CONFIDENTIAL TREATMENT REQUESTED — This mediation statement is submitted for settlement purposes only pursuant to California Evidence Code §§ 1115–1128. This statement is confidential and shall not be disclosed to the opposing party or used in any subsequent proceeding.
CONFIDENTIAL MEDIATION STATEMENT OF LUMOS ANALYTICS INC.
BAY AREA DISPUTE RESOLUTION CENTER 44 Montgomery Street, Suite 2800 San Francisco, California 94104
Before the Hon. Robert K. Tannenbaum (Ret.)
IN THE MATTER OF
PINNACLE FINANCIAL HOLDINGS LLC Claimant,
v.
LUMOS ANALYTICS INC. Respondent.
SLA Credit and Breach of Contract Dispute
CONFIDENTIAL MEDIATION STATEMENT OF LUMOS ANALYTICS INC.
Date of Mediation: November 14, 2023
Prepared by:
Calderwood & Harkness LLP 101 California Street, Suite 3200 San Francisco, California 94111 Telephone: (415) 555-7200 Facsimile: (415) 555-7201
Linda Osei — Responsible Partner Priya Anand — Billing Partner Simone Laroche — Lead Associate Jeffrey Park — Working Associate
Matter Number: 1008-00007
CONFIDENTIALITY LEGEND: This mediation statement is submitted for settlement purposes only pursuant to California Evidence Code §§ 1115–1128. This statement is confidential and shall not be disclosed to the opposing party or used in any subsequent proceeding. All information, positions, and proposals contained herein are made in connection with settlement negotiations and are inadmissible in any court, arbitral, or administrative proceeding. Receipt of this document by the mediator does not waive any privilege, protection, or right of Lumos Analytics Inc.
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I. INTRODUCTION AND EXECUTIVE SUMMARY
Lumos Analytics Inc. ("Lumos" or "Respondent"), a Delaware corporation headquartered at 580 Howard Street, Suite 400, San Francisco, California 94105, respectfully submits this Confidential Mediation Statement to the Honorable Robert K. Tannenbaum (Ret.) in advance of the mediation session scheduled for November 14, 2023, at the Bay Area Dispute Resolution Center, 44 Montgomery Street, Suite 2800, San Francisco, California. Lumos submits this statement in good faith and with a genuine desire to achieve a commercially reasonable resolution to this dispute.
Lumos is an enterprise software-as-a-service ("SaaS") platform that provides real-time financial analytics, risk scoring, and regulatory compliance dashboards to a diverse customer base of banks, asset managers, and insurance companies across the United States and internationally. In fiscal year 2022, Lumos achieved annual recurring revenue ("ARR") of approximately $127.4 million and employed approximately 620 full-time employees. Lumos is majority-owned by Ridgeline Capital Partners, LP, which acquired its controlling stake in 2021. Marcus Ellison serves as Lumos's Chief Executive Officer, and Adriana Voss serves as General Counsel.
Pinnacle Financial Holdings LLC ("Pinnacle" or "Claimant") is a Delaware limited liability company with its principal offices at 200 West Adams Street, Suite 3100, Chicago, Illinois 60606. Pinnacle operates a mid-market commercial lending and wealth management platform with approximately $4.2 billion in assets under management ("AUM"). Gerald R. Worthington serves as Pinnacle's Chief Executive Officer, Diana Cho as its Chief Financial Officer, and Naveen Mistry as its Chief Technology Officer. Pinnacle is represented in this matter by Hargrove, Tillman & Burch LLP, 71 South Wacker Drive, Suite 4500, Chicago, Illinois 60606, with Katherine ("Kate") Hargrove serving as lead partner and Daniel Yun as associate.
The Nature of the Dispute. Pinnacle alleges that Lumos breached uptime and response-time service level commitments under the parties' Master Services Agreement dated January 15, 2021 (the "MSA"), specifically the Service Level Agreement set forth in Exhibit C thereto. Pinnacle identifies four discrete service disruption incidents occurring between October 2022 and March 2023 and, through its formal demand letter dated May 1, 2023, seeks a total of $2,870,000 in SLA credits, consequential damages, internal remediation costs, and alleged reputational harm.
Lumos's Position. Lumos respectfully submits that Pinnacle's claim is vastly overstated, both in terms of the factual predicate and the legal theories advanced. Specifically:
• Lumos's maximum contractual exposure for SLA credit claims does not exceed $432,000, representing the negotiated SLA credit cap set forth in Exhibit C, Section 3.4 of the MSA. Under any reasonable reading of the contract and the available monitoring data, Lumos's actual SLA credit exposure falls in the range of $30,000 to $120,000.
• The consequential damages claims totaling $2,750,000—comprising alleged lost revenue from delayed loan originations and missed trading windows ($1,950,000), internal remediation costs ($340,000), and reputational harm and client attrition ($460,000)—are expressly and unambiguously barred by the mutual waiver of consequential damages contained in Section 11.3 of the MSA.
• Substantial additional defenses exist that would further reduce Lumos's exposure, including: (i) independent third-party monitoring data demonstrating materially shorter outage durations than those claimed by Pinnacle; (ii) Pinnacle's untimely submission of its credit request for one incident; (iii) third-party causation for the most significant incident; and (iv) Pinnacle's failure to mitigate by activating available disaster-recovery failover.
Lumos's Objectives. Lumos approaches this mediation with a constructive orientation. Both parties have a shared interest in preserving a valuable ongoing commercial relationship. The MSA's initial three-year term expires on January 14, 2024, and renewal discussions are already underway. Lumos seeks a commercially reasonable resolution centered on service credits applied against future subscription invoices and favorable MSA renewal terms—rather than cash payment—that would benefit both parties and lay the groundwork for a productive long-term partnership.
II. BACKGROUND: THE PARTIES AND THEIR RELATIONSHIP
A. Lumos Analytics Inc.
Lumos is an enterprise SaaS and fintech analytics platform that serves the financial services industry. The company's core product suite delivers real-time financial analytics, proprietary risk scoring algorithms, and regulatory compliance dashboards designed to meet the needs of banks, asset managers, and insurance companies operating in complex, highly regulated environments. Lumos's platform integrates with its customers' existing technology stacks and provides mission-critical data analytics that support a range of functions, including credit risk assessment, portfolio analysis, regulatory reporting, and compliance monitoring.
Lumos is incorporated in the State of Delaware and maintains its principal offices and headquarters at 580 Howard Street, Suite 400, San Francisco, California 94105. As of the end of fiscal year 2022, Lumos employed approximately 620 full-time employees across its San Francisco headquarters, an engineering center in Austin, Texas, and regional sales offices in New York, Chicago, and London. In fiscal year 2022, Lumos achieved annual recurring revenue of approximately $127.4 million, reflecting strong year-over-year growth and a diversified customer base spanning more than 180 enterprise accounts.
In 2021, Ridgeline Capital Partners, LP, a growth-stage private equity firm focused on enterprise technology investments, acquired a majority stake in Lumos. Since that time, Ridgeline has supported significant investments in Lumos's platform infrastructure, engineering talent, and customer success capabilities. Marcus Ellison serves as Lumos's Chief Executive Officer, and Adriana Voss serves as General Counsel.
B. Pinnacle Financial Holdings LLC
Pinnacle is a mid-market commercial lending and wealth management platform with approximately $4.2 billion in assets under management. Pinnacle serves a client base of commercial borrowers, high-net-worth individuals, and institutional investors across the Midwest and Eastern United States. Pinnacle is organized as a Delaware limited liability company and maintains its principal offices at 200 West Adams Street, Suite 3100, Chicago, Illinois 60606.
Pinnacle utilizes the Lumos platform as a key component of its technology infrastructure, relying on Lumos's financial analytics and regulatory compliance capabilities to support its commercial lending underwriting, portfolio risk management, and wealth management advisory operations. The Lumos platform is embedded in several of Pinnacle's critical business workflows, including loan origination, credit risk assessment, and compliance reporting.
It is important to note, for purposes of this mediation, that Pinnacle's cloud infrastructure is hosted by Brindoval Cloud Infrastructure LLC ("Brindoval"), a separate infrastructure-as-a-service ("IaaS") provider. Brindoval is not a vendor, subcontractor, or affiliate of Lumos. The distinction between Lumos's application-layer SaaS platform and Pinnacle's separately contracted cloud infrastructure is directly relevant to the causation analysis for one of the disputed incidents, as discussed in detail in Section V.E below.
Gerald R. Worthington serves as Pinnacle's Chief Executive Officer, Diana Cho as its Chief Financial Officer, and Naveen Mistry as its Chief Technology Officer.
C. The Business Relationship
Pinnacle has been a Lumos customer since January 2021, when the parties executed the MSA that is at the center of this dispute. Over the nearly three-year duration of the initial contract term, the relationship has been significant to both parties. Pinnacle's annual subscription carries a value of $1,440,000 per year, representing a meaningful and valued account within Lumos's enterprise customer portfolio. For Pinnacle, the Lumos platform has become an integral part of its technology infrastructure, supporting functions that are central to its lending and wealth management operations.
The MSA's initial three-year term is approaching expiration on January 14, 2024, and both parties have expressed interest in negotiating a renewal. Lumos's VP of Customer Success, Rachel Dominguez, has maintained regular and proactive account management engagement with Pinnacle's VP of Vendor Management, Sandra Keppler, throughout the term of the agreement. The parties have held quarterly business reviews, collaborated on product roadmap input sessions, and worked together on multiple integration and configuration projects. The relationship, while strained by the events giving rise to this dispute, has historically been productive and collaborative.
It is against this backdrop of a commercially important and mutually beneficial relationship that Lumos approaches this mediation. Lumos believes that both parties are better served by a forward-looking resolution that preserves this relationship than by protracted and adversarial litigation.
III. THE MASTER SERVICES AGREEMENT
The following is a summary of the key provisions of the MSA relevant to this dispute. A complete copy of the MSA, including all exhibits, is provided as Exhibit A to this Confidential Mediation Statement.
A. Execution and Term
The Master Services Agreement was executed on January 15, 2021, by and between Lumos Analytics Inc., as service provider, and Pinnacle Financial Holdings LLC, as customer. The agreement is identified internally by Lumos as MSA-PFH-2021-0015. The MSA provides for an initial term of three (3) years, commencing on January 15, 2021, and expiring on January 14, 2024, unless renewed or earlier terminated in accordance with the terms of the agreement.
B. Financial Terms
Under Section 4.1 of the MSA, Pinnacle agreed to pay Lumos an annual subscription fee of $1,440,000 per year, payable in equal monthly installments of $120,000 ($1,440,000 ÷ 12). The total contract value for the initial three-year term is $4,320,000 ($1,440,000 × 3 years). Pinnacle has remained current on all subscription payments throughout the term of the MSA, and there is no dispute regarding the payment of fees.
C. Service Level Agreement (Exhibit C)
The parties' service level commitments are set forth in Exhibit C to the MSA (the "SLA"). The SLA establishes the following key performance parameters:
Uptime Commitment. Lumos committed to maintaining platform availability of 99.95%, measured on a monthly basis. Based on a standard 30-day month (43,200 minutes), this commitment permits a maximum allowable downtime of approximately 21.6 minutes per month (0.05% × 43,200 minutes).
P1 Incident Response Time. For Priority 1 ("P1") incidents—defined as events causing complete service unavailability or critical functionality failure—Lumos committed to providing initial acknowledgment within fifteen (15) minutes of incident detection and achieving resolution or deployment of a functional workaround within two (2) hours.
D. SLA Credit Structure (Exhibit C, §3.2)
The SLA establishes a tiered credit structure under which Pinnacle is entitled to receive service credits applied against future subscription invoices if Lumos fails to meet the monthly uptime commitment. The credit tiers are as follows:
The credit structure reflects the parties' negotiated agreement that service credits—not general damages—are the appropriate remedy for service level shortfalls. This is a standard and widely adopted approach in the enterprise SaaS industry.
E. SLA Credit Cap (Exhibit C, §3.4)
Section 3.4 of Exhibit C establishes a cap on the maximum SLA credits available in any rolling twelve (12)-month period. The cap is set at thirty percent (30%) of the annual subscription fee:
30% × $1,440,000 = $432,000
This cap represents the parties' negotiated understanding of the maximum financial exposure that Lumos would bear for service level failures within any twelve-month period. The cap was the product of arm's-length negotiation between two sophisticated commercial parties, each represented by counsel, and reflects the commercial realities of SaaS service delivery and pricing.
F. SLA Credit Request Procedure (Exhibit C, §3.5)
Section 3.5 of Exhibit C establishes the procedural requirements for requesting SLA credits. The provision states, in relevant part:
Customer must submit a written credit request to Provider within thirty (30) calendar days following the end of the calendar month in which the downtime event occurred. The request must specify the affected services and the observed downtime. Failure to submit a timely credit request shall constitute a forfeiture of the credit for the applicable period.
This procedural requirement is not a mere formality. Timely submission of credit requests serves important purposes: it ensures that both parties can promptly investigate claimed incidents while data and records are fresh, and it provides certainty and predictability in the administration of the SLA credit program. As discussed in Section V.B below, Pinnacle failed to comply with this requirement for one of the four claimed incidents.
G. Exclusions from Uptime Calculation (Exhibit C, §2.3)
Section 2.3 of Exhibit C sets forth certain categories of downtime that are excluded from the uptime calculation for purposes of determining SLA credits. Notably, the exclusions include:
Downtime attributable to customer infrastructure or third-party services not provided by [Lumos] shall be excluded from the uptime calculation.
This exclusion is directly relevant to the March 2023 incident (INC-5033), where the root cause has been traced to a configuration change made within Pinnacle's own cloud environment hosted by its separately contracted IaaS provider, Brindoval Cloud Infrastructure LLC. This defense is discussed in detail in Section V.E below.
H. Disaster Recovery / Failover
The MSA provides that Lumos maintains a designated disaster-recovery ("DR") environment, identified as US-West-2, which is geographically separate from the primary production environment. Under the terms of the agreement, Pinnacle has the contractual right to activate failover to the US-West-2 disaster-recovery environment during service incidents. This failover capability was designed to provide customers with an additional layer of resilience and to minimize the impact of service disruptions. As discussed in Section V.F below, Pinnacle did not exercise this contractual right during two of the four incidents at issue in this dispute.
I. Limitation of Liability (§11.2)
Section 11.2 of the MSA contains an aggregate limitation of liability provision. The aggregate liability of either party under the MSA, arising from any and all claims, whether in contract, tort, or otherwise, is capped at twelve (12) months of fees paid or payable under the agreement. Based on the annual subscription fee of $1,440,000, the aggregate liability cap is:
$1,440,000
This cap applies regardless of the number of claims, incidents, or theories of liability asserted by either party.
J. Exclusion of Consequential Damages (§11.3)
Section 11.3 of the MSA contains a mutual waiver of indirect, consequential, incidental, special, exemplary, and punitive damages, including but not limited to lost profits, lost revenue, loss of business, and loss of data. This waiver is mutual—it applies equally to both Lumos and Pinnacle—and was a material term of the parties' bargained-for agreement. Section 11.3 provides, in relevant part:
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY, OR PUNITIVE DAMAGES, INCLUDING BUT NOT LIMITED TO DAMAGES FOR LOST PROFITS, LOST REVENUE, LOSS OF BUSINESS, LOSS OF DATA, OR COSTS OF PROCUREMENT OF SUBSTITUTE SERVICES, ARISING OUT OF OR RELATED TO THIS AGREEMENT, REGARDLESS OF WHETHER SUCH DAMAGES ARE BASED ON CONTRACT, TORT, STRICT LIABILITY, OR ANY OTHER THEORY, AND REGARDLESS OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
This provision is of central importance to this dispute, as it bars the vast majority of Pinnacle's $2,870,000 demand.
K. Dispute Resolution (§14.3)
Section 14.3 of the MSA provides for mandatory mediation in San Francisco, California, as a prerequisite to the commencement of litigation. If mediation is unsuccessful, the parties agreed to submit to the exclusive jurisdiction of the state and federal courts located in San Francisco County, California. The parties' agreement to mediate reflects their original intent, at the time of contracting, to resolve disputes through collaborative processes that prioritize the preservation of the business relationship.
L. Governing Law (§14.1)
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.
IV. THE ALLEGED INCIDENTS
A. Overview. Pinnacle alleges that Lumos experienced four distinct service disruptions between October 2022 and March 2023 that resulted in uptime levels below the 99.95% monthly commitment set forth in the SLA. Pinnacle's formal demand letter, dated May 1, 2023, and sent by its counsel at Hargrove, Tillman & Burch LLP, asserts a total damages claim of $2,870,000 arising from these four incidents. A copy of Pinnacle's demand letter is provided as Exhibit C to this Confidential Mediation Statement.
The following summarizes each of the four incidents as characterized by Pinnacle in its demand letter, along with a breakdown of Pinnacle's claimed damages. Lumos's responses and defenses to each incident are set forth in Section V below.
B. Incident INC-4471 (October 12–13, 2022)
Pinnacle claims that a service disruption beginning on October 12, 2022, and extending into October 13, 2022, resulted in a total downtime of seven (7) hours and forty-two (42) minutes. Based on this claimed duration, Pinnacle calculates that Lumos achieved only 98.93% uptime for the month of October 2022. Pinnacle applies the SLA credit tier for uptime below 99.00%, which provides for a credit of 30% of the monthly subscription fee. Pinnacle claims a credit of $36,000 for this incident.
Critically, Pinnacle's credit request for INC-4471 was not submitted until December 14, 2022—forty-four (44) days after the end of October 2022. Under the express terms of Exhibit C, Section 3.5, the deadline for submission was November 30, 2022, thirty calendar days after the end of the affected month. Pinnacle's submission was fourteen (14) days late.
C. Incident INC-4602 (November 28, 2022)
Pinnacle claims that a service disruption on November 28, 2022, resulted in a total downtime of three (3) hours and eighteen (18) minutes. Based on this claimed duration, Pinnacle calculates that Lumos achieved 99.54% uptime for November 2022. Pinnacle applies the SLA credit tier for uptime between 99.50% and 99.89%, which provides for a credit of 10% of the monthly subscription fee. Pinnacle claims a credit of $12,000 for this incident.
D. Incident INC-4815 (January 9–10, 2023)
Pinnacle claims that a service disruption beginning on January 9, 2023, and extending into January 10, 2023, resulted in a total downtime of eleven (11) hours and five (5) minutes. Based on this claimed duration, Pinnacle calculates that Lumos achieved only 98.47% uptime for January 2023. Pinnacle applies the SLA credit tier for uptime below 99.00%, which provides for a credit of 30% of the monthly subscription fee. Pinnacle claims a credit of $36,000 for this incident.
E. Incident INC-5033 (March 3–5, 2023)
Pinnacle claims that a service disruption beginning on March 3, 2023, and extending through March 5, 2023, resulted in a total downtime of twenty-six (26) hours and thirty-one (31) minutes. Based on this claimed duration, Pinnacle calculates that Lumos achieved only 96.32% uptime for March 2023. Pinnacle applies the SLA credit tier for uptime below 99.00%, which provides for a credit of 30% of the monthly subscription fee. Pinnacle claims a credit of $36,000 for this incident.
As discussed in detail in Section V.E below, the root cause of INC-5033 has been traced to a configuration change made within Pinnacle's own cloud environment, hosted by Brindoval Cloud Infrastructure LLC. This incident is properly excluded from the uptime calculation under Exhibit C, Section 2.3.
F. Pinnacle's Total Demand Breakdown
Pinnacle's May 1, 2023 demand letter seeks total damages of $2,870,000, broken down as follows:
As set forth in the following section, Lumos submits that the SLA credit claim is overstated, that multiple defenses apply to reduce the credit amount further, and that the $2,750,000 in non-credit claims (representing more than 95% of Pinnacle's total demand) are expressly and unambiguously barred by the MSA's mutual waiver of consequential damages.
V. LUMOS'S DEFENSES
Lumos has substantial defenses to Pinnacle's claims across multiple dimensions. Each defense is addressed in turn below.
A. Defense 1: Disputed Uptime Measurements — Sentinel Monitoring Data
Lumos's platform infrastructure is monitored by Sentinel Uptime Services Inc. ("Sentinel"), an independent third-party monitoring and incident-response logging provider headquartered at 2200 Mission College Blvd, Suite 100, Santa Clara, California 95054. Brenda Hale serves as Sentinel's Director of Client Engineering and is the primary point of contact for Lumos's account. Sentinel provides continuous, automated infrastructure monitoring through a network of distributed monitoring endpoints that measure service availability from multiple geographic locations. Sentinel's monitoring data is generated contemporaneously and maintained in tamper-evident logs in accordance with SOC 2 Type II standards.
Sentinel's telemetry data records materially shorter outage durations for each of the four incidents at issue in this dispute. The discrepancies between Pinnacle's claimed outage durations and Sentinel's independently recorded data are significant and consistent across all four incidents. Lumos submits that Sentinel's data provides the most reliable and objective basis for calculating uptime for purposes of the SLA.
INC-4471 (October 12–13, 2022). Sentinel's monitoring logs recorded a total downtime of four (4) hours and eleven (11) minutes for this incident, compared to Pinnacle's claimed duration of seven (7) hours and forty-two (42) minutes. Based on Sentinel's data, the actual monthly uptime for October 2022 was 99.43%, which falls within the 99.00%–99.49% credit tier. The correct credit under this tier is 20% of the monthly subscription fee, or $24,000, rather than the $36,000 claimed by Pinnacle.
INC-4602 (November 28, 2022). Sentinel's monitoring logs recorded a total downtime of one (1) hour and forty-seven (47) minutes for this incident, compared to Pinnacle's claimed duration of three (3) hours and eighteen (18) minutes. Based on Sentinel's data, the actual monthly uptime for November 2022 was 99.75%. At this uptime level, the applicable credit is 5% of the monthly subscription fee, or $6,000, rather than the $12,000 claimed by Pinnacle.
INC-4815 (January 9–10, 2023). Sentinel's monitoring logs recorded a total downtime of six (6) hours and twenty-two (22) minutes for this incident, compared to Pinnacle's claimed duration of eleven (11) hours and five (5) minutes. Based on Sentinel's data, the actual monthly uptime for January 2023 was 99.12%, which falls within the 99.00%–99.49% credit tier. The correct credit under this tier is 20% of the monthly subscription fee, or $24,000, rather than the $36,000 claimed by Pinnacle.
INC-5033 (March 3–5, 2023). Sentinel's monitoring logs recorded a total downtime of fourteen (14) hours and eight (8) minutes for this incident, compared to Pinnacle's claimed duration of twenty-six (26) hours and thirty-one (31) minutes. Based on Sentinel's data, the actual monthly uptime for March 2023 was 98.04%, which falls below the 99.00% threshold. The applicable credit under this tier is 30% of the monthly subscription fee, or $36,000. While the credit amount for this particular incident is the same as Pinnacle's claim (because both calculations fall within the same credit tier), the Sentinel data is nonetheless significant because it demonstrates that the actual period of complete service unavailability was materially shorter than Pinnacle alleges—nearly half the claimed duration.
Summary of Uptime Data Discrepancy. The following table summarizes the differences between Pinnacle's claimed figures and Sentinel's independently recorded data:
Based on Sentinel's data, Lumos's total calculated SLA credit exposure across all four incidents is $90,000, compared to Pinnacle's claimed total of $120,000—a differential of $30,000.
Methodology Differences. The consistent pattern of discrepancy between Pinnacle's claimed downtime and Sentinel's recorded downtime is attributable to fundamental differences in measurement methodology. Pinnacle appears to have measured downtime from the customer-side perspective, including periods of degraded performance—such as slow response times, partial page loads, or intermittent connectivity—within its downtime calculations. Sentinel, by contrast, measures periods of complete service unavailability from infrastructure monitoring endpoints, which is the standard approach for SLA uptime measurement in the enterprise SaaS industry.
Critically, the MSA Exhibit C defines "downtime" as periods of complete unavailability of the services, not periods of degraded performance or reduced functionality. This definition is consistent with Sentinel's measurement methodology and inconsistent with the broader measurement approach reflected in Pinnacle's claimed figures. Lumos submits that Sentinel's data, which aligns with the contractual definition, should be accepted as the authoritative measurement of downtime for purposes of this dispute.
Copies of Sentinel's monitoring reports for all four incidents are provided as Exhibit B to this Confidential Mediation Statement.
B. Defense 2: Late Credit Request for INC-4471
Section 3.5 of Exhibit C to the MSA establishes a clear and unambiguous procedural requirement for SLA credit requests: the customer must submit a written credit request within thirty (30) calendar days following the end of the calendar month in which the downtime event occurred. The provision further states that failure to submit a timely credit request constitutes a forfeiture of the credit for the applicable period.
Incident INC-4471 occurred on October 12–13, 2022. The affected calendar month was October 2022. Accordingly, the thirty-day deadline for submission of a credit request expired on November 30, 2022.
Pinnacle did not submit its credit request for INC-4471 until December 14, 2022—forty-four (44) days after the end of October 2022 and fourteen (14) days after the contractual deadline had passed. A timeline documenting the relevant dates and the submission of Pinnacle's credit request is provided as Exhibit D to this Confidential Mediation Statement.
Lumos contends that this claim is time-barred under the express terms of Section 3.5. The forfeiture provision is not ambiguous, and it applies by its terms to Pinnacle's untimely submission. Pinnacle, as a sophisticated commercial entity with $4.2 billion in AUM and in-house legal and compliance capabilities, is presumed to be aware of and capable of complying with a thirty-day notice requirement. Timely credit requests are not a burdensome procedural hurdle; they are a basic contract administration obligation that Pinnacle failed to perform.
If the credit request for INC-4471 is properly excluded as untimely, Lumos's total SLA credit exposure is reduced from $90,000 (based on Sentinel data) to $66,000 ($6,000 for INC-4602 + $24,000 for INC-4815 + $36,000 for INC-5033).
Anticipated Counterarguments. Lumos anticipates that Pinnacle may argue that Lumos waived the timeliness requirement or is estopped from asserting it, on the theory that Lumos did not promptly object to the late submission. Lumos submits that this argument lacks merit. Lumos's internal records demonstrate that Thomas Kwan, Lumos's Vice President of Engineering and Site Reliability Engineering, flagged the late submission internally within Lumos's engineering and legal teams upon receipt. While Lumos did not immediately send Pinnacle a formal rejection letter, its internal contemporaneous documentation demonstrates that the timeliness deficiency was noted and preserved. Moreover, the failure to immediately reject a late-filed credit request does not, under California law, constitute a waiver of the contractual right to enforce the deadline, particularly where the contract contains a no-waiver clause (as the MSA does at Section 15.4). Waiver of a contractual right requires clear and unequivocal conduct manifesting an intent to relinquish the right, and Lumos's conduct does not meet that standard.
C. Defense 3: SLA Credit Cap
Even if all of Pinnacle's SLA credit claims were accepted at face value—$120,000 across all four incidents—the contractual cap under Exhibit C, Section 3.4 limits the maximum service credits available in any rolling twelve-month period to $432,000 (30% of the annual subscription fee of $1,440,000). Pinnacle's SLA credit claim of $120,000 (or Lumos's calculated figure of $90,000) is well within the cap, so the cap does not directly reduce the SLA credits themselves in this instance.
However, the cap is critically important to the overall framework of this dispute for two reasons:
First, the cap demonstrates the parties' agreed-upon framework for addressing service level failures. When two sophisticated commercial parties negotiate an SLA with a defined credit structure and an express cap on the maximum credits available, they are establishing that service credits—not uncapped general damages—are the intended and exclusive remedy for SLA shortfalls. The cap of $432,000 reflects the parties' mutual understanding, at the time of contracting, of the maximum financial risk that Lumos would bear for service level failures. Pinnacle's demand of $2,870,000 is nearly seven times this negotiated maximum and is fundamentally inconsistent with the contractual framework the parties established.
Second, the cap reinforces the consequential damages waiver in Section 11.3. The existence of a carefully calibrated credit structure with a defined cap, combined with a mutual waiver of consequential damages, creates a clear and internally consistent remedial scheme: the exclusive remedy for SLA failures is service credits, subject to the cap, and neither party may seek consequential damages. Pinnacle's attempt to circumvent this scheme by characterizing consequential losses as direct damages should be rejected.
D. Defense 4: Mutual Waiver of Consequential Damages (§11.3)
This defense is the most significant in the dispute, as it eliminates $2,750,000—more than 95%—of Pinnacle's total demand.
Section 11.3 of the MSA contains a broad, mutual waiver of indirect, consequential, incidental, special, exemplary, and punitive damages, including but not limited to lost profits, lost revenue, loss of business, and loss of data. The waiver applies regardless of whether damages are based on contract, tort, strict liability, or any other theory, and regardless of whether the party has been advised of the possibility of such damages.
Pinnacle's non-credit claims total $2,750,000 and fall into three categories, each of which is squarely barred by Section 11.3:
Consequential / Business-Impact Damages — $1,950,000. Pinnacle claims $1,950,000 in lost revenue allegedly resulting from delayed loan originations and missed trading windows during the service disruptions. These are classic consequential and lost-profits damages. They represent revenue that Pinnacle alleges it would have earned but for the service disruptions—precisely the type of indirect, downstream losses that Section 11.3 was designed to exclude. Under well-established California law, lost profits flowing from a breach of contract are consequential damages, not direct damages, unless they represent the benefit of the bargain itself. See, e.g., Lewis Jorge Constr. Mgmt., Inc. v. Pomona Unified Sch. Dist., 34 Cal.4th 960, 968–69 (2004). Pinnacle's benefit of the bargain under the MSA was access to the Lumos platform; the lost revenue from delayed loan originations is a downstream consequence of the alleged service failure, not the direct subject of the agreement.
Internal Remediation Costs — $340,000. Pinnacle claims $340,000 in costs incurred for manual workarounds, employee overtime, and temporary licensing of an alternative platform from TrueNorth Data Systems Inc. during the disruptions. While these costs may sound more "direct" than lost profits, they are in fact consequential damages that flowed from the alleged breach. They were not contemplated as a component of the service fees or the SLA credit structure; they are secondary costs that Pinnacle incurred as a consequence of the service disruptions. Moreover, the cost of procuring substitute services is specifically identified in Section 11.3 as a category of excluded damages.
Reputational Harm / Client Attrition — $460,000. Pinnacle claims $460,000 in estimated damages based on the alleged loss of two wealth-management clients, which Pinnacle attributes to service disruptions on the Lumos platform. This claim is both consequential and speculative in nature. Loss of business and loss of clients are precisely the types of indirect, downstream damages that consequential damages waivers are intended to exclude. Furthermore, the causal link between alleged SaaS downtime and the departure of two wealth-management clients is attenuated, speculative, and would require extensive proof of facts that Pinnacle has not demonstrated.
Under California law, mutual consequential damages waivers in negotiated commercial contracts between sophisticated parties are routinely enforced. California courts have consistently held that when two commercially sophisticated parties, represented by counsel, agree to a mutual limitation on consequential damages, the waiver will be given effect according to its terms. See, e.g., Markborough California, Inc. v. Superior Court, 227 Cal.App.3d 705, 714 (1991) (enforcing contractual limitation of liability in commercial agreement between sophisticated parties). Pinnacle is not a consumer or an unsophisticated party; it is a financial services company with $4.2 billion in AUM, represented by experienced counsel during the negotiation and execution of the MSA.
The consequential damages waiver reduces Pinnacle's legally recoverable claim from $2,870,000 to, at most, its SLA credit claim of $120,000. Based on Sentinel's data, Lumos contends the correct figure is $90,000 or less, subject to the additional defenses set forth below.
E. Defense 5: Third-Party Causation for INC-5033
The March 3–5, 2023 incident (INC-5033) was triggered by a configuration change made within Pinnacle's own cloud environment hosted by Brindoval Cloud Infrastructure LLC ("Brindoval"). Brindoval is Pinnacle's separately contracted IaaS provider. Brindoval is not a Lumos vendor, subcontractor, affiliate, or agent. Lumos has no contractual relationship with Brindoval and no control over the configuration of Pinnacle's Brindoval-hosted infrastructure.
Section 2.3 of Exhibit C to the MSA ("Exclusions from Uptime Calculation") expressly excludes from the uptime calculation any downtime attributable to customer infrastructure or third-party services not provided by Lumos. Brindoval is, by definition, a "third-party service not provided by Lumos." The downtime associated with INC-5033 was directly caused by a configuration change within the Brindoval environment and therefore falls squarely within the Section 2.3 exclusion.
Lumos's engineering team, led by Thomas Kwan, VP of Engineering and Site Reliability Engineering, conducted a detailed root cause analysis following the INC-5033 incident. The analysis traced the incident to a specific configuration change within Pinnacle's Brindoval-hosted infrastructure that disrupted the connectivity between Pinnacle's cloud environment and the Lumos application layer. Sentinel Uptime Services independently corroborated this finding through analysis of its infrastructure logs, which showed that the Lumos platform's core services remained fully operational throughout the incident period and that the service disruption was experienced only at the interface between the Lumos platform and Pinnacle's Brindoval-hosted environment. A copy of the root cause analysis is provided as Exhibit E to this Confidential Mediation Statement.
Lumos contends that the entirety of the INC-5033 incident should be excluded from the uptime calculation under Section 2.3. If INC-5033 is excluded, the SLA credit attributable to that incident ($36,000) is eliminated, reducing Lumos's total SLA credit exposure from $90,000 (based on Sentinel data) to $54,000. If both INC-4471 (timeliness defense) and INC-5033 (third-party causation) are excluded, Lumos's total SLA credit exposure is reduced to $30,000.
F. Defense 6: Failure to Mitigate
Under the terms of the MSA, Lumos provides its customers with access to a designated disaster-recovery ("DR") environment, identified as US-West-2, which is maintained as a geographically separate failover instance of the Lumos platform. The DR environment is designed to provide customers with continuity of service during incidents affecting the primary production environment. Pinnacle has the contractual right to activate failover to US-West-2 at any time during a service disruption.
During both INC-4815 (January 9–10, 2023) and INC-5033 (March 3–5, 2023)—the two longest incidents in the dispute—Pinnacle did not activate failover to the US-West-2 disaster-recovery environment. Had Pinnacle exercised this contractual right, the duration of service unavailability experienced by Pinnacle would have been materially reduced for both incidents. Lumos's DR environment was fully operational during both incident periods and would have provided Pinnacle with access to the Lumos platform within the failover activation window.
Under California law, a claimant has a well-established duty to take reasonable steps to mitigate damages. See Valle de Oro Bank v. Gamboa, 26 Cal.App.4th 1686, 1691 (1994) ("The doctrine of mitigation of damages, sometimes called the doctrine of avoidable consequences, prevents a party from recovering for damages that could have been avoided by reasonable effort."). Activating a contractually provided disaster-recovery failover mechanism during a multi-hour service disruption is manifestly a "reasonable step" that Pinnacle could and should have taken to reduce the impact of the incidents. Pinnacle's failure to do so undercuts both its claimed downtime durations and its damages claims, as the extended periods of unavailability that Pinnacle experienced were, in substantial part, attributable to Pinnacle's own inaction.
G. Aggregate Liability Cap (§11.2)
Even setting aside all of the foregoing defenses, MSA Section 11.2 imposes an absolute ceiling on Lumos's aggregate liability. The provision caps the aggregate liability of either party under the MSA, arising from any and all claims, at twelve (12) months of fees paid or payable. Based on the annual subscription fee of $1,440,000, the aggregate liability cap is $1,440,000.
Pinnacle's total demand of $2,870,000 exceeds the aggregate liability cap by $1,430,000. Even if the consequential damages waiver were somehow found to be unenforceable—a result that Lumos submits is highly unlikely under governing California law—the aggregate liability cap would still limit Lumos's maximum exposure to $1,440,000, which is itself a fraction of Pinnacle's demand.
The aggregate liability cap provides an independent, backstop defense that caps Lumos's exposure under any conceivable theory of liability.
VI. LUMOS'S ASSESSMENT OF MAXIMUM EXPOSURE
Based on the defenses set forth above, Lumos assesses its exposure across three scenarios:
A. Best Case for Lumos
Under this scenario, Lumos's strongest defenses are applied in full:
All consequential damages ($2,750,000) are barred by Section 11.3 (Defense 4). Under this scenario, Lumos's total exposure is $30,000.
B. Realistic Middle Case
Under this scenario, Lumos's defenses are partially successful or tempered by practical settlement considerations:
All consequential damages ($2,750,000) are barred by Section 11.3 (Defense 4). Under this scenario, Lumos's total exposure is $72,000.
C. Worst Case for Lumos (Accepting Pinnacle's Uptime Numbers in Full)
Under this scenario, all of Pinnacle's claimed uptime figures are accepted without challenge, and no procedural or exclusion defenses are applied:
Even under this worst-case scenario, all consequential damages ($2,750,000) remain barred by Section 11.3. The total SLA credit exposure of $120,000 is well within the SLA credit cap of $432,000 and well within the aggregate liability cap of $1,440,000.
In the highly unlikely event that a court were to find Section 11.3 unenforceable—a result that would be extraordinary under California law given the sophistication of the parties and the mutual nature of the waiver—the aggregate liability cap of $1,440,000 under Section 11.2 would still apply as an absolute ceiling on Lumos's exposure, far below Pinnacle's $2,870,000 demand.
D. Summary. Lumos's maximum contractual exposure does not exceed $432,000 under any reasonable scenario, and the most likely range of SLA credit exposure, accounting for the defenses set forth above, is $30,000 to $120,000. The following chart summarizes the three scenarios:
Pinnacle's demand of $2,870,000 has no support in the contract the parties negotiated, in the available monitoring data, or in governing California law.
VII. PROPOSED SETTLEMENT FRAMEWORK
A. Guiding Principles
Lumos approaches this mediation with the recognition that both parties benefit from preserving their commercial relationship. Pinnacle has been a valued Lumos customer since January 2021, and the annual subscription of $1,440,000 represents a significant and important account. From Pinnacle's perspective, the Lumos platform has become an embedded component of its technology infrastructure, and transitioning to an alternative provider would entail substantial migration costs, operational risk, and business disruption.
The MSA's initial three-year term expires on January 14, 2024—just two months from the date of this mediation—and renewal discussions are already underway between the parties' account management teams. A successful mediation that resolves the pending dispute and sets the stage for a productive renewal would serve both parties' interests far better than protracted litigation.
Lumos believes that a settlement structured around service credits and enhanced contract terms, rather than cash payment, would be the most constructive and mutually beneficial approach. A service credit-based resolution allows Lumos to avoid cash outlay while providing Pinnacle with tangible, ongoing value in the form of reduced costs and improved service levels. This structure also reinforces the contractual framework that the parties originally established—service credits as the remedy for SLA shortfalls—and avoids setting a precedent that could undermine the SLA credit structure in future disputes.
Lumos has no interest in protracted litigation over what is fundamentally a contract management dispute with a valued customer. Calderwood & Harkness estimates that taking this matter through trial—including discovery, motion practice, expert retention, and trial preparation—would cost Lumos in excess of $500,000 in legal fees and expenses alone. Pinnacle would likely incur similar costs through Hargrove, Tillman & Burch LLP. The combined litigation spend of approximately $1,000,000 or more would far exceed the value of the underlying dispute and would benefit neither party.
B. Proposed Terms
Lumos proposes the following framework for settlement, which is intended as a starting point for discussion during the mediation session:
1. Service Credits. Lumos proposes providing service credits in an amount to be negotiated during mediation, applied against future subscription invoices under a renewed MSA, in lieu of any cash payment. The service credits would be structured to provide Pinnacle with meaningful near-term cost relief while reflecting the contractual and factual defenses set forth in this statement. Lumos envisions that the appropriate credit amount would fall within the range supported by the Sentinel monitoring data and the applicable defenses.
2. MSA Renewal. As a condition of the settlement, Pinnacle would renew the MSA for an additional multi-year term (to be negotiated, but Lumos envisions a two- or three-year renewal), demonstrating both parties' commitment to the continuation of the relationship. The renewal would be on terms mutually agreed upon by the parties, incorporating the enhancements described below.
3. Reduced Subscription Fee. Lumos is willing to discuss a modest reduction in the annual subscription fee for the renewal term. A fee reduction, even if relatively modest on an annual basis, would provide Pinnacle with significant savings over the life of a multi-year renewal and would represent a tangible concession by Lumos.
4. Enhanced SLA Commitments. Lumos is prepared to offer meaningful improvements to the SLA in an amended Exhibit C to the renewed MSA. Potential enhancements include, but are not limited to:
(a) An increased uptime commitment above the current 99.95% threshold;
(b) Real-time uptime dashboard access for Pinnacle, providing transparency and enabling Pinnacle to independently monitor Lumos platform availability on an ongoing basis;
(c) Quarterly SLA review meetings between the parties' technical and account management teams, providing a structured forum for discussing service performance, addressing concerns, and identifying opportunities for improvement; and
(d) Such other SLA improvements as the parties may agree upon during the mediation process or in subsequent negotiations.
5. Mutual Release. The settlement would include a full and mutual release of all claims, counterclaims, demands, and causes of action arising from or related to Incidents INC-4471, INC-4602, INC-4815, and INC-5033, and any other matters arising under the MSA through the date of the settlement agreement.
6. No Admission of Liability. The settlement would be on a no-fault, no-admission basis. Neither party would admit liability or wrongdoing in connection with the settlement.
7. Confidentiality. All terms of the settlement, including the amount of any service credits, fee reductions, or other consideration, would remain strictly confidential. Neither party would disclose the terms of the settlement to any third party, except as required by law or with the prior written consent of the other party.
C. Commercial Rationale
The commercial rationale for a service credit- and renewal-based settlement is compelling for both parties:
For Lumos. Pinnacle's annual subscription represents $1,440,000 per year in recurring revenue. Over a three-year renewal, the total contract value would be $4,320,000 or more. Maintaining the Pinnacle relationship has significant long-term value to Lumos, both in terms of direct revenue and in terms of Lumos's reputation and credibility in the mid-market financial services segment. A settlement that secures a multi-year renewal while resolving the pending dispute is far preferable to litigation that risks the permanent loss of the customer relationship.
For Pinnacle. A service credit-based resolution provides Pinnacle with immediate, tangible value in the form of reduced subscription costs. Enhanced SLA commitments and real-time monitoring capabilities address Pinnacle's legitimate operational concerns and provide greater confidence in the reliability of the Lumos platform going forward. A renewed MSA with improved terms positions Pinnacle for operational stability and avoids the significant costs and risks of transitioning to an alternative analytics provider.
For Both Parties. The MSA's dispute resolution clause at Section 14.3 reflects the parties' original intent, at the time of contracting, to resolve disputes through mediation and to preserve the commercial relationship. The mediation process is working as the parties intended. A resolution reached through mediation avoids the cost, distraction, and uncertainty of litigation and allows both parties to redirect their resources toward the productive business relationship that the MSA was designed to support.
VIII. CONCLUSION
Lumos Analytics Inc. respectfully requests that the Honorable Robert K. Tannenbaum consider the following in facilitating the mediation session scheduled for November 14, 2023:
The strength of Lumos's contractual defenses. Lumos has presented six independent defenses, each of which individually reduces Pinnacle's recoverable damages, and which collectively demonstrate that Pinnacle's $2,870,000 demand bears no reasonable relationship to Lumos's actual contractual exposure.
The significant gap between Pinnacle's demand and Lumos's maximum contractual exposure. Even under the most unfavorable assumptions, Lumos's maximum contractual exposure does not exceed $432,000 (the SLA credit cap). Under the most likely scenario, Lumos's exposure falls in the range of $30,000 to $120,000 in SLA credits. The $2,750,000 in consequential damages claims are expressly barred by Section 11.3 of the MSA.
The mutual benefits of a forward-looking resolution. A settlement structured around service credits, enhanced SLA commitments, and MSA renewal would provide both parties with tangible value and position the relationship for long-term success. This approach is consistent with the remedial framework the parties established in the MSA and serves the interests of both sides far better than protracted and costly litigation.
Lumos approaches this mediation in good faith, with a genuine desire to resolve this dispute on commercially reasonable terms that preserve the valuable relationship between the parties. Lumos is prepared to engage constructively in the mediation process and is optimistic that a mutually acceptable resolution can be reached on November 14, 2023.
RESPECTFULLY SUBMITTED
CALDERWOOD & HARKNESS LLP
By: ________
Linda Osei, Responsible Partner
By: ________
Simone Laroche, Lead Associate
101 California Street, Suite 3200 San Francisco, California 94111 Telephone: (415) 555-7200 Facsimile: (415) 555-7201
On Behalf of Lumos Analytics Inc.
Date: November 7, 2023
EXHIBITS AND APPENDICES
The following exhibits are referenced in this Confidential Mediation Statement and are submitted separately under the same confidentiality protections:
Exhibit A: Master Services Agreement dated January 15, 2021 (MSA-PFH-2021-0015), by and between Lumos Analytics Inc. and Pinnacle Financial Holdings LLC, including all exhibits thereto, specifically Exhibit C (Service Level Agreement).