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International Decision Systems, Inc. v. JDR Solutions, Inc.

United States District Court, D. Minnesota

May 7, 2019

International Decision Systems, Inc., Plaintiff,
v.
JDR Solutions, Inc., Defendant.

          Peter H. Walsh and Matthew J. Piehl, Hogan Lovells U.S. LLP, Minneapolis, MN; and Daniel D. Zegura, Rogers & Hardin LLP, Atlanta, GA, for plaintiff International Decision Systems, Inc.

          A. Richard M. Blaiklock, Michael D. Heavilon, and Aaron Grant, Lewis Wagner, LLP, Indianapolis, IN; and Stanley E. Siegel and David J. Warden, Nilan Johnson Lewis PA, Minneapolis, MN, for defendant JDR Solutions, Inc.

          OPINION AND ORDER

          ERIC C. TOSTRUD UNITED STATES DISTRICT COURT JUDGE.

         International Decision Systems and JDR Solutions entered into a contract effective February 1, 2007. In October 2018, International commenced this diversity case under Minnesota law alleging that-from the contract's inception and continuing to the present- JDR has failed to pay commissions and provide reports as required by the contract. International seeks over $3.2 million in damages and declaratory relief. JDR has moved to dismiss International's complaint under Federal Rule of Civil Procedure (“Rule”) 12(b)(6) contending that Minnesota's six-year breach-of-contract statute of limitations bars International's claims. International's complaint establishes that some of International's claims are timely and that others accrued more than six years before International commenced this suit. As a result, JDR's motion to dismiss will be granted in part. The dismissal will be without prejudice to International's right to seek leave to amend its complaint in accordance with the Pretrial Scheduling Order issued in this case and any amendments to that Order.

         I[1]

         International and JDR pursue overlapping business activities and are of diverse citizenship. International describes itself as “a global provider of asset finance origination and portfolio management software and related services.” Compl. ¶ 2 [ECF No. 1]. International's customers include financial institutions and equipment manufacturers who use International's software and services “to automate the asset finance origination process, as well as manage the associated accounting, administration and compliance requirements of an asset finance portfolio.” Id. International is incorporated under Delaware law and maintains its principal place of business in Minneapolis. Id. ¶ 3. According to International, “JDR resells certain [International] software and provides professional services to [International's] customers” under the contract at issue in this case. Id. ¶ 4. JDR is incorporated under Indiana law and maintains its principal place of business in Indianapolis. Id. ¶ 6.

         International and JDR entered into a contract effective February 1, 2007. Id. ¶¶ 9- 10. Though the contract has several parts and seems potentially complex, see id., four of the contract's terms provide the core legal basis for International's claims in this case, and these terms seem relatively straightforward. First, the contract authorizes JDR “to use and resell” International's software and “to provide specified services to [International's] customers.” Id. ¶ 11. Second, the contract requires JDR “to pay [International] a monthly commission equal to twenty-five percent (25%) of the received charges” for services provided to International's customers. Id. ¶ 13. The payment of any commissions owed by JDR is “due on the first day of each month for the applicable charges received by [JDR] from the [International] Customer during the prior month.” Id.[2] Third, the contract requires JDR to provide International with “a quarterly report no less than thirty days after the end of each quarter setting forth the amount of JDR's Professional Services sold, amounts collected and the amounts remitted to [International].” Id. ¶ 18. Fourth, the contract requires the Parties to “keep accounts and records in sufficient detail and containing such information as is necessary to enable fees due hereunder to be calculated” and provides each of them the right to audit the other's “accounts and records” subject to several conditions. Id. ¶ 20.

         The factual basis for International's claims arises from its exercise of its contractual right to audit JDR's accounts and records. In April 2017, approximately ten years after entering into the contract, International notified JDR that it “wished to conduct an audit of JDR's accounting records to determine whether the monthly commissions mandated by [the contract] had been properly paid to [International].” Id. ¶ 21. “After JDR delayed the audit process for more than two months, ” International retained an accounting firm in June 2017 to conduct the audit. Id. ¶ 22. “After additional delays caused by JDR, the audit process finally began on September 8, 2017.” Id. ¶ 23. International alleges that the audit process showed that “JDR had not sufficiently maintained” accounts and records “to allow for ready calculation of commissions owed, ” and that JDR's failure to maintain sufficient records “greatly increased the complexity and cost of [the] audit.” Id. ¶ 24. International received a report of the audit from its retained accountants dated March 23, 2018. Id. ¶ 25. International's accountants determined that JDR had been paid at least $13, 063, 482 “through and including June 30, 2017, ” for services subject to the contract's 25% commission requirement, meaning “JDR therefore owes [International] commissions of at least $3, 265, 870” for services it provided to International's customers under the contract. Id. ¶¶ 26-27.

         International asserts three claims in its complaint. It alleges that JDR breached the contract by failing to pay commissions, failing to maintain adequate accounts and records, and failing to provide quarterly commission reports. Id. ¶¶ 32-39 (Count I). It seeks a judgment under Minnesota's Uniform Declaratory Judgments Act, Minn. Stat. § 555.01 et seq., declaring the Parties' rights and obligations under the contract. Id. ¶¶ 40-46 (Count II). Specifically, International seeks declarations that the contract is “valid and enforceable under Minnesota law, ” that JDR is obligated to pay commissions under the contract, and “that JDR breached its obligations under the [contract] by refusing to pay commissions.” Id. ¶¶ 44-46. Finally, International alleges that JDR's failure to pay commissions breached a duty of good faith and fair dealing implied in the contract under Minnesota law. Id. ¶¶ 47-50 (Count III).

         JDR responded to International's complaint with a motion to dismiss under Rule 12(b)(6). ECF No. 15. JDR contends that, as pleaded, all of International's claims “accrued more than a decade ago” and that, as a result, the claims are barred by Minnesota's six-year breach-of-contract limitations period. Mem. in Supp. at 2 [ECF No. 17].

         II[3]

         A

         “As this action is in federal court based on diversity of citizenship, state law governs substantive law issues.” Paine v. Jefferson Nat'l Life Ins. Co., 594 F.3d 989, 992 (8th Cir. 2010) (citation omitted); see also Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). The Parties agree that Minnesota law governs here. Though the basis for this understanding is not identified in International's complaint or the Parties' briefs, it can be found in a document that JDR filed as part of its motion to supplement the record with the audit report prepared by International's accountants. ECF No. 36. The audit report includes a copy of a part of the Parties' contract entitled “Attachment No. 1 to the Master Software License, Value Added Reseller, Application Service Provider and Maintenance and Services Agreement.” Mem. in Supp. of Mot. to Suppl. Ex. A [ECF No. 37 at 13-28]. And Paragraph 14.5 of that document provides:

Governing Law. This Master Agreement shall be deemed to be made in the State of Minnesota and shall in all respects be interpreted, construed, and governed by and in accordance with the laws of the State of Minnesota, specifically excluding any conflict of law provisions. The parties expressly reject the application of the United ...

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