principal]’s many requests caused much of the delay.”). 353 Tr. 425 (Rowe); Tr. 722 (Secord). 354 JX0317 at 4; Tr. 340-42, 373-74 (Rowe); Tr. 95 (O’Brien). 355 Defs.’ Answering Post-Trial Br. 44; Pl.’s Post-Trial Opening Br. 19. 356 Tr. 320-22, 383 (Rowe). 357 Tr. 320-21, 384 (Rowe).
82 any evidence to contradict Rowe’s testimony, 358 which I generally found to be
credible and credit here.359
Defendants also contend that TA breached the RFID Agreement by
prioritizing its DEF rollout over the RFID rollout. As an initial matter, TA’s
obligation under the RFID Agreement was to “reasonably cooperate” to launch the
RFID system “as soon as reasonably practical.” TA was not obligated to treat the
RFID project as its top priority. Moreover, although the DEF rollout in January
2013 revealed how unstable TravStar1 was, TA had issues with TravStar1 long
before the DEF rollout, as Comdata was aware.360
358 Defendants’ inability to marshal such evidence can be attributed to their three-year silence from 2013 to 2016. Had defendants inquired even once about whether TA could turn on RFID before it substantially completed its POS system transition, it stands to reason that there would have been contemporaneous documents assessing the feasibility of doing so. 359 Evidence in the record also establishes that TA and Comdata both knew, before they entered into the RFID Agreement, that QuikQ was not fully compatible with TravStar1. Thus, it is understandable that TA had concerns about further destabilizing its POS system if it launched RFID at too many TravStar1 sites. See JX0049 at 1 (Stevenson informing O’Brien on Nov. 10, 2011 that “Quik-Q today is only fully interfaced with Retalix”); JX0122 at 4 (Comdata internal document dated March 16, 2012 noting “[o]ne concern [TA] continue[s] to bring up is when [Comdata] will have all the development done . . . to integrate into their POS.”). 360 See Tr. 94-95, 175-76 (O’Brien); JX0042 (email from Patton to Morgan and Stevenson dated October 17, 2011: “I believe [TA’s] frustration with fiscal continues to escalate.”); JX0048 at 1 (email from Stevenson to Morgan dated November 6, 2011, “We also have the Comdata POS software as a bargaining tool as we understand [TA is] struggling with their current solution.”).
83 In view of the above, I conclude that TA acted reasonably in not launching
the RFID software on its TravStar1 system before September 2016 because of the
stability problems it was experiencing with TravStar1. TA also acted reasonably in
not turning on the RFID software location-by-location as it was transitioning to
Retalix from 2013 to 2016. At the RFID project kickoff meeting in February 2012,
TA and Comdata agreed that the RFID system should not be launched until
installation was complete at all TA sites,361 and in the subsequent four and half years,
no one at TA or Comdata ever suggested that TA should deviate from this mutually
agreed-upon launch plan. 362 Thus, TA should not be faulted for failing to
“reasonably cooperate” when it adhered to the parties’ shared expectations all along.
Finally, defendants contend that “the best evidence that TA failed to perform
‘as soon as reasonably practical’ is the fact that Love’s had RFID up and running by
2013.”363 But it is undisputed that (1) Love’s contracted directly with QuikQ, not
Comdata, with respect to its RFID implementation, and neither party focused on
whether Love’s contractual obligations were similar to TA’s under the RFID
Agreement;364 (2) Love’s used the Retalix POS system, which was compatible with
361 Tr. 337-39 (Rowe). 362 Tr. 98 (O’Brien); Tr. 339-40 (Rowe); Tr. 566-68 (Morgan); Tr. 750 (Secord). 363 Defs.’ Answering Post-Trial Br. 45-46. 364 Tr. 569-70 (Morgan).
84 QuikQ during the relevant time period;365 and (3) Love’s had only eight sites with
short canopy issues while TA had up to 145 short canopy sites to deal with.366 Given
the dramatic differences between the circumstances surrounding Love’s and TA’s
RFID rollout, I see no basis to draw any inference about the timeliness of TA’s
performance from the speed with which Love’s allegedly completed its RFID
integration.
3. Comdata’s Own Material Breach of the RFID Agreement Excuses Any Purported Failure to Cure by TA
TA argues that even assuming arguendo that it failed to “reasonably
cooperate” to integrate the RFID system “as soon as reasonably practical” as of
September 2016, the trial evidence still establishes that TA cured any purported
material breach by substantially completing RFID integration by October 13, 2016,
the last day of the cure period.367 TA bears the burden of proof on this issue.368
In Tennessee, “substantial compliance with the contract upon the part of the
complainant [i]s all that the law require[s].”369 On October 13, 2016, TA notified
365 Tr. 175 (O’Brien). 366 JX0239 at 5. 367 See Biancheri v. Johnson, 2009 WL 723540, at *11 (Tenn. Ct. App. Mar. 18, 2009) (holding that if the breach is cured, all parties must perform their obligations). 368 See supra. III.C. 369 Mullins v. Greenwood, 1927 WL 2222, at *5 (Tenn. Ct. App. Dec. 20, 1927); see also 21 Tenn. Prac. Contract Law & Practice § 11:11 (“In Tennessee, the termination of a
85 Comdata concerning the status of the installation of the RFID system at its “224
company travel center locations:”
We are substantially complete in that we are currently accepting RFID transactions at 201 travel centers. As to the remaining 23 sites, we are repairing damaged equipment at 1 site and we will install the System at 22 sites as soon as we receive the equipment and software licenses which are waiting on from Comdata.370
In other words, according to TA, as of the last day of the cure period, it was accepting
RFID transactions at approximately 90% of its locations. Despite TA’s
representation of substantial compliance by October 13, defendants argue that TA
did not cure the purported material breach for three reasons.
First, defendants argue that RFID was not “up and running at all of [TA’s]
locations,” but at only 90% of the sites. 371 Setting aside that 90% completion
probably satisfies the “substantial compliance” requirement under Tennessee law,372
the trial evidence establishes that the 10% of locations that were not completed were
substantially complete contract constitutes a material breach of contract because substantial completion of a project equates to substantial performance of the contract.”). 370 JX0565; Tr. 322-24 (Rowe). According to Rowe, all but one of the twenty-two sites for which TA was waiting for equipment or software licenses were completed by December 31, 2016. Tr. 324 (Rowe). 371 Defs.’ Answering Post-Trial Br. 49-50. 372 See Madden Phillips, 315 S.W.3d at 816 (“By allowing Madden Philips to complete ninety percent of the project without further objection, GGAT waived its right to assert Madden Philips’ wrongful suspension as the first material breach of the parties’ contract.”).
86 waiting for equipment and software from Comdata.373 Under Section 4 of the RFID
Agreement, TA must obtain the RFID software from Comdata,374 and under Section
5 of the RFID Agreement, Comdata is obligated to ship the RFID system to each
location designated by TA. 375 It is undisputed that, as of September 2016,
Comdata’s contract with QuikQ had expired and Comdata thus did not have a
contractual arrangement in place with QuikQ during the cure period to supply the
equipment and software ordered by TA.376 Although Comdata worked with QuikQ
to eventually secure the equipment, which arrived after the cure period, Comdata’s
failure to have a contract in place with QuikQ at that time likely added to the delay
in the installation process.377
Second, defendants argue that TA did not in fact know “whether RFID
transactions were actually being processed” as of October 13, 2016. 378 Although
TA was able to determine that substantially all of its locations were capable of
reading RFID tags and processing RFID transactions, 379 the only reason that TA
373 JX0565; Tr. 322-24 (Rowe). 374 JX0003 § 4(b)(3). 375 JX0003 § 5. 376 JX0484; JX0537 at 10. 377 JX0525; JX0526; Tr. 320, 324 (Rowe). 378 Defs.’ Answering Post-Trial Br. 49. 379 Tr. 322-25 (Rowe).
87 could not know which sites were actually processing RFID transactions was that
Comdata refused to share that information with TA. The evidence shows that in
October 2016, a Comdata employee inadvertently provided TA with some aggregate
RFID transaction data, but was instructed by his superiors not to send TA “anything
further” shortly thereafter.380 In Secord’s words, the “service associate shared the
spreadsheet . . . without thinking twice . . . Not sure that this changes much, but [TA]
clearly now know[s] we have an ability to track and that we are doing so.”381
Third, defendants argue that the test results from their secret visits to TA sites
show that “TA was not able to process RFID transactions at all of the locations where
it claimed to have had hardware installed. Comdata visited nearly 10 percent of the
locations that TA claimed were operational . . . and the test transactions failed at half
of those locations.”382 But defendants’ testing, which breached a requirement in the
RFID Agreement that Comdata provide TA “reasonable prior notice” before
auditing TA locations,383 was flawed. Testers did not present the RFID tags at the
fueling lanes in standard eighteen-wheelers, for which the RFID system was
designed, but instead drove up in whatever cars they had, and in some cases, were
380 JX0579; JX0592; JX0593; Tr. 324-25 (Rowe). 381 JX0593. 382 Defs.’ Answering Post-Trial Br. 50. 383 JX0003 § 4(f).
88 not even in vehicles but waved the tag around in person.384 In addition, although
Secord testified that driver training was necessary to use the RFID technology, he
acknowledged that some of the testers were sales associates who did not have the
necessary training.385 Aside from the flawed testing methods, TA also disputes the
accuracy of defendants’ assertion that “test transactions failed at half of those
locations” based on defendants’ own reports.386
In Roy McAmis Disposal Serv., Inc. v. Hiwasee Sys., Inc., the Tennessee Court
of Appeals held that “[t]he party who violates a material provision of a contract will
not be heard to complain of a later violation of a similar nature by the other party to
the contract.”387 Taking into consideration the foregoing arguments and the evidence
of record, I conclude that although TA could not affirmatively show how many of
its sites were actually processing RFID transactions by the end of the cure period—
due to Comdata’s refusal to share necessary information with TA—TA has sustained
384 Tr. 800-01 (Secord). 385 Tr. 746, 801-02 (Secord). 386 See Pl.’s Post-Trial Reply Br. 17; Tr. 802-07 (Secord). But see Defs.’ Answering Post- Trial Br. 50-51; Tr. 825-26 (Secord). 387 Roy McAmis Disposal Serv., Inc. v. Hiwasee Sys., Inc., 613 S.W.2d 226, 228 (Tenn. Ct. App. 1979).
89 its burden to prove that any purported failure to cure should be excused because of
Comdata’s own material breach of its obligations under the RFID Agreement.388
As discussed previously, both TA and Comdata were obligated to “reasonably
cooperate to” complete the integration of the RFID system “as soon as reasonably
practical.”389 Comdata materially breached this obligation by letting its contract
with QuikQ lapse and by refusing to share necessary information with TA so that
TA could complete the RFID integration as soon as reasonably practical.390 Thus,
in my opinion, any purported failure by TA to cure any alleged material breach of
the RFID Agreement is excused by Comdata’s own material breach of its obligation
to “reasonably cooperate.”
* * * * *
For the reasons explained above, I conclude that the RFID Agreement was
partial consideration for the Amendment, but that Comdata was not entitled to
388 See id. (“In Tennessee, the termination of a substantially complete contract constitutes a material breach of contract because substantial completion of a project equates to substantial performance of the contract.”); see also Vraney v. Med. Specialty Clinic, P.C., 2013 WL 4806902, at *30 (Tenn. Ct. App. Sept. 9, 2013) (internal quotation omitted) (“Where the plaintiff’s performance has been wrongfully prevented or hindered by the conduct of the defendant, only the law of the jungle would say that plaintiff’s failure to perform should not be excused.”). 389 JX0003 § 5. 390 See Tr. 392 (Rowe) (testifying that because TA had no “visibility to the transactions that were being seen by Comdata,” TA had to undertake “a complicated initiative to develop analytics to understand what was happening at each lane at each site.”).
90 terminate the Amendment as of October 13, 2016, because the “demanding
circumstances” for a partial failure of consideration that affects “the very object of
the Amendment” have not been shown. There was no partial failure of consideration
because TA reasonably cooperated with Comdata to integrate the RFID technology
with its POS system as soon as reasonably practical. In addition, Comdata’s own
material breach of the RFID Agreement excused any purported failure to cure by
TA.391 Accordingly, under Count I of its Complaint, TA is entitled to a declaration
that Comdata may not terminate the Merchant Agreement, as amended, based on
TA’s alleged default under the RFID Agreement.
It is not seriously disputed that “termination of the merchant agreement would
have a devastating and immediate impact on TA’s business and its customers,”
putting TA at “significant risk” of “losing a significant portion of [its] customer
base” as well as “permanently damaging [its] business reputation.” 392 For this
reason, and based on the findings discussed above, TA has established by clear and
convincing evidence its entitlement to specific performance of the Merchant
Agreement under Count II of its Complaint. Because the remedies TA seeks under
Count III for breach of the duty of good faith and fair dealing overlap completely
391 Because I conclude that TA did not materially breach the RFID Agreement, I do not address TA’s equitable estoppel argument. 392 Tr. 207-08 (O’Brien).
91 with the remedies it seeks under Count II for breach of the Merchant Agreement,393
and because under Tennessee law, “a breach of the implied covenant of good faith
and fair dealing is not an independent basis for relief,”394 I do not need to reach
Count III, which is moot.395
F. FleetCor Is Not Liable for Breach of the Merchant Agreement
Count II for breach of contract is asserted against Comdata, the signatory to
the Merchant Agreement, as well as FleetCor, Comdata’s parent company since
November 2014. Defendants argue that FleetCor, as a non-signatory, can only be
liable for a breach of contract when the Court pierces the corporate veil, which would
not be warranted in this case. I agree.
Under Tennessee law, a non-signatory to a contract can be held liable for
breach only when the Court pierces the corporate veil.396 FleetCor is not a party to
the Merchant Agreement, and thus could be held liable for damages from Comdata’s
393 See Verified Complaint (Dkt. 1) ¶¶ 120-21, 125-26; Verified Supplement to the Complaint (Dkt. 123) ¶¶ 151-52; Pl.’s Post-Trial Opening Br. 61-62. 394 Upperline Equip. Co. v. J & M, Inc., 724 F. Supp. 2d 883, 892 (E.D. Tenn. 2009). 395 See Medicalgorithmics S.A. v. AMI Monitoring, Inc., 2016 WL 4401038, at *25 (Del. Ch. Aug. 18, 2016). See Realty Ass’n v. Richter/Dial Builders, Inc., 2000 WL 146381, at *6-7 (Tenn. Ct. 396
App. Feb. 11, 2000).
92 early termination of the Merchant Agreement only if the Court pierces FleetCor’s
corporate veil.
The parties dispute whether Delaware or Tennessee law governs whether the
Court may pierce the corporate veil in this case. 397 Under either state’s law, I
conclude that TA has not made the necessary showing of exceptional facts that
warrants disregarding FleetCor’s separate identity.
In Continental Bankers Life Insurance Company of the South v. The Bank of
Alamo, the Tennessee Supreme Court set forth three elements of proof required to
pierce the corporate veil:
(1) The parent corporation, at the time of the transaction complained of, exercises complete dominion over its subsidiary, not only of finances, but of policy and business practice in respect to the transaction under attack, so that the corporate entity, as to that transaction, had no separate mind, will or existence of its own.
(2) Such control must have been used to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or a dishonest and unjust act in contravention of third parties’ rights.
(3) The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.398
TA did not sustain its burden to prove under Tennessee law that FleetCor exercised
“complete dominion” over Comdata with respect to the termination of the Merchant
397 Defs.’ Answering Post-Trial Br. 55; Pl.’s Post-Trial Reply Br. 27. Cont’l Bankers Life Ins. Co. of the S. v. Bank of Alamo, 578 S.W.2d 625, 632 (Tenn. 398
1979).
93 Agreement, such that Comdata “had no separate mind, will or existence of its own.”
The evidence TA has cited at most establishes that Comdata and FleetCor worked
together to find “outs” to the Merchant Agreement, which is legally insufficient.
Similarly, under Delaware law, courts “will not lightly disregard a
corporation’s jural identity.” 399 “[C]orporate entities as between parent and
subsidiary may be disregarded . . . only in the interest of justice, when such matters
as fraud, contravention of law or contract, public wrong, or where equitable
consideration among members of the corporation require it, are involved.”400 TA
did not demonstrate sufficient cause warranting the disregard of FleetCor’s separate
identity. TA did not allege any fraud or public wrong, or that FleetCor set up
Comdata to contravene any law or contract. TA did not even allege that Comdata
lacked the necessary financial resources to pay the damages from its breach of
contract claim. Consequently, I decline to take the extraordinary step of veil piercing
and conclude that FleetCor is not liable for Comdata’s breach of the Merchant
Agreement.
399 Gadsden v. Home Preservation Co., Inc., 2004 WL 485468, at *4. 400 Pauley Petroleum Inc. v. Cont’l Oil Co., 239 A.2d 629, 633 (Del. 1968).
94 G. Tennessee Consumer Protection Act
In Count IV of its Complaint, TA asserts that defendants knowingly violated
the Tennessee Consumer Protection Act (“TCPA”)401 by undertaking
a scheme to purposefully divest TA of its contract rights and coerce TA into a substantially less favorable contract. . . . The scheme included contriving a default of the RFID Agreement, forcing a renegotiation of the Merchant Agreement under threat of terminating the parties’ card processing relationship to cause “inconvenience” to TA’s customers, and misrepresenting that its fee proposals in November and later in December 2016 were the same or similar as those it had agreed with Love’s and Pilot.402
“Although the TCPA contains a ‘catch-all’ provision for ‘engaging in any other act
or practice which is deceptive to the consumer or to any other person,’ that specific
provision is enforceable only by the Tennessee Attorney General’s office.” 403 To
maintain a private cause of action under the TCPA, a plaintiff must allege a violation
of one of the acts specifically enumerated in Tenn. Code Ann. § 47-18-104(b).404
401 Tenn. Code Ann. § 47-18-101 et seq. (West 2017). 402 Pl.’s Post-Trial Opening Br. 59-60. Tennessee courts expressly have held that business entities, “however organized,” “can have standing to bring claims under the TCPA.” Wyndham Vacation Resorts, Inc. v. Consultant Gp., 2014 WL 1922791, at *12 (M.D. Tenn. May 14, 2014). See also Tenn. Code Ann. § 47-18-102 (“This part shall be liberally construed . . . (2) to protect consumers and legitimate business enterprises from those who engage in unfair or deceptive acts or practices in the conduct of any trade or commerce in part or wholly within this state.”). 403 Wyndham Vacation Resorts, Inc., 2014 WL 1922791, at *12 n.22 (M.D. Tenn. May 14, 2014) (citing Tenn. Code Ann. § 47-18-104(b)(27)). 404 Brewer v. Kitchen Designs and Cabinetry, 2013 WL 1400619, at *7 n.11 (Tenn. Ct. App. Apr. 5, 2013).
95 The only specific provision under § 47-18-104(b) that TA identifies for its
TCPA claim is § 47-18-104(b)(12), which prohibits misrepresentations “that a
consumer transaction confers or involves rights, remedies or obligations that it does
not have or involve or which are prohibited by law.”405 The only factual allegations
TA identifies to support such a claim are defendants’ alleged misrepresentations that
their “fee proposals in November and later in December 2016 were the same or
similar as those it had agreed with Love’s and Pilot.”406
A claim under the TCPA requires a causal connection between the alleged
conduct and any injury suffered by the plaintiff.407 Because TA has failed to prove
causation as explained below, however, its TCPA claim fails.
TA did not identify any harm that was proximately caused by defendants’
alleged misrepresentation in the November 15 meeting or the November 18 written
proposal. As O’Brien testified, he rejected defendants’ November fee proposal right
after he read it, and he did not file this lawsuit because of the offer defendants made
405 See Pl.’s Post-Trial Opening Br. 58-61; Pl.’s Post-Trial Reply Br. 30-33. 406 Pl.’s Post-Trial Opening Br. 59-60. 407 See Harvey v. Ford Motor Credit Co., 1999 WL 486894, at *2 (“Although the Act does not require reliance, plaintiffs are required to show that the defendant’s wrongful conduct proximately caused their injury.”); Arch Wood Prot., Inc. v. Flamedxx, LLC, 932 F. Supp. 2d 858, 870 (E.D. Tenn. 2013) (“To make out a claim under the TCPA, a plaintiff must establish . . . (2) that such loss resulted from an unfair or deceptive act or practice.”).
96 in November. 408 Therefore, TA cannot base its TCPA claim on the alleged
misrepresentation concerning defendants’ November fee proposal.409
TA also failed to sustain its burden to prove that the alleged misrepresentation
in December—that the February Rates are what a “merchant similar in size to TA
would pay”—was the proximate cause of any injury to TA. TA did not put forward
any evidence on this causation issue, and the background of the December 9 letter
suggests otherwise.
Specifically, on December 9, 2016, after a hearing on TA’s motion for
expedited proceedings had been scheduled,410 Secord wrote to O’Brien that:
to minimize the burden on the Court and the parties, Comdata will continue to allow acceptance of Comdata payment methods at TA locations until the final decision of the trial court. . . . However, as TA’s breach has resulted in termination of the existing relationship, Comdata will allow acceptance using the same transaction fees that would be applicable in the event we were to enter into a new agreement with TA today. . . . A merchant similar in size to TA would pay . . . . This rate . . . is what we will charge TA going forward.411
On December 14, at the motion to expedite hearing, the Court commented that
Comdata’s representation that it would continue accepting Comdata cards at TA
408 Tr. 200-01 (O’Brien). Given this conclusion, I do not need to decide whether the parties’ discussions at the 409
November 15, 2016 meeting and in the November 18, 2016 correspondence are admissible under Delaware Rule of Evidence 408. 410 Dkt. 12. 411 JX0617 at 2 (the actual rate information is omitted for confidentiality reasons).
97 locations during the pendency of this litigation mooted TA’s concern of irreparable
harm. The Court further explained that it expected that Comdata would honor the
commitment it made in its November 2 notice of termination to charge TA the same
transaction fees as under the Amendment until January 31, 2017, and that the rates
proposed in Comdata’s December 9 letter would go into effect after that until the
Court could resolve the issues after trial, which would proceed on an expedited basis
with a trial to occur in the spring of 2017.412
Given this context, the record supports the inference that TA accepted the
February Rates proposed in Comdata’s December 9 letter because it had no other
practical choice given the Court’s ruling, and because it understood the February
Rates to be only a temporary arrangement effective during the pendency of this
litigation. By contrast, TA has not cited any evidence suggesting that it accepted the
February Rates because they were what a “merchant similar in size to TA would
pay.”413
Even if I were to find an actionable violation of the TCPA on the basis of the
alleged misrepresentation in the December 9 letter, TA would not be entitled to
additional damages. TA acknowledges that “other than the trebling, there’s no
412 Dkt. 40 at 33-36. 413 The record does suggest, however, that Comdata’s representation that the February Rates are what a “merchant similar in size to TA would pay” was not entirely honest. See JX4004 at 4; Tr. 963-64 (Platt); JX0465 at 5; JX0617 at 2; Tr. 811-12 (Secord).
98 independent theory of damages for [its] TCPA claim than [its] contract claim.” 414 It
is blackletter law that a plaintiff cannot receive double redress for the same wrong,415
and although Tenn. Code § 47-18-109(a)(3) gives a court discretion to award treble
damages for “willful or knowing violation” of the TCPA,416 treble damages is not
an appropriate remedy under the circumstances of this case.
Under Tenn. Code § 47-18-109(a)(4), “In determining whether treble
damages should be awarded, the trial court may consider, among other things:
(A) The competence of the consumer or other person;
(B) The nature of the deception or coercion practiced upon the consumer or other person;
(C) The damage to the consumer or other person; and
(D) The good faith of the person found to have violated this part.”417
TA is a sophisticated business entity and was represented by sophisticated counsel
at the time of the December 9 letter. It will be able to recover its damages under its
contract claim that has the same damages theory as the TCPA claim. In addition, as
414 Tr. Oral Arg. 75. 415 Arch Wood Prot., 932 F. Supp. 2d at 871. 416 Tenn. Code § 47-18-109(a)(3) (“If the court finds that the use or employment of the unfair or deceptive act or practice was a willful or knowing violation of this part, the court may award three (3) times the actual damages sustained and may provide such other relief as it considers necessary and proper, except that the court may not award exemplary or punitive damages for the same unfair or deceptive practice.”). 417 Tenn. Code § 47-18-109(a)(4).
99 recounted above, the December 9 letter was sent in the midst of this litigation and
filed with this Court,418 and the alleged misrepresentation contained therein does not
constitute such deception or coercion, or bad faith conduct, that would warrant an
award of treble damages in my opinion.
H. TA’s Damages
Because Comdata was not entitled to terminate the Merchant Agreement, as
amended, the higher rates it imposed on TA starting from February 1, 2017,
constitute a breach of the Merchant Agreement. TA is entitled to damages for the
amount of the difference between what TA has been paying under the February Rates
and what TA should have paid under the Amendment, plus pre- and post-judgment
interest under applicable law. TA’s damages expert estimated the damages,
excluding interest, to be around $30,715 per day.419 But because a more precise
damages amount may be determined by an accounting, TA is directed to confer with
defendants and to quantify the amount of its actual damages in connection with the
submission of a form of final judgment. A supporting affidavit should be submitted
at that time documenting this calculation.
Section 13(c) of the Merchant Agreement provides for an award of reasonable
attorneys’ fees and costs to the prevailing party in a lawsuit enforcing any rights
418 Dkt. 20. 419 JX4004 at 2; Tr. 936-39 (Platt).
100 under the Merchant Agreement.420 The parties have stipulated to submit a proposed
schedule for resolution of the fees and costs issue within ten days of this opinion,421
and should proceed on that basis.
IV. CONCLUSION
For the reasons explained above, TA is entitled to a judgment in its favor
against Comdata (but not FleetCor) on Counts I and II of the Complaint, and on
defendants’ counterclaim. Comdata is entitled to a judgment in its favor on Count
IV. Count III is dismissed as moot. The parties are directed to submit a form of
final judgment within ten days of this opinion when they submit the schedule for
resolving the issue of fees and costs.
IT IS SO ORDERED.
420 JX001 at §13(c). 421 PTO ¶ 115.
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