United States District Court, D. Minnesota
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Walter Joseph Gates, III, ATTORNEY AT LAW, Mankato, MN; and William G. Osborne, WILLIAM G. OSBORNE, P.A., Orlando, FL, for plaintiff.
Jennifer S. Kingston and Robert F. Epperson, Jr., DOWD BENNETT LLP, St. Louis, MO; and Lucas Clayton, FABYANSKE, WESTRA, HART & THOMSON, PA, Minneapolis, MN, for defendants.
JOHN R. TUNHEIM, United States District Judge.
MEMORANDUM OPINION AND ORDER
This case arises out of a software development and license agreement between plaintiff Superior Edge, Inc. (" SEI" ) and defendant Monsanto Company (" Monsanto" ). Pursuant to the agreement, SEI was to develop software for Monsanto to assist in Monsanto's seed sales initiatives. Prior to entering into the agreement with SEI, Monsanto had entered into a separate agreement with defendant Site-Specific Technology Development Group, Inc. (" SST" ) to help Monsanto achieve other facets of its seed sales initiatives.
After SEI and Monsanto began working together, conflict ensued regarding the parties' obligations under the agreement. As the relationship between Monsanto and SEI deteriorated, Monsanto and SST began developing software with the capabilities initially assigned to be created by SEI pursuant to the software development agreement. The current dispute centers generally around work performed by SEI for Monsanto for which it allegedly was not compensated, ownership of the software in question, whether SEI's software embodied the contracted for capabilities, whether the software was delivered on time, and whether Monsanto's expectations for and compensation of SEI's work were in accordance with the agreement.
SEI brings claims for breach of contract, fraud, conversion, deceptive trade practices, misappropriation of trade secrets, and tortious interference against Monsanto and SST. Monsanto and SST move to dismiss the claims against them (with the exception of the breach of contract claim alleged against Monsanto). SEI has also filed a motion for preliminary injunction, seeking to enjoin Monsanto from compelling arbitration. For the reasons explained below, the Court will grant Monsanto's motion to dismiss and grant in part and deny in part SST's motion to dismiss. The Court will also deny SEI's motion for preliminary injunction.
I. THE RELATIONSHIP BETWEEN THE PARTIES
SEI is a software development business that specializes in creating customized computer-based marketing and sales software to meet the needs of its clients' particular businesses. (Compl. ¶ 1, 7, Oct. 19,
2012, Docket No. 1.) Monsanto produces and sells commercial farm seed products. ( Id. ¶ 2.)
In 2008, Monsanto began to focus on developing a greater share of North America's seed market. ( Id. ¶ 9.) To achieve this objective, Monsanto met with SEI to discuss possible software development that could improve Monsanto's customer service techniques and increase its sales. ( Id. ¶ ¶ 9-11.) Monsanto indicated that the primary goal of SEI's work would be to enable Monsanto's sales force to make effective seed recommendations at the point of sale. ( Id. ¶ 14.) That is, Monsanto wanted software that could obtain, organize, and present information about individual farmers and farms, such as ownership, size, crops, equipment used, and finances, that would allow the Monsanto sales representative to customize his or her sales pitch to the demands of the particular farmer. ( Id. ¶ 13.)
SEI intended to accomplish Monsanto's objectives using an application known as SalesEdge Accelerator (" SalesEdge" ). ( Id. ¶ 7.) SalesEdge is SEI's primary system for improving clients' sales and it " permits . . . users to create personalized sales proposals - sometimes printed in binder or booklet form - using data from a wide range of sources with the data being tailored to the specific industry, seller and purchaser." ( Id. ) SEI licensed certain intellectual property from the Spangenberg Group in March 2009 that was essential to SEI's use of SalesEdge. ( Id. ¶ 7, Ex. A.) SEI's licensing agreement with the Spangenberg Group granted SEI " an irrevocable, non-exclusive, non-transferable license." ( Id., Ex. A at 2.) Because SalesEdge was a key component of the software SEI proposed to develop for Monsanto, Monsanto was involved in the negotiations between SEI and the Spangenberg Group to acquire the necessary licensing. ( Id. ¶ 7.)
Prior to entering into a relationship with SEI, Monsanto had contracted with SST, another software development company that specializes in business development and sales software with applications for the agricultural industry. ( Id. ¶ 3.) SEI was aware of Monsanto's relationship with SST. ( Id., Ex. B at 45.)
II. THE AGREEMENT
On August 7, 2009, Monsanto and SEI executed a Software Development and License Agreement (" the Agreement" ) with an effective date of March 1, 2009. ( Id. ¶ 21, Ex. B.) The Agreement stated that " Monsanto desires to engage SEI to tailor and/or customize SEI's SalesEdge Accelerator software, develop new capabilities and provide services for the purpose of enhancing Monsanto's sales execution." ( Id., Ex. B at 11.) The Agreement contained a Development Plan
which include[d] initial requirements, specifications, features and functionalities of the Monsanto Premium Products, a general overview and timetable for development and implementation of the SEI Technology, schedules for deliverables, test protocols and procedures, development objectives, and assumptions regarding ongoing contributions and research activities.
( Id., Ex. B at 19.) The Development Plan, attached as Exhibit A to the Agreement, set forth in great detail the objectives of Monsanto's relationship with SEI and the parties' obligations. ( Id., Ex. B at 42-49.)
In particular, the Development Plan defined the deliverables - the proposed features and functionality of the Monsanto Premium Product - that SEI was responsible for developing. ( Id., Ex. B at 44-49.) For example, one deliverable required SEI's software to " provide the ability to segment [Monsanto's] grower market against a defined set of indexes," which would " provide Monsanto with the capability of identifying and scoring prospective purchasers of Monsanto products." ( Id., Ex. B at 44.) For each deliverable, the Development Plan set forth the timeline for SEI to meet different milestones and also provided the metrics for measuring the adequacy of the deliverable. ( Id., Ex. B at 44-49.) Of relevance to the instant motions, SEI agreed to deliver " Grower Solutions" that would enable the sales person to generate a form that combined product and service recommendations, prepared quotes for those products and services, and " [p]roduce[d] a highly professional, branded document tailored for a customer/prospect." ( Id., Ex. B at 44.)
The Agreement allowed for the potential modification of the Development Plan during the Development Period by a Development Management Team, comprised of three Monsanto and three SEI representatives, stating:
From time to time during the Development Period, the Development Management Team shall review the Development Plan then in effect, and may make changes to the Development Plan as reasonably necessary to ensure that development objectives are appropriate and are achievable within the desired timeframes, or to incorporate any amendment to the development objectives that is proposed by Monsanto or SEI and approved [by the Development Management Team.]
( Id., Ex. B at 19-20.) The Agreement provided that the Development Management Team would meet at least quarterly and could alter the Development Plan only by unanimous vote. ( Id., Ex. B at 20-21.) The Development Plan was intended to be managed through an " agile methodology." ( Id., Ex. B at 42.) Under the agile methodology, although the requirements of SEI's work were defined within the Development Plan it was " understood that they are general in nature. As the project moves through its various phases it is understood that a variety of factors will impact the project. The Agile methodology puts a process in place to adjust and adapt to these factors. . . . With the Agile approach priorities and deliverables are refined and adjusted as discoveries are made during the project." ( Id. )
Pursuant to the Agreement, SEI granted certain rights to Monsanto with respect to SalesEdge and related intellectual property. ( Id., Ex. B at 11.) Specifically, SEI granted Monsanto an exclusive license for all software developed and improved by SEI with applications to, among other areas, Monsanto's seed production recommendations. ( Id., Ex. B at 15, 21-22.) Additionally, the Agreement provided that " [r]egardless of inventorship, any Intellectual Property associated with the Monsanto Premium Products . . . that is developed under this Agreement will be assigned to Monsanto. . . . SEI will be entitled to receive a limited, royalty-free license to use the Intellectual Property associated with the Monsanto Premium Products." ( Id., Ex. B at 25.)
The Agreement provided for three types of compensation: exclusivity payments, development fees, and user fees. ( Id. ¶ ¶ 23-25, 27-29.) Monsanto agreed to pay SEI an exclusivity fee of approximately $1 million per year until September 1, 2012, in consideration for the exclusive licenses granted by SEI. ( Id., Ex. B at 23-24.) The development fees were " [i]n consideration of SEI's services under the Development Plan," whereby Monsanto agreed " to pay SEI for time and material costs incurred during the Development Period." ( Id., Ex. B at 24.) The Agreement called for Monsanto to pay SEI an initial $500,000 development fee upon the execution of the Agreement and an additional $500,000 on September 15, 2009. ( Id. ) After Monsanto had paid the first $1 million in development fees, the Agreement provided that " SEI shall submit invoices on a monthly basis evidencing line item detail for time and materials costs for the development during the period up to August 31, 2010. . . . [C]umulative payments to SEI from Monsanto shall not exceed One Million, Five Hundred Thousand Dollars (U.S. $1,500,000) for Development Fees in the period through August 31, 2010." ( Id. ) After September 1, 2010, Monsanto was to pay SEI monthly development fees " upon receipt and acceptance of an invoice evidencing line item detail of costs from SEI by Monsanto." ( Id. ) Development fees after September 1, 2010, were not to exceed $1 million in any fiscal year. ( Id. ) Finally, Monsanto was responsible for a monthly user fee that was based upon the number of authorized users of SEI's software. ( Id., Ex. B at 24, 50.)
The Agreement contained multiple bases for its termination. First, either party could terminate the Agreement (with the exception of, among other sections, the assignment of intellectual property rights and confidentiality provisions)
in the event the other party has (a) breached a provision of this Agreement and such breach has materially affected the non-breaching party's ability to obtain the rights or benefits accruing to the non-breaching party under this Agreement, or (b) defaulted in the performance of any of its obligations hereunder, and, in each instance, such default has continued past the applicable cure period after notice thereof was provided . . . .
( Id., Ex. B at 34.) The Agreement also allowed Monsanto to terminate the Development Period upon " at least one hundred and twenty (120) days prior written notice if SEI fails to complete any of the Development Milestones." ( Id., Ex. B at 19-20.)
Finally, with respect to litigation, the Agreement provided that Missouri law would govern " any dispute arising from the performance or breach" of the Agreement. ( Id., Ex. B at 38.) The Agreement also contained an arbitration clause, providing that " [a]ny dispute under this Agreement that is not settled by mutual consent shall be finally settled by binding arbitration." ( Id., Ex. B at 35, 55-57.)
III. BATCH PRODUCTION
In 2009 and 2010, SEI's development team devoted substantial time and effort to the Monsanto project. ( Id. ¶ 33.) SEI conducted at least eleven software demonstrations for Monsanto personnel, tailored SalesEdge to perform advanced seed selection application, provided Monsanto with access to the software as it developed, and attended meetings with the Development Management Team and Monsanto staff. ( Id. )
In 2010, SEI approached Monsanto with ideas to enhance the quality of Monsanto's sales proposals, and provided Monsanto with several prototypes. ( Id. ¶ 39.) Monsanto approved of one of the sales proposal
prototypes which eventually became known as IntelliScans. ( Id. ¶ 40.) IntelliScans are individualized sales proposal booklets that are given to potential Monsanto customers and contain information about the customer's farm and seed product needs. SEI intended to develop web-based software that would allow Monsanto salespeople to generate, print, and ship IntelliScans in the field, but had not developed this capability when it presented the prototypes to Monsanto. ( Id. ¶ 41.) A Monsanto executive, however, requested immediate, large-scale production of IntelliScans. ( Id. ¶ 40.)
To accommodate Monsanto's request for the production of IntelliScans, SEI came up with a " batch" or " interim" solution. ( Id. ¶ 42.) This solution was " a centralized, batch method for producing, printing, and shipping the documents that could be used in the interim until the web application was launched." ( Id. ) SEI entered data compiled by SST and Monsanto into the IntelliScans, then printed and shipped the forms to Monsanto employees who in turn provided them to dealers and farmers. ( Id. ) The batch processing solution " was intended to be a temporary solution to help support Monsanto's desire to obtain as many IntelliScans as soon as possible and thereby maximize the impact on sales. Both parties understood that the batch method was not the end game." ( Id. ¶ 43.) Monsanto " never expressed or implied that [it] expected that SEI would perform such work without additional compensation or for no compensation." ( Id. ¶ 40.)
During 2010 and 2011 SEI produced a total of 2,771 IntelliScans. ( Id. ¶ 44.) SEI paid for the printing and distribution costs of the IntelliScans after Monsanto refused to do so. ( Id. ) SEI incurred over $1.5 million in costs related to the IntelliScans, including costs for the time of its personnel " that were devoted to developing, auditing, reporting[,] testing[,] and other work." ( Id. )
During this time period, Monsanto insisted that SEI describe its technology and methods to SST. ( Id. ¶ 47.) Monsanto also requested SEI's source code, which SEI refused to provide. ( Id. ) Instead, SEI offered to allow Monsanto representatives to examine the source code at SEI headquarters, which Monsanto declined to do. ( Id. )
IV. FURTHER DEVELOPMENT OF SALESEDGE
In February 2011 SEI met with Monsanto and demonstrated the capabilities of the SalesEdge software with respect to seed selection and IntelliScan creation. ( Id. ¶ 49.) A Monsanto executive indicated that he was " extremely impressed with SEI's software." ( Id. ) On April 19, 2011, SEI and Monsanto held a regular monthly Development Management Team meeting. ( Id. ¶ 51.) The parties discussed user acceptance testing, essentially final criteria that would be used to assess whether SalesEdge was ready for launch to Monsanto salespeople. ( Id. ) Because Monsanto wanted to launch the SalesEdge pilot at the June 2011 sales meeting, SEI indicated that user acceptance testing would need to begin by May 16. ( Id. ) At the meeting the parties also discussed the need to revise the Development Plan to bring its objectives into conformity with the actual current development. ( Id. )
That same day, an SEI representative met with a Monsanto executive to discuss issues with the Agreement's fee structure. ( Id. ¶ 52.) Specifically, the SEI representative indicated that because SEI had only received an exclusivity fee, it was essentially subsidizing the development of software for Monsanto. ( Id. ) The Monsanto executive indicated the he would consider
shifting money from exclusivity to development to address SEI's concerns. ( Id. )
In April and May 2011, SEI repeatedly requested final criteria for user acceptance testing from Monsanto. ( Id. ¶ 53.) Monsanto did not respond to SEI's requests and also did not respond to SEI's circulation of its own set of final criteria. ( Id. )
During the same time period, SEI again expressed concerns about the fee structure. ( Id. ¶ 58.) Despite the dispute over fees, SEI continued to develop SalesEdge for launch at the June meeting, and received " overwhelmingly positive feedback" from Monsanto. ( Id. ¶ ¶ 54, 59.) Based on this feedback, SEI believed SalesEdge was acceptable to Monsanto. ( Id. ¶ 55.) In May, however, one Monsanto executive claimed to have experienced a hardware issue while running SalesEdge, which resulted in the executive seeing only a blue screen on her computer. ( Id. ¶ ¶ 56-57.) SEI spent $20,000 devising a solution to the blue screen problem, and Monsanto never again complained of that issue. ( Id. ¶ 57.) SEI twice demonstrated SalesEdge at user acceptance training sessions, and continued to provide Monsanto with access to updated versions of the software. ( Id. ¶ 59.)
Monsanto decided not to launch the SalesEdge software at the June 2011 sales meeting and did not inform SEI when the meeting would occur. ( Id. ¶ 60.) Monsanto indicated that its reason for not launching the software was the blue screen issue. ( Id. ¶ 61.) Instead, Monsanto appeared to be moving forward with software claimed to be developed by SST. ( Id. ¶ 62.) In May 2011, SST published a statement and distributed written materials to the general public and the agriculture industry indicating that IntelliScan and IntelliSeed software had been created through the joint efforts of Monsanto and SST. ( Id. )
V. TERMINATION OF THE AGREEMENT
In June and July of 2011, in response to SEI's continuing issues with fees, Monsanto indicated that it believed Development Fees were subject to a yearly cap under the Agreement and that User Fees were also limited. ( Id. ¶ 62.) Monsanto also denied any obligation to pay SEI for costs incurred during batch processing. ( Id. ) In response, SEI provided Monsanto with a chart ...