Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2024 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies |
Commitments and Contingencies Purchase Obligations and Indemnifications
The Company includes various types of indemnification and guarantee clauses in certain arrangements. These indemnifications and guarantees may include, but are not limited to, infringement claims related to intellectual property, direct or consequential damages and guarantees to certain service providers and service level requirements with certain customers. The type and amount of any potential indemnification or guarantee varies substantially based on the nature of each arrangement. The Company has experienced no previous claims and cannot determine the maximum amount of potential future payments, if any, related to such indemnification and guarantee provisions. The Company believes that it is unlikely it will have to make material payments under these arrangements and therefore has not recorded a contingent liability associated with these arrangements in the condensed consolidated balance sheets.
The Company enters into unconditional purchase obligations arrangements for certain of its services that it receives in the normal course of business.
In connection with the Redi2 acquisition, the Company has agreed to pay up to $20.0 million in performance bonuses based upon the achievement of certain performance targets or upon a change in control. These performance bonuses will be recognized as employee compensation in the condensed consolidated statements of operations. The Company recognized $1.9 million and $0.4 million related to these bonuses for the three months ended September 30, 2024 and 2023, respectively. The Company recognized $3.6 million and $1.9 million related to these bonuses for the nine months ended September 30, 2024 and 2023, respectively.
Legal Proceedings
The Company and its subsidiary, Yodlee, have been named as defendants in a lawsuit filed on July 17, 2019, by FinancialApps in the United States District Court for the District of Delaware. The case caption is FinancialApps, LLC v. Envestnet Inc., et al., No. 19-cv-1337 (D. Del.). FinancialApps alleges that, after entering into a 2017 services agreement with Yodlee, Envestnet and Yodlee breached the agreement and misappropriated proprietary information to develop competing credit risk assessment software. The complaint includes claims for, among other things, misappropriation of trade secrets, fraud, tortious interference with prospective business opportunities, unfair competition, copyright infringement and breach of contract. FinancialApps is seeking significant monetary damages and various equitable and injunctive relief.
On September 17, 2019, the Company and Yodlee filed a motion to dismiss certain of the claims in the complaint filed by FinancialApps, including the copyright infringement, unfair competition and fraud claims. On August 25, 2020, the District Court granted in part and denied in part the Company and Yodlee’s motion. Specifically, the Company and Yodlee prevailed on FinancialApps’ counts alleging copyright infringement and violations of the Illinois Deceptive Trade Practices Act. And while the Court was receptive to Envestnet and Yodlee’s argument that several of FinancialApps’ other counts are based on allegations that amount to copyright infringement—and therefore should fail due to copyright preemption—the Court found that FinancialApps had alleged enough conduct distinct from copyright infringement to survive dismissal at this early stage.
On October 30, 2019, the Company and Yodlee filed counterclaims against FinancialApps. Yodlee alleges that FinancialApps fraudulently induced it to enter into contracts with FinancialApps, then breached those contracts. FinancialApps has filed a motion to dismiss Yodlee’s counterclaims. On September 15, 2020, the District Court denied FinancialApps’ motion on all counts except for the breach-of-contract claim which was dismissed on a pleading technicality without prejudice. On that count, the Court granted Yodlee leave to amend its counterclaim, cure the technical deficiency, and reassert its claim. Yodlee and Envestnet filed amended counterclaims on September 30, 2020. The amended counterclaims (1) cure that technical deficiency and reassert Yodlee’s contract counterclaim; and (2) broaden the defamation counterclaims arising out of various defamatory statements FinancialApps disseminated in the trade press after filing the lawsuit. On January 14, 2021, the Court ordered that (i) FinancialApps' claims against Yodlee—as well as Yodlee’s counterclaims against FinancialApps—must be tried before the judge instead of a jury pursuant to a jury waiver provision in the parties’ agreement; and (ii) FinancialApps' claims against Envestnet (and Envestnet’s counterclaim) must be heard by a jury. The Court has scheduled the Envestnet jury trial to take place before the Yodlee bench trial. Fact discovery closed on April 23, 2021, other than a few outstanding matters, and expert discovery concluded on September 30, 2022. The parties thereafter briefed summary judgment motions and motions to exclude the presentation of expert testimony (a “Daubert Motion”). On July 25, 2023, the Magistrate Judge issued a report and recommendation that the Court grant FinancialApps’ summary judgment motion on Envestnet’s defamation counterclaim. The Magistrate Judge did not make a ruling as to Yodlee’s defamation counterclaim. On July 28, 2023, the Magistrate Judge denied Envestnet and Yodlee's Daubert motion to exclude FinancialApps' technical expert, Isaac Pflaum. On July 31, 2023, the Magistrate Judge issued a report and recommendation that the Court grant in part and deny in part Envestnet's summary judgment motion. The Magistrate Judge recommended that the motion be granted with respect to the unjust enrichment count and denied with respect to the misappropriation of trade secrets, tortious interference with prospective business opportunities and unfair competition counts. With respect to the later claims, the Magistrate Judge found that there were genuine disputes of material fact that preclude summary judgment. The reports and recommendations are not final rulings, however, and the Company has filed objections against their adoption by the District Court. Those objections are fully briefed and pending before the District Court. On August 14, 2023, the Magistrate Judge granted-in-part and denied-in-part FinancialApps' Daubert motion to exclude Envestnet and Yodlee's technical expert. On September 13, 2023, the Magistrate Judge granted-in-part and denied-in-part Envestnet and Yodlee's Daubert motion to exclude FinancialApps' damages expert. On January 18, 2024, FinancialApps filed a motion seeking sanctions for purported spoliation of evidence against Yodlee and Envestnet. Yodlee and Envestnet filed a brief opposing the motion on February 22, 2024. The motion is fully briefed and pending before the Magistrate Judge. On September 26, 2024, the District Court adopted the Magistrate Judge's recommendations over Envestnet's objections by (1) granting FinancialApps summary judgment on Envestnet's defamation counterclaim, and (2) granting Envestnet's motion for summary judgment with respect to FinancialApps' unjust enrichment claim and denied Envestnet's motion for summary judgment with respect to FinancialApps' misappropriation of trade secrets, tortious interference with prospective business opportunities and unfair competition claims. With respect to the later claims, the District Court agreed that there were genuine disputes of material fact that preclude summary judgment. The Company believes FinancialApps' allegations are without merit and will continue to defend the claims against it and litigate the counterclaims vigorously.
The Company and Yodlee were named as defendants in a putative class action lawsuit filed on August 25, 2020, by Plaintiff Deborah Wesch in the United States District Court for the Northern District of California. On October 21, 2020, an
amended class action complaint was filed by Plaintiff Wesch and nine additional named plaintiffs. The case caption currently is Clark, et al., v. Yodlee, Inc. Case No. 3:20-cv-5991-SK (formerly entitled Deborah Wesch, et al., v. Yodlee, Inc., et al., Case No. 3:20-cv-05991-SK). Plaintiffs alleged that Yodlee unlawfully collected their financial transaction data when plaintiffs linked their bank accounts to a mobile application that uses Yodlee’s Instant Account Verification API, and plaintiffs further allege that Yodlee unlawfully sold the transaction data to third parties. The complaint alleged violations of certain California statutes and common law, including the Unfair Competition Law, and federal statutes, including the Stored Communications Act. Plaintiffs are seeking monetary damages and equitable and injunctive relief on behalf of themselves and a putative nationwide class and California subclass of persons who provided their log-in credentials to a Yodlee-powered app in an allegedly similar manner from 2014 to the present.
On November 4, 2020, the Company and Yodlee filed separate motions to dismiss all of the claims in the complaint. On February 16, 2021, the district court granted in part and denied in part Yodlee’s motion to dismiss the amended complaint and granted the plaintiffs leave to further amend. The court reserved ruling on the Company’s motion to dismiss and granted limited jurisdictional discovery to the plaintiffs. On March 15, 2021, Plaintiffs filed a second amended class action complaint re-alleging, among others, the claims the district court had dismissed. The second amended complaint did not allege any claims against the Company or Yodlee that were not previously alleged in first amended complaint. On May 5, 2021, the Company filed a motion to dismiss all claims asserted against it in the second amended complaint, and Yodlee filed a motion to dismiss most claims asserted against it in the second amended complaint. On July 19, 2021, the court granted in part Yodlee’s motion, resulting in the dismissal of all federal law claims and two of the state-law claims. On August 5, 2021, the Court granted the Company's motion to dismiss, and dismissed the Company from the lawsuit. On October 8, 2021, Yodlee filed an early motion for summary judgment. On August 12, 2022, Plaintiffs moved for leave to file a third amended complaint, which Yodlee opposed. On September 29, 2022, the Court denied Plaintiffs’ motion to amend the complaint. On December 13, 2022, the Court granted in part and denied in part Yodlee’s early motion for summary judgment, narrowing the scope of issues that remain to be resolved. On January 30, 2023, the Court granted Yodlee’s motion for reconsideration and dismissed one additional claim. Plaintiffs filed an amended complaint on September 19, 2023, which Yodlee answered on October 3, 2023. Discovery is closed.
On May 22, 2024, plaintiffs filed a motion for class certification. After full briefing and a hearing, the Court issued an order on September 25, 2024, denying plaintiffs’ motion for class certification in its entirety. On October 9, 2024, plaintiffs petitioned the Court of Appeals for the Ninth Circuit for permission to take an early appeal from that order under Rule 23(f). Yodlee opposed the petition on October 21, 2024, and plaintiffs sought permission to file a reply brief in support of their petition on October 28, 2024. The parties are awaiting the Ninth Circuit’s ruling on plaintiffs’ petition. The district court held a further case management conference on October 21, 2024, and set a new schedule whereby Yodlee’s pending motion for summary judgment, and any cross-motion for summary judgment by plaintiffs, will be heard by December 16, 2024. Plaintiffs have also stated their intent to file a motion by November 29, 2024, for leave to amend to add new proposed class representatives. Yodlee believes the allegations and remaining individual claims are without merit and will continue to vigorously defend itself both in the district court and in any appeal.
On August 12, 2024, the Company filed a preliminary proxy statement with the SEC in connection with the Merger Agreement by and among BCPE Pequod Buyer, Inc., BCPE Pequod Merger Sub, Inc., a direct, wholly owned subsidiary of Parent, and Envestnet, pursuant to which Merger Sub will merge with and into Envestnet, with Envestnet surviving the Merger and becoming a wholly owned subsidiary of Parent. On August 23, 2024, the Company filed the Proxy Statement with the SEC. On September 5, 2024 and September 6, 2024, respectively, two separate complaints with nearly identical claims were filed by purported stockholders in the Supreme Court of the State of New York, County of New York against the Company and its directors (i) under the caption Eric Miller v. Envestnet, Inc., et al., Case No. 654622/2024 and (ii) under the caption Kevin Turner v. Envestnet, Inc., et al., Case No. 654641/2024. The complaints allege that the Proxy Statement omitted certain purportedly material information regarding, among other things, the background of the Merger, the Company’s financial projections, and Morgan Stanley & Co., LLC’s financial analyses in violation of New York common law. The complaints seek, among other things, an injunction enjoining consummation of the Merger or, in the event that the Merger is consummated, damages resulting from the alleged violations. In addition, several purported stockholders of the Company have sent demand letters generally alleging that the preliminary proxy statement the Company filed on August 12, 2024 and/or the Proxy Statement omitted information that rendered it false and misleading or otherwise had disclosure deficiencies in violation of federal securities law. Other purported stockholders of the Company have sent demands pursuant to Section 220 of the Delaware General Corporation Law, seeking inspection of certain Company books and records, in connection with the Merger. Solely to minimize any expense and distraction, and to avoid the uncertainty, of any litigation, and without admitting any
liability or wrongdoing whatsoever, the Company determined to voluntarily supplement certain disclosures in the Proxy Statement by providing the additional information presented in the Current Report on Form 8-K filed on September 16, 2024. In addition, the Company is involved in legal proceedings arising in the ordinary course of its business. Legal fees and other costs associated with such actions are expensed as incurred. The Company will record a provision for these claims when it is both probable that a liability has been incurred and the amount of the loss, or a range of the potential loss, can be reasonably estimated. These provisions are reviewed regularly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information or events pertaining to a particular case. For litigation matters where a loss may be reasonably possible, but not probable, or is probable but not reasonably estimable, no accrual is established, but if the matter is material, it is subject to disclosures. The Company believes that liabilities associated with any claims, while possible, are not probable, and therefore has not recorded any accrual for any claims as of September 30, 2024. Further, while any possible range of loss cannot be reasonably estimated at this time, the Company does not believe that the outcome of any of these proceedings, individually or in the aggregate, would, if determined adversely to it, have a material adverse effect on its financial condition or business, although an adverse resolution of legal proceedings could have a material adverse effect on the Company’s results of operations or cash flow in a particular quarter or year.
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