In the
United States Court of Appeals
For the Seventh Circuit
Nos. 09-3007, 09-3996
M ETAVANTE C ORPORATION, a Wisconsin
Corporation,
Plaintiff-Appellee,
v.
E MIGRANT SAVINGS B ANK, a New York
Corporation,
Defendant-Appellant.
Appeals from the United States District Court
for the Eastern District of Wisconsin.
No. 2:05-cv-01221-JPS—J.P. Stadtmueller, Judge.
A RGUED A PRIL 8, 2010—D ECIDED A UGUST 30, 2010
Before R IPPLE, M ANION and T INDER, Circuit Judges.
R IPPLE, Circuit Judge. Metavante Corporation
(“Metavante”) originally brought an action in Wisconsin
state court against Emigrant Savings Bank (“Emigrant”)
for breach of contract. The case was removed to the
district court, and Emigrant counterclaimed for breach
of contract and fraud. Following a bench trial, the dis-
2 Nos. 09-3007, 09-3996
trict court entered judgment for Metavante on all
claims.1 Emigrant appealed.
While the appeal on the merits was pending, Metavante
filed, in the district court, a petition for fees and costs
pursuant to a fee-shifting provision of the contract. The
district court granted the petition in full. We con-
solidated the appeal of the fee award with the appeal of
the merits. For the reasons set forth in this opinion,
we affirm the judgment of the district court.2
I
BACKGROUND
A.
Emigrant, founded in 1850, chose to expand its business
by launching an on-line, direct bank, to be known
as EmigrantDirect. Rather than develop the on-line
system in-house, Emigrant decided to outsource this
operation. Consequently, in 2004, it searched for a vendor
to provide the on-line technology. Ted Morehouse, Emi-
grant’s Senior Vice President of Marketing, testified that
the bank’s IT director, Dennis Healy, recommended
Metavante, a vendor that provides electronic banking
1
The jurisdiction of the district court was based on diversity
of citizenship. See 28 U.S.C. § 1332.
2
Our jurisdiction is based on 28 U.S.C. § 1291.
Nos. 09-3007, 09-3996 3
services and products to financial institutions. 3 Mr. Healy
offered to have someone from Metavante call Mr.
Morehouse; consequently, Barry Holst made contact
with Emigrant in February 2004.
In March 2004, Mr. Holst, along with others from
Metavante, visited Emigrant. The Metavante team gave
a PowerPoint presentation which referred to Metavante
as “[t]he most complete offering of scalable, integrated
solutions for financial services providers,” and noted
its ninety million accounts processed and nine billion
financial transactions. Ex. 1063 at EMI-0014995.4 As a
result of this presentation, Mr. Morehouse was con-
fident that he would not have to worry about volume-
related system problems. The same PowerPoint, how-
ever, listed “Application processing/account opening
(workflow)” as a “Related Project[]/Initiative[]” of
Metavante. Id. at EMI-0015002. Mr. Morehouse testified
that he did not recall asking what was meant by that
term, although he did acknowledge that he knew that
“certain applications” were still being developed and
that he “was willing to live with it because [he] thought
they would be completed and in place well before we
launched.” R.569 at 226. Mr. Morehouse admitted that
3
Emigrant also considered another company called Sanchez
Corporation. Sanchez ultimately was not selected, in part
because it outsourced a number of its functions.
4
The record contains two sets of exhibits. One set, Metavante’s
exhibits, is denominated “PX.” The other, Emigrant’s exhibits,
is simply denominated “Ex.”
4 Nos. 09-3007, 09-3996
he knew by June that on-line account creation did not
“have some of the automation that we wanted.” Id. at 204.
He admitted, however, that Emigrant “entered into the
technology outsourcing agreement knowing that the on-
line account creation was in a state of progress and
would require further development for what Emigrant
wanted.” Id. at 209.
Metavante subsequently circulated a proposal. The
proposal stated, in part, that “Metavante offers a truly
integrated banking system, fully scalable to large
volumes, yet modular in nature. This scalable platform
processes nearly 90 million accounts each and every
night.” R.522 ¶ 22. According to Mr. Morehouse, the
proposal’s reference to existing clients that fit the direct
bank profile and its general use of the present tense
together indicated that Metavante’s product already
existed. The proposal also stated that “[o]n occasion
Metavante has made the determination that purchasing
niche products with advanced capabilities made more
sense than developing these systems. However, even
in these situations Metavante has made it a top
priority to build integration into these products so
that customers on the Metavante core applications can
continue to enjoy the integration they expect.” Ex. 1067
at EMI-0003078-79. Metavante offered as a reference
another of its clients, Capital One, and Emigrant spoke
to Capital One.
Over the next several months, Metavante and Emigrant
negotiated a Technology Outsourcing Agreement (“the
Agreement”). It was signed in August 2004. At some
Nos. 09-3007, 09-3996 5
point in negotiations, Emigrant requested from Metavante
a flow chart describing how the system worked so that
the information could be shared easily within Emigrant.
Metavante provided this flow chart in July; it did not
specify that its subcontractor, Teknowledge, would
control one segment of the system. Mr. Holst never said
anything to Mr. Morehouse “to disabuse [him] of [the]
impression” that Metavante would not outsource. R.569
at 191. According to Emigrant’s First Vice President
John McNally, Emigrant learned in early October
that Metavante outsourced part of its application to
Teknowledge. R.570 at 122. According to a document
from Emigrant’s files, however, Emigrant knew about
Teknowledge on September 14; the document in ques-
tion stated that: “The customer validation pages and
processing will be done through the Metavante 3rd party
partner application, Teknowledge.” Ex. 1134 at EMI-
0025523; see also R.569 at 251-52.
B.
The Agreement required Metavante to perform
certain services. These included “Electronic Banking
Services,” which enabled users “to access, receive, collect,
concentrate, and/or report data and/or initiate transac-
tions.” PX 1, Agreement § 4.5.5 Another service was “ACH
Services,” by which funds would be transferred. Agree-
ment § 4.6. Section 3.1 of the Agreement, entitled “Perfor-
5
Hereinafter, we shall simply refer to the Agreement without
referring to PX 1.
6 Nos. 09-3007, 09-3996
mance by Subcontractors,” provided in part that
“[c]ustomer understands and agrees that the actual
performance of the Services may be made by Metavante,
one or more Affiliates of Metavante, or subcontractors
of any of the foregoing Entities.”
The Agreement contained a performance warranty
that required Metavante to provide “all Services in a
commercially reasonable manner.” Agreement § 6.1.
The Agreement also provided that the availability of
several of Metavante’s services was to be evaluated
according to service levels; for example, a service level
of 98% availability meant that a given service had to
be available 98% of the time. Anything covered by a
service level was exempt from the performance war-
ranty. Emigrant does not dispute the service levels;
rather, its argument is that service levels measured only
system availability. Emigrant contends that defects not
resulting in outages of the system were not reflected in
the service levels and were subject to the performance
warranty.
The Agreement also contained a Termination Clause.
Agreement § 8.2. This clause provided that a party
may terminate the Agreement for cause, but also specified
that the parties enjoyed broad rights to cure. Even if
a default was not capable of cure within thirty days,
the defaulting party could avoid termination by imple-
menting a plan for cure. Moreover, the Agreement pro-
vided that failure to perform services as required could
be cured by re-performance.
If Emigrant terminated for convenience, rather than
for cause, the Agreement required that Emigrant pay a
Nos. 09-3007, 09-3996 7
termination fee. The Agreement provided for a re-
duced termination fee if Emigrant “migrate[d] its data
processing for direct banking to an in-house solution.”
Agreement, Termination Fee Schedule, § 1(b). The Agree-
ment also contained a fee-shifting provision. Agreement
§ 17.8.6
C.
EmigrantDirect launched in January 2005. The Online
Account Creation service allowed consumers to open
accounts, and was developed by Teknowledge,
Metavante’s subcontractor. The Consumer Electronic
Banking service allowed consumers to manage accounts.
The EmigrantDirect system launched in January 2005
did not contain a “Good Funds Model.” This Model
checks the account balance against the desired trans-
action amount to ensure that the account contains suffi-
cient funds to carry out the transaction. Without such a
model, a customer can transfer more money than is
6
This provision provides:
If any legal action is commenced in connection with the
enforcement of this Agreement or any instrument or
agreement required under this Agreement, the prevail-
ing party shall be entitled to costs, attorneys’ fees
actually incurred, and necessary disbursement incurred
in connection with such action, as determined by the
court.
Agreement § 17.8.
8 Nos. 09-3007, 09-3996
available in his account. Eileen Lyon, Emigrant’s First
Vice President of Marketing, testified that the subject of
a Good Funds Model never had been discussed during
the negotiations. Mr. Morehouse testified that he was
comfortable launching without a Good Funds Model
because he had been assured that Emigrant could work
around the problem manually. R.569 at 272-73. A year
before the contract was terminated, Metavante put in
place a Good Funds Model at Emigrant’s request.
EmigrantDirect had other flaws. According to Kimberly
Romano, EmigrantDirect’s Director of Operations, cus-
tomers frequently received error messages and were
unable to complete on-line applications, resulting in
many calls to Emigrant’s call center. Emigrant under-
took mitigation measures, including sending paper ap-
plications to customers. The number of customer service
representatives was increased from “[s]ix or eight” to “in
the 50s.” R.571 at 94. Emigrant also noticed that some
transactions failed to process. Id. at 86-87. Emigrant’s
expert in computer science and software assurance,
Roger Nebel, testified that Metavante failed to deliver
its services in a commercially reasonable manner
because its system was poorly integrated, poorly tested,
poorly planned, not scalable and experienced degraded
service. Ms. Romano testified that she “had never seen
anything like this. The fact that things were identified,
supposedly cured and they were recurring, just added
insult to injury.” Id. at 172. She also testified, however, that
she believed Metavante employees were trying to be
helpful and were themselves frustrated about the prob-
lems. Id. at 105.
Nos. 09-3007, 09-3996 9
Despite these problems, however, EmigrantDirect
acquired over 250,000 new accounts and over $6 billion
in deposits in under nineteen months. Mr. Morehouse
testified that before launch, Emigrant did not know
whether the system would be a great success or a
complete failure that would result in his firing.
Mr. Morehouse admitted, however, that Emigrant blew
its projections “out of the water.” R.569 at 257. He also
admitted that Emigrant advertised its direct bank as
the most successful direct bank in the country—a procla-
mation he believed to be true when made.7 The
district court likewise found that EmigrantDirect was
“nothing short of a home run.” R.545 at 19. Metavante’s
expert in the performance of financial technology
services agreements, David Moffat, testified that
Metavante’s performance was commercially reasonable,
and the “most compelling fact” supporting this asser-
tion was “the level of deposits that were achieved on
this system, the number of accounts that were opened,
transactions that were involved here.” R.575 at 237.
Emigrant contends, however, that this success is at-
tributable to its mitigation efforts. Not only did it hire
additional customer service staff, it also employed paper
7
During trial, Emigrant’s damages expert, Paul Pocalyko,
suggested that, despite a competitive advantage in interest
rates throughout most of 2005, R.575 at 6, Emigrant’s competi-
tors earned a bigger market share than did Emigrant. Id. at 9.
However, Pocalyko testified that Emigrant lost only one per-
cent of the market due to Metavante’s failures. Id. at 10.
10 Nos. 09-3007, 09-3996
applications, performed identity validation and checked
available balances before approving external transfers.
D.
In September 2005, Metavante sued Emigrant in Wis-
consin state court for nonpayment of fees. When
Emigrant was served in November, it removed the case
to the district court. Around this time, Metavante sent
a letter to Emigrant, providing notice of impending
termination of the Agreement for nonpayment. Emigrant
responded by paying the requested amount in two in-
stallments. In letters accompanying the payments, Emi-
grant requested Metavante’s assistance in effecting “the
orderly transition of Metavante’s services to Emigrant.” Ex.
1338. Emigrant also objected to the payments and
reserved its right “to pursue all claims against Metavante.”
Id. This action prompted Metavante to amend its com-
plaint to seek a declaratory judgment affirming its right
to the payments and, in the event of termination, the
termination fee.
In March 2006, Metavante again provided notice of
impending termination due to nonpayment. The Agree-
ment was not terminated. On May 3, 2006, however,
Emigrant informed Metavante that it was terminating
the Agreement for cause, effective the weekend of June 17,
2006. In this letter, Emigrant stated that Metavante’s
services had been “flawed and inadequate from incep-
tion.” PX 184 at MVNT001305. Specifically, the letter
referenced “Metavante’s inability to prevent deposit
customers from overdrafting on their accounts,” the
Nos. 09-3007, 09-3996 11
“inability to process satisfactorily new account applica-
tions,” Metavante’s “continued and frequent service
outages,” and its inability to “determine if or when a
customer’s deposit transfer request to an EmigrantDirect
account has in fact been completed.” Id. The letter also
referenced “the obvious failure of Metavante personnel
to understand their own system,” id. at MVNT001306,
and Metavante’s refusal “to provide Emigrant with timely
and accurate information with respect to outages and
problems with its system,” id. at MVNT001307. The letter
made much of failures the system suffered over the
New Year’s holiday 2006 (affecting about 6,000 customers),
as well as other, more recent defects affecting about
500 customers.
In July 2006, Metavante amended its complaint to
reflect breach-of-contract claims for unpaid fees from
April 2006 and later. Emigrant counterclaimed that
Metavante had fraudulently induced Emigrant to
enter into the contract, that Metavante had intentionally
misrepresented its capabilities throughout the parties’
relationship and that Metavante had breached its own
contractual obligations. Later, Metavante contended that
Emigrant had not developed an “in-house” system, which
would have entitled Emigrant to a lower termination fee.
Emigrant refers to this as the “in-house claim,” even
though it is not, strictly speaking, a distinct “claim.”
The case was tried to the bench in May 2009. Following
trial, the district court ruled for Metavante on all claims
in an oral decision. In relation to Emigrant’s allegations
of fraud, the court emphasized that Emigrant did not
12 Nos. 09-3007, 09-3996
raise its concerns with Metavante or otherwise “appro-
priately vet[]” them. R.545 at 13. The court also stated
that, although there had been “hiccups” in the relation-
ship between Metavante and Emigrant, id. at 18, none
amounted to a material breach of the contract. It empha-
sized the importance of EmigrantDirect’s commercial
success, the testimony suggesting that a good working
relationship between the parties had existed and the
remarks that Emigrant CEO Howard Milstein had made
to his board of directors. See infra at II.C.1.a. The court
also noted Metavante’s pursuit of unpaid fees in late
2005, which led to discussions from which the court
inferred that “the parties were headed toward a relation-
ship that would result in the agreement being terminated
not for cause but for the convenience of the parties.” Id. at
21. On the issue of whether Emigrant migrated to an “in-
house” solution, the court found for Emigrant and
awarded the lower termination fee.
II
MERITS
We now turn to the merits of this case. We shall consider
Emigrant’s arguments about the applicable standard of
review. Then, we shall discuss Emigrant’s evidentiary
arguments pertaining to expert testimony offered by
Metavante. We next shall turn to the contract issues,
considering first, whether the district court relied on the
proper factors in determining whether Metavante
breached the contract, and second, whether the court’s
conclusion on the matter was clearly erroneous. We
Nos. 09-3007, 09-3996 13
shall also discuss whether Metavante breached the cove-
nant of good faith and fair dealing. We then shall turn
to Emigrant’s fraud claims and consider Emigrant’s
claim of fraudulent inducement before turning to its
claim that Metavante intentionally misrepresented its
failures during the contractual relationship.
A.
After a bench trial, we review conclusions of law de novo
and findings of fact for clear error. Johnson v. West, 218
F.3d 725, 729 (7th Cir. 2000). Provided that the trial court
correctly states the law, we review for clear error the
court’s findings as to whether the facts meet the legal
standard. Here, however, Emigrant contends that the
district court’s factual findings should be given no defer-
ence because they were adopted verbatim from
Metavante’s proposed findings and because they are
internally contradictory.
We have expressed in the past our disapproval of the
practice of a district court’s adopting findings drafted by
one party. See W. States Ins. Co. v. Wis. Wholesale Tire, Inc.,
148 F.3d 756, 759 n.3 (7th Cir. 1998). This view is not
idiosyncratic to this court, but is a matter of federal
ju d ic ia l p o l i c y p o i n t e d l y a r t i c u l a t e d b y th e
Supreme Court of the United States. See Anderson v. City
of Bessemer, 470 U.S. 564, 572 (1985). Although we
examine the district court’s findings “especially criti-
cally” under these circumstances, they are still the
findings of the court and are reviewed for clear error. Doe
v. First Nat’l Bank of Chicago, 865 F.2d 864, 875 (7th Cir.
14 Nos. 09-3007, 09-3996
1989) (internal quotation marks omitted); see also
Anderson, 470 U.S. at 572-73; Silver v. Executive Car Leasing
Long-Term Disability Plan, 466 F.3d 727, 733 (9th Cir. 2006)
(“[I]t is entirely consistent to review a district court’s
conclusions for clear error, while applying that standard
of review with a careful inspection of the record.”).
Upon examination of the record in this case, it is clear
that the district court rejected some of Metavante’s pro-
posed findings and adjusted a few others, but never-
theless adopted, on a wholesale basis, a great quantity
of the proposed findings, including complete sets of
findings and conclusions pertaining to certain claims.
Nevertheless, our reading of the district court’s oral
remarks does not suggest to us that the court blindly
adopted the proposed findings. Cf. Machlett Labs., Inc. v.
Techny Indus., Inc., 665 F.2d 795, 797 & n.4 (7th Cir. 1981)
(applying close scrutiny where district court adopted
proposed findings of prevailing party without reading
them). Rather, we believe that the court read the
findings that it adopted and carefully considered them.
Emigrant points out two alleged contradictions
between the district court’s adopted findings and its oral
ruling. These pertain to whether the court made a
finding on damages and whether the court made a
finding on Emigrant’s use of Metavante’s confidential
information. However, neither of these two points are
at issue in this appeal. Therefore, we need not decide
whether the district court actually contradicted itself.
This case therefore is not analogous to Mor-Cor Packaging
Products, Inc. v. Innovative Packaging Corp., 328 F.3d 331,
Nos. 09-3007, 09-3996 15
334-35 (7th Cir. 2003), where we were unable to deter-
mine the trial court’s finding on the key point in the
case—whether the contract at issue had been breached.
While we believe that the district court’s treatment of
this case is adequate, we pause to note that appellate
courts and trial courts must go about their work with a
concern for the overall accuracy and efficiency of the
judicial process. The practice followed here, while
having the superficial appeal of expediting the articula-
tion of the district court’s conclusions, creates a sig-
nificant potential for inaccuracy at the trial level and
great difficulty for a reviewing court that depends so
much on the thoughtfulness and precision of the trial
court’s work product. This case involved a ten-day trial
and over 500 docket entries. Oral remarks and wide-
scale adoption of proposed findings hardly sharpens
the issues in a way that conveys accurately the trial
court’s estimation to the appellate court.
B.
Emigrant challenges part of the testimony of one of
Metavante’s experts, David Moffat. It contends that the
testimony was unreliable, irrelevant and beyond the
scope of the disclosed expert report.
Moffat, a consultant employed with Huron Consulting
Group, is experienced in financial services technology
and was tendered as an expert in “service levels perfor-
mance and measurements in the financial services
industry as well as the performance of financial tech-
16 Nos. 09-3007, 09-3996
nology services agreements.” R.575 at 217. He testified
that Metavante had performed its services in a commer-
cially reasonable manner. In reaching that conclusion,
he placed particular importance on “the level of deposits
that were achieved on this system, the number of ac-
counts that were opened, transactions that were in-
volved,” as well as Metavante’s responsiveness to Emi-
grant’s concerns and issues. Id. at 237.
Emigrant submits that Moffat’s testimony about com-
mercial reasonableness should have been excluded under
Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579
(1993). Under the rule established in that case, the
district court was required to “ensure that the expert
testimony at issue both rests on a reliable foundation
and is relevant to the task at hand.” Trs. of Chicago Painters
& Decorators Pension, Health & Welfare, & Deferred Sav.
Plan Trust Funds v. Royal Int’l Drywall & Decorating, Inc.,
493 F.3d 782, 787 (7th Cir. 2007) (internal quotation
marks omitted).
Ordinarily, we review a district court’s decision to
admit or exclude expert testimony for abuse of discretion.
Gayton v. McCoy, 593 F.3d 610, 616 (7th Cir. 2010). Emigrant
submits, however, that the district court’s failure to
perform any Daubert analysis should deprive its ruling
of the usual deference.
We agree that the district court failed to perform a
Daubert analysis. The court, in its oral ruling, stated only
that “I find nothing in Mr. Moffat’s opinions to run afoul
of either Rule 702 or notice requirements to opposing
counsel.” R.545 at 2. Although we have held that the
Nos. 09-3007, 09-3996 17
court in a bench trial need not make reliability deter-
minations before evidence is presented, In re Salem, 465
F.3d 767, 776-77 (7th Cir. 2006), the determinations must
still be made at some point. Two of our sister circuits
have held that Daubert’s requirements of reliability and
relevancy continue to apply in a bench trial. Attorney Gen.
of Okla. v. Tyson Foods, Inc., 565 F.3d 769, 779 (10th Cir.
2009); Seaboard Lumber Co. v. United States, 308 F.3d 1283,
1302 (Fed. Cir. 2002). We have assumed the same. Trs. of
Chicago Painters, 493 F.3d at 787. However, the usual
concerns of the rule—keeping unreliable expert testimony
from the jury—are not present in such a setting, and our
review must take this factor into consideration. See
Attorney Gen. of Okla., 565 F.3d at 779. Nevertheless, the
“court must provide more than just conclusory state-
ments of admissibility or inadmissibility to show that it
adequately performed its gatekeeping function.” Gayton,
593 F.3d at 616.
Here, we must characterize the district court’s state-
ment as conclusory. We therefore must review the ad-
missibility of the expert testimony de novo. After our
review of the record, we conclude that Moffat’s testi-
mony was both relevant and reliable.
Moffat’s testimony was relevant. Neither side disputes
that whether Metavante’s performance was com-
mercially reasonable was at issue. However, there was
significant disagreement as to whether Emigrant’s com-
mercial success is a legitimate factor in determining
whether Metavante’s performance was commercially
reasonable, and Moffat’s testimony spoke to that ques-
18 Nos. 09-3007, 09-3996
tion. Moffat’s testimony was designed to assist the court
in assessing the reasonableness of Emigrant’s assessment
of Metavante’s performance in a particular industry,
financial services, during a transition to a new technology
that would transform its way of doing business.
Moffat’s testimony was sufficiently reliable to justify
its admission. An expert’s testimony is not unreliable
simply because it is founded on his experience rather
than on data; indeed, Rule 702 allows a witness to be
“qualified as an expert by knowledge, skill, experience,
training, or education.” Fed. R. Evid. 702 (emphasis
added); see also Smith v. Ford Motor Co., 215 F.3d 713, 718
(7th Cir. 2000).8 Rule 702 does require, however, that the
expert explain the “methodologies and principles” that
8
Criminal cases, for instance, are replete with examples of
experts, such as police officers and informants, qualified by
experience. See, e.g., United States v. Goodwin, 496 F.3d 636, 641
n.2 (7th Cir. 2007) (reiterating that “federal agents who have
training and experience in drug-related transactions, crimes
and prosecution are qualified to give expert testimony con-
cerning the practices of those engaged in this type of activity”
(internal quotation marks omitted)); United States v. Gray,
410 F.3d 338, 347 (7th Cir. 2005) (DEA agent with 7 years
experience, 5 as a narcotics canine officer, qualified as an
expert); see also United States v. Vesey, 338 F.3d 913, 916-17 (8th
Cir. 2003) (holding that testimony of “a convicted drug traf-
ficker and a confidential informant for law enforcement” should
have been admitted as an expert “to present evidence of
how illegal drug operations are normally conducted and to
counter the testimony of the government’s expert witness”).
Nos. 09-3007, 09-3996 19
support his opinion; he cannot simply assert a “bottom
line.” Minix v. Canarecci, 597 F.3d 824, 835 (7th Cir.
2010); see also United States v. Noel, 581 F.3d 490, 497 (7th
Cir. 2009) (rejecting expert testimony where expert “in
essence, told the jury nothing more than, ‘I am familiar
with the definition of child pornography, and this
meets that definition because I said so’ ”). Nor may the
testimony be based on subjective belief or speculation.
Trs. of Chicago Painters, 493 F.3d at 787-88.
Moffat’s testimony cannot be characterized as mere
ipse dixit. He did not simply testify that Metavante’s
performance was commercially reasonable because he
said so. Rather, he explained that in the financial sector,
as he has seen and experienced it, businesses consider
technological innovation satisfactory if it enables them
to meet their business financial objective.9 These explana-
tions were based on Moffat’s experience in the industry,
9
Moffat has acquired technologies on behalf of banks and
negotiated servicing on behalf of technology firms. R.575 at 219.
He testified that based on that experience, “the objective is
essential,” because technology is “built and deployed for the
purposes of meeting a business objective.” Id. at 238. “I’m not a
coder, I’m not a developer,” Moffat testified, “but I’m [a]
business man, in terms of my experience in this area, and the
job got done.” Id. at 250.
He also testified that when he worked for the Bank of New
York, “as we saw our assets grow significantly, not unlike
[Emigrant’s], during the period I was there, we concluded
that that was scalable, as I would conclude that this is
scalable for the same reason.” Id. at 245.
20 Nos. 09-3007, 09-3996
which included managing a fifty-person development
team. R.575 at 275-76. In essence, Moffat testified that
he was familiar with the manner in which financial
services firms have evaluated technological innovations
in the past and suggested that the same perspective
was appropriate in the present situation. In his view,
because Emigrant had met its business objectives, it
should have considered Metavante’s performance to
have been satisfactory despite various operational prob-
lems that had arisen along the way. These “hiccups,” R.545
at 18, as the district court referred to them, were to be
expected along the way and should be tolerated in that
industry as long as the bank’s financial objectives were
being realized. Therefore, Moffat’s testimony based on
the usual business practice is reliable.
Emigrant is, of course, critical of the quality of Moffat’s
testimony and does not believe that it ought to have
been credited by the district court. These criticisms do
not go to admissibility but to the appropriate weight
that should be accorded to the evidence. As we noted
in Gayton, “[d]etermination on admissibility should not
supplant the adversarial process; shaky expert testimony
may be admissible, assailable by its opponents through
cross-examination.” 593 F.3d at 616 (internal quotation
marks omitted). The record demonstrates clearly that
the district court was very much aware of this distinction
and, although it admitted the evidence, it also made it
very clear that, in the final analysis, it found it of limited
utility in making a final determination in the case.
Emigrant also submits that Moffat’s testimony about
commercial reasonableness went beyond the scope of
Nos. 09-3007, 09-3996 21
the disclosed expert report. Rule 26(a)(2)(B)(i) of the
Federal Rules of Civil Procedure requires disclosure of a
written expert report that contains “a complete state-
ment of all opinions the witness will express and the
basis and reasons for them.” “The purpose of these
[expert] reports is not to replicate every word that the
expert might say on the stand. It is instead to convey
the substance of the expert’s opinion . . . so that the op-
ponent will be ready to rebut, to cross-examine, and
to offer a competing expert if necessary.” Walsh v. Chez, 583
F.3d 990, 994 (7th Cir. 2009). They allow attorneys, not
experts in the fields at issue, to prepare intelligently for
trial and to solicit the views of other experts. S.E.C. v.
Koenig, 557 F.3d 736, 744 (7th Cir. 2009). We review
the district court’s ruling on a motion to exclude non-
disclosed expert evidence for abuse of discretion. Ciomber
v. Coop. Plus, Inc., 527 F.3d 635, 640 (7th Cir. 2008).
We are not confronted with a situation such as the one
before us in Ciomber v. Cooperative Plus, Inc. where the
expert clearly deviated from the established scope of his
expected opinion. 527 F.3d 635, 641-42 (7th Cir. 2008).
We believe that Moffat’s supplemental expert report,
combined with his original expert report, gave Emigrant
sufficient information to allow it to prepare adequately
for his testimony. The reports, when fairly read together,
make it clear that Moffat believed that Metavante’s level
of performance should have satisfied Emigrant, given
the level of financial success achieved by the venture.
Indeed, there is no better proof that the reports gave
Emigrant adequate notice than the very able cross-examina-
22 Nos. 09-3007, 09-3996
tion of Moffat by Emigrant’s counsel. Counsel stressed
that Moffat was not a programmer, that Moffat did not
consider “what percentage of consumers who tried to
become Emigrant Direct customers were able to succeed,”
R.575 at 264, and that this information is a factor to con-
sider in whether Metavante provided services in a com-
mercially reasonable manner. Id. at 271. Counsel also
explored Moffat’s opinion on Metavante’s internal com-
munications and communications with Teknowledge,
highlighting that Moffat’s opinion was based on observa-
tions of others. Id. at 274-78. Moffat was asked to ex-
plain several of Metavante’s communications, pre-
sumably to highlight what Emigrant saw as the incorrect-
ness of Moffat’s position. These lines of questioning
make it clear that the district court did not abuse its
discretion in determining that Emigrant had been ade-
quately prepared for Moffat’s testimony.
C.
We turn to Emigrant’s contract arguments. Emigrant
submits that Metavante breached the Agreement’s per-
formance warranty and its duty of good faith and fair
dealing. We shall examine each of these contentions
in turn.
1.
Metavante warranted that it would “provide all Services
in a commercially reasonable manner.” Agreement § 6.1.
Although some aspects of Metavante’s service were
Nos. 09-3007, 09-3996 23
excepted from this warranty,1 0 it applied to its provision
of software and hardware and the design of the system.
a.
Emigrant contends that, in considering whether
Metavante provided services in a commercially rea-
sonable manner, the district court improperly relied on
the performance of EmigrantDirect in the marketplace.1 1
Our review of contract meaning is de novo. What is
commercially reasonable is a question of fact. See, e.g.,
Ford Motor Co. v. Lyons, 405 N.W.2d 354, 376 n.16 (Wis. Ct.
App. 1987) (under the UCC).
The district court did not commit any legal error in
interpreting the contract language. As Ford Motor Co. v.
Lyons illustrates, the term “commercially reasonable
manner” is a commonly employed term in commercial
transactions. 405 N.W.2d 354, 376 n.16 (Wis. Ct. App. 1987).
The district court adopted the definition from Black’s
Law Dictionary of “a transaction conducted in good faith
and in accordance with commonly accepted commercial
10
Availability of the system was evaluated according to
service levels, discussed supra at II.C.1.b.
11
Emigrant also contends that the district court “misinterpreted
the Agreement’s termination clause to impose on Emigrant a
duty of reminding Metavante that it had a right to cure de-
fects.” Appellant’s Br. in 09-3007 at 43. In light of our holding
that Emigrant had no basis to terminate the contract, we
need not address this argument.
24 Nos. 09-3007, 09-3996
practice.” R.545 at 17. In giving meaning to this term,
the district court certainly did not err in concluding
that the success of the overall venture was relevant and
probative evidence. True, the performance warranty
addressed Metavante’s provision of technology services,
not overall business performance. Nevertheless, results
in the area of technology services, while not conclusive
proof of reasonable performance, are an indicator that
the court is entitled to take into account in making its
determination. A strong overall program performance,
including commercial success, suggests that the program
is performing in a reasonable manner. Although it is
possible that mitigation efforts would produce an ex-
tremely strong overall performance despite poor compo-
nent performance, a reasonable fact-finder is entitled to
conclude that such mitigation efforts were not deter-
minative and that the overall success of the venture is
due to the quality of a major component’s contribution.
Therefore, although EmigrantDirect’s commercial suc-
cess cannot establish conclusively the commercial reason-
ableness of Metavante’s performance, the court certainly
was entitled to consider it and to give this factor
great weight.12
A fair reading of the district court’s findings and oral
ruling establishes, moreover, that the court considered
12
We therefore cannot accept Emigrant’s argument that,
because, during contract negotiations, Metavante had refused
to warrant EmigrantDirect’s overall success, that overall
performance is totally irrelevant to the court’s determination
of commercial reasonableness of Metavante’s performance.
Nos. 09-3007, 09-3996 25
EmigrantDirect’s commercial success as just one
factor, albeit a significant one, in its determination that
Metavante’s performance had been commercially rea-
sonable. The court, although emphasizing EmigrantDirect’s
success, also discussed the cooperative nature of the
Emigrant-Metavante relationship. It noted testimony
that the sides “work[ed] together continuously to
address issues.” R.545 at 9. The court also recognized
“what [Emigrant CEO] Mr. Milstein was telling his
board of directors during this enterprise with
Metavante.” Id. at 18. The court noted that Mr. Milstein
was asked about “ ‘some technological issues’ ” with
EmigrantDirect and that “ ‘he responded that most of
these issues had been worked out with Metavante.’ ” R.538
at 20. The court also noted that, in October 2005, Emigrant
inquired about doing more business with Metavante.
Id. at 21. These facts suggest that Emigrant itself believed
Metavante’s performance to be reasonable. The district
court also noted that the contract referred to a 25% “aban-
donment rate” in calculating a reasonable price. R.545
at 13-14. The district court simply did not regard
EmigrantDirect’s success as conclusive proof that
Metavante performed reasonably.
We must conclude that the district court was under
no legal misapprehension and committed no methodo-
logical misstep in its consideration of this issue.
b.
Emigrant next contends that the district court’s con-
clusion, that Metavante performed in a commercially
26 Nos. 09-3007, 09-3996
reasonable manner and therefore did not breach the
performance warranty, was clearly erroneous. See Int’l
Prod. Specialists, Inc. v. Schwing America, Inc., 580 F.3d 587,
594-95 (7th Cir. 2009) (determination of material breach
reviewed for clear error). In evaluating this contention,
“[w]e do not reweigh the evidence or determine the
credibility of witnesses.” Murdock & Sons Constr., Inc. v.
Goheen Gen. Constr., Inc., 461 F.3d 837, 840 (7th Cir. 2006).
The district court emphasized, in addition to Emigrant’s
commercial success, the testimony of William Scialabba
and John McNally about the working relationship
between the parties, as well as Mr. Milstein’s statements
to the Emigrant Board of Directors. The district court
concluded that this evidence evinced no material breach
on the part of Metavante. The court’s findings em-
phasized Metavante’s good-faith diligence “to address
any issues that arose.” R.538 at 19. The findings also
noted that Emigrant even had inquired about doing
additional business with Metavante. Id. at 21. Further, the
district court found that Emigrant had planned to termi-
nate the Agreement for convenience well before the
termination letter was sent. R.545 at 21. On the district
court’s view of the evidence, therefore, Emigrant had a
product that was an outstanding commercial success,
gave every indication that Metavante’s performance
was satisfactory, and enjoyed a good working relation-
ship with Metavante—but nevertheless had planned to
terminate the relationship, well before it actually at-
tempted to do so. To the district court, these facts
showed that Metavante’s performance was commercially
reasonable.
Nos. 09-3007, 09-3996 27
These findings are not clearly erroneous. They are
supported by testimony from David Moffat, who sug-
gested that, in the business world, technology is
built with the business goal in mind. Emigrant used
Metavante’s technology to achieve its goal, as evidenced
by the product’s success. The findings were also sup-
ported by testimony that Metavante worked to fix prob-
lems as they arose. Mr. Milstein’s remarks to the Board
and Mr. McNally’s interest in further business are evi-
dence that Emigrant itself believed that Metavante
was complying with its obligations. The record also
provides evidence that Emigrant had long intended to
terminate the Agreement. On September 27, 2005, the
same day Milstein told the Board of Directors that
most technological issues have been worked out with
Metavante, he also told the Board that preparations
were underway “to arrange for EmigrantDirect accounts
to be managed within the Bank next year.” See PX 104
at EMI-0076814. In November 2005, well before the
May 2006 termination letter, Emigrant inquired about
developing “a plan to enable the orderly transition of
Metavante’s services to Emigrant” and noted that “time
is of the essence.” Ex. 1338.
The Agreement reveals that the parties understood
that they were dealing with the application of a rela-
tively new technology. Problems along the way were a
possibility, but the parties were committed to quickly
fixing these problems. The parties did not expect “reason-
able” to mean “perfect” or “flawless.” Section 8.2 of the
Agreement specifies that, before a party may terminate,
either party shall have 30 days to either cure a default or
28 Nos. 09-3007, 09-3996
implement and “diligently carry-out” a plan to cure the
default. That section also provides that
any error in processing data, preparation or filing
of a report, form, or file, or the failure to perform
Services as required hereunder shall be satisfactorily
cured upon the completion of accurate re-process-
ing, the preparation or filing of the accurate
report, form, or file, or the re-performance of the
Services in accordance with applicable require-
ments, respectively.
Agreement § 8.2 (emphasis added). This contractual
provision supports the district court’s view that the
parties expected that performance issues may arise, but
that they were committed to fixing them. Under its
terms, diligent efforts to correct problems is a key factor
to commercially reasonable performance. Evidence of
the parties’ working relationship, Emigrant’s ultimate
success, and Emigrant’s inquiry about additional busi-
ness serve to support the district court’s conclusion in
this case.
Emigrant invites our attention to the testimony of its
expert, Roger Nebel, and on Metavante’s internal docu-
ments. However, this evidence does not compel a con-
trary inference.
2.
Emigrant’s second contractual claim is that the district
court erroneously held that the implied covenant of good
faith and fair dealing was not breached in this case.
Nos. 09-3007, 09-3996 29
Emigrant emphasizes Metavante’s internal documents
and communications with Teknowledge, which are
harshly critical of Teknowledge’s performance. Emigrant
contends that Metavante’s failure to share these views
with Emigrant breached the implied covenant.
Emigrant is correct that the implied duty of good faith
and fair dealing is a part of the Agreement, just as it is a
part of every other contract governed by Wisconsin
law. See Kreckel v. Walbridge Aldinger Co., 721 N.W.2d 508,
514 (Wis. Ct. App. 2006). Although “good faith” is a
difficult term to define, Wisconsin courts have at-
tempted to define “bad faith”:
“A complete catalogue of types of bad faith is impossi-
ble, but the following types are among those which
have been recognized in judicial decisions: evasion of
the spirit of the bargain, lack of diligence and slacking
off, willful rendering of imperfect performance, abuse
of a power to specify terms, and interference with or
failure to cooperate in the other party’s performance.”
Foseid v. State Bank of Cross Plains, 541 N.W.2d 203, 213
(Wis. Ct. App. 1995) (quoting Restatement (Second) of
Contracts § 205 cmt. d). It is, of course, possible to breach
the implied duty of good faith even while fulfilling all
of the terms of the written contract. Id. at 212.
The district court held that “Metavante did not have
an ‘implied’ duty to notify Emigrant when a computer
application used to provide Services under the Agree-
ment experienced a problem or issue.” R.538 at 54. The
court also held explicitly that “Metavante did not breach
any implied covenant of good faith.” Id. Emigrant offers
30 Nos. 09-3007, 09-3996
no reason to doubt these conclusions. The obligations of
the parties to perform the terms of a contract must be
evaluated in the context of the totality of the business
arrangement contemplated by the contract. As we have
noted earlier, the district court viewed the business
arrangement here as a cooperative effort to develop
a technological innovation in the financial services in-
dustry. The arrangement contemplated the possibility of
glitches along the way that would require a cooperative
effort to address and to rectify. Overall availability was
measured by service level benchmarks. The district court
determined that Metavante diligently moved to address
the imperfections that arose. That determination is sup-
ported by the record.
D.
We now shall turn to Emigrant’s fraud claims. In Wis-
consin, the elements of a cause of action for fraud in
the inducement and for intentional misrepresentation
are: (1) the defendant made a factual representation;
(2) the factual representation was false; (3) the defendant
made the factual representation knowing that it was
untrue or without caring whether it was true or false;
(4) the defendant made the representation with intent
to defraud or to induce another to act upon it; and (5) the
plaintiff believed the statement to be true and relied
upon that statement to its detriment. See Kaloti Enters.,
Inc. v. Kellogg Sales Co., 699 N.W.2d 205, 211 (Wis. 2005).
Nos. 09-3007, 09-3996 31
1.
a.
We first address Emigrant’s claim of fraudulent induce-
ment. Wisconsin has adopted the rule found in Restate-
ment (Second) of Contracts § 166, which provides:
If a party’s manifestation of assent is induced by
the other party’s fraudulent misrepresentation as
to the contents or effect of a writing evidencing or
embodying in whole or in part an agreement, the
court at the request of the recipient may reform
the writing to express the terms of the agreement
as asserted,
(a) if the recipient was justified in relying on
the misrepresentation . . . .
See Hennig v. Ahearn, 601 N.W.2d 14, 26 (Wis. Ct. App.
1999). Section 172 of the same Restatement is also perti-
nent:
A recipient’s fault in not knowing or discovering
the facts before making the contract does not make
his reliance unjustified unless it amounts to a
failure to act in good faith and in accordance
with reasonable standards of fair dealing.
See Hennig, 601 N.W.2d at 27.
Emigrant contended at trial that Metavante had made
certain misrepresentations prior to the formation of the
Agreement—namely, that Metavante’s system was a
“proven model” that was “truly integrated” and “fully
scalable to large volumes.” According to Emigrant, the
32 Nos. 09-3007, 09-3996
“proven model” claim was false because, at the time
Metavante first had contact with Emigrant, Metavante
had not yet made the decision to offer a direct bank and
therefore had no product—certainly not a “proven
model.” R.578 at 139; Ex. 1081. Metavante, Emigrant
claimed, did not have customers; it had one customer. The
“truly integrated” representation was false, urges Emi-
grant, because Metavante employed a subcontractor,
Teknowledge. R.578 at 143. The “fully scalable” representa-
tion was false because Metavante could not handle, as
it claimed, 90 million accounts per day. R.578 at 158-59.
Emigrant now contends that the district court erred by
holding that Emigrant could not rely justifiably on
Metavante’s alleged misrepresentations because it
did not investigate them. The district court stated that “in
the final analysis this is very much [a] two-way street;
and as a consequence of the contract language such as
it is, and such as that language was reviewed by individu-
als within Emigrant, they had as much an obligation
to inquire as to whether de facto there would or were
going to be used any subcontractors in fulfilling
Metavante’s contract obligations.” R.545 at 10-11. Although
the court here focused specifically only on the issue of
subcontractors, it later made the more general point that
Emigrant “has only itself to look to in terms of these
asserted deficiencies that have been catapulted, if you
will, into a suggestion that there was fraud.” R.545 at 13.
When these statements are assessed in the context of
the findings of fact and conclusions of law, we believe
that it is very clear that the district court’s point was
Nos. 09-3007, 09-3996 33
that, in light of the extensive pre-contract negotiations
that took place in this matter, it was not reasonable for
Emigrant to rely on any early sales pitch of Metavante;
instead, Emigrant only could rely on the carefully negoti-
ated terms of the final contract. Wisconsin law requires
that a fraud plaintiff prove that his reliance is reason-
able. Kailin v. Armstrong, 643 N.W.2d 132, 145-46 (Wis. Ct.
App. 2002). All the facts and circumstances, “including
the intelligence and experience of the misled individual
and the relationship between the parties,” must be con-
sidered in determining whether this condition was met.
Bank of Sun Prairie v. Esser, 456 N.W.2d 585, 589 (Wis. 1990).
When determining whether reliance is reasonable, the
court essentially determines whether the plaintiff had
the right to rely on the representations. See Hennig, 601
N.W.2d at 25 n.3. Whether reliance was reasonable is
ordinarily a question of fact.1 3 Sciano v. Hengle, 83 N.W.2d
689, 692 (Wis. 1957); see also Cozzi Iron & Metal, Inc. v.
U.S. Office Equip., Inc., 250 F.3d 570, 574 (7th Cir. 2001)
(applying Illinois law); McWaters v. Parker, 995 F.2d 1366,
1374 (7th Cir. 1993) (applying Indiana law). Here, two
sophisticated businesses negotiated an arms-length
transaction over a period of several months. R.522 ¶ 6, 25.
13
In this case, the district court made conclusions of law
suggesting that it was considering the issue as a matter of
law. R.538 at 57. We believe it evident that if the court be-
lieved that Emigrant’s reliance was unreasonable as a matter
of law, it also believed that Emigrant’s reliance was unrea-
sonable as a matter of fact. We will evaluate the issue under
the latter standard.
34 Nos. 09-3007, 09-3996
Both sides carefully reviewed the Agreement. Id. ¶ 7.
Emigrant was represented by both in-house and outside
counsel, id. ¶ 27, and engaged the services of a firm called
Core-Teck to conduct a “Risk Review and Analysis of
Metavante Contract,” id. ¶ 38. Emigrant submitted several
comments and suggested changes to the Agreement. Id.
¶ 32. The Agreement provided that subcontractors may
be used. Agreement § 3.1. Moreover, the Agreement
contained specific availability guarantees—namely, service
levels of 98%—and a broad performance warranty.
R.522 ¶ 12, 14.
There is no provision in the contract that recites
explicitly that “Metavante’s services are unproven, not
scalable and not integrated.” However, the Agreement,
combined with the circumstances of its negotiation,
permitted the district court to conclude that any reliance
on oral representations in this case was unreasonable.
Wisconsin case law makes clear that
“[c]ourts will refuse to act for the relief of one claiming
to have been misled by another’s statements who
blindly acts in disregard of knowledge of their falsity
or with such opportunity that by the exercise of ordi-
nary observation, not necessarily by search, he would
have known. He may not close his eyes to what is
obviously discoverable by him.”
Ritchie v. Clappier, 326 N.W.2d 131, 134 (Wis. Ct. App. 1982)
(quoting Jacobsen v. Whitely, 120 N.W. 285, 286 (Wis. 1909)).
Here, the negotiation process made clear to Emigrant
the capabilities of Metavante and the expectations of the
parties were memorialized in a written instrument with
Nos. 09-3007, 09-3996 35
an integration clause. Indeed, as a result of the negotia-
tions, the parties drew up performance standards to
serve as more precise benchmarks for Metavante’s per-
formance. Metavante’s services were required to be
available 98% of the time, and with respect to aspects of
Metavante’s performance other than availability, the
parties agreed that Metavante was required to perform
in a “commercially reasonable manner.” Agreement § 6.1.
These performance benchmarks addressed the same
concerns as the alleged misrepresentations. Emigrant
thus ensured that it would receive a desired level of
service by negotiating for certain performance guarantees.
Moreover, Emigrant was in a strong bargaining position.
It did not agree to a mere form warranty that it had no
power to change. It was able to request any additional
assurances that it felt were needed.
Accordingly, we must conclude that the district court
did not err in concluding that any reliance by Emigrant
on the alleged misrepresentations of Metavante was not
reasonable. The contract contained ample provisions
that addressed the same concerns as Metavante’s earlier
alleged statements. We already have held that these
provisions were not breached.1 4
14
The cases relied upon by Emigrant do not support its posi-
tion. In Hennig v. Ahearn, 601 N.W.2d 14 (Wis. Ct. App. 1999),
there was an unacknowledged change in the final draft of the
contract; most changes were highlighted and discussed by the
parties as they passed drafts back and forth. The alleged
misrepresentation was the failure to disclose this change; the
(continued...)
36 Nos. 09-3007, 09-3996
14
(...continued)
court held that it was a question for the fact-finder whether
reliance was reasonable. Id. at 24. The court only held that a
jury could conclude that reliance was reasonable, not that a jury
must so conclude. Id. at 24-25. Emigrant also relies on First
National Bank & Trust Co. v. Notte, 293 N.W.2d 530, 539 (Wis.
1980). That case supports our holding; it states that “[t]he
recipient’s fault in failing to discover the facts before
entering the contract does not make his reliance unjustified
unless his fault amounts to a failure to . . . conform his conduct to
reasonable standards of fair dealing.” Id. at 539 (emphasis sup-
plied). We have held that, in view of all the facts and circum-
stances, the district court was permitted to find that Emigrant’s
reliance was not reasonable. Emigrant also relies upon Lewis
v. Paul Revere Life Insurance Co., 80 F. Supp. 2d 978, 999 (E.D.
Wis. 2000). In that case, an insurance applicant allegedly
failed to disclose certain matters on his application. The ap-
plicant contended that the insurer’s reliance on the applica-
tion was not justified because he had authorized the insurer
to obtain his medical records, which would have disclosed the
matters at issue. The court disagreed, noting that “[n]othing on
the face of Lewis’s application made obvious that there was
any falsity to its claims that Lewis never had known indica-
tions of or been treated for mental or emotional disorder and
that he had not received medical treatment or advice during
the past five years.” Id. at 999. By contrast, in the present case,
the district court determined that Emigrant’s participation
in contractual negotiations addressed the issues of the alleged
early false representation and that Emigrant bargained for,
and received, provisions in the arms-length contract that took
any earlier representations into account. Finally, Emigrant
(continued...)
Nos. 09-3007, 09-3996 37
b.
We also note that, irrespective of the reliance issue, this
fraud claim fails on other grounds. The district court
determined that Metavante’s claims that its product was
“integrated” and “scalable” were not false. Indeed, the
court adopted a finding stating that “Emigrant has
failed to meet its burden of proving that the statements
allegedly made by Metavante were both false and mate-
rial.” R.538 at 56. In its view, this case did not rise “to
the level of even meriting serious consideration as a
fraud claim” and that the fraud claim was “driven by
the hard reality of one trying to avoid its contractual
obligations that otherwise come into play and the Court
has found applicable here.” R.545 at 29. “[T]his is in the
final analysis a breach of contract case . . . .” Id. at 3.
Additionally, as we have discussed earlier, the concepts
of “integration” and “scaleability” were inextricably
bound up with the issue of whether Metavante’s perfor-
mance was commercially reasonable. Emigrant con-
14
(...continued)
derives no assistance from Household Finance Corp. v. Christian,
98 N.W.2d 390 (Wis. 1959). That case holds that a bank was
entitled to rely on the statements made on a loan application.
It is true that the law does not require all recipients to ex-
amine critically, as a matter of course, representations made
to them. Id. at 392-93. But the negotiation of a contract for
services, which included performance benchmarks, by two
sophisticated entities over a period of several months is a
circumstance that is relevant to our analysis, and Household
Finance is not to the contrary.
38 Nos. 09-3007, 09-3996
tended vigorously that Metavante’s performance was
commercially unreasonable because it was not scalable
or well integrated. Therefore, when the district court
made a determination on the question of commercial
reasonableness, it was considering scaleability and in-
tegration.
The district court did not clearly err in this respect.
Emigrant’s own expert witness, Roger Nebel, testified
that “integration” referred to putting together multiple
parts in a way that works. R.571 at 210-11. “Scalable,” 1 5
according to the same witness, is “simply meant to
indicate that the solution can grow in one or more of
these dimensions,” including new products, new volume
or faster speed. R.572 at 5-6. As we have discussed
earlier, there was ample evidence that Emigrant was
satisfied with Metavante’s performance and that
Metavante’s performance enabled Emigrant to achieve
great success. To the extent Emigrant contends that
Metavante represented that it would not use subcon-
tractors, we note that section 3.1 of the Agreement, entitled
“Performance by Subcontractors,” allows for the use of
subcontractors. This provision was obvious to Emigrant.
Metavante’s alleged representations that its product
was “proven,” Appellant’s Br. in 09-3007 at 34, present a
slightly more difficult inquiry, because whether the
product was “proven” is not directly related to the per-
15
The trial transcripts use a different spelling - “scaleable.” The
parties use what we believe to be the more correct spelling.
We shall follow the parties throughout this opinion.
Nos. 09-3007, 09-3996 39
formance of the product. However, at the time Metavante
approached Emigrant, Metavante had a client—Capital
One. Metavante referred Emigrant to Capital One, and
Emigrant spoke to Capital One. This consultation op-
portunity allowed Emigrant to evaluate for itself
whether Metavante was sufficiently “proven.” Emigrant
could speak with Capital One and request additional
references if not satisfied.
“[C]ourts will refuse to act for the relief of one claiming
to have been misled by another’s statements who
blindly acts in disregard of knowledge of their falsity
or with such opportunity that by the exercise of ordi-
nary observation, not necessarily by search, he would
have known. He may not close his eyes to what is
obviously discoverable by him.”
Ritchie, 326 N.W.2d at 134 (quoting Jacobsen, 120 N.W.
at 286).
2.
Emigrant also claims that Metavante intentionally
misrepresented Teknowledge’s adequacy throughout
the Emigrant-Metavante relationship. The district court
rejected this claim; Emigrant correctly points out that
the court did so with little comment.1 6 Emigrant relies
16
The district court found that, “[b]oth before and during the
Agreement, Emigrant had knowledge and was aware of the
(continued...)
40 Nos. 09-3007, 09-3996
on Moffat’s admission that “what Metavante said to
Teknowledge and what Metavante said internally about
Teknowledge’s performance [that it was inadequate]
was indeed different from what they told EmigrantDirect.”
Reply Br. in 09-3007 at 11. Emigrant also points to an
instance in 2005 when “Metavante assured Emigrant
after numerous problems . . . that it had fully tested the
capacity of its account opening system, while simulta-
neously warning that system’s subcontractors that
‘[s]tress and performance testing has been inadequate:
capacity planning appears nonexistent.’ ” Reply Br. in 09-
3007 at 5. Specifically, Metavante told Emigrant that
its system could handle 2,000 account openings per day,
but told Teknowledge that the system was “inadequate
to support solutions of the current scale.” Ex. 1229 at
MVNT-331122. Emigrant also appears to contend, if
implicitly, that Metavante committed fraud when it
failed to disclose Teknowledge’s troubles.
We address only the claim that Metavante affirma-
tively made false statements about Teknowledge’s capaci-
ties and abilities, telling Emigrant that Teknowledge’s
performance was adequate when it was, in reality, inade-
16
(...continued)
facts and circumstances that form the basis of its claims for
fraud in the inducement and intentional misrepresentation,
and thus cannot prove those claims, let alone by clear and
convincing evidence.” R.538 at 56.
Nos. 09-3007, 09-3996 41
quate.17 The district court’s resolution of the contract
claim and its remarks on the case’s failure to “merit[]
serious consideration as a fraud claim,” R.545 at 29,
make it clear that the district court found that Emigrant
failed to prove that Metavante’s representations that
Teknowledge was adequate were false. We see no clear
error in this determination for the reasons we stated
in connection with the contract claim.
The district court committed no reversible error in
determining that Emigrant’s fraud claims were without
merit.
III
FEES
We now turn to the fee petition filed by Metavante.
First, we shall provide an overview of the facts of the
fee proceedings. Next, we shall discuss whether
Emigrant is entitled to fees on the “in-house claim.”
Finally, we shall turn to whether the district court
properly allowed Metavante to submit redacted bills in
support of its fee petition.
17
Metavante had no duty to disclose defects in its system to
Emigrant. This is so because, as we have stated, these defects
did not amount to a breach of warranty, and Metavante at-
tempted to fix these defects in good faith. See supra at II.C.2
(discussing implied covenant of good faith and fair dealing).
42 Nos. 09-3007, 09-3996
A.
Following the verdict, Emigrant moved to amend the
judgment. Mindful that section 17.8 of the Agreement
provided for the award of attorney’s fees to the “prevailing
party,” Emigrant asked for amended findings that
showed Emigrant to be the prevailing party on the “in-
house claim.” Emigrant stated that it was entitled to
attorneys’ fees relating to that aspect of the litigation
and that Metavante was not entitled to its corresponding
fees. R.553 at 3. The district court denied the motion. It
held that there was no independent “in-house claim”; the
“claim” that Emigrant so characterized was merely a
partial defense. The court also stated that, “while [it]
found that Metavante was entitled to an amount less
than the full termination fee under the Agreement, the
record is sufficiently clear on this point.” R.556 at 3.
Subsequently, Metavante filed a petition for nearly $10
million in fees and costs. In support of the petition, it
submitted redacted bills. The bills showed the amounts
of time, rates, and money spent, but descriptions of work
performed were redacted. Emigrant objected, arguing
that redacted bills made reasonableness review impossible.
The court granted the fee petition in full. It held that
under Medcom Holding Co. v. Baxter Travenol Laboratories,
Inc., 200 F.3d 518 (7th Cir. 1999), the aggregate
fee amount requested by Metavante was reasonable. It
considered the factors mentioned in Medcom in
reaching this conclusion, noting, among other things, that
Metavante had paid its fees when the outcome of the
case was uncertain and that the fees were not out of
Nos. 09-3007, 09-3996 43
proportion to the stakes of the case. Because line-by-line
analysis was foreclosed by Medcom, unredacted bills
were not required.
B.
We now turn to Emigrant’s argument for fees related
to the “in-house claim.” 1 8 The Agreement provided that,
if Emigrant terminated for convenience rather than for
cause, it would have to pay a termination fee. If
Emigrant migrated to an “in-house solution,” the contract
provided for a lower termination fee. Agreement, Termina-
tion Fee Schedule § 1(b). Emigrant points out that
Metavante sought a termination fee of approximately
$20.7 million. The district court, however, awarded a
much lower termination fee of approximately $3.8 million.
Therefore, Emigrant contends that it was the “prevailing
party” on what it calls the “in-house claim,” entitling it
to a portion of its legal fees.
Emigrant relies primarily on the fee-shifting provision
of the Agreement. That provision states as follows:
If any legal action is commenced in connection
with the enforcement of this Agreement or any
instrument or agreement required under this
Agreement, the prevailing party shall be entitled
18
Metavante contends that Emigrant waived this argument by
not submitting a fee petition of its own. However, Emigrant
brought the argument to the court’s attention in opposition
to Metavante’s petition.
44 Nos. 09-3007, 09-3996
to costs . . . incurred in connection with such
action, as determined by the court.
Agreement § 17.8. We review the meaning of the contract
term, “prevailing party,” de novo. Tax Track Sys. Corp. v.
New Investor World, Inc., 478 F.3d 783, 788 (7th Cir.
2007). Here, the Agreement is unambiguous. The term
“prevailing party” is a term of common usage in this
context. It does not include, whether viewed in the
abstract or in the context of this agreement, a party
who has partial success on an affirmative defense.
There was no separate and distinct “in-house claim” in
the case; there was an in-house issue. Resolution of that
issue caused Metavante to be awarded less damages
than it had sought. We cannot accept Emigrant’s argu-
ment that it is entitled to fees and costs attributable to
litigation of this issue. The district court determined
correctly that Emigrant’s success on the in-house issue
does not render it a “prevailing party” within the
meaning of the contract. Emigrant left this litigation
with nothing; in no sense is it the “prevailing party.”
Emigrant also appears to contend that Metavante
pursued the in-house issue in bad faith. It is well-settled
that “a prevailing defendant may obtain attorneys’ fees
if the plaintiff litigated in bad faith.” Mach v. Will County
Sheriff, 580 F.3d 495, 501 (7th Cir. 2009). The district
court found nothing to indicate that Metavante pursued
the issue in bad faith, and we see no basis for the
reversal of that determination. Metavante argued at trial
that the Agreement required that Emigrant’s successor
system be developed fully in-house, without any outside
Nos. 09-3007, 09-3996 45
assistance. The district court rejected this argument as
a matter of contract interpretation. However, Emigrant
advances no contention that this argument was frivolous.1 9
Metavante also argued that Emigrant had made use
of Metavante’s confidential information. As the district
court noted, there was evidence showing that Emigrant
was in a position to use confidential information. McNally
testified that his job was to “explain[] away the func-
tionality that we had in the Metavante system and try[]
to make sure that we convert over everything that we
19
Metavante submitted in its closing argument that,
[f]or Emigrant’s successor system to be in-house,
Emigrant and Emigrant alone under Section 1B had to
create its own data processing platform for that system;
not hire someone else to create it, not hire someone
else to assist in creating it or to assist in creating
some portion of it.
R.578 at 33. Section 1(b) of the Termination Fee Schedule
provided:
Notwithstanding the foregoing, if after the initial thirty-
six (36) months of the term, Customer migrates its
data processing for direct banking to an in-house solution
by creating their own data processing platform, Customer
may terminate this Agreement without payment of
any Termination Fee . . . . This special termination
option shall not apply in the event Customer acquires
software from another source to replace the Metavante
services described in this Agreement and enables it
to run in-house.
Agreement, Termination Fee Schedule § 1(b) (emphasis added).
46 Nos. 09-3007, 09-3996
needed to do into the in-house model.” R.570 at 154. He
also testified that he did a lot of reading and asked
many questions in order to understand the “func-
tionalities” of the Metavante system. Id. at 161-62. Notably,
one of Emigrant’s own experts, Dr. Stephen Garland of
MIT, testified about the safeguards that are sometimes
taken to avoid infringing on trade secrets and to avoid
being sued for infringement. McNally testified, however,
that no one was screened off of the in-house project and
no one was directed not to use confidential information.
R.570 at 235-36. This evidence provided a good-faith
basis to pursue the in-house issue; the fact that Metavante
ultimately was unable to prove, to the satisfaction of
the district court, that Emigrant actually had used con-
fidential information does not render it now liable for
Emigrant’s attorney’s fees.
C.
Emigrant submits that Medcom did not permit the use of
redacted bills; rather, unredacted bills were required in
order to allow the district court to review the fee request
for reasonableness.2 0
20
Metavante submits that Emigrant “never argued the Medcom
line of cases supposedly requires the judicial examination of
detailed attorney work entries that were indisputably sub-
mitted to, reviewed, and paid by the client in the ordinary
course of business.” Appellee’s Br. in 09-3996 at 21. However,
we believe that Emigrant’s argument was fairly presented to
(continued...)
Nos. 09-3007, 09-3996 47
In Medcom, we confronted a request for attorneys’ fees
on the basis of an indemnity clause. We made clear that
indemnity clauses contain an implied requirement that
20
(...continued)
the district court. Emigrant contended below that “a court
should not dispense with an inquiry into the reasonableness
of a fee request merely because the litigant paid its legal
bills—the litigant must still justify the reasonableness of its
requested fees and costs. This is so because, in reality, a party
might choose to pay fees that are not commercially reasonable.”
Reply Br. in 09-3996 at FRA-12-13. Emigrant submitted that
except for the fact that Metavante already had paid, “Metavante
offers no other evidence by which Emigrant or the Court can
meaningfully assess the reasonableness of Metavante’s fees.”
Id. at FRA-14. Emigrant also specifically contended that
“any showing of the reasonableness of Metavante’s fees is
impossible without detailed time records.” Id. at FRA-16. These
arguments are exactly the arguments that Emigrant now
makes. Metavante is correct that Emigrant cited some inap-
posite cases and did not cite or address Medcom Holding Co. v.
Baxter Travenol Laboratories, Inc., 200 F.3d 518 (7th Cir. 1999), but
this fact does not work a waiver. A litigant may cite new
authority on appeal. See United States v. Rapone, 131 F.3d 188,
196 (D.C. Cir. 1997) (“In the present case, Rapone is not at-
tempting to raise the issue of a jury trial for the first time on
appeal. Rather, he simply offers new legal authority for the
position that he repeatedly advanced before the district
court—that he was entitled to have his case tried before a
jury.”); Fed. R. App. P. 28(j) (allowing counsel to bring “perti-
nent and significant” new authority to the attention of the
court after brief has been filed). None of Metavante’s cited
cases establish that a failure to cite cases works a waiver.
48 Nos. 09-3007, 09-3996
the fees sought be reasonable. Medcom, 200 F.3d at 520-
21. The purpose of this requirement is “to guard against
moral hazard—the tendency to take additional risks (or
run up extra costs) if someone else pays the tab.” Id. at
521. We stated:
If attorneys submit bills that meet market stan-
dards of detail, their omission of information to
which courts resort in the absence of agreement
is of no moment. If the bills were paid, this
strongly implies that they meet market standards.
The fees in dispute here are not pie-in-the-sky
numbers that one litigant seeks to collect from a
stranger but would never dream of paying itself.
These are bills that MHC actually paid in the ordi-
nary course of its business. The indemnity
requires Baxter to make MHC whole, which means
reimbursement for commercially-reasonable fees
no matter how the bills are stated.
Id. at 520 (internal citations omitted; emphasis in original).
We also said:
Instead of doing a detailed, hour-by-hour review
after the fashion of a fee-shifting statute, therefore,
the district judge should have undertaken an
overview of MHC’s aggregate costs to ensure
that they were reasonable in relation to the stakes
of the case and Baxter’s litigation strategy (plus
the fact that this case was tried three times and
appealed twice before). One indicator of reason-
ableness is that MHC paid all of these bills at a
time when its ultimate recovery was uncertain.
Nos. 09-3007, 09-3996 49
Another is that MHC’s total legal fees and ex-
penses came to about $200,000 less than Baxter’s.
Id. at 521.
We further developed the Medcom principles in Taco
Bell Corp. v. Continental Casualty Co., 388 F.3d 1069 (7th
Cir. 2004). In that case, the appellant had submitted an
affidavit, which we called “excruciatingly detailed,” from
a firm that reviews lawyers’ bills; the affidavit stated
that Taco Bell had overpaid its lawyers. Id. at 1075-76.
We did not discuss the contents of the affidavit; we
simply stated that, “[b]ecause of the resulting uncertainty
about reimbursement, Taco Bell had an incentive to
minimize its legal expenses (for it might not be able to
shift them); and where there are market incentives to
economize, there is no occasion for a painstaking
judicial review.” Id.2 1
21
Medcom involved a contract that was governed by the law
of Illinois. 200 F.3d at 519. However, our decision was not
based on Illinois law. Indeed, even when fees are sought
pursuant to a contract, Illinois courts require more exacting
scrutiny: “[T]he petition for fees must specify the services
performed, by whom they were performed, the time ex-
pended thereon and the hourly rate charged therefor.” Kaiser
v. MEPC Am. Props., Inc., 518 N.E.2d 424, 427-28 (Ill. App.
Ct. 1987). Because of the importance of these factors, it
is incumbent upon the petitioner to present detailed records
maintained during the course of the litigation containing
facts and computations upon which the charges are predi-
cated. Id.
(continued...)
50 Nos. 09-3007, 09-3996
Emigrant submits that the district court misapplied
Medcom when it permitted Metavante to submit redacted
bills. Emigrant focuses on our comments about “market
standards of detail,” Medcom, 200 F.3d at 520, to argue
that, while “contracting parties have no basis to complain”
“if summary bills without detailed time records are
acceptable to and paid by clients,” such bills were not
accepted by Metavante in this case, Appellant’s Br. in 09-
3996 at 18.
Medcom and its progeny hold that, as a matter of the
efficient and fair administration of the federal courts,
individual scrutiny of line-item entries is neither neces-
sary nor appropriate in contractual fee-shifting cases.
Given the fact that the fees were paid by a party who
had no reassurance of indemnity, we believed that market
considerations normally would render unnecessary
resort to the time-consuming examination of individual
expenses. For the federal courts, such exercises drain the
21
(...continued)
In Taco Bell Corp. v. Continental Casualty Co., 388 F.3d 1069
(7th Cir. 2004), we made explicit that Medcom was grounded in
federal law and explained the reason. The issues involved
were requirements of proof, which “concern how a particular
court system, having regard for its resource constraints and
the competing claims on its time, balances the cost of meticulous
procedural exactitude against the benefits in reducing error
costs.” Id. at 1076. We cited cases holding that “[t]he decision
to hold an evidentiary hearing when making an attorney’s
fee award is a matter of procedure.” Id. (internal quotation
marks omitted).
Nos. 09-3007, 09-3996 51
institution of its most valuable resource—time. As an
alternative methodology, we stated:
Instead of doing a detailed, hour-by-hour review
after the fashion of a fee-shifting statute, therefore,
the district judge should have undertaken an
overview of MHC’s aggregate costs to ensure that
they were reasonable in relation to the stakes of
the case and Baxter’s litigation strategy (plus the
fact that this case was tried three times and ap-
pealed twice before).
Medcom, 200 F.3d at 521. In Taco Bell, we reiterated this
operating principle when the non-prevailing party sub-
mitted a detailed affidavit scrutinizing the prevailing
party’s fees. We did not examine this affidavit, stating
that “where there are market incentives to economize,
there is no occasion for a painstaking judicial review.”
Taco Bell, 388 F.3d at 1076.
Emigrant submits that allowing the submission of
redacted bills effectively amounts to a prepayment stan-
dard—if the prevailing party has paid its legal bills, the
opposing party must pay those costs. This result, in Emi-
grant’s view, would vitiate the reasonableness require-
ment. In Medcom, however, we took the view that, in the
normal course of adjudication, “reasonableness must
be assessed using the market’s mechanisms,” 200 F.3d at
520, and that aggregate costs should be reviewed for
reasonableness in relation to certain other factors, id. at
52 Nos. 09-3007, 09-3996
521. 22 Of course, special circumstances may arise in
which a district court will have reason to doubt whether
market considerations alone were sufficient to ensure
reasonable fees. In those instances, the district court, as
a matter of its sound discretion, can require additional
information of the parties. In such instances, of course,
the court must proceed with due regard for the attorney-
client privilege and for the protection of other con-
fidential and proprietary information. Here, we are con-
vinced that none of the concerns articulated by
Emigrant were of such moment as to make it an
abuse of discretion for the district court to decline to
depart from the approach established in Medcom.
Here, the district court made the determination of
reasonableness on the basis of not only the presumptive
validity of market forces, but also the affidavits of
the parties which assured the court that rates had been
negotiated, supporting documentation had been re-
22
In Medcom, we referred to “bills that meet market standards
of detail.” 200 F.3d at 520. Our focus, however, was on the
perspective of the prevailing party who received, reviewed
and paid the bills. See id. (“If the bills were paid, this strongly
implies that they meet market standards.”). Medcom was
referring to bills that met market standards of detail in the
form that the general counsel reviewed. Medcom recognizes that
the prevailing party’s general counsel, or similar corporate
officer, has a duty, imposed by various provisions of federal
and state law, to scrutinize the bills before paying them; this
is why it places great weight on the fact that the prevailing
party paid the bills without assurance of repayment.
Nos. 09-3007, 09-3996 53
viewed and pertinent questions asked. The court also
was faced with a situation in which the party challenging
the fees as excessive had declined to reveal its own fees
as a measure of a reasonable expenditure. Indeed, while
criticizing Metavante for retaining an out-of-town firm
to handle the trial, Emigrant itself proceeded with a
comparable out-of-town firm of its own. Emigrant also
makes much out of the fact that some legal costs were
incurred by Metavante after it was aware of its status
as the prevailing party. Given the district court’s aware-
ness of how Metavante’s general counsel and its outside
counsel had negotiated the fee arrangement, we believe
that the court acted within the bounds of its discretion
in determining that no additional guarantee of reason-
ableness was required.
General counsels, as corporate officers and as members
of the bar, have a great responsibility to ensure that
rates charged their client reflect the exercise of the
highest standards of fiduciary duty; similarly, repre-
sentations made to the court about fee arrangements
must reflect exacting levels of candor. The judges of the
district court have the responsibility—and the author-
ity—to ensure that these standards are met. We only
hold that in most situations, as here, this responsibility
can be discharged without line-by-line scrutiny of sub-
missions.
54 Nos. 09-3007, 09-3996
Conclusion
The judgment of the district court is affirmed.
A FFIRMED
8-30-10