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MPAY Inc. v. Erie Custom Computer Applications, Inc.

United States District Court, D. Minnesota

May 14, 2019

MPAY Inc., Plaintiff,
Erie Custom Computer Applications, Inc., PayDay USA, Inc., Payroll World, Inc., Proliant, Inc., Proliant Technologies, Inc., and Kevin Clayton, Defendants.



         This matter is before the Court on Plaintiff's Motion for Preliminary Injunction. For the following reasons, the Motion is denied.


         The dispute in this case revolves around software source code for payroll systems. Twenty years ago, Plaintiff MPAY and many of the Defendant entities, all of whom are payroll processors, formed a limited liability company called OnePoint Solutions, LLC, to license a payroll software called Millenium from MPAY. The parties executed both a Member Control Agreement for OnePoint (Am. Compl. (Docket No. 17) Ex. 3) and a Software Development and License Agreement between MPAY and OnePoint (id. Ex. 4). Both Agreements gave OnePoint and its members the right to use MPAY's software. (Id. Ex. 3 § 5.1; Ex. 4 § 2(a).)

         The License Agreement also contemplated a “Phase II” of the parties' relationship, during which OnePoint could modify the software to develop “Enhanced Software Products.” (Id. §§ 2(e), 3.) As part of Phase II, MPAY agreed to convey any copyrights in the Enhanced Software Products to OnePoint. (Id. § 3(d).) Phase II was to begin less than two years after the parties entered into the License Agreement. Although only OnePoint is a Minnesota company, the member control agreement provides for venue in Minnesota. (Am. Compl. Ex. 3.) The License Agreement stipulates to jurisdiction and venue in Minnesota, and also has a Minnesota choice-of-law provision. (Id. Ex. 4.)

         According to MPAY, Defendants are breaching the terms of the Member Control Agreement by providing the software source code to other entities. According to Defendants, MPAY has continually breached its obligations under the License Agreement by failing to provide the complete source code to OnePoint for development of the enhanced products. MPAY's claims are based in copyright and trade secrets, but the copyrights on which it relies did not issue until March 2019, shortly before it filed this lawsuit.


         A. Personal Jurisdiction

         Defendants first challenge the Court's personal jurisdiction, contending that they do not have the requisite minimum contacts with Minnesota to make the exercise of jurisdiction over them proper.[1] After additional briefing on the issue, Defendant Proliant, Inc., no longer contests the exercise of jurisdiction over it. Although Proliant is a Nevada Corporation, it has a registered office in Minnesota. The remaining Defendants, however, continue to argue that they do not have sufficient contacts with Minnesota to warrant the exercise of jurisdiction.

         The Court can exercise personal jurisdiction over a nonresident defendant if (1) Minnesota's long-arm statute, Minn. Stat. § 543.19, is satisfied; and (2) the exercise of personal jurisdiction does not offend due process. Stanton v. St. Jude Med., Inc., 340 F.3d 690, 693 (8th Cir. 2003). Because Minnesota's long-arm statute extends the personal jurisdiction of Minnesota courts as far as due process allows, see e.g., In re Minn. Asbestos Litig., 552 N.W.2d 242, 246 (Minn.1996), the Court need only evaluate whether the exercise of personal jurisdiction comports with the requirements of due process. See Guinness Import Co. v. Mark VII Distribs., Inc., 153 F.3d 607, 614 (8th Cir. 1998).

         Due process requires that the defendant have “certain minimum contacts” with the forum state “such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.'” Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citation omitted). Sufficient minimum contacts exist when the “defendant's conduct and connection with the forum State are such that [it] should reasonably anticipate being haled into court there.” World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). There must be some act by which the defendant “purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” Hanson v. Denckla, 357 U.S. 235, 253 (1958). In contrast, contacts that are merely random, fortuitous, attenuated, or that are the result of “unilateral activity of another party or a third person” will not support personal jurisdiction. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985) (citation omitted).

         To determine the sufficiency of a defendant's conduct with the forum state, the Court examines five factors: (1) the nature and quality of the contacts; (2) the quantity of the contacts; (3) the relation between the contacts and the action; (4) the forum state's interest in the litigation; and (5) the convenience of the parties. Epps v. Stewart Info. Servs. Corp., 327 F.3d 642, 648 (8th Cir. 2003). The third factor distinguishes between general and specific jurisdiction. Wessels, Arnold & Henderson v. Nat'l Med. Waste, Inc., 65 F.3d 1427, 1432 & n.4 (8th Cir. 1995). General jurisdiction is present whenever a defendant's contacts with the forum state are so “continuous and systematic” that it may be sued in the forum over any controversy, independent of whether the cause of action has any relationship to the defendant's activities within the state. Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 416 (1984). Specific jurisdiction refers to jurisdiction over causes of action arising from or related to the defendant's actions within the forum state. Burger King, 471 U.S. at 472-73. The fourth and fifth factors are secondary to the analysis. Minn. Mining & Mfg. Co. v. Nippon Carbide Indus. Co., 63 F.3d 694, 697 (8th Cir. 1995). It is MPAY's burden to plead facts supporting “a reasonable inference that [Defendants] can be subjected to jurisdiction within the state.” Dever v. Hentzen Coatings, Inc., 380 F.3d 1070, 1072 (8th Cir. 2004). However, “[t]he evidentiary showing required at the prima facie stage is minimal.” Johnson v. Arden, 614 F.3d 785, 794 (8th Cir. 2010) (quotation omitted). And the Court views the evidence in the light most favorable to MPAY, resolving all factual conflict in MPAY's favor when determining whether MPAY has met its burden. K-V Pharm. Co. v. J. Uriach & CIA, S.A., 648 F.3d 588 592 (8th Cir. 2011) (citation omitted).

         MPAY argues that the exercise of specific jurisdiction is appropriate because Defendants are members of OnePoint, which consented to the jurisdiction of Minnesota courts in the License Agreement's forum-selection clause. MPAY further argues that specific jurisdiction lies because the Defendant entities are members, and Clayton is the manager, of a Minnesota LLC. MPAY also contends that the “totality of the circumstances” warrants the exercise of jurisdiction.[2]

         As an initial matter, it is clear that Clayton has sufficient contacts with Minnesota to support the exercise of at minimum specific, if not general, jurisdiction over him. Clayton is the manager of OnePoint, a Minnesota LLC, and is CEO of Proliant, Inc., which has a registered office in ...

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