Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-2_08-cv-00955/USCOURTS-almd-2_08-cv-00955-5/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

---

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE

MIDDLE DISTRICT OF ALABAMA, NORTHERN DIVISION

BRANCH BANKING AND TRUST )

COMPANY, successor in )

interest to Colonial Bank )

by acquisition of assets )

from FDIC as Receiver for )

Colonial Bank, )

)

Plaintiff, )

) CIVIL ACTION NO.

v. ) 2:08cv955-MHT

) (WO) 

SYNTELLECT, INC., a ) 

Delaware corporation, )

)

Defendant. )

OPINION AND ORDER

Plaintiff Branch Banking and Trust Company (“BB&T”),

is pursuing this lawsuit against defendant Syntellect,

Inc., claiming breach of contract and fraud.

Jurisdiction is proper pursuant to 28 U.S.C. § 1332

(diversity).

This lawsuit is now before the court on BB&T’s motion

for partial summary judgment and Syntellect’s crossmotion for summary judgment. For the reasons that

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 1 of 40
2

follow, BB&T’s motion will be granted and Syntellect’s

motion will be denied with respect to the breach-ofcontract claim and granted with respect to the fraud

claim.

I. SUMMARY-JUDGMENT STANDARD

Summary judgment is appropriate “if the

pleadings, the discovery and disclosure materials on

file, and any affidavits show that there is no genuine

issue as to any material fact and that the movant is

entitled to judgment as a matter of law.” Fed. R. Civ.

P. 56(c)(2). In conducting its analysis, the court must

view the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in favor

of that party. Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 475 U.S. 574, 587 (1986).

II. BACKGROUND

Colonial Bank initiated this lawsuit against

Syntellect. The court has since granted BB&T’s motion to

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 2 of 40
1. In its motion to substitute, BB&T contends that

it is the “successor in interest to Colonial Bank by

asset acquisition from the Federal Deposition Insurance

Corporation.” Id. at 1.

2. At the time it issued the RFP, Colonial was using

(continued...)

3

substitute itself “as the real party in interest in this

action.” Mot. to Substitute at 1 (Doc. No. 46-1).1

This lawsuit has its origin in a series of agreements

between Colonial and Syntellect, the developer of an

interactive voice response (“IVR”) product called Vista.

At some point prior to January 12, 2001, Colonial issued

a request for proposal (“RFP”) to several vendors,

including Syntellect. The RFP stated that: 

“Colonial Bank is seeking a solution to

handle its current IVR functionality

plus the transfer of funds capabilities.

[Specifically, it seeks to] ...

[a]utomate the functionality of the

following features that currently

transfer to an agent: checking rates,

savings rates, CD rates, IRA rates. [It

also seeks to] [a]dd the functionality

of funds transfer.” 

RFP at 4 (Doc. No. 90-3).2

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 3 of 40
(...continued)

the Syntellect-produced “Infobot” IVR.

3. The document cited by the court as the “RFP”

contains Colonial’s request for proposal and Syntellect’s

response.

4

In its response to Colonial’s RFP, Syntellect offered

its Vista IVR product, explaining that Vista “allows a

business to provide automated self service 24-hours a

day, 7-days-a-week.” Id. at 5.3

 Syntellect’s “Computer

Telephony Integration” was described as “bring[ing] voice

and data together for seamless integration between

automated self-service systems and agent supported

services.” Id. at 5-6. In documents later provided by

Syntellect to Colonial, it further explained that, “The

Vista IVR automates customer self-service inquiries and

is sometimes considered the ‘voice’ of an automated

customer contact center.” Vista Pre-Installation Guide

at ¶ 4 (Doc. No. 90-1) (emphasis added); see also id. at

¶ 4.1 (“Your Vista IVR System is an industry standard

server/workstation containing specialized voiceCase 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 4 of 40
5

processing hardware, voice-processing application(s), and

various optional features to deliver a wide variety of

automated transactional services to your customers.”).

Syntellect’s response to Colonial’s RFP also stated

that, “Inclusion of Project Management is mandatory with

each system sold.” RFP at 6. Project Management was

described as “includ[ing] guiding the customer through

the development phases of the ... Functional

Specification [of the IVR].” Id.; see also id. at 8

(“Prior to system installation, the Project Manager

assists in the development of the customer’s Functional

Specification.”). Syntellect explained that, “The

Project Manager provides advice and examples in order to

empower the customer to create their own Functional

Specification.” Id. at 8; see also id. at 6 (“Although

it is the customer’s responsibility to provide the

Functional Specification, sample scripts are available to

assist them.”).

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 5 of 40
4. The diagram was also included in a document

titled “Colonial Bank VISTA Functional Specification,”

(continued...)

6

Colonial eventually selected Syntellect as its IVR

vendor. As indicated in Syntellect’s response to the

RFP, “Syntellect’s project manager [then] assisted

Colonial Bank in the development of Colonial Bank’s

functional specification.” White Dep. at 56:12-16 (Doc.

No. 86-7).

Prior to the installation of Vista, a “Syntellect

Configuration Engineer ... complete[d] and provide[d] a

Site Architecture Diagram (Site Diagram).” Vista PreInstallation Guide at § 3.6.1. According to the Vista

Pre-Installation Guide, “This diagram creates the

foundation on which the Colonial Bank’s Vista solution is

built.” Id. The diagram was then submitted to a

Colonial representative, who certified that “it [was] an

accurate representation of [Colonial’s] network

environment and intended Vista interface(s).” Site

Diagram (Doc. No. 86-2).4

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 6 of 40
(...continued)

the final page of which states, “It is understood that

the specification defined will be used for the VISTA IVR

application development and installation,” and provides

signature lines for both Syntellect and Colonial

representatives. Functional Specification at 241 (Doc.

No. 78-4).

5. Syntellect was asked, through the RFP, to

“[p]rovide an itemized list of all the licensing

associated with the architecture.” RFP at 35. It

responded with the following list: “• Vista IVR Licenses

• Host Interface License • Speech Recognition License •

Text to Speech License • VistaGenTM Developer Site License

(only one per site needed) • Interactive Web Response

License.” Id.

7

Among the written agreements between Syntellect and

Colonial is the “Vista Product Agreement.” Under the

terms of this agreement, “Syntellect grant[ed] to

[Colonial] a non-exclusive, non-transferable license to

install, use, and execute the Software.” Vista Product

Agreement at § 4.1 (Doc. No. 67-4).5

 The agreement

further states that, “Syntellect’s grant to [Colonial]

does not include any right to grant sub-licenses or

otherwise transfer such rights.” Id. For purposes of

the agreement, “‘Software’ means Syntellect’s and any

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 7 of 40
6. Thus, for purposes of the agreement, the term

“software” includes some hardware. Syntellect elsewhere

explains that, “The hardware installation consists of

installing the Syntellect supplied telephony and host

connectivity cards in the customer supplied PCs.”

Syntellect’s “White Paper” at 11 (Doc. No. 90); see also

White Dep. at 54:5-9 (“Q: Did Syntellect provide any

hardware[?] ... A: They provided telephony cards.”).

8

third party’s proprietary software (including telephony

and host connectivity cards) licensed to [Colonial]

pursuant to [the Vista Product] Agreement.” Id. at

§ 1.1.6

The Vista Product Agreement also includes the

following relevant provisions:

“6.1 Defense Syntellect will defend, at

its expense using counsel of its choice,

any suit against [Colonial] claiming

that the Software infringes any United

States patent, trademark, copyright or

trade secret. Such representation is

contingent on [Colonial] promptly

notifying Syntellect of any such suit or

proceeding, and giving full authority,

information, and assistance for such

defense.

6.2 Remedies If [Colonial] complies with

the foregoing obligation, Syntellect

will indemnify Customer [Colonial] for

all losses, costs, and damages finally

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 8 of 40
9

awarded against Customer [Colonial],

subject to the limitations set forth in

Section 6.3 below. ...

6.3 Limitations of Infringement

Liability ... Syntellect shall not be

liable for any losses, costs, or

damages, and [Colonial] will indemnify,

defend, and hold Syntellect harmless

from any losses, costs, or damages

resulting from any suit or damages

resulting from any suit or proceeding

based on a claim arising from (1)

compliance with Customer designs,

specifications, or instructions; ... (3)

the combination, operation, or use of

the Software with any other product,

data, or apparatus not provided or

approved in writing by Syntellect or

Syntellect’s authorized representative;

(4) the direct or contributory

infringement of any patent by Customer

using the Software furnished pursuant to

this Agreement; or (5) the use of a

superseded release of the Software if

the infringement would have been avoided

by the use of a current release of the

Software provided or made available to

Customer.”

Id. at §§ 6.1-6.3.

Vista was installed at Colonial by December 2001.

Almost six years later, in June 2007, Ronald A. Katz

Technology Licensing, L.P. (“RAKTL”) filed a complaint

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 9 of 40
10

against Colonial in the United States District Court for

the Eastern District of Texas. The complaint stated, in

relevant part, that RAKTL is the “sole holder of the

entire right, title, and interest” in 25 specified

patents. RAKTL Compl. at ¶ 56 (Doc. No. 67-16). In

providing background on those patents, the complaint

explained that they cover the inventions of Ronald Katz,

and that, “Among [Katz’s] most prominent and well-known

innovations are those in the field of interactive call

processing.” Id. at ¶ 18. It further explained that,

“Mr. Katz’s inventions in that field are directed to the

integration of telephonic systems with computer databases

and live operator call centers to provide interactive

call processing services.” Id. It alleged that,

“Colonial Bank has directly and

contributorily infringed, and induced

others to infringe, one or more claims

of each of the ... [25 specified

patents] by making, using, offering to

sell, and/or selling within the United

States automated telephone systems,

including without limitation the

Colonial Connection telephone system,

that allow its customers to perform

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 10 of 40
11

banking and customer service functions

over the telephone.”

Id. at ¶ 58.

On July 18, 2007, Colonial notified Syntellect of the

RAKTL complaint, stating that, “We have identified

several products that appear to be implicated by RAKTL’s

claims of infringement ... [including] Syntellect’s voice

response products known as the ‘Vista’ product.” Pl.’s

Ex. B to Am. Compl. at 1 (Doc. No. 52-2). Colonial also

“tender[ed] its demand for indemnification and defense.”

Id. Syntellect responded that “the Katz patents do not

cover that which Colonial licensed from Syntellect [and]

[t]herefore, Syntellect has no contractual obligation to

indemnify Colonial for any alleged infringement by

Colonial of Katz’s patent rights.” Pl.’s Ex. C to Am.

Compl. (Doc. No. 52-3).

On January 22, 2008, Colonial notified Syntellect

that it would “be participating in a mediation ... with

RAKTL in which a potential settlement between RAKTL and

Colonial Bank will be discussed.” Pl.’s Ex. D to Am.

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 11 of 40
12

Compl. at 2 (Doc. No. 52-4). It also “invite[d]

Syntellect to attend this meeting as part of its

obligation to indemnify and defend Colonial Bank in this

litigation.” Id. Syntellect did not attend the meeting.

Colonial settled the RAKTL lawsuit in June 2008.

Syntellect continued to reject requests for

indemnification. On December 4, 2008, Colonial filed the

initial complaint in this lawsuit, claiming breach of

contract and fraud.

III. DISCUSSION

A. Breach-of-Contract Claim

Count one of BB&T’s amended complaint asserts a

breach-of-contract claim and alleges that “Syntellect’s

rejection of Colonial Bank’s demand for defense,

indemnity, and participation in the settlement

discussions [with RAKTL] was a breach of [the defense and

indemnity] provisions of the VISTA Product Agreement.”

Am. Compl. at ¶ 27 (Doc. No. 52). In its motion and

supporting briefs, BB&T argues that there is no dispute

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 12 of 40
13

of material fact that the RAKTL “lawsuit alleged that the

‘VISTA’ software that Colonial Bank purchased from

Syntellect infringed a patent,” and thus it “requests

partial summary judgment on Count [One] to resolve this

issue.” Pl.’s Mot. at 1-2 (Doc. No. 59). In its crossmotion and supporting briefs, Syntellect argues that

there is no dispute of material fact that, “In its

complaint in the underlying patent infringement lawsuit,

RAKTL did not allege that the Vista software infringed

its patents.” Def.’s Mot. at 2 (Doc. No. 63) (emphasis

added). Moreover, it argues that, “Even if RAKTL’s

lawsuit had come within the scope of the parties’

indemnity provision, the express [limitations] to the

indemnity provision in section 6.3 of the Vista Product

Agreement would bar [BB&T’s] claim.” Def.’s Reply at 6

(Doc. No. 93). 

As a preliminary matter, the court finds that Arizona

law will guide its analysis of the breach-of-contract

claim. The Vista Product Agreement states that it “shall

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 13 of 40
7. The application of the agreement’s choice-of-law

provision to the breach-of-contract claim is not

disputed. See Pl.’s Br. at 9 (Doc. No. 60-8) (citing

only Arizona law on the issue of contract

interpretation); Def.’s Resp. at 2 n.2 (Doc. No. 80)

(“The parties are in agreement that Arizona law applies

pursuant to an Arizona choice-of-law provision in the

Vista Product Agreement.”).

14

be governed by the laws of the State of Arizona.” Id. at

¶ 11.5. “Alabama law has long recognized the right of

parties to an agreement to choose a particular state’s

laws to govern an agreement.” Cherry, Bekaert & Holland

v. Brown, 582 So. 2d 502, 506 (Ala. 1991); see also Ex

parte HealthSouth Corp., 974 So. 2d 288, 295 (Ala. 2007).7

Arizona law holds that, “When, as here, there is an

express ... agreement between parties, the extent of the

duty to [defend or] indemnify must be determined from

that agreement.” MT Builders, LLC v. Fisher Roofing,

Inc., 197 P.3d 758, 763 (Ariz. Ct. App. 2008). “The

interpretation of a contract is generally a matter law.”

Powell v. Washburn, 125 P.3d 373, 375 (Ariz. 2006). And

“[a] contract should be read in light of the parties’

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 14 of 40
15

intentions as reflected by their language and in view of

all the circumstances.” Smith v. Melson, Inc., 659 P.2d

1264, 1266 (Ariz. 1983); see also id. at 1267 (“When

interpreting an agreement, the court may always consider

the surrounding circumstances.”). Interpretive rules

properly utilized by the court “include rules related to

giving words their ordinary meaning, giving technical

terms their technical meaning, reading the contract as a

whole, giving effect to the main purpose of the

instrument and interpreting the contract so as to make it

effective and reasonable.” Triangle Constr. v. Phoenix,

720 P.2d 87, 90 (Ariz. Ct. App. 1985). “[A]s with all

contracts, if the meaning of the [defense or] indemnity

provision remains uncertain[,] ... a secondary rule of

construction requires the provision to be construed

against the drafter.” MT Builders, LLC, 197 P.3d at 763.

In this case, the relevant agreement expressly

obligates Syntellect to “defend ... any suit or

proceeding against [Colonial] claiming that the Software

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 15 of 40
16

infringes any United States patent.” Vista Product

Agreement at § 6.1. A corresponding remedy provision

establishes Syntellect’s duty to then “indemnify

[Colonial] for all losses, costs, and damages finally

awarded against [Colonial].” Id. at § 6.2. Both the

duty to defend and the remedial duty to indemnify are

contingent upon Colonial “promptly notifying Syntellect

of any such suit or proceeding, and giving full

authority, information, and assistance for such defense.”

Id. at § 6.1; see also id. at § 6.2 (“If [Colonial]

complies with the foregoing obligation, Syntellect will

indemnify [Colonial].”). 

The “remedy” of indemnification is expressly “subject

to the limitations set forth in Section 6.3 [of the

agreement.]” Id. at § 6.2. Titled “limitations on

infringement liability,” § 6.3 states that “Syntellect

shall not be liable for any losses, costs or damages ...

resulting from any suit or proceeding based upon a claim

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 16 of 40
8. Somewhat confusingly, § 6.3 also specifies those

circumstances in which Colonial has a duty to defend and

indemnify Syntellect. See id. (“[Colonial] will

indemnify, defend, and hold Syntellect harmless from any

losses, costs, or damages resulting from any suit or

proceeding based upon a claim arising from [specified

circumstances].”). 

17

arising from [specified circumstances].” Id. at § 6.3.8

 The first issue raised by the parties’ respective

motions for summary judgment is properly construed as

whether RAKTL’s complaint triggered Syntellect’s duty to

defend. Unfortunately, and despite this court’s prior

instruction, “both parties [continue] to blur the

distinction between the duty to defend and the duty to

indemnify.” Colonial Bank v. Syntellect, Inc., 2009 WL

3219000 at *2 (M.D. Ala., Sept. 30, 2009) (Thompson, J.).

As indicated by the analysis above, and as previously

noted by the court, “the duty to defend and the duty to

indemnify were two separate duties created by the

contract.” Id. The court addresses these duties in

turn.

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 17 of 40
9. For this reason, the court rejects Syntellect’s

contention that, “The fundamental question in this

lawsuit ... is whether Vista infringes RAKTL’s patents.”

Def.’s Br. at 17 (Doc. No. 64). As discussed below, that

question is “fundamental” to BB&T’s fraud claim, but it

is not “fundamental” to the breach-of-contract claim.

18

1. Duty to Defend

Generally, a “duty to defend arises at the earliest

stages of litigation and ... exists regardless of whether

the [indemnitee] is ultimately found liable.” INA Ins.

Co. v. Valley Forge Ins. Co., 722 P.2d 975, 982 (Ariz.

Ct. App. 1986). The contractual duty to defend at issue

here is such a duty; it is triggered by a “suit or

proceeding” that simply “claim[s] that the Software

infringes any United States patent.” Vista Product

Agreement at § 6.1 (emphasis added).9

Syntellect attempts to avoid this broad contractual

duty by arguing that RAKTL did not, in fact, “claim[]

that the Software infringes.” Rather, according to

Syntellect, RAKTL “alleged [only] that ‘Colonial

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 18 of 40
19

Connection’ infringed, not that Vista or the IVR

infringed.” Def.’s Br. at 11; see also Def.’s Reply at

1 (Doc. No. 93) (“It is undisputed that RAKTL’s complaint

does not mention Vista or the IVR.”).

To the extent that Syntellect contends that its duty

to defend is triggered only if the complaining party

explicitly references the software, its argument is based

on an unreasonably narrow reading of § 6.1. A civil

“suit or proceeding” is initiated with a complaint, and

both the Arizona and Federal Rules of Civil Procedure

require only that such a pleading provide “[a] short and

plain statement of the claim showing that the pleader is

entitled to relief.” Ariz. R. Civ. P. 8(a)(2); Fed. R.

Civ. P. 8(a)(2) (same). Under these liberal pleading

rules, a lawsuit may surely “claim” that software

infringes a patent without referencing the software by

name. It is far more reasonable to conclude, as BB&T

contends, that Syntellect’s duty to defend may be

triggered by a complaint that “simply describ[es] what

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 19 of 40
10. Once again, it is worth noting that for the

purposes of the Vista Product Agreement the term

“software” includes some hardware. See supra n.6.

11. Cf. Discover Fin. Servs. LLC v. Nat’l Union Fire

(continued...)

20

the software did.” Pl.’s Resp. at 5 (Doc. No. 86).

Syntellect also contends, however, that the RAKTL

complaint wass clearly directed at Colonial’s entire call

system, and not at its software. It is undisputed that

“[t]he Colonial Connection was Colonial Bank’s overall

phone system,” and that, “[i]t consisted of several

devices in addition to Vista.” Def.’s Resp. at 4.

Nonetheless, the court has little difficulty concluding

that RAKTL’s complaint claimed that the software

infringed a United States patent.10 To be sure, the

complaint was broadly directed at Colonial’s operation of

“automated telephone systems.” RAKTL Compl. at ¶ 57.

But it listed 25 patents held by RAKTL, and expansively

alleged that Colonial’s telephone system infringed “one

or more claims of each of [them].” Id. at ¶ 58.11 And in

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 20 of 40
(...continued)

Ins., 527 F. Supp. 2d 806, 822 (N.D. Ill. 2007) (“[A]

patent can be comprised of many, even hundreds of claims,

and an action for patent infringement may concern just a

single claim. RAKTL’s own complaint, for example,

alleged that [the] conduct infringed ‘one or more claims’

in the patents in suit.”).

12. See also Vista Pre-Installation Guide at ¶ 4.1

(“Your Vista IVR System is an industry standard

server/workstation containing specialized voiceprocessing hardware, voice-processing application(s), and

various optional features to deliver a wide variety of

automated transactional services to your customers.”).

21

providing background on the relevant patents, it

explained that RAKTL’s “most prominent and well-known

innovations are those in the field of interactive call

processing,” and that its “inventions in that field are

directed to the integration of telephonic systems with

computer databases and live operator call centers to

provide interactive call processing.” Id. at ¶ 18. By

Syntellect’s own description, it is “[t]he Vista IVR

[that] automates customer self-service inquiries.” Vista

Pre-Installation Guide at ¶ 4 (emphasis added).12 Only on

the most illogical reading of the complaint could the

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 21 of 40
13. The court declines BB&T’s invitation to conclude

that ten of the patents listed in RAKTL’s complaint may

be construed to support a claim against Syntellect’s

software. Such a conclusion is more properly reached

after fully construing each patent. See Markman v.

Westview Instruments, 517 U.S. 370, 374 (1996) (“Victory

in an infringement suit requires a finding that [a]

patent claim ‘covers the alleged infringer’s product or

process,’ which in turn necessitates a determination of

‘what the words in the claim mean.’”). BB&T does not

offer its own construction of any patent claims, indeed

it cites primarily to patent abstracts. 

22

court conclude that it did not claim that the software

infringes a patent.

The court will thus grant BB&T’s motion for partial

summary judgment to the extent that it “requests the

Court enter an order ... holding that the RAKTL lawsuit

alleged that the VISTA software infringed one of its

patents.” Pl.’s Br. at 8.13 To the extent that

Syntellect has moved for a contrary ruling on this issue,

that motion will be denied. These rulings, however, do

not end the court’s inquiry. 

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 22 of 40
23

2. Duty to Indemnify

As noted above, once Syntellect’s duty to defend is

triggered, a corresponding remedy provision requires it

to then “indemnify [Colonial] for all losses, costs, and

damages finally awarded against [Colonial].” Vista

Product Agreement at § 6.2. This “remedy” of

indemnification, however, is expressly “subject to the

limitations set forth in Section 6.3 [of the agreement.]”

Id. at § 6.2. In its motion for summary judgment,

Syntellect contends that, “Even if RAKTL’s lawsuit had

come within the scope of the parties’ indemnity

provision, the express [limitations] to the indemnity

provision in section 6.3 of the Vista Product Agreement

would bar [BB&T’s] claim.” Def.’s Reply at 6. In

particular, it identifies the limitations provided in

§§ 6.3(1), 6.3(3) and 6.3(4).

Syntellect does not explicitly address which party

carries the burden of proving that one or more of the

contractual limitations to the indemnification duty apply

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 23 of 40
14. BB&T also fails to directly address this issue.

15. Syntellect appropriately pled the exceptions it

raises here as affirmative defenses. See Answer to Am.

Compl. at ¶¶ 37-40 (Doc. No. 61). 

24

in this case.14 “[G]enerally ... the party seeking to be

indemnified has the burden of proof on the issue.” Grubb

& Ellis Mgmt. Servs., Inc. v. 407417 B.C., L.L.C., 138

P.3d 1210, 1215 (Ariz. Ct. App. 2006). However, a

contractual exception or limitation to an indemnity

provision “is in the nature of an affirmative defense.”

Id. at 1215-16. Of course, “[t]he proponent of an

affirmative defense has the burden of pleading and

proving it.” Id. at 1216; see also Fed. R. Civ. P.

8(c).15 Thus, the burden is on Syntellect to show that

RAKTL’s claim that the software infringes one or more

claims of its patents “aris[es] from” at least one of the

circumstances specified in § 6.3.

 

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 24 of 40
25

a. Section 6.3(1)

Section 6.3(1) of the Vista Product Agreement states

that, “Syntellect shall not be liable for any losses,

costs, or damages ... resulting from any suit or

proceeding based upon a claim arising from ... compliance

with Customer designs, specifications, or instructions.”

Syntellect claims that, “RAKTL’s allegations of

infringement arise from [Colonial’s] provision of

‘banking and customer-service functions.’” Def.’s Br. at

13 (quoting RAKTL Compl. at ¶ 58). It further contends

that “those functions were designed and specified by

Colonial.” Id. at 13-14.

BB&T responds that: “The [RAKTL] case was not about

... Colonial Bank[’s] specific designs, specifications,

and instructions–-that is, it was not about whether VISTA

said ‘Welcome to Colonial Bank’ as opposed to ‘Welcome to

[some other name].’ It was about the automation itself,

the central function that VISTA performed.” Pl.’s Resp.

at 11. Looking to the complaint, it is not unreasonable

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 25 of 40
16. See, e.g., White Dep. at 99:10-18 (“Syntellect

provided a generic framework of a template [for how the

entire IVR system functions], and we filled in our call

flow and then went through and scripted all of the text

that would be spoken, how all the calls would be handled,

et cetera. Q: And when you say we, who is we? A:

Primarily, it was myself working with the [Syntellect]

script writer.”). 

26

to conclude that RAKTL’s claim “arise[s] from” the

general automated “customer-services” function that the

software was designed to perform. 

More importantly, BB&T also raises questions about

the role Syntellect played in developing the functional

specifications. Syntellect mandates “Inclusion of

Project Management ... with each system sold.” RFP at

107. This “includes guiding the customer through the

development phases of the ... Functional Specification.”

Id. BB&T also offers testimony confirming that,

“Syntellect’s project manager assisted Colonial Bank in

the development of Colonial Bank’s functional

specification.” White Dep. at 56:12-16. The depth of

that assistance is unclear.16 Drawing all inferences in

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 26 of 40
27

favor of BB&T, the court cannot conclude on the existing

record that Syntellect is entitled to the protection from

liability provided by § 6.3(1). Summary judgment on the

basis of this provision will be denied.

b. Section 6.3(3) 

Section 6.3(3) of the Vista Product Agreement states

that, “Syntellect shall not be liable for any losses,

costs, or damages ... resulting from any suit or

proceeding based upon a claim arising from ... the

combination, operation, or use of the Software with any

other product, data or apparatus not provided or approved

in writing by Syntellect or Syntellect’s authorized

representative.” It is undisputed that Colonial’s

automated call system consists of some hardware or

software that was not provided by Syntellect. This

includes:

“1) the PBX, or physical telephone lines

and equipment; 2) the computer server(s)

on which the Syntellect Software runs

and into which calls are routed by way

of the ports; 3) a call routing and

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 27 of 40
28

reporting system that tracks information

regarding the volume and types of calls;

4) the bank’s mainframe computers that

contain and secure customers’ banking

information; and 5) call center

workstations ... which pull information

from the mainframe computers for

customer and agent review.”

Pl.’s Br. at 11 (citation omitted); Def’s Resp. at 4-5.

Syntellect maintains that it did not provide written

approval for its software to be “combin[ed], operate[d]

or use[d]” with these products. 

BB&T contends, however, that Syntellect did approve

each of these products in writing. As indicated in

Syntellect’s Pre-installation Guide, a “Syntellect

Configuration Engineer ... complete[d] and provide[d] a

Site Architecture Diagram (Site Diagram)” prior to

installation of Vista. Id. at § 3.6.1. The PreInstallation Guide indicates that, “This diagram creates

the foundation on which the Colonial Bank’s Vista

solution is built.” Id. The diagram was then submitted

to a Colonial representative, who certified that “it is

an accurate representation of our network environment and

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 28 of 40
17. Notably, Syntellect does not directly address the

Site Diagram, instead focusing its reply on other

evidence offered by BB&T as proof of written approval.

29

intended Vista interface(s).” Site Diagram. The diagram

was also included in a document titled “Colonial Bank

VISTA Functional Specification,” the final page of which

states, “It is understood that the specification defined

will be used for the VISTA IVR application development

and installation,” and provides signature lines for both

Syntellect and Colonial representatives. Functional

Specification at 241. It is apparently undisputed that

every relevant component of the call system is included

on this diagram.

Syntellect responds that BB&T’s “evidence ... shows

no more than that [it] was aware of the other components

in Colonial’s call center.” Def.’s Reply at 12.17 The

court is skeptical. At the very least, the evidence

raises a question of fact regarding whether Syntellect

“approved in writing” Colonial’s use of its software with

these other components.

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 29 of 40
30

The court also rejects Syntellect’s contention that,

“To avoid rendering this [provision] ... meaningless, the

Court should find that the evidence offered by [BB&T]

does not constitute approval in writing.” Id.

Acceptance of the site diagram as proof of approval does

not render the provision meaningless. The limitation

would still apply, for example, if Colonial had, without

written approval, added components to its system after

the diagram and installation were completed.

Whether § 6.3(3) applies in this case must ultimately

be determined by the trier of fact. Summary judgment on

this issue will thus be denied.

c. Section 6.3(4) 

Section 6.3(4) of the Vista Product Agreement states

that, “Syntellect shall not be liable for any losses,

costs, or damages ... resulting from any suit or

proceeding based upon a claim arising from ... the direct

or contributory infringement of any patent by [Colonial]

using the Software furnished pursuant to this Agreement.”

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 30 of 40
31

Syntellect contends that, “This [provision] clarifies

that if [Colonial] is in any way responsible for

infringing a patent, there will be no indemnity even if

[Colonial] happens to be using Vista.” Def.’s Reply at

13 (Doc. No. 93); see also Def.’s Resp. at 16 (“[T]his

[provision] makes clear that it is not enough that the

RAKTL complaint alleged [that] Colonial infringed a

patent while using Vista.”).

BB&T reads Syntellect as arguing that § 6.3(4) states

a limitation on the duty to indemnify that excludes all

suits in which Colonial is accused of infringing a patent

by using the software. It persuasively responds that:

“[This reading] would render the

defense-and-indemnity provision

meaningless. If Syntellect did not have

to defend or indemnify Colonial Bank

when it was sued for infringement for

using the VISTA software, then

Syntellect never had to indemnify

Colonial bank in any patent infringement

suit. Under the facts present in this

case, it was not possible for Colonial

Bank–-the purchaser of the VISTA

software–-to be liable to anyone for the

infringement of any patent unless it

used the VISTA software. It is

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 31 of 40
32

undisputed that Colonial Bank did not

make the VISTA software, or sell it, or

offer to sell it. Only Syntellect did

those things. Colonial Bank simply used

it.” 

Pl.’s Resp. at 17. 

The notion that § 6.3(4) shields Syntellect from the

duty to indemnify in all cases in which Colonial is sued

for using the software is not only in conflict with the

circumstances surrounding the agreement, it is impossible

to square with the agreement as a whole. The only

license granted under the agreement is “to install, use,

and execute the Software.” Vista Product Agreement at

§ 4.1 (emphasis added). Moreover, § 6.3(5) states a

limitation on the duty to indemnify for “a claim arising

from ... the use of a superseded release of the Software

if the infringement would have been avoided by the use of

a current release of the Software provided or made

available to [Colonial].” Id. (emphasis added). Such a

limitation would be unnecessary if § 6.3(4) protected

Syntellect from all claims arising from Colonial’s use of

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 32 of 40
18. To be clear, the court does not hold that this

provision does not apply, only that the interpretation

upon which Syntellect apparently relies is unreasonable.

The court also rejects BB&T’s contention that, “The

better interpretation of Section 6.3(4)–-and of Section

6.3 generally–-is that it relates [only] ... to cases in

which Syntellect is a defendant.” Pl.’s Resp. at 18.

33

the software. To the extent that Syntellect relies on

such an interpretation, its motion will be denied.

Unfortunately for Syntellect, it is not clear that it

offers any other interpretation of this provision. See,

e.g., Def.’s Resp. at 17 (“Colonial’s use of Vista is

insufficient to trigger any indemnity obligation in favor

of [BB&T]”). Thus its motion for summary judgment on

this provision of the agreement will be denied.18

B. Fraud Claim

Count two of BB&T’s amended complaint asserts a fraud

claim and alleges that, “Syntellect represented, either

affirmatively or through the omission of relevant

information, that the software that it sold to Colonial

Bank did not violate or infringe any existing patent or

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 33 of 40
19. Syntellect also argues that: (1) it did not make

the alleged representation; (2) BB&T’s fraud claim is

barred by the relevant statute of limitations; and (3)

BB&T’s claim failed to meet the heightened pleading

requirements of Federal Rule of Civil Procedure 9(b).

Because the court will grant summary judgment on other

grounds, it does not address these arguments.

34

copyright.” Am. Compl. at ¶ 30. It further alleges

that, “That representation was false, because the

software infringed the patents that were the subject of

the RAKTL action.” Id. at ¶ 31. Syntellect argues that

summary judgment is due because BB&T offers no evidence

that the alleged representation is false.19

As a preliminary matter, the court finds that Alabama

law will guide its analysis of BB&T’s fraud claim.

“Alabama adheres to the traditional rule of ‘lex loci

delicti,’ which provides that an Alabama court will

determine the substantive rights of an injured party

according to the law of the state where the injury

occurred.” Williams v. Norwest Fin. Ala., Inc., 723 So.

2d 97, 101 (Ala. Civ. App. 1998). “[W]here documents

executed by the parties contain a choice-of-law clause[,]

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 34 of 40
20. The court notes, however, that it would reach the

same result under Arizona law. See infra n.22.

35

an exception to the rule of ‘lex loci delicti’ [may]

exist[].” Id. However, when the “claims sound in tort

and allegedly arise from the facts and circumstances

surrounding the making of the ... agreement ... the

choice-of-law clause does not supersede the rule of ‘lex

loci delicti.’” Id.; Bowling v. Founders Title Co., 773

F.2d 1175, 1179 (11th Cir. 1985) (“Alabama choice of law

principles in tort and fraud look primarily to the law of

the state where the injury occurs–-in this case,

Alabama.”). To the extent that Colonial was injured as

a result of the alleged misrepresentation, that injury

occurred in Alabama.20

In Alabama, “A fraud claim may involve an alleged

affirmative misrepresentation of a material fact or an

alleged concealment of a material fact for which there is

a duty to disclose.” Brown v. K&V Automotive, Inc., 946

So. 2d 458, 464 (Ala. Civ. App. 2006). “A party alleging

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 35 of 40
36

fraud by misrepresentation must prove four elements.”

Luck v. Primus Auto. Fin. Servs., 763 So. 2d 243, 245

(Ala. 2000). These elements are:

“(1) that the defendant made a false

representation concerning an existing

material fact; (2) that the defendant

made that misrepresentation while

knowing that it was false, or made it

recklessly, or made it with no knowledge

as to its truth or falsity; (3) that the

plaintiff reasonably relied on the

misrepresentation; and (4) that the

plaintiff incurred damage proximately

caused by the reliance.” 

Id. at 245-46. A party alleging fraud by omission must

also prove four elements:

“1) that the defendant had a duty to

disclose material facts, 2) that the

defendant concealed or failed to

disclose those facts, 3) that the

concealment or failure to disclose

induced the plaintiff to act; and 4)

that the defendant’s action resulted in

harm to the plaintiff.”

Jewell v. Seaboard Indus., 667 So. 2d 653, 658 (Ala.

1995). As should be clear, whether proceeding under a

theory of misrepresentation or omission, the party

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 36 of 40
21. It is questionable whether a request for “an

itemized list of all the licensing associated with the

architecture” can properly be construed as a request for

all the licensing necessary to legally use the software.

See Def.’s Reply at 15 (“[Syntellect’s] interpretation of

the question is plainly false: the question calls for all

licenses actually associated with Vista, not those

necessary to run Vista.” (emphasis in original)).

Moreover, Syntellect argues persuasively that “the

parties were sufficiently sophisticated to contemplate

the risk of patent infringement, and [Colonial,] instead

of asking for a representation of non-infringement,

(continued...)

37

alleging the fraud must prove the existence of a

“material fact.”

In response to the motion for summary judgment, BB&T

contends that, “There ... are ample facts to support the

substance of the claim.” Pl.’s Resp. at 20. Yet the

only evidence it offers is Syntellect’s answer to

“Colonial Bank’s request for ... an itemized list of all

the licensing associated with the VISTA IVR system.”

Pl.’s Resp. at 20 (emphasis added). BB&T maintains that

Syntellect committed fraud when its answer “failed to

[indicate] that Colonial Bank needed a license from

[RAKTL].” Id. at 21.21 

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 37 of 40
(...continued)

accounted for the risk of infringement through an

indemnity provision.” Def.’s Br. at 22. 

22. The court would reach the same conclusion under

Arizona law. See, e.g., Green v. Lisa Frank, Inc., 211

P.3d 16, 34 (Ariz. Ct. App. 2009) (“A showing of actual

fraud requires [among other things]: (1) a representation

[and] (2) its falsity.”).

38

What BB&T does not do is offer any evidence that

Colonial in fact “needed a license from [RAKTL]” to

legally use the software. In fact, it explicitly takes

the position that whether “VISTA ... actually infringe[s]

[RAKTL’s] patents ... is irrelevant.” Id.; see also id.

at 22 (“That inquiry is inappropriate and unnecessary.

It is not an issue in the case.”). To be sure, actual

infringement may be irrelevant to whether Syntellect had

a duty to defend a claim of patent infringement.

However, it is certainly relevant to BB&T’s allegations

of fraud. Because BB&T has chosen not to present

evidence on this issue, summary judgment will be granted

with respect to its fraud claim.22

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 38 of 40
39

*** 

For the foregoing reasons, it is ORDERED as follows:

(1) Plaintiff Branch Banking and Trust Company’s

motion for partial summary judgment (doc. no. 59) is

granted to the extent that the court finds that defendant

Syntellect, Inc. had a contractual duty to defend

plaintiff Branch Banking and Trust Company in the

underlying RAKTL litigation.

(2) Defendant Syntellect, Inc.’s motion for summary

judgment (doc. no. 63) is denied with respect to

plaintiff Branch Banking and Trust Company’s breach-ofcontract claim and granted with respect to plaintiff

Branch Banking and Trust Company’s fraud claim. 

(3) Judgment is entered in favor of defendant

Syntellect, Inc. and against plaintiff Branch Banking and

Trust Company on its fraud claim, with plaintiff Branch

Banking and Trust Company taking nothing as to this

claim.

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 39 of 40
The clerk of the court is DIRECTED to enter this

document on the civil docket as a final judgment pursuant

to Rule 58 of the Federal Rules of Civil Procedure. 

DONE, this the 22nd day of July, 2010.

 /s/ Myron H. Thompson 

UNITED STATES DISTRICT JUDGE

Case 2:08-cv-00955-MHT-WC Document 113 Filed 07/22/10 Page 40 of 40