QSG v. Schlittler et al
Filing
49
ORDER AND MEMORANDUM DECISION granting 27 Motion to Dismiss for Lack of Jurisdiction; granting 27 Motion for Judgment on the Pleadings; granting 29 Motion to Dismiss Dana Schlittler's and eClaimVision's Counterclaims for Declaratory Judgment. Signed by Judge Tena Campbell on 4/26/12 (alt)
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
QSG, INC.,
Plaintiff,
ORDER
AND
vs.
MEMORANDUM DECISION
DANA SCHLITTLER, an individual;
ECLAIMVISION, LLC, a Minnesota limited
liability company; MIKHAIL OPLETAYEV,
an individual; VIKTOR POTERYAHKHIN,
an individual; ST. CROIX REGIONAL
MEDICAL CENTER, a Wisconsin
corporation; and JOHN TREMBLE, an
individual,
Case No. 2:11-CV-871-TC
Defendant.
Pending before the court in this computer software copyright infringement case are
(1) Defendant eClaimVision, LLC’s motion to dismiss for lack of personal jurisdiction or, in the
alternative, for judgment on the pleadings under Federal Rule of Civil Procedure 12(c);1 and (2)
Plaintiff QSG, Inc.’s motion to dismiss Defendants eClaimVision and Dana Schlittler’s
counterclaims for declaratory judgment.2 Having determined that oral argument is not necessary,
the court decides the motions on the briefs and supporting documentation. For the reasons set
1
See ECF No. 27. Because eClaim Vision filed its answer to the complaint before filing
its motion to dismiss the complaint under Rule 12(b)(6), the court converted the motion for
judgment on the pleadings under Rule 12(c).
2
ECF No. 29.
forth below, eClaimVision’s motion to dismiss is GRANTED, and QSG’s motion to dismiss the
first two counterclaims is GRANTED.
BACKGROUND3
Plaintiff QSG, Inc. develops and sells software services to the healthcare industry. QSG
developed, and owns the copyright to, a computer software program called “ExecQview.” In
September 2011, QSG filed a complaint against numerous Defendants, including Dana Schlittler
and eClaimVision, LLC, alleging seven causes of action, including copyright infringement,
breach of fiduciary duty, trade secret misappropriation, and breach of contract.
QSG alleges that Co-Defendants Dana Schlittler (former President and CEO of QSG),
Mikhail Opletayev and Viktor Poteryahkhin (both former employees of QSG) misappropriated
QSG technology and developed a “knock-off” software product called “eClaimVision” to
compete with QSG’s ExecQview. (Compl. ¶ 1.) On August 27, 2010, Mr. Schlittler formed and
registered Defendant eClaimVision, LLC, as a Minnesota limited liability company, to compete
with QSG by providing software services to the healthcare industry through the eClaimVision
software. The registration of eClaimVision occurred approximately three weeks after QSG
terminated Mr. Schlittler’s employment.
On August 16, 2011, QSG filed a copyright registration application for the ExecQview
software. A month later, on September 16, 2011, QSG filed this suit.
On November 7, 2011 eClaimVision and Mr. Schlittler filed an Answer to the Complaint
and Counterclaims, including two claims for declaratory judgment. In the Answer, eClaimVision
3
The facts are taken from the docket, QSG’s Complaint (ECF No. 2), and Dana
Schlittler’s Declaration attached to eClaimVision’s memorandum in support of dismissal.
2
and Mr. Schlittler responded to QSG’s allegation of personal jurisdiction:
Mr. Schlittler and eClaimVision admit that this Court has personal jurisdiction
over Mr. Schlittler. Mr. Schlittler and eClaimVision deny that this Court has
personal jurisdiction over eClaimVision, LLC and reserve the right to contest
personal jurisdiction.
(eClaimVision Answer & Counterclaim (ECF No. 25) ¶ 13 (emphasis added).) In the first two
counterclaims, eClaimVision and Mr. Schlittler seek a declaratory judgment that there was no
infringement of copyright or misappropriation of a trade secret.
Eight days after filing its Answer and Counterclaim, eClaimVision filed a motion to
dismiss for lack of personal jurisdiction and for failure to state a claim. (ECF No. 27.)
On November 28, 2011, QSG filed a Motion to Dismiss eClaimVision and Dana
Schlittler’s counterclaims for declaratory judgment. (ECF No. 29.)
Both of the motions to dismiss are now before the court for resolution.
ANALYSIS
A close review of the parties’ pleadings reveals three issues the court must resolve.4
First, did eClaimVision waive its lack of personal jurisdiction defense by (a) filing an answer one
week before filing its motion to dismiss for lack of personal jurisdiction; or (b) reserving its right
to challenge personal jurisdiction in its Answer while, in the same document, bringing a
counterclaim on the merits? Second, if there was no waiver, does the court lack personal
4
The issues are addressed in a somewhat piecemeal fashion throughout the parties’
pleadings. For a complete picture, the court reviewed not only the pleadings related to the two
pending motions but also the pleadings relating to QSG’s Motion to Strike Defendant
eClaimVision’s Motion to Dismiss for Lack of Personal Jurisdiction and Failure to State a Claim
(ECF No. 31). For example, although the Motion to Strike was denied by the court (see Mar. 2,
2012 Order (ECF No. 44)), the motion raised and addressed the waiver issue, which is still
pending before the court. (See id. at 1 (deferring waiver issue).)
3
jurisdiction over eClaimVision?5 Third, do the first two counterclaims fail to state a cause of
action under Rule 12(b)(6) of the Federal Rules of Civil Procedure?
For the reasons set forth below, the court holds that eClaimVision did not waive its
defense of lack of personal jurisdiction, and that the court lacks personal jurisdiction over
eClaimVision. Furthermore, given the lack of opposition to the dismissal of the first and second
counterclaims in the event the court lacks personal jurisdiction over eClaimVision, those two
counterclaims are dismissed.
1.
Waiver
a.
Timing of Waiver
The court must address the threshold question raised by QSG6 of whether eClaimVision
waived its Rule 12(b)(2) defense of lack of personal jurisdiction when it filed its answer one
week before filing its motion to dismiss.
QSG contends that “[i]f a party wishes to challenge personal jurisdiction under Rule
12(b)(2), that defense should be asserted in a motion prior to [filing] any responsive pleading”
(i.e., before filing an answer). (ECF No. 32 at 2 (emphasis added).) According to QSG,
eClaimVision’s statement in its Answer that it reserved the right to challenge personal
jurisdiction (see Paragraph 13 of the Answer) had no effect because eClaimVision did not file a
motion to dismiss before then and it fully responded to each of the allegations in QSG’s
Complaint.
5
Because the court does not have personal jurisdiction over eClaimVision, the issue of
whether QSG’s complaint states a valid claim against eClaimVision is moot.
6
QSG raised the issue on page two of its Motion to Strike (ECF No. 32).
4
QSG misstates the rule. The Federal Rules of Civil Procedure provide that “[e]very
defense to a claim for relief in any pleading must be asserted in a responsive pleading if one is
required. But a party may assert the following defenses by motion: . . . (2) lack of personal
jurisdiction[.]” Fed. R. Civ. P. 12(b)(2). A party waives the defense of lack of personal
jurisdiction by “by failing to either (i) make it by motion under this rule; or (ii) include it in a
responsive pleading . . . .” Fed. R. Civ. P. 12(h)(1) (emphasis added). (See also eClaimVision’s
Mem. Opp’n Mot. Strike (ECF No. 35) at 3-4 (noting that Rule 12(h) allows a defendant to raise
the defense of no personal jurisdiction in a responsive pleading).)
By raising its personal jurisdiction defense for the first time in its Answer, eClaimVision
preserved the defense.
b.
Effect of Simultaneously Filing Counterclaim
The second issue is whether eClaimVision waived its defense of lack of personal
jurisdiction by raising the defense in its Answer while simultaneously bringing counterclaims for
declaratory judgment of non-infringement of copyright and no violation of the Utah Trade
Secrets Act. The court holds that there was no waiver.
The Tenth Circuit follows the rule that “by filing a compulsory counterclaim a party does
not waive Rule 12(b) objections.” Campbell v. Bartlett, 975 F.2d 1569, 1574 n.8 (10th Cir.
1992) (quoting 5A Charles A. Wright & Arthur R. Miller, Fed. Practice & Procedure § 1397
(1990) (“trend in more recent cases is to hold that no Rule 12(b) defense is waived by the
assertion of a counterclaim, whether permissive or compulsory”).) See also Rates Tech. Inc. v.
Nortel Networks Corp., 399 F.3d 1302, 1308 (Fed. Cir. 2005) (“We hold that filing a
counterclaim, compulsory or permissive, cannot waive a party’s objections to personal
5
jurisdiction, so long as the requirements of Rule 12(h)(1) are satisfied.”). A compulsory
counterclaim “arises out of the transaction or occurrence that is the subject matter of the
opposing party’s claim[,] and does not require adding another party over whom the court cannot
acquire jurisdiction.” Fed. R. Civ. P. 13(a)(1).
The first two counterclaims, which both Mr. Schlittler and eClaimVision assert, are
“Declaratory Judgment of Non-Infringement of Copyright” and “Declaratory Judgment
Specifying No Violation of the Utah Uniform Trade Secrets Act.” (The third counterclaim is
brought only by Mr. Schlittler.) Both of these counterclaims arise out of the same subject matter
in QSG’s complaint. They are compulsory. See also, e.g., Polymer Industrial Products Co. v.
Bridgestone/Firestone, Inc., 347 F.3d 935, 938 (Fed. Cir. 2003) (holding that “Rule 13(a) makes
an infringement counterclaim to a declaratory judgment action for noninfringement
compulsory.”); J. Lyons & Co. Ltd. v. The Republic of Tea, Inc., 892 F. Supp. 486, 490
(S.D.N.Y. 1995) (holding that declaratory judgment action for non-infringement of trademark
arose out of same transaction or occurrence that was the subject of a declaratory judgment action
alleging trademark infringement). Accordingly, eClaimVision did not waive its defense of lack
of personal jurisdiction when it asserted its counterclaims in the same pleading.
Because under either scenario the court finds that eClaimVision did not waive its lack of
personal jurisdiction defense, the court will address whether the court has personal jurisdiction
over eClaimVision.
2.
Personal Jurisdiction
QSG summarily asserts in its complaint that this court has personal jurisdiction over
eClaimVision, an out-of-state defendant. QSG, the plaintiff, has the burden to establish such
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personal jurisdiction in light of eClaimVision’s contention that the court has neither general nor
specific personal jurisdiction over eClaimVision. Far West Capital, Inc. v. Towne, 46 F.3d 1071,
1075 (10th Cir. 1995). Despite the fact that QSG has the burden, QSG did not respond to the
12(b)(2) motion to dismiss.7 Nevertheless, the court reviews the record as it stands (i.e., the
undisputed factual allegations in the complaint and the facts established by eClaimVision’s
evidence, neither of which contradict each other) to determine, on the merits, whether the court
has personal jurisdiction over eClaimVision.
The court may exercise personal jurisdiction over an out-of-state resident when the
plaintiff establishes that jurisdiction is proper under Utah’s long-arm statute and that exercising
jurisdiction would not offend the due process clause of the Fourteenth Amendment. Soma Med.
Int’l v. Standard Chartered Bank, 196 F.3d 1292, 1295 (10th Cir. 1999). Utah’s long-arm statute
provides, in relevant part, that:
any person or personal representative of the person, whether or not a citizen or
resident of this state, who, in person or through an agent, does any of the
following enumerated acts is subject to the jurisdiction of the courts of this state
as to any claim arising out of or related to:
(1)
(2)
(3)
the transaction of any business within this state;
contracting to supply services or goods in this state; [or]
the causing of any injury within this state whether tortious or by breach of
warranty . . .
Utah Code Ann. § 78B-3-205 (2012). The Utah long-arm statute is co-extensive with due
process, see Utah Code Ann. § 78B-3-201 (long-arm provision extends “to the fullest extent
7
Although QSG responds to eClaimVision’s contention that the complaint must be
dismissed under Rule 12(b)(6) for failure to state a claim upon which relief may be granted,
QSG’s response is minimal, is contained in a document unrelated to the motion to dismiss, and
does not address standards or arguments under 12(b)(2). (See QSG’s Reply in Support of Mot.
to Strike (ECF No. 41) at 3-4.)
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permitted by the due process clause”), so the court focuses its general jurisdiction analysis on
whether the defendant has certain minimum contacts with the forum such that maintaining the
suit against the non-resident defendant would “not offend traditional notions of fair play and
substantial justice.” International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
Alternatively, the court may find specific jurisdiction if the controversy “is related to or
‘arises out of’ a defendant’s contacts with the forum.” Helicopteros Nacionales de Colombia,
S.A. v. Hall, 466 U.S. 408, 414 (1984). Such an analysis focuses on the “relationship among the
defendant, the forum, and the litigation.” Id.
a.
General Jurisdiction
The court may exercise general jurisdiction over an out-of-state defendant where the
defendant’s contacts are “continuous and systematic” such that it could reasonably foresee being
brought into court in that state on any matter. Id. at 414-16.
The undisputed record supports eClaimVision’s contention that it does not conduct
continuous, systematic, or substantial local activity in Utah. eClaimVision is a Minnesota
corporation with its headquarters in Minnesota. eClaimVision lacks any other contacts with the
forum: no property in Utah; no mailing address in Utah; no phone number in Utah; no bank
accounts in Utah; no stores in Utah; no business operations in Utah; no office in Utah; no sales
force residing in Utah; no employees in Utah; no warehouse of product in Utah; and no
ownership control of any other company, entity, licensee or distributor selling product in or into
Utah. (See Decl. of Dana Schlittler (ECF No. 28-1).)
While eClaimVision maintains a website, the website is passive. The most interactive
feature of the website is a page that allows a visitor to provide eClaimVision with contact
8
information by using a “Contact Us” form. No one from Utah has ever attempted to contact
eClaimVision through the “Contact Us” form. (Id. ¶ 3.)
In view of the non-existent contacts with Utah, eClaimVision does not possess the
requisite continuous and systematic general business contacts in Utah required for this court to
exercise general jurisdiction over eClaimVision.
b.
Specific Jurisdiction
To determine whether specific jurisdiction exists, the court must analyze two factors:
whether there is a sufficient nexus between the plaintiff’s claims and the defendant’s acts or
contacts; and whether the application of the long-arm statute satisfies the requirements of federal
due process. Soma Med. Int’l v. Standard Chartered Bank, 196 F.3d 1292, 1298 (10th Cir.
1999).
Here, QSG has not established a sufficient nexus between QSG’s claims and
eClaimVisions contacts or acts. The complaint, read in a light most favorable to QSG, does not
establish any contact to Utah other than an injury suffered by QSG, a Utah corporation.
eClaimVision’s relevant acts (to the extent any are even alleged in the complaint, which is vague
and conclusory when it comes to allegations against eClaimVision) were not specifically directed
at Utah or QSG.
Although QSG alleges that it has been injured by eClaimVision’s alleged use and sale of
QSG’s copyrighted software and misappropriated trade secrets, such injury by itself is not
enough to establish the minimum contacts necessary for this court to exercise personal
jurisdiction over eClaimVision. See, e.g., Far West Capital , Inc. v. Towne, 46 F.3d 1071, 1079
(10th Cir. 1995) (“The mere allegation that an out-of-state defendant has tortiously interfered
9
with contractual rights or has committed other business torts that have allegedly injured a forum
resident does not necessarily establish that the defendant possesses the constitutionally required
minimum contacts.”); Patriot Sys., Inc. v. C-Cubed Corp., 21 F. Supp. 2d 1318, 1321 (D. Utah
1998) (holding that allegation of copyright infringement and trade secret misappropriation
against out-of-state defendant, when the events related to the defendant occurred outside the
state, is not enough to confer personal jurisdiction); Envirotech Pumpsystems, Inc. v. Sterling
Fluid Systems (Schweiz) AG, 2000 WL 35459756, Case No. 2:99-CV-814-DK (D. Utah 2000)
(allegation of patent infringement is not sufficient to confer specific jurisdiction when defendant
has not purposefully directed any activities related to the allegations of patent infringement at
Utah). The entity eClaimVision did not even exist until after the vast majority of the alleged acts
occurred. While, according to the complaint, eClaimVision competes against QSG using
infringing software, such competition is not specifically directed at Utah.
Given such attenuated connections between eClaimVision and Utah, the court finds that it
would offend due process to exercise personal jurisdiction over eClaimVision in this case.
Accordingly, the motion to dismiss for lack of personal jurisdiction is GRANTED. The 12(b)(6)
motion to dismiss for failure to state a claim upon which relief may be granted is DENIED AS
MOOT.
3.
Dismissal of First and Second Counterclaims
QSG filed a Motion to Dismiss Dana Schlittler’s and eClaimVision, LLC’s
Counterclaims for Declaratory Judgment. (ECF No. 29.) In the opposition memorandum, both
Defendants state that, “in the event that this Court finds that it lacks personal jurisdiction over
eClaimVision . . . and the declaratory judgment counterclaims become identical in scope to
10
QSG’s claims of copyright infringement and trade secret misappropriation, Mr. Schlittler and
eClaimVision do not oppose dismissal of the counterclaims.” (Mem. Opp’n (ECF No. 40) at 5.)
Because the court does not have personal jurisdiction over eClaimVision, and based on Mr.
Schlittler’s non-opposition to dismissal in light of such a ruling, the First Counterclaim
(Declaratory Judgment of Non-Infringement of Copyright) and the Second Counterclaim
(Declaratory Judgment Specifying No Violation of the Utah Uniform Trade Secrets Act) are
hereby DISMISSED.
ORDER
For the foregoing reasons, eClaimVision, LLC’s Motion to Dismiss for Lack of Personal
Jurisdiction and Failure to State a Claim (ECF No. 27) is GRANTED. QSG’s Motion to Dismiss
Dana Schlittler’s and eClaimVision, LLC’s Counterclaims for Declaratory Judgment (ECF No.
29) is GRANTED.
SO ORDERED this 26th day of April, 2012.
BY THE COURT:
TENA CAMPBELL
U.S. District Court Judge
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