A small credit union that sued Fiserv over a contract dispute alleging fraud said Tuesday it will continue legal action against the financial tech giant in state court following a federal judge’s ruling last week.
U.S. District Court Judge Katherine B. Forrest in Manhattan remanded the case back to the New York State Supreme Court, where it was originally filed by the $28 million Parks Heritage Federal Credit Union against Fiserv.
The Glen Falls, N.Y.-based credit union accused the Fortune 500 corporation of fraud, breach of contract and negligent misrepresentation, and claimed Fiserv’s account processing solution is inundated with flaws, bugs and defects that compromised the integrity of and misrepresented Parks Heritage. The credit union is seeking a monetary judgement of at least $2.5 million and punitive damages, and wants out of its master agreement with the Brookfield, Wis.-based Fiserv.
In court documents, however, Fiserv said the credit union’s allegations were vague, conclusory, contained little factual detail and should be dismissed as a matter of law because the credit union had insufficient evidence to support its case.
Last October, Fiserv had the case legally moved from New York State Supreme Court to U.S. District Court in Manhattan based on diversity jurisdiction. Diversity jurisdiction is a federal court’s power to hear any case where the monetary damages exceeds $75,000 and no plaintiff shares a state of citizenship, or where individuals or organizations are based, with any defendant, according to the Legal Information Institute at Cornell University Law School.
Parks Heritage requested the federal court to remand the case to New York state court arguing that a federally-chartered credit union is a stateless, national citizen not subject to diversity jurisdiction.
Judge Forrest agreed with the credit union and remanded the case back to state court Jan. 4. However, the credit union’s request to be awarded attorneys’ fees and costs was denied by the court. The total amount of attorney fees and costs was not specified in court documents.
Anthony LaPointe, president/CEO of Parks Heritage, indicated the credit union would refile its lawsuit in state court.
“Parks Heritage Federal Credit Union strives to provide an outstanding member experience, and we will continue to take appropriate legal actions to protect our members,” he said. He did not say when the credit union will refile the lawsuit.
Charles J. Nerko, a New York-based lawyer who represents the credit union, was unavailable for comments Tuesday.
The credit union claimed that on many instances Fiserv destroyed the cooperative’s information, denied its members access to information and funds, compromised the integrity of the credit union’s information and misrepresented information to Parks Heritage and its members.
The credit union’s lawsuit lists about 35 specific examples of problems that were allegedly caused by Fiserv’s software. One of the most troubling examples was that members had been repeatedly locked out their online bank accounts.
When these members attempted to log in, Fiserv presented security questions that did not correspond with the members’ accounts or misrepresented to members that the answers to their security questions were incorrect.
Fiserv, however, repeatedly led the credit union and others to believe that these member accounts had been hacked or that members had been victimized by identity theft, according to the lawsuit. Even though the problem persisted for months, Fiserv didn’t fix the problem, forcing Parks Heritage to manually perform account resets for members and deal with the associated member complaints.
Other problems included members being denied access to Fiserv’s virtual branch and mobile banking system. These channels were unable to display member balances. Members were also unable to access Fiserv’s Popmoney feature and use their debit cards.
Fiserv’s remote check capture system has been unusable as well, according to the lawsuit. When the system underwent an upgrade that a Fiserv representative said would improve the remote check capture system’s security, it actually delayed deposits.
According to the lawsuit, on 42% of the business days in January 2016, Parks Heritage was denied access to Fiserv’s CUSA system and needed to place service calls to Fiserv so that access could be restored. Still, after that, Fiserv continued to intermittently deny Parks Heritage access to this system.
What’s more, last February, Parks Heritage notified Fiserv that data in the credit union’s cash transaction/suspicious activity report was missing. According to Parks Heritage, the destruction of this information occurred after Fiserv performed a claimed upgrade to its system.
Fiserv filed a memorandum of law in federal court in November to support its motion to dismiss the credit union’s lawsuit. Fiserv argued Parks Heritage’s claims fail as a matter of law.
For example, a federal rule of civil procedure Rule 9(b) requires Parks Heritage to identify the statements that are fraudulent and why that is so, their speaker, and where and when they were made.
“Although intention may be alleged generally, Parks Heritage must nevertheless allege facts that give rise to strong inference of fraudulent intent,” Fiserv’s lawyer, Andrew J. Wronski, wrote.
Wronski also contended that the credit union’s misrepresentation allegations were based on information or reports generated by Fiserv account processing software rather than statements made by specific employees with the “requisite fraudulent intent.”
“Not only are these allegations vague and conclusory (they tell Defendant nothing about what information was allegedly false), but they do not allege fraud in the ordinary sense in which a defendant knowingly makes a false statement with intent to deceive the other party and induce reliance. Parks Heritage’s attempt to apply the principles of fraud to a computer program that allegedly sometimes generates erroneous information is not supported in the law.”
In addition, Fiserv countered that the credit union’s misrepresentation allegations are deficient because they failed to identify where and when many of the alleged misstatements were made.
Judge Forrest did not make a ruling on Fiserv’s motion to dismiss Parks Heritage’s lawsuit.
The is the second time since 2014 that Fiserv has been sued by a credit union that made similar claims in its lawsuit – fraud and other allegations about Fiserv’s software performance.
In its November 2014 civil lawsuit filing, the $734 million Wildfire Credit Union in Saginaw, Mich., said it had initially expressed interest in Fiserv’s ill-fated Acumen core, which had been billed as state of the art but was killed off when it bought Open Solutions Inc. and its DNA core to fill that higher-end market niche.
At various meetings with Fiserv, Wildfire alleged company representatives made “false representations,” including that DNA can do everything Wildfire wanted it to do because it is open, flexible and can write applications, and that Fiserv would hit a home run with this conversion. According to Wildfire, the project manager assigned by Fiserv to oversee the core conversion had no working knowledge of DNA or any of the other products and services that Wildfire had purchased.
The Michigan cooperative claimed it had been damaged by Fiserv’s actions, not only by the fact that the company retained more than $1.3 million that the credit union had already paid to Fiserv, but because of the loss of productivity and employee hours that were spent trying to assist in a platform conversion, which allegedly could not be achieved successfully or in a timely manner.
In a counterclaim, Fiserv denied all of these allegations. Last June, however, Wildfire and Fiserv agreed to a confidential out-of-court settlement.
