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CRM 365 Merge record problem - duplicate record

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We just upgraded to CRM 365 on-Premise version 9. When attempting to merge two contact records I get a "Duplicate Record" error saying "A record with these values already exists. A duplicate record cannot be created. Select one or more unique values and try again."

This happened on some pairs of the records but not others. I have not found a pattern yet. It can happen to two totally unrelated records (without duplicates, active or inactive). Also we dont have any customized plugin installed on contact entity. No duplicate detect rule neither. 

Is this a bug or am I missing something.  Any help would be appreciated.

Thanks

Holly Li


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