1008-00007 · Lumos Analytics Inc · Correspondence

response-to-demand-letter.docx DOCUMENT Litigation

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CALDERWOOD & HARKNESS LLP Attorneys at Law

101 California Street, Suite 3200 San Francisco, California 94111 Telephone: (415) 773-6000 Facsimile: (415) 773-6001 www.calderwoodharkness.com

June 12, 2023

VIA EMAIL AND Sundial Data Systems

Katherine "Kate" Hargrove, Esq. Hargrove, Tillman & Burch LLP 71 South Wacker Drive, Suite 4500 Chicago, Illinois 60606

Re: Response to Demand Letter dated May 1, 2023 — Pinnacle Financial Holdings LLC v. Lumos Analytics Inc.; Master Services Agreement dated January 15, 2021 (Agreement No. MSA-PFH-2021-0015)

Calderwood & Harkness Matter No. 1008-00007

Dear Ms. Hargrove:

I am a partner at Calderwood & Harkness LLP, and I write on behalf of our client, Lumos Analytics Inc. ("Lumos"), a corporation organized and existing under the laws of the State of Delaware with its principal place of business at 580 Howard Street, Suite 400, San Francisco, California 94105. Lumos has retained this firm to respond to and address the matters raised in the demand letter dated May 1, 2023 (the "Demand Letter"), which your firm transmitted on behalf of Pinnacle Financial Holdings LLC ("Pinnacle") to Lumos's General Counsel, Adriana Voss. Accordingly, we respectfully request that all further correspondence and communications regarding this matter be directed exclusively to this firm at the address above, or to me directly at losei@calderwoodharkness.com.

We acknowledge receipt of the Demand Letter, in which Pinnacle demands payment of Two Million Eight Hundred Seventy Thousand Dollars ($2,870,000), purportedly comprising SLA credits and additional damages arising from alleged service disruptions under the Master Services Agreement between the parties dated January 15, 2021 (the "MSA" or "Agreement").

After a thorough review of the MSA and its exhibits, the incident records, third-party monitoring data, and the relevant factual circumstances, Lumos rejects Pinnacle's demand in its entirety. Pinnacle's demand is unsupported by the terms of the MSA, is inconsistent with the objective factual record, and is not cognizable under applicable law. The grounds for Lumos's position are set forth in detail below.

Nothing in this letter shall be construed as a waiver or limitation of any right, remedy, claim, or defense available to Lumos under the MSA, at law, or in equity. All such rights, remedies, claims, and defenses are expressly reserved.

I. Background and Contractual Framework

The MSA was executed on January 15, 2021, between Lumos Analytics Inc., as service provider, and Pinnacle Financial Holdings LLC, as customer. The MSA provides for an initial term of three (3) years, commencing on January 15, 2021, and running through January 14, 2024. During this initial term, Pinnacle agreed to pay an annual subscription fee of One Million Four Hundred Forty Thousand Dollars ($1,440,000), payable at a rate of One Hundred Twenty Thousand Dollars ($120,000) per month, representing a total contract value of Four Million Three Hundred Twenty Thousand Dollars ($4,320,000) over the initial term. These terms were negotiated at arm's length between two sophisticated commercial parties, each represented by counsel.

The parties' respective performance obligations and service-level commitments are governed in substantial part by Exhibit C to the MSA (the "Service Level Agreement" or "SLA"). Exhibit C establishes the following material terms relevant to the present dispute:

Uptime Commitment. Section 2.1 of Exhibit C provides that Lumos shall maintain platform availability of no less than 99.95%, measured on a calendar-month basis.

P1 Incident Response. Section 2.2 of Exhibit C requires Lumos to acknowledge Priority 1 ("P1") incidents within fifteen (15) minutes of detection or report and to provide a resolution or functional workaround within two (2) hours.

Tiered SLA Credit Structure. Section 3.2 of Exhibit C establishes a tiered credit mechanism applicable when monthly uptime falls below the 99.95% commitment, as follows:

• Monthly uptime of 99.90% – 99.94%: credit equal to 5% of the monthly subscription fee

• Monthly uptime of 99.50% – 99.89%: credit equal to 10% of the monthly subscription fee

• Monthly uptime of 99.00% – 99.49%: credit equal to 20% of the monthly subscription fee

• Monthly uptime below 99.00%: credit equal to 30% of the monthly subscription fee

Credit Request Deadline. Section 3.5 of Exhibit C requires that the customer submit a written credit request within thirty (30) calendar days after the end of the affected calendar month, specifying the affected services and observed downtime. This requirement operates as a condition precedent to entitlement to any SLA credit.

Credit Cap. Section 3.4 of Exhibit C imposes a hard cap on SLA credits: the maximum aggregate SLA credits payable in any rolling twelve (12)-month period shall not exceed thirty percent (30%) of the annual subscription fee.

Exclusive Remedy. Section 3.6 of Exhibit C provides that SLA credits constitute the customer's sole and exclusive remedy for any failure by Lumos to meet the service level commitments set forth in Exhibit C.

Exclusions from Uptime Calculation. Section 2.3 of Exhibit C excludes from the uptime calculation any downtime caused by or attributable to (a) scheduled maintenance, (b) force majeure events, (c) customer acts or omissions, or (d) customer infrastructure or third-party services not provided by or through Lumos.

Additionally, the MSA contains the following provisions of direct relevance:

Limitation of Liability — Consequential Damages Waiver. Section 11.3 of the MSA provides that neither party shall be liable to the other for any indirect, consequential, incidental, special, or lost-profits damages arising out of or related to the Agreement, regardless of whether such damages were foreseeable or whether such party was advised of the possibility thereof.

Aggregate Liability Cap. Section 11.2 of the MSA limits the total aggregate liability of either party to an amount not exceeding the fees paid or payable by customer during the twelve (12)-month period immediately preceding the event giving rise to the claim — i.e., $1,440,000.

Governing Law. Section 14.1 of the MSA provides that the Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to its conflict-of-laws principles.

Dispute Resolution. Section 14.3 of the MSA provides for mandatory mediation in San Francisco, California, as a condition precedent to the initiation of any litigation, with exclusive jurisdiction thereafter in the state or federal courts located in San Francisco County, California.

These provisions collectively establish a carefully negotiated contractual framework that allocates risk between two sophisticated parties and defines the available remedies with specificity. As set forth below, Pinnacle's Demand Letter disregards this framework in virtually every material respect.

II. Summary of Pinnacle's Demand and Lumos's Position

In the Demand Letter, Pinnacle alleges four discrete service disruptions occurring between October 2022 and March 2023 and claims entitlement to SLA credits and additional damages as follows:

(a) SLA Credits ($120,000). Pinnacle identifies four incidents — INC-4471, INC-4602, INC-4815, and INC-5033 — and, based on its own unverified calculations of outage durations and resulting monthly uptime percentages, claims SLA credits totaling $120,000. We address the specifics of these calculations in Section III below.

(b) Consequential / Business-Impact Damages ($1,950,000). Pinnacle claims $1,950,000 in damages allegedly arising from delayed loan originations and missed trading windows that Pinnacle attributes to the service disruptions.

(c) Internal Remediation Costs ($340,000). Pinnacle claims $340,000 in costs it alleges it incurred for manual workarounds, employee overtime, and the temporary licensing of a competing platform operated by TrueNorth Data Systems Inc.

(d) Reputational Harm and Client Attrition ($460,000). Pinnacle claims $460,000 in damages for purported reputational injury and downstream loss of its own clients, which it attributes to the service disruptions.

Pinnacle's total demand is $2,870,000.

Lumos's position is that this demand is fundamentally inconsistent with the contractual allocation of risk and remedies set forth in the MSA and that multiple independent grounds compel its rejection. As detailed in Sections III through VIII below: (1) Pinnacle's uptime measurements are inconsistent with objective third-party monitoring data; (2) one of Pinnacle's credit requests was untimely and is time-barred; (3) the SLA credit cap independently limits Pinnacle's credit entitlement; (4) $2,750,000 of the demand consists of consequential and indirect damages that are expressly barred by the MSA's mutual waiver; (5) the most significant incident was caused by Pinnacle's own third-party infrastructure provider and is excluded from the uptime calculation entirely; and (6) Pinnacle failed to mitigate its damages by neglecting to activate the contractually provided disaster-recovery environment. Each of these defenses operates independently; taken together, they reduce Pinnacle's maximum legitimate claim to a fraction of its demand.

III. Defense 1 — Pinnacle's Uptime Measurements Are Inconsistent with Objective Monitoring Data

Pinnacle's claimed outage durations and corresponding uptime percentages do not withstand scrutiny when measured against objective, independently generated monitoring data.

Lumos's platform uptime is continuously and independently monitored by Sentinel Uptime Services Inc. ("Sentinel"), a nationally recognized third-party infrastructure monitoring and incident-response logging provider. Sentinel operates at the platform service boundary and captures granular, timestamped telemetry data for all availability events. These logs are generated automatically, are not subject to manipulation by either party, and provide the most authoritative record of actual platform availability during the periods in question.

The Sentinel telemetry data reveals material discrepancies between Pinnacle's claimed outage durations and the actual periods of platform unavailability for each incident:

INC-4471 (October 12–13, 2022). Pinnacle claims 7 hours and 42 minutes of platform downtime, yielding a monthly uptime of 98.93% and a corresponding SLA credit of 30% ($36,000). Sentinel recorded actual platform downtime of 4 hours and 11 minutes, yielding a monthly uptime of 99.43%. Under the tiered credit structure in Exhibit C §3.2, the applicable credit tier is 20%, corresponding to a credit of $24,000, not $36,000. Pinnacle has overstated both the duration and the credit tier.

INC-4602 (November 28, 2022). Pinnacle claims 3 hours and 18 minutes of platform downtime, yielding a monthly uptime of 99.54% and a corresponding SLA credit of 10% ($12,000). Sentinel recorded actual platform downtime of 1 hour and 47 minutes, yielding a monthly uptime of 99.75%. Under Exhibit C §3.2, the applicable credit tier is 5%, corresponding to a credit of $6,000, not $12,000. Pinnacle has again overstated the duration and credit tier.

INC-4815 (January 9–10, 2023). Pinnacle claims 11 hours and 5 minutes of platform downtime, yielding a monthly uptime of 98.47% and a corresponding SLA credit of 30% ($36,000). Sentinel recorded actual platform downtime of 6 hours and 22 minutes, yielding a monthly uptime of 99.12%. Under Exhibit C §3.2, the applicable credit tier is 20%, corresponding to a credit of $24,000, not $36,000. The discrepancy in claimed duration is nearly five hours.

INC-5033 (March 3–5, 2023). Pinnacle claims 26 hours and 31 minutes of platform downtime, yielding a monthly uptime of 96.32% and a corresponding SLA credit of 30% ($36,000). Sentinel recorded actual platform downtime of 14 hours and 8 minutes, yielding a monthly uptime of 98.04%. While both the claimed and actual uptime fall within the same credit tier (below 99.00%, yielding a 30% credit of $36,000), the factual predicate underlying Pinnacle's claim is materially inaccurate: Pinnacle has overstated the actual downtime by more than twelve hours. This discrepancy is significant not only for purposes of the SLA credit calculation but also for evaluating the credibility and magnitude of Pinnacle's consequential damages claims, which depend on the alleged severity and duration of the disruption.

The following table summarizes the discrepancies between Pinnacle's claimed figures and the Sentinel data:

Based on Sentinel's objective third-party data, and before the application of any of Lumos's additional defenses, the total SLA credits that would be properly owed amount to $90,000 — not the $120,000 Pinnacle demands.

Lumos is prepared to make the complete Sentinel telemetry logs for each incident period available for review by Pinnacle and its counsel, and Lumos invites Pinnacle to identify the specific measurement source and methodology underlying its claimed outage durations. Notably, the Demand Letter does not identify any such source or methodology. The pattern and magnitude of the discrepancies suggest that Pinnacle may be measuring downtime from the customer-side network layer — including latency or connectivity issues within Pinnacle's own internal network or third-party infrastructure — rather than from the platform service boundary, which is the measurement point contemplated by Exhibit C of the MSA. If that is the case, Pinnacle's measurements improperly capture network-layer events that are outside the scope of Lumos's service-level commitments.

IV. Defense 2 — Pinnacle's Credit Request for INC-4471 Was Untimely Under Exhibit C §3.5

Separate and apart from the uptime measurement discrepancies described above, Pinnacle's credit request for the INC-4471 incident is time-barred under the express terms of the MSA.

Exhibit C §3.5 provides, in relevant part:

Customer must submit a written credit request to Lumos within thirty (30) calendar days after the end of the affected calendar month. Each credit request must identify the affected services, the dates and times of the observed downtime, and any supporting documentation. Failure to submit a timely and complete credit request shall result in forfeiture of the applicable credit.

The timeliness requirement in §3.5 operates as a condition precedent to the customer's entitlement to receive SLA credits. The provision is clear and unambiguous, and its purpose is well established: it ensures that credit requests are submitted while the relevant monitoring data and incident records are fresh and available for verification by both parties.

The facts here are straightforward:

• INC-4471 occurred on October 12–13, 2022.

• The affected calendar month was October 2022, which ended on October 31, 2022.

• The thirty (30)-calendar-day deadline for submitting a credit request for the October 2022 service month was therefore November 30, 2022.

• Pinnacle submitted its credit request for INC-4471 on December 14, 2022 — forty-four (44) days after the end of the affected calendar month.

• Pinnacle's credit request exceeded the contractual deadline by fourteen (14) days.

Pinnacle's failure to comply with the §3.5 deadline renders the INC-4471 credit request time-barred. There is no provision in the MSA for equitable tolling, extension, or waiver of this deadline, and Pinnacle has not identified any basis for excusing its non-compliance. The MSA's clear language — that "[f]ailure to submit a timely and complete credit request shall result in forfeiture of the applicable credit" — forecloses any argument that the deadline is merely directory rather than mandatory.

Accordingly, even assuming arguendo that a credit were otherwise owed for INC-4471, Pinnacle's untimely submission eliminates this claim in its entirety. Under Pinnacle's own calculations, this defense eliminates $36,000 from Pinnacle's credit demand. Under the Sentinel data, it eliminates $24,000.

V. Defense 3 — The SLA Credit Cap Under §3.4 Limits Total Credits to $432,000

Even if the entirety of Pinnacle's claimed SLA credits were accepted at face value — which Lumos emphatically disputes — Pinnacle's total demand of $2,870,000 vastly exceeds the contractual cap on SLA credits.

Section 3.4 of Exhibit C provides:

The maximum aggregate SLA credits payable to Customer in any rolling twelve (12)-month period shall not exceed thirty percent (30%) of the annual subscription fee.

Thirty percent of the annual subscription fee of $1,440,000 equals $432,000. This is the absolute ceiling on SLA credits in any twelve-month period, irrespective of the number or severity of service-level failures.

Pinnacle's demand of $2,870,000 exceeds this cap by $2,438,000. Even setting aside the other defenses raised in this letter, the contractual cap operates as an independent limitation on Pinnacle's credit entitlement. The credit cap was a negotiated term reflecting the parties' mutual agreement as to the appropriate allocation of risk in connection with service-level failures. Both parties are sophisticated commercial entities that were represented by counsel during the negotiation and execution of the MSA.

Moreover, as noted above, Section 3.6 of Exhibit C expressly designates SLA credits as the sole and exclusive remedy for service-level failures. The exclusive-remedy provision, read together with the credit cap, establishes a clear and enforceable ceiling on Lumos's exposure for service-level shortfalls. These provisions are routinely enforced under California law. See, e.g., Markborough California, Inc. v. Superior Court, 227 Cal. App. 3d 705, 714 (1991) (enforcing contractual limitations on remedies between sophisticated commercial parties); Food Safety Net Servs. v. Eco Safe Sys. USA, Inc., 209 Cal. App. 4th 1118, 1126 (2012) (upholding exclusive remedy provisions in commercial agreements).

VI. Defense 4 — §11.3 Bars All Consequential, Indirect, and Lost-Profits Damages

The vast majority of Pinnacle's demand — $2,750,000 of the total $2,870,000 — consists of categories of damages that are expressly and unambiguously excluded by the MSA's mutual consequential damages waiver.

Section 11.3 of the MSA provides:

IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL, PUNITIVE, OR EXEMPLARY DAMAGES, OR ANY DAMAGES FOR LOST PROFITS, LOST REVENUE, LOSS OF DATA, LOSS OF BUSINESS OPPORTUNITY, OR LOSS OF GOODWILL, ARISING OUT OF OR RELATED TO THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE, AND REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY THEREOF.

Each category of non-credit damages that Pinnacle seeks falls squarely within this waiver:

(a) Lost Revenue from Delayed Loan Originations and Missed Trading Windows ($1,950,000). This is the paradigmatic example of consequential and lost-profits damages. Pinnacle alleges that service disruptions on the Lumos platform caused downstream delays in Pinnacle's own loan origination and trading operations, resulting in lost revenue. These damages are indirect consequences of the alleged service-level failures and are precisely the type of damages that §11.3 was designed to exclude. They are consequential damages, lost-profits damages, and damages for loss of business opportunity — all of which are enumerated in the waiver.

(b) Internal Remediation Costs ($340,000). Pinnacle claims costs for manual workarounds, employee overtime, and the temporary licensing of a competing analytics platform operated by TrueNorth Data Systems Inc. These are not direct damages recoverable under the SLA credit framework. Rather, they are indirect and consequential damages flowing from the alleged service disruptions — i.e., costs that Pinnacle incurred as a downstream consequence of the alleged outages in attempting to perform its own business operations through alternative means. The SLA credit mechanism in Exhibit C is the sole and exclusive remedy for service-level failures; internal remediation costs fall outside this framework and are barred by §11.3.

(c) Reputational Harm and Client Attrition ($460,000). Pinnacle's claim for reputational harm and the alleged loss of its own clients is both consequential and speculative. These are damages for loss of goodwill and loss of business opportunity, each of which is expressly enumerated in §11.3's waiver. Moreover, Pinnacle has provided no documentation or evidentiary basis whatsoever for quantifying these damages at $460,000, and the causal chain between an analytics-platform disruption and Pinnacle's client attrition is, at best, attenuated and indirect.

California courts consistently enforce mutual consequential damages waivers in commercial technology agreements between sophisticated parties. See Applied Micro Circuits Corp. v. Cobalt Ridge Health IT Design Sys., Inc., No. 14-cv-2662 (S.D. Cal. 2016) (enforcing consequential damages waiver in technology licensing agreement); Oasis West Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011) (reaffirming the enforceability of contractual limitations agreed to by sophisticated parties). There is no basis in law or equity for disregarding the waiver to which Pinnacle expressly agreed.

In addition to the §11.3 waiver, the aggregate liability cap in §11.2 of the MSA independently limits Lumos's total liability under the Agreement to the fees paid or payable by the customer during the twelve (12)-month period immediately preceding the event giving rise to the claim — i.e., $1,440,000. Even if Pinnacle could somehow circumvent the consequential damages waiver, its total demand of $2,870,000 exceeds the aggregate liability cap by $1,430,000.

Pinnacle's attempt to recover nearly $3 million in damages that are contractually excluded reflects a fundamental disregard for the terms of the MSA that Pinnacle itself negotiated and executed. The risk-allocation provisions of the MSA — including the SLA credit mechanism, the exclusive-remedy clause, the consequential damages waiver, and the aggregate liability cap — form an integrated contractual framework. Pinnacle cannot accept the benefits of the MSA while simultaneously repudiating the limitations that are an essential part of the same bargain.

VII. Defense 5 — INC-5033 Was Caused by Pinnacle's Own Third-Party Infrastructure Provider and Is Excluded Under Exhibit C §2.3

The most significant incident identified in the Demand Letter — INC-5033, occurring March 3–5, 2023 — was not caused by any failure of the Lumos platform. Rather, this incident was triggered by a configuration change at Brindoval Cloud Infrastructure LLC ("Brindoval"), Pinnacle's own independently contracted Infrastructure-as-a-Service ("IaaS") provider.

Exhibit C §2.3 of the MSA ("Exclusions from Uptime Calculation") expressly excludes from the uptime calculation:

Any period of downtime attributable to (a) scheduled maintenance conducted in accordance with Section 2.4, (b) force majeure events as defined in Section 13.1, (c) acts or omissions of Customer or Customer's employees, agents, or contractors, or (d) infrastructure, systems, or services not provided by or through Provider, including Customer's own network, hardware, software, or third-party services independently contracted by Customer.

Brindoval is Pinnacle's independently contracted cloud infrastructure vendor. Brindoval is not a Lumos subcontractor, affiliate, or service provider, and Lumos has no contractual relationship with Brindoval. The INC-5033 incident was precipitated by a Brindoval configuration change that caused cascading connectivity issues between Pinnacle's cloud environment and the Lumos platform. Lumos's own infrastructure, including its primary and disaster-recovery environments, remained fully operational throughout the period that Pinnacle attributes to platform downtime.

Lumos's incident investigation logs for INC-5033 — which were shared with Pinnacle's technical team in real time during the incident — confirm that the root cause was an IP routing change initiated by Brindoval that disrupted network connectivity between Pinnacle's environment and the Lumos API gateway. Lumos's internal systems, monitored by Sentinel, reflected no degradation of platform services during the affected period. The downtime experienced by Pinnacle was a direct consequence of Pinnacle's own infrastructure configuration, not any failure of the Lumos platform.

Because INC-5033 falls squarely within the §2.3 exclusion, no SLA credit is owed for this incident. This eliminates $36,000 of Pinnacle's claimed SLA credits (or the same $36,000 under the Sentinel data), and it eliminates the entirety of any consequential damages or remediation costs that Pinnacle attributes to this incident. To the extent Pinnacle's $1,950,000 in claimed lost revenue and $340,000 in claimed remediation costs are attributable in whole or in part to INC-5033, those claims fail independently on this ground as well.

VIII. Defense 6 — Pinnacle Failed to Mitigate Damages by Not Activating the Disaster Recovery Environment

Even if Pinnacle could establish entitlement to damages beyond SLA credits — which it cannot, for the reasons set forth above — its failure to take reasonable, readily available steps to mitigate its losses would substantially reduce or eliminate any such recovery.

Under the MSA, Lumos provides a designated disaster-recovery ("DR") environment hosted in the US-West-2 region. This DR environment is contractually available for customer failover during service disruptions and is designed to enable continuity of service in the event of an outage affecting the primary environment. Pinnacle's technical team received onboarding and documentation regarding the DR failover process at the outset of the engagement, and Lumos has confirmed that the US-West-2 environment was fully provisioned, operational, and available for failover during each of the incidents identified in the Demand Letter.

Pinnacle had both the contractual right and the technical capability to activate failover to the US-West-2 disaster-recovery environment during INC-4815 (January 9–10, 2023) and INC-5033 (March 3–5, 2023) — the two incidents with the longest claimed durations. Despite the availability of this failover mechanism, Pinnacle did not activate it for either incident. Had Pinnacle done so, the duration and operational impact of both incidents would have been materially reduced, and the downstream business consequences that Pinnacle now asserts would have been substantially mitigated or avoided entirely.

Under California law, a party seeking to recover damages for breach of contract has an affirmative duty to take reasonable steps to mitigate its losses. Valle de Oro Bank v. Gamboa, 26 Cal. App. 4th 1686, 1691 (1994); Sackett v. Spindler, 248 Cal. App. 2d 220, 235 (1967) ("The rule of mitigation of damages prevents a plaintiff from recovering damages that he might have avoided by the use of reasonable efforts."). Activating a pre-provisioned, contractually available disaster-recovery environment during a multi-hour service disruption is precisely the type of reasonable measure that a sophisticated financial-services company operating mission-critical systems would be expected to take. Pinnacle's decision not to activate failover — particularly during INC-5033, which Pinnacle itself characterizes as spanning more than twenty-six hours — represents an unreasonable failure to mitigate that independently undermines both Pinnacle's inflated outage-duration calculations and its consequential damages claims.

IX. Summary of Lumos's Maximum Exposure

The following table summarizes Lumos's analysis of Pinnacle's SLA credit entitlement, applying the defenses set forth above on the most conservative basis:

Maximum SLA credits properly owed by Lumos: $30,000.

Even under Pinnacle's own calculations — accepting all of Pinnacle's claimed durations and uptime percentages at face value, which Lumos does not — the SLA credit cap in §3.4 independently limits total credits to $432,000 in any rolling twelve-month period.

With respect to Pinnacle's non-credit damages claims:

• The $1,950,000 in claimed lost revenue from delayed loan originations and missed trading windows is barred by the mutual consequential damages waiver in §11.3.

• The $340,000 in claimed internal remediation costs is barred by §11.3 as indirect and consequential damages.

• The $460,000 in claimed reputational harm and client attrition is barred by §11.3 as consequential damages and damages for loss of goodwill.

• Total non-credit damages barred: $2,750,000.

The aggregate liability cap in §11.2 independently limits Lumos's total liability to $1,440,000, which is itself more than $1.4 million below Pinnacle's $2,870,000 demand.

In sum, Pinnacle's demand of $2,870,000 is grossly inflated and without contractual or legal basis. Under any reasonable analysis, Lumos's maximum exposure for properly documented SLA credits is $30,000.

X. Reservation of Rights

Lumos expressly reserves all rights, remedies, claims, and defenses available to it under the MSA, at law, and in equity. Without limiting the generality of the foregoing, Lumos specifically reserves:

(a) All rights and remedies arising from any breach or default by Pinnacle under the MSA, including but not limited to Pinnacle's untimely credit submissions and any misrepresentations regarding uptime data or outage durations;

(b) All defenses to liability, including but not limited to those set forth in this letter, and any additional defenses that may become available upon further investigation or discovery;

(c) All rights to seek affirmative relief, including but not limited to claims for declaratory judgment, breach of contract, or indemnification;

(d) All rights under the dispute-resolution, governing-law, and forum-selection provisions of the MSA.

Nothing in this letter, nor any prior or subsequent correspondence or communication between the parties or their counsel, shall be construed as a waiver of any right, remedy, claim, or defense, nor as an admission of liability, fault, or responsibility on the part of Lumos. All rights to assert additional defenses, including but not limited to those specifically referenced herein, are expressly preserved.

XI. Proposal for Resolution Under MSA §14.3

Notwithstanding the foregoing, Lumos values its commercial relationship with Pinnacle and recognizes the mutual benefit of resolving this dispute efficiently and without the expense and disruption of protracted adversarial proceedings.

Section 14.3 of the MSA provides for mandatory mediation in San Francisco, California, as a condition precedent to the initiation of any litigation, with exclusive jurisdiction thereafter in the state or federal courts located in San Francisco County, California. This provision reflects the parties' shared understanding that good-faith dispute resolution should be attempted before resort to judicial proceedings.

In that spirit, Lumos proposes that the parties engage in direct, good-faith discussions toward a commercially reasonable resolution of the matters raised in the Demand Letter. Lumos is open to exploring resolution mechanisms that are consistent with the contractual framework, that account for the defenses set forth in this letter, and that preserve the parties' ongoing business relationship for the remainder of the MSA term.

Should direct discussions not yield a resolution, Lumos is prepared to proceed to mediation as contemplated by §14.3 and to participate in the mediation process in good faith. We invite Pinnacle's counsel to contact the undersigned or Simone Laroche of this firm (slaroche@calderwoodharkness.com; (415) 773-6042) to discuss scheduling and logistics for either direct discussions or mediation at your earliest convenience.

Closing

For the reasons set forth in this letter, Lumos rejects Pinnacle's demand of $2,870,000 in its entirety. The demand is unsupported by the terms of the MSA, is contradicted by objective third-party monitoring data, and is legally barred by the contractual provisions that Pinnacle negotiated and to which it agreed. Lumos's maximum potential SLA credit obligation, properly calculated, is $30,000.

We respectfully request that all further communications regarding this matter be directed exclusively to Calderwood & Harkness LLP at the address set forth above. Please do not contact Lumos or its personnel directly regarding this dispute.

We look forward to hearing from you and remain available to discuss a constructive path forward.

Very truly yours,

CALDERWOOD & HARKNESS LLP

By: ________

Linda Osei, Partner 101 California Street, Suite 3200 San Francisco, California 94111 Telephone: (415) 773-6018

Email: losei@calderwoodharkness.com

cc: (via email)

Adriana Voss, General Counsel, Lumos Analytics Inc. Priya Anand, Calderwood & Harkness LLP Simone Laroche, Calderwood & Harkness LLP

Enclosures: None. This letter references the Master Services Agreement dated January 15, 2021 (Agreement No. MSA-PFH-2021-0015), including Exhibit C (Service Level Agreement), and the Demand Letter from Hargrove, Tillman & Burch LLP dated May 1, 2023, copies of which are on file with both parties and are not attached hereto.

Incident	Pinnacle Claimed Duration	Pinnacle Uptime	Pinnacle Credit	Sentinel Duration	Sentinel Uptime	Sentinel Credit
INC-4471	7h 42m	98.93%	$36,000 (30%)	4h 11m	99.43%	$24,000 (20%)
INC-4602	3h 18m	99.54%	$12,000 (10%)	1h 47m	99.75%	$6,000 (5%)
INC-4815	11h 5m	98.47%	$36,000 (30%)	6h 22m	99.12%	$24,000 (20%)
INC-5033	26h 31m	96.32%	$36,000 (30%)	14h 8m	98.04%	$36,000 (30%)
Totals	$120,000	$90,000
Incident	Pinnacle Claimed Credit	Lumos Defense	Maximum Credit Owed
INC-4471 (Oct. 12–13, 2022)	$36,000 (30%)	Credit request time-barred under §3.5 (submitted Dec. 14, 2022; deadline was Nov. 30, 2022)	$0
INC-4602 (Nov. 28, 2022)	$12,000 (10%)	Sentinel data shows 99.75% uptime; correct tier is 5%	$6,000
INC-4815 (Jan. 9–10, 2023)	$36,000 (30%)	Sentinel data shows 99.12% uptime; correct tier is 20%	$24,000
INC-5033 (Mar. 3–5, 2023)	$36,000 (30%)	Excluded under §2.3 (caused by Brindoval, Pinnacle's own IaaS provider)	$0
Total SLA Credits	$120,000	$30,000

CALDERWOOD & HARKNESS LLP Attorneys at Law
101 California Street, Suite 3200 San Francisco, California 94111 Telephone: (415) 773-6000 Facsimile: (415) 773-6001 www.calderwoodharkness.com
June 12, 2023
VIA EMAIL AND Sundial Data Systems
Katherine "Kate" Hargrove, Esq. Hargrove, Tillman & Burch LLP 71 South Wacker Drive, Suite 4500 Chicago, Illinois 60606
Re: Response to Demand Letter dated May 1, 2023 — Pinnacle Financial Holdings LLC v. Lumos Analytics Inc.; Master Services Agreement dated January 15, 2021 (Agreement No. MSA-PFH-2021-0015)
Calderwood & Harkness Matter No. 1008-00007
Dear Ms. Hargrove:
I am a partner at Calderwood & Harkness LLP, and I write on behalf of our client, Lumos Analytics Inc. ("Lumos"), a corporation organized and existing under the laws of the State of Delaware with its principal place of business at 580 Howard Street, Suite 400, San Francisco, California 94105. Lumos has retained this firm to respond to and address the matters raised in the demand letter dated May 1, 2023 (the "Demand Letter"), which your firm transmitted on behalf of Pinnacle Financial Holdings LLC ("Pinnacle") to Lumos's General Counsel, Adriana Voss. Accordingly, we respectfully request that all further correspondence and communications regarding this matter be directed exclusively to this firm at the address above, or to me directly at losei@calderwoodharkness.com.
We acknowledge receipt of the Demand Letter, in which Pinnacle demands payment of Two Million Eight Hundred Seventy Thousand Dollars ($2,870,000), purportedly comprising SLA credits and additional damages arising from alleged service disruptions under the Master Services Agreement between the parties dated January 15, 2021 (the "MSA" or "Agreement").
After a thorough review of the MSA and its exhibits, the incident records, third-party monitoring data, and the relevant factual circumstances, Lumos rejects Pinnacle's demand in its entirety. Pinnacle's demand is unsupported by the terms of the MSA, is inconsistent with the objective factual record, and is not cognizable under applicable law. The grounds for Lumos's position are set forth in detail below.
Nothing in this letter shall be construed as a waiver or limitation of any right, remedy, claim, or defense available to Lumos under the MSA, at law, or in equity. All such rights, remedies, claims, and defenses are expressly reserved.
I. Background and Contractual Framework
The MSA was executed on January 15, 2021, between Lumos Analytics Inc., as service provider, and Pinnacle Financial Holdings LLC, as customer. The MSA provides for an initial term of three (3) years, commencing on January 15, 2021, and running through January 14, 2024. During this initial term, Pinnacle agreed to pay an annual subscription fee of One Million Four Hundred Forty Thousand Dollars ($1,440,000), payable at a rate of One Hundred Twenty Thousand Dollars ($120,000) per month, representing a total contract value of Four Million Three Hundred Twenty Thousand Dollars ($4,320,000) over the initial term. These terms were negotiated at arm's length between two sophisticated commercial parties, each represented by counsel.
The parties' respective performance obligations and service-level commitments are governed in substantial part by Exhibit C to the MSA (the "Service Level Agreement" or "SLA"). Exhibit C establishes the following material terms relevant to the present dispute:
Uptime Commitment. Section 2.1 of Exhibit C provides that Lumos shall maintain platform availability of no less than 99.95%, measured on a calendar-month basis.
P1 Incident Response. Section 2.2 of Exhibit C requires Lumos to acknowledge Priority 1 ("P1") incidents within fifteen (15) minutes of detection or report and to provide a resolution or functional workaround within two (2) hours.
Tiered SLA Credit Structure. Section 3.2 of Exhibit C establishes a tiered credit mechanism applicable when monthly uptime falls below the 99.95% commitment, as follows:
• Monthly uptime of 99.90% – 99.94%: credit equal to 5% of the monthly subscription fee
• Monthly uptime of 99.50% – 99.89%: credit equal to 10% of the monthly subscription fee
• Monthly uptime of 99.00% – 99.49%: credit equal to 20% of the monthly subscription fee
• Monthly uptime below 99.00%: credit equal to 30% of the monthly subscription fee
Credit Request Deadline. Section 3.5 of Exhibit C requires that the customer submit a written credit request within thirty (30) calendar days after the end of the affected calendar month, specifying the affected services and observed downtime. This requirement operates as a condition precedent to entitlement to any SLA credit.
Credit Cap. Section 3.4 of Exhibit C imposes a hard cap on SLA credits: the maximum aggregate SLA credits payable in any rolling twelve (12)-month period shall not exceed thirty percent (30%) of the annual subscription fee.
Exclusive Remedy. Section 3.6 of Exhibit C provides that SLA credits constitute the customer's sole and exclusive remedy for any failure by Lumos to meet the service level commitments set forth in Exhibit C.
Exclusions from Uptime Calculation. Section 2.3 of Exhibit C excludes from the uptime calculation any downtime caused by or attributable to (a) scheduled maintenance, (b) force majeure events, (c) customer acts or omissions, or (d) customer infrastructure or third-party services not provided by or through Lumos.
Additionally, the MSA contains the following provisions of direct relevance:
Limitation of Liability — Consequential Damages Waiver. Section 11.3 of the MSA provides that neither party shall be liable to the other for any indirect, consequential, incidental, special, or lost-profits damages arising out of or related to the Agreement, regardless of whether such damages were foreseeable or whether such party was advised of the possibility thereof.
Aggregate Liability Cap. Section 11.2 of the MSA limits the total aggregate liability of either party to an amount not exceeding the fees paid or payable by customer during the twelve (12)-month period immediately preceding the event giving rise to the claim — i.e., $1,440,000.
Governing Law. Section 14.1 of the MSA provides that the Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to its conflict-of-laws principles.
Dispute Resolution. Section 14.3 of the MSA provides for mandatory mediation in San Francisco, California, as a condition precedent to the initiation of any litigation, with exclusive jurisdiction thereafter in the state or federal courts located in San Francisco County, California.
These provisions collectively establish a carefully negotiated contractual framework that allocates risk between two sophisticated parties and defines the available remedies with specificity. As set forth below, Pinnacle's Demand Letter disregards this framework in virtually every material respect.
II. Summary of Pinnacle's Demand and Lumos's Position
In the Demand Letter, Pinnacle alleges four discrete service disruptions occurring between October 2022 and March 2023 and claims entitlement to SLA credits and additional damages as follows:
(a) SLA Credits ($120,000). Pinnacle identifies four incidents — INC-4471, INC-4602, INC-4815, and INC-5033 — and, based on its own unverified calculations of outage durations and resulting monthly uptime percentages, claims SLA credits totaling $120,000. We address the specifics of these calculations in Section III below.
(b) Consequential / Business-Impact Damages ($1,950,000). Pinnacle claims $1,950,000 in damages allegedly arising from delayed loan originations and missed trading windows that Pinnacle attributes to the service disruptions.
(c) Internal Remediation Costs ($340,000). Pinnacle claims $340,000 in costs it alleges it incurred for manual workarounds, employee overtime, and the temporary licensing of a competing platform operated by TrueNorth Data Systems Inc.
(d) Reputational Harm and Client Attrition ($460,000). Pinnacle claims $460,000 in damages for purported reputational injury and downstream loss of its own clients, which it attributes to the service disruptions.
Pinnacle's total demand is $2,870,000.
Lumos's position is that this demand is fundamentally inconsistent with the contractual allocation of risk and remedies set forth in the MSA and that multiple independent grounds compel its rejection. As detailed in Sections III through VIII below: (1) Pinnacle's uptime measurements are inconsistent with objective third-party monitoring data; (2) one of Pinnacle's credit requests was untimely and is time-barred; (3) the SLA credit cap independently limits Pinnacle's credit entitlement; (4) $2,750,000 of the demand consists of consequential and indirect damages that are expressly barred by the MSA's mutual waiver; (5) the most significant incident was caused by Pinnacle's own third-party infrastructure provider and is excluded from the uptime calculation entirely; and (6) Pinnacle failed to mitigate its damages by neglecting to activate the contractually provided disaster-recovery environment. Each of these defenses operates independently; taken together, they reduce Pinnacle's maximum legitimate claim to a fraction of its demand.
III. Defense 1 — Pinnacle's Uptime Measurements Are Inconsistent with Objective Monitoring Data
Pinnacle's claimed outage durations and corresponding uptime percentages do not withstand scrutiny when measured against objective, independently generated monitoring data.
Lumos's platform uptime is continuously and independently monitored by Sentinel Uptime Services Inc. ("Sentinel"), a nationally recognized third-party infrastructure monitoring and incident-response logging provider. Sentinel operates at the platform service boundary and captures granular, timestamped telemetry data for all availability events. These logs are generated automatically, are not subject to manipulation by either party, and provide the most authoritative record of actual platform availability during the periods in question.
The Sentinel telemetry data reveals material discrepancies between Pinnacle's claimed outage durations and the actual periods of platform unavailability for each incident:
INC-4471 (October 12–13, 2022). Pinnacle claims 7 hours and 42 minutes of platform downtime, yielding a monthly uptime of 98.93% and a corresponding SLA credit of 30% ($36,000). Sentinel recorded actual platform downtime of 4 hours and 11 minutes, yielding a monthly uptime of 99.43%. Under the tiered credit structure in Exhibit C §3.2, the applicable credit tier is 20%, corresponding to a credit of $24,000, not $36,000. Pinnacle has overstated both the duration and the credit tier.
INC-4602 (November 28, 2022). Pinnacle claims 3 hours and 18 minutes of platform downtime, yielding a monthly uptime of 99.54% and a corresponding SLA credit of 10% ($12,000). Sentinel recorded actual platform downtime of 1 hour and 47 minutes, yielding a monthly uptime of 99.75%. Under Exhibit C §3.2, the applicable credit tier is 5%, corresponding to a credit of $6,000, not $12,000. Pinnacle has again overstated the duration and credit tier.
INC-4815 (January 9–10, 2023). Pinnacle claims 11 hours and 5 minutes of platform downtime, yielding a monthly uptime of 98.47% and a corresponding SLA credit of 30% ($36,000). Sentinel recorded actual platform downtime of 6 hours and 22 minutes, yielding a monthly uptime of 99.12%. Under Exhibit C §3.2, the applicable credit tier is 20%, corresponding to a credit of $24,000, not $36,000. The discrepancy in claimed duration is nearly five hours.
INC-5033 (March 3–5, 2023). Pinnacle claims 26 hours and 31 minutes of platform downtime, yielding a monthly uptime of 96.32% and a corresponding SLA credit of 30% ($36,000). Sentinel recorded actual platform downtime of 14 hours and 8 minutes, yielding a monthly uptime of 98.04%. While both the claimed and actual uptime fall within the same credit tier (below 99.00%, yielding a 30% credit of $36,000), the factual predicate underlying Pinnacle's claim is materially inaccurate: Pinnacle has overstated the actual downtime by more than twelve hours. This discrepancy is significant not only for purposes of the SLA credit calculation but also for evaluating the credibility and magnitude of Pinnacle's consequential damages claims, which depend on the alleged severity and duration of the disruption.
The following table summarizes the discrepancies between Pinnacle's claimed figures and the Sentinel data:
Based on Sentinel's objective third-party data, and before the application of any of Lumos's additional defenses, the total SLA credits that would be properly owed amount to $90,000 — not the $120,000 Pinnacle demands.
Lumos is prepared to make the complete Sentinel telemetry logs for each incident period available for review by Pinnacle and its counsel, and Lumos invites Pinnacle to identify the specific measurement source and methodology underlying its claimed outage durations. Notably, the Demand Letter does not identify any such source or methodology. The pattern and magnitude of the discrepancies suggest that Pinnacle may be measuring downtime from the customer-side network layer — including latency or connectivity issues within Pinnacle's own internal network or third-party infrastructure — rather than from the platform service boundary, which is the measurement point contemplated by Exhibit C of the MSA. If that is the case, Pinnacle's measurements improperly capture network-layer events that are outside the scope of Lumos's service-level commitments.
IV. Defense 2 — Pinnacle's Credit Request for INC-4471 Was Untimely Under Exhibit C §3.5
Separate and apart from the uptime measurement discrepancies described above, Pinnacle's credit request for the INC-4471 incident is time-barred under the express terms of the MSA.
Exhibit C §3.5 provides, in relevant part:
Customer must submit a written credit request to Lumos within thirty (30) calendar days after the end of the affected calendar month. Each credit request must identify the affected services, the dates and times of the observed downtime, and any supporting documentation. Failure to submit a timely and complete credit request shall result in forfeiture of the applicable credit.
The timeliness requirement in §3.5 operates as a condition precedent to the customer's entitlement to receive SLA credits. The provision is clear and unambiguous, and its purpose is well established: it ensures that credit requests are submitted while the relevant monitoring data and incident records are fresh and available for verification by both parties.
The facts here are straightforward:
• INC-4471 occurred on October 12–13, 2022.
• The affected calendar month was October 2022, which ended on October 31, 2022.
• The thirty (30)-calendar-day deadline for submitting a credit request for the October 2022 service month was therefore November 30, 2022.
• Pinnacle submitted its credit request for INC-4471 on December 14, 2022 — forty-four (44) days after the end of the affected calendar month.
• Pinnacle's credit request exceeded the contractual deadline by fourteen (14) days.
Pinnacle's failure to comply with the §3.5 deadline renders the INC-4471 credit request time-barred. There is no provision in the MSA for equitable tolling, extension, or waiver of this deadline, and Pinnacle has not identified any basis for excusing its non-compliance. The MSA's clear language — that "[f]ailure to submit a timely and complete credit request shall result in forfeiture of the applicable credit" — forecloses any argument that the deadline is merely directory rather than mandatory.
Accordingly, even assuming arguendo that a credit were otherwise owed for INC-4471, Pinnacle's untimely submission eliminates this claim in its entirety. Under Pinnacle's own calculations, this defense eliminates $36,000 from Pinnacle's credit demand. Under the Sentinel data, it eliminates $24,000.
V. Defense 3 — The SLA Credit Cap Under §3.4 Limits Total Credits to $432,000
Even if the entirety of Pinnacle's claimed SLA credits were accepted at face value — which Lumos emphatically disputes — Pinnacle's total demand of $2,870,000 vastly exceeds the contractual cap on SLA credits.
Section 3.4 of Exhibit C provides:
The maximum aggregate SLA credits payable to Customer in any rolling twelve (12)-month period shall not exceed thirty percent (30%) of the annual subscription fee.
Thirty percent of the annual subscription fee of $1,440,000 equals $432,000. This is the absolute ceiling on SLA credits in any twelve-month period, irrespective of the number or severity of service-level failures.
Pinnacle's demand of $2,870,000 exceeds this cap by $2,438,000. Even setting aside the other defenses raised in this letter, the contractual cap operates as an independent limitation on Pinnacle's credit entitlement. The credit cap was a negotiated term reflecting the parties' mutual agreement as to the appropriate allocation of risk in connection with service-level failures. Both parties are sophisticated commercial entities that were represented by counsel during the negotiation and execution of the MSA.
Moreover, as noted above, Section 3.6 of Exhibit C expressly designates SLA credits as the sole and exclusive remedy for service-level failures. The exclusive-remedy provision, read together with the credit cap, establishes a clear and enforceable ceiling on Lumos's exposure for service-level shortfalls. These provisions are routinely enforced under California law. See, e.g., Markborough California, Inc. v. Superior Court, 227 Cal. App. 3d 705, 714 (1991) (enforcing contractual limitations on remedies between sophisticated commercial parties); Food Safety Net Servs. v. Eco Safe Sys. USA, Inc., 209 Cal. App. 4th 1118, 1126 (2012) (upholding exclusive remedy provisions in commercial agreements).
VI. Defense 4 — §11.3 Bars All Consequential, Indirect, and Lost-Profits Damages
The vast majority of Pinnacle's demand — $2,750,000 of the total $2,870,000 — consists of categories of damages that are expressly and unambiguously excluded by the MSA's mutual consequential damages waiver.
Section 11.3 of the MSA provides:
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL, PUNITIVE, OR EXEMPLARY DAMAGES, OR ANY DAMAGES FOR LOST PROFITS, LOST REVENUE, LOSS OF DATA, LOSS OF BUSINESS OPPORTUNITY, OR LOSS OF GOODWILL, ARISING OUT OF OR RELATED TO THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE, AND REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY THEREOF.
Each category of non-credit damages that Pinnacle seeks falls squarely within this waiver:
(a) Lost Revenue from Delayed Loan Originations and Missed Trading Windows ($1,950,000). This is the paradigmatic example of consequential and lost-profits damages. Pinnacle alleges that service disruptions on the Lumos platform caused downstream delays in Pinnacle's own loan origination and trading operations, resulting in lost revenue. These damages are indirect consequences of the alleged service-level failures and are precisely the type of damages that §11.3 was designed to exclude. They are consequential damages, lost-profits damages, and damages for loss of business opportunity — all of which are enumerated in the waiver.
(b) Internal Remediation Costs ($340,000). Pinnacle claims costs for manual workarounds, employee overtime, and the temporary licensing of a competing analytics platform operated by TrueNorth Data Systems Inc. These are not direct damages recoverable under the SLA credit framework. Rather, they are indirect and consequential damages flowing from the alleged service disruptions — i.e., costs that Pinnacle incurred as a downstream consequence of the alleged outages in attempting to perform its own business operations through alternative means. The SLA credit mechanism in Exhibit C is the sole and exclusive remedy for service-level failures; internal remediation costs fall outside this framework and are barred by §11.3.
(c) Reputational Harm and Client Attrition ($460,000). Pinnacle's claim for reputational harm and the alleged loss of its own clients is both consequential and speculative. These are damages for loss of goodwill and loss of business opportunity, each of which is expressly enumerated in §11.3's waiver. Moreover, Pinnacle has provided no documentation or evidentiary basis whatsoever for quantifying these damages at $460,000, and the causal chain between an analytics-platform disruption and Pinnacle's client attrition is, at best, attenuated and indirect.
California courts consistently enforce mutual consequential damages waivers in commercial technology agreements between sophisticated parties. See Applied Micro Circuits Corp. v. Cobalt Ridge Health IT Design Sys., Inc., No. 14-cv-2662 (S.D. Cal. 2016) (enforcing consequential damages waiver in technology licensing agreement); Oasis West Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 (2011) (reaffirming the enforceability of contractual limitations agreed to by sophisticated parties). There is no basis in law or equity for disregarding the waiver to which Pinnacle expressly agreed.
In addition to the §11.3 waiver, the aggregate liability cap in §11.2 of the MSA independently limits Lumos's total liability under the Agreement to the fees paid or payable by the customer during the twelve (12)-month period immediately preceding the event giving rise to the claim — i.e., $1,440,000. Even if Pinnacle could somehow circumvent the consequential damages waiver, its total demand of $2,870,000 exceeds the aggregate liability cap by $1,430,000.
Pinnacle's attempt to recover nearly $3 million in damages that are contractually excluded reflects a fundamental disregard for the terms of the MSA that Pinnacle itself negotiated and executed. The risk-allocation provisions of the MSA — including the SLA credit mechanism, the exclusive-remedy clause, the consequential damages waiver, and the aggregate liability cap — form an integrated contractual framework. Pinnacle cannot accept the benefits of the MSA while simultaneously repudiating the limitations that are an essential part of the same bargain.
VII. Defense 5 — INC-5033 Was Caused by Pinnacle's Own Third-Party Infrastructure Provider and Is Excluded Under Exhibit C §2.3
The most significant incident identified in the Demand Letter — INC-5033, occurring March 3–5, 2023 — was not caused by any failure of the Lumos platform. Rather, this incident was triggered by a configuration change at Brindoval Cloud Infrastructure LLC ("Brindoval"), Pinnacle's own independently contracted Infrastructure-as-a-Service ("IaaS") provider.
Exhibit C §2.3 of the MSA ("Exclusions from Uptime Calculation") expressly excludes from the uptime calculation:
Any period of downtime attributable to (a) scheduled maintenance conducted in accordance with Section 2.4, (b) force majeure events as defined in Section 13.1, (c) acts or omissions of Customer or Customer's employees, agents, or contractors, or (d) infrastructure, systems, or services not provided by or through Provider, including Customer's own network, hardware, software, or third-party services independently contracted by Customer.
Brindoval is Pinnacle's independently contracted cloud infrastructure vendor. Brindoval is not a Lumos subcontractor, affiliate, or service provider, and Lumos has no contractual relationship with Brindoval. The INC-5033 incident was precipitated by a Brindoval configuration change that caused cascading connectivity issues between Pinnacle's cloud environment and the Lumos platform. Lumos's own infrastructure, including its primary and disaster-recovery environments, remained fully operational throughout the period that Pinnacle attributes to platform downtime.
Lumos's incident investigation logs for INC-5033 — which were shared with Pinnacle's technical team in real time during the incident — confirm that the root cause was an IP routing change initiated by Brindoval that disrupted network connectivity between Pinnacle's environment and the Lumos API gateway. Lumos's internal systems, monitored by Sentinel, reflected no degradation of platform services during the affected period. The downtime experienced by Pinnacle was a direct consequence of Pinnacle's own infrastructure configuration, not any failure of the Lumos platform.
Because INC-5033 falls squarely within the §2.3 exclusion, no SLA credit is owed for this incident. This eliminates $36,000 of Pinnacle's claimed SLA credits (or the same $36,000 under the Sentinel data), and it eliminates the entirety of any consequential damages or remediation costs that Pinnacle attributes to this incident. To the extent Pinnacle's $1,950,000 in claimed lost revenue and $340,000 in claimed remediation costs are attributable in whole or in part to INC-5033, those claims fail independently on this ground as well.
VIII. Defense 6 — Pinnacle Failed to Mitigate Damages by Not Activating the Disaster Recovery Environment
Even if Pinnacle could establish entitlement to damages beyond SLA credits — which it cannot, for the reasons set forth above — its failure to take reasonable, readily available steps to mitigate its losses would substantially reduce or eliminate any such recovery.
Under the MSA, Lumos provides a designated disaster-recovery ("DR") environment hosted in the US-West-2 region. This DR environment is contractually available for customer failover during service disruptions and is designed to enable continuity of service in the event of an outage affecting the primary environment. Pinnacle's technical team received onboarding and documentation regarding the DR failover process at the outset of the engagement, and Lumos has confirmed that the US-West-2 environment was fully provisioned, operational, and available for failover during each of the incidents identified in the Demand Letter.
Pinnacle had both the contractual right and the technical capability to activate failover to the US-West-2 disaster-recovery environment during INC-4815 (January 9–10, 2023) and INC-5033 (March 3–5, 2023) — the two incidents with the longest claimed durations. Despite the availability of this failover mechanism, Pinnacle did not activate it for either incident. Had Pinnacle done so, the duration and operational impact of both incidents would have been materially reduced, and the downstream business consequences that Pinnacle now asserts would have been substantially mitigated or avoided entirely.
Under California law, a party seeking to recover damages for breach of contract has an affirmative duty to take reasonable steps to mitigate its losses. Valle de Oro Bank v. Gamboa, 26 Cal. App. 4th 1686, 1691 (1994); Sackett v. Spindler, 248 Cal. App. 2d 220, 235 (1967) ("The rule of mitigation of damages prevents a plaintiff from recovering damages that he might have avoided by the use of reasonable efforts."). Activating a pre-provisioned, contractually available disaster-recovery environment during a multi-hour service disruption is precisely the type of reasonable measure that a sophisticated financial-services company operating mission-critical systems would be expected to take. Pinnacle's decision not to activate failover — particularly during INC-5033, which Pinnacle itself characterizes as spanning more than twenty-six hours — represents an unreasonable failure to mitigate that independently undermines both Pinnacle's inflated outage-duration calculations and its consequential damages claims.
IX. Summary of Lumos's Maximum Exposure
The following table summarizes Lumos's analysis of Pinnacle's SLA credit entitlement, applying the defenses set forth above on the most conservative basis:
Maximum SLA credits properly owed by Lumos: $30,000.
Even under Pinnacle's own calculations — accepting all of Pinnacle's claimed durations and uptime percentages at face value, which Lumos does not — the SLA credit cap in §3.4 independently limits total credits to $432,000 in any rolling twelve-month period.
With respect to Pinnacle's non-credit damages claims:
• The $1,950,000 in claimed lost revenue from delayed loan originations and missed trading windows is barred by the mutual consequential damages waiver in §11.3.
• The $340,000 in claimed internal remediation costs is barred by §11.3 as indirect and consequential damages.
• The $460,000 in claimed reputational harm and client attrition is barred by §11.3 as consequential damages and damages for loss of goodwill.
• Total non-credit damages barred: $2,750,000.
The aggregate liability cap in §11.2 independently limits Lumos's total liability to $1,440,000, which is itself more than $1.4 million below Pinnacle's $2,870,000 demand.
In sum, Pinnacle's demand of $2,870,000 is grossly inflated and without contractual or legal basis. Under any reasonable analysis, Lumos's maximum exposure for properly documented SLA credits is $30,000.
X. Reservation of Rights
Lumos expressly reserves all rights, remedies, claims, and defenses available to it under the MSA, at law, and in equity. Without limiting the generality of the foregoing, Lumos specifically reserves:
(a) All rights and remedies arising from any breach or default by Pinnacle under the MSA, including but not limited to Pinnacle's untimely credit submissions and any misrepresentations regarding uptime data or outage durations;
(b) All defenses to liability, including but not limited to those set forth in this letter, and any additional defenses that may become available upon further investigation or discovery;
(c) All rights to seek affirmative relief, including but not limited to claims for declaratory judgment, breach of contract, or indemnification;
(d) All rights under the dispute-resolution, governing-law, and forum-selection provisions of the MSA.
Nothing in this letter, nor any prior or subsequent correspondence or communication between the parties or their counsel, shall be construed as a waiver of any right, remedy, claim, or defense, nor as an admission of liability, fault, or responsibility on the part of Lumos. All rights to assert additional defenses, including but not limited to those specifically referenced herein, are expressly preserved.
XI. Proposal for Resolution Under MSA §14.3
Notwithstanding the foregoing, Lumos values its commercial relationship with Pinnacle and recognizes the mutual benefit of resolving this dispute efficiently and without the expense and disruption of protracted adversarial proceedings.
Section 14.3 of the MSA provides for mandatory mediation in San Francisco, California, as a condition precedent to the initiation of any litigation, with exclusive jurisdiction thereafter in the state or federal courts located in San Francisco County, California. This provision reflects the parties' shared understanding that good-faith dispute resolution should be attempted before resort to judicial proceedings.
In that spirit, Lumos proposes that the parties engage in direct, good-faith discussions toward a commercially reasonable resolution of the matters raised in the Demand Letter. Lumos is open to exploring resolution mechanisms that are consistent with the contractual framework, that account for the defenses set forth in this letter, and that preserve the parties' ongoing business relationship for the remainder of the MSA term.
Should direct discussions not yield a resolution, Lumos is prepared to proceed to mediation as contemplated by §14.3 and to participate in the mediation process in good faith. We invite Pinnacle's counsel to contact the undersigned or Simone Laroche of this firm (slaroche@calderwoodharkness.com; (415) 773-6042) to discuss scheduling and logistics for either direct discussions or mediation at your earliest convenience.
Closing
For the reasons set forth in this letter, Lumos rejects Pinnacle's demand of $2,870,000 in its entirety. The demand is unsupported by the terms of the MSA, is contradicted by objective third-party monitoring data, and is legally barred by the contractual provisions that Pinnacle negotiated and to which it agreed. Lumos's maximum potential SLA credit obligation, properly calculated, is $30,000.
We respectfully request that all further communications regarding this matter be directed exclusively to Calderwood & Harkness LLP at the address set forth above. Please do not contact Lumos or its personnel directly regarding this dispute.
We look forward to hearing from you and remain available to discuss a constructive path forward.
Very truly yours,
CALDERWOOD & HARKNESS LLP
By: ________
Linda Osei, Partner 101 California Street, Suite 3200 San Francisco, California 94111 Telephone: (415) 773-6018
Email: losei@calderwoodharkness.com
cc: (via email)
Adriana Voss, General Counsel, Lumos Analytics Inc. Priya Anand, Calderwood & Harkness LLP Simone Laroche, Calderwood & Harkness LLP
Enclosures: None. This letter references the Master Services Agreement dated January 15, 2021 (Agreement No. MSA-PFH-2021-0015), including Exhibit C (Service Level Agreement), and the Demand Letter from Hargrove, Tillman & Burch LLP dated May 1, 2023, copies of which are on file with both parties and are not attached hereto.
Incident | Pinnacle Claimed Duration | Pinnacle Uptime | Pinnacle Credit | Sentinel Duration | Sentinel Uptime | Sentinel Credit
INC-4471 | 7h 42m | 98.93% | $36,000 (30%) | 4h 11m | 99.43% | $24,000 (20%)
INC-4602 | 3h 18m | 99.54% | $12,000 (10%) | 1h 47m | 99.75% | $6,000 (5%)
INC-4815 | 11h 5m | 98.47% | $36,000 (30%) | 6h 22m | 99.12% | $24,000 (20%)
INC-5033 | 26h 31m | 96.32% | $36,000 (30%) | 14h 8m | 98.04% | $36,000 (30%)
Totals | $120,000 | $90,000
Incident | Pinnacle Claimed Credit | Lumos Defense | Maximum Credit Owed
INC-4471 (Oct. 12–13, 2022) | $36,000 (30%) | Credit request time-barred under §3.5 (submitted Dec. 14, 2022; deadline was Nov. 30, 2022) | $0
INC-4602 (Nov. 28, 2022) | $12,000 (10%) | Sentinel data shows 99.75% uptime; correct tier is 5% | $6,000
INC-4815 (Jan. 9–10, 2023) | $36,000 (30%) | Sentinel data shows 99.12% uptime; correct tier is 20% | $24,000
INC-5033 (Mar. 3–5, 2023) | $36,000 (30%) | Excluded under §2.3 (caused by Brindoval, Pinnacle's own IaaS provider) | $0
Total SLA Credits | $120,000 | $30,000

CALDERWOOD & HARKNESS LLP Attorneys at Law

CALDERWOOD & HARKNESS LLP

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