ACI Worldwide Corporation v. Churchill Lane Associates, LLC
2017 WL 382332
8th Cir.2017Background
- Nestor developed PRISM software and licensed it to ACI in 2001; ACI could develop "new technology" and pay Nestor 15% royalties on fees from sublicenses; the License was governed by New York law.
- Nestor assigned its royalty stream to Churchill in 2002 (Assignment of Royalty Stream); ACI received notice and paid royalties directly to Churchill.
- Amendments: Amendment 4 (2007) involved ACI, Nestor, and Churchill and applied certain License provisions to Churchill; Amendment 5 (2008) transferred Nestor’s remaining technology rights to ACI but reiterated Churchill’s irrevocable royalty assignment.
- In 2009 Nestor entered receivership and the receiver sold Nestor’s assets to ATS; ACI continued paying Churchill and later failed to acquire Churchill’s royalty rights.
- On July 20–21, 2014 ACI bought remaining Nestor rights from ATS and then issued a unilateral Termination/Amendment declaring the License terminated and eliminating post-termination royalty obligations; ACI sought declaratory judgment that termination/amendment were valid; Churchill counterclaimed for unpaid royalties.
- District court granted summary judgment to ACI; the Eighth Circuit reversed as to the amendment (royalties survive for sublicenses granted before July 21, 2014), affirmed as to termination (ACI validly terminated for Nestor’s insolvency) and remanded.
Issues
| Issue | ACI's Argument | Churchill's Argument | Held |
|---|---|---|---|
| Whether ACI validly amended the License to eliminate post-termination royalty obligation | Amendment 4 limited Churchill’s rights and did not make Churchill a full party; Amendment 4 or the receivership extinguished Churchill’s protections; merger of licensor and licensee in ACI ended royalties | Churchill was an assignee/third-party beneficiary with protected rights once ACI had notice and paid royalties; Amendment 4 did not reduce those preexisting protections; receivership did not extinguish the assignment | Amendment invalid: ACI could not unilaterally eliminate post-termination royalties; royalties remain due for sublicenses granted before July 21, 2014 |
| Whether Churchill’s assignee/beneficiary rights were extinguished by the 2009 receivership sale to ATS | Receivership sale (assets sold free and clear) and omission of assignment from assumed contracts extinguished Churchill’s rights | Receivership order did not cancel the assignment; omission from assumed-executory-contracts schedule did not waive Churchill’s rights; ACI continued paying Churchill | Receivership sale did not eliminate Churchill’s assignment/beneficiary protections; Churchill retained rights |
| Whether the doctrine of merger extinguishes Churchill’s royalty rights when ACI acquired licensor rights in 2014 | Merger of licensor and licensee in ACI extinguishes royalties “due to” the licensor, so Churchill’s right terminates | Merger doctrine traditionally applies to real property and should not be extended; merger cannot extinguish rights of an innocent assignee | Merger inapplicable here; royalties remain due for pre-termination sublicenses |
| Whether ACI validly terminated the License on July 21, 2014 | Termination provision allows unilateral termination if the other party becomes insolvent or assigns all assets; Nestor’s 2009 insolvency permitted termination even if ACI delayed until 2014 | Churchill: termination barred by election of remedies, estoppel based on ACI’s communications, or because Nestor was no longer a party after the receivership sale | Termination valid: ACI could terminate under the insolvency clause; termination does not impair Churchill’s assignee rights to pre-termination sublicenses |
Key Cases Cited
- McPherson v. O’Reilly Auto., 491 F.3d 726 (8th Cir.) (standard of review for summary judgment)
- Poughkeepsie Sav. Bank v. R & G Sloane Mfg. Co., 84 A.D.2d 212 (N.Y. App. Div.) (assignee with notice cannot be prejudiced by cancellation of original contract without assignee consent)
- Burns Jackson Miller Summit & Spitzer v. Lindner, 59 N.Y.2d 314 (N.Y.) (test for intended third‑party beneficiary)
- Leon v. Martinez, 84 N.Y.2d 83 (N.Y.) (principles for assignment of rights and effect of perfected assignment)
- Will v. Gates, 89 N.Y.2d 778 (N.Y.) (discussion of merger doctrine in real property contexts)