Click Boarding LLC v. SmartRecruiters, Inc., Case No. 21-CV-210 (NEB/BRT)
| Decision Date | 10 May 2021 |
| Docket Number | Case No. 21-CV-210 (NEB/BRT) |
| Parties | CLICK BOARDING LLC, Plaintiff, v. SMARTRECRUITERS, INC., Defendant. |
| Court | U.S. District Court — District of Minnesota |
Click Boarding LLC sued SmartRecruiters, Inc., alleging that SmartRecruiters was violating a contract in which SmartRecruiters promised to resell Click Boarding's products. Click Boarding moved for a preliminary injunction, which the Court denied. (ECF No. 80 ("PI Order").) After Click Boarding's motion, but before the Court's ruling, SmartRecruiters informed Click Boarding that, in its view, Click Boarding had materially breached the parties' agreement and that, absent cure, it would terminate the agreement for cause. Click Boarding has now filed a second motion for injunctive relief,1 asking theCourt to enjoin SmartRecruiters from terminating the agreement. For the following reasons, the Court denies the motion.
This is Click Boarding's second request for an injunction in this case. Click Boarding previously asked the Court to order SmartRecruiters to refrain from further breaching the parties' contract. (ECF No. 8, ECF No. 48-1 ("Agreement"), PI Order at 1-5.) The focus of the motion was Click Boarding's allegation that SmartRecruiters sold or attempted to sell its own platform, rather than Click Boarding's platform, to various customers, in violation of SmartRecruiters' obligations under the Agreement.
The Court denied Click Boarding's first motion in April 2021, concluding that, although Click Boarding had shown a likelihood of success in proving that SmartRecruiters had breached the Agreement, it had not established irreparable harm. (PI Order at 6-11.) Specifically, the Court found that the harm alleged by Click Boarding was quantifiable, in part due to a fee schedule attached to the Agreement that quantifies the amount of money that Click Boarding may lose due to SmartRecruiters' sales of its own products to their joint customers. (PI Order at 6-7).
On April 5, 2021, SmartRecruiters counterclaimed against Click Boarding for breach of contract, unjust enrichment, and declaratory judgment. (ECF No. 53.) Four days later, SmartRecruiters' in-house counsel sent Click Boarding a Notice of Material Breach. (ECF No. 71-1 ("Notice").) In that Notice, SmartRecruiters asserts that Click Boarding had breached Sections 1.5, 3.3, 4.1, and 10.13 of the Agreement. (Notice at 2-4.) In its briefing, SmartRecruiters contends that these asserted breaches also include breaches of Click Boarding's obligations under Sections 2.3 and 7.2 of the Agreement. (ECF No. 87 at 29.) The substance of those provisions are as follows:
-Section 1.5 gives SmartRecruiters the right to request that Click Boarding "re-brand" its product with SmartRecruiters' "legally compliant existing branding," a so-called "Private Label." (Agreement § 1.5.) SmartRecruiters charges that Click Boarding had been "unable to provide" this service. (Notice at 2.)
-Section 2.3 obligates Click Boarding to provide customer support for its product ("Onboarding Solution"), as well as general troubleshooting and tech support. (Agreement § 2.3.) The Agreement contains a service agreement laying out these obligations. (Agreement, Ex. C.) According to SmartRecruiters, failing to adequatelydeliver proper service and failing to properly implement the Onboarding Solution for customers is a breach of Section 2.3. (ECF No. 87 at 29.)
-Section 3.3 requires Click Boarding to "provide reasonable sales assistance in support of" SmartRecruiters' sales activities, potentially including calls with SmartRecruiters' employees, giving technical advice to SmartRecruiters' sales representatives, and giving remote and in-person demonstrations of Click Boarding's products. (Agreement § 3.3.) SmartRecruiters asserts that Click Boarding breached Section 3.3 in several ways, including by failing to help SmartRecruiters sell the Onboarding Solution, being unresponsive, performing poorly in front of customers, providing uninformed sales personnel, imposing unreasonable and surprise fees on customers, and failing to fix defects customers identified. (Notice at 2-3.) SmartRecruiters also asserts that a failure to properly implement the Onboarding Solution amounts to a failure to provide "reasonable sales assistance." (ECF No. 87 at 29.)
-Section 4.1 sets out a fee schedule for Click Boarding's products and delineates SmartRecruiters' payment obligations to Click Boarding. (Agreement § 4.1.) SmartRecruiters accuses Click Boarding of altering the fees the parties agreed to by: billing by the hour, rather than a flat fee basis (and therefore overcharging); requiring this payment for tasks that the Agreement already obligated Click Boarding to perform; charging fees that the Agreement does not list; and billing for subscriptions that SmartRecruiters' clients could not access. (Notice at 3; ECF No. 89) -In Section 7.2, Click Boarding warrants that it will provide the Onboarding Solution "with reasonable skill and care and in a professional manner" and that the Onboarding Solution "will comply with th[e] Agreement." (Agreement § 7.2.) SmartRecruiters alleges that this includes implementing the Onboarding Solution. (ECF No. 87 at 29.)
On April 20, 2021, Click Boarding responded to SmartRecruiters' Notice of Material Breach. (ECF No. 71-2 ("Response").) Click Boarding asserted that SmartRecruiters was simply manufacturing allegations of breach as a litigation tactic, and that its notice was inadequate. (Response at 2-3.4) Click Boarding also responded to the notice's substance, attaching documents that it claimed demonstrated that it was not in breach. (Id. at 12-65.) Shortly after responding to the notice, Click Boarding filed this motion for injunctive relief in an attempt to halt SmartRecruiters from terminating the agreement. (ECF No. 67.) At argument, it was clear the landscape had shifted: both parties have now decided that the contractual relationship cannot continue in its current form. Click Boarding's request for relief is no longer that the Court order a continuation of the contract; instead, it requests the Court to enjoin SmartRecruiters from selling its onboarding platform to the parties' joint customers. Click Boarding also filed an Amended Complaint. (ECF No. 99.)
Click Boarding's request to the Court implicates the following provisions of the Agreement:
Section 1.4 (Non-competition). During the term of the Agreement, SmartRecruiters agreed to refrain from promoting, marketing, selling, providing, or dealing with "any product or service that competes, directly or indirectly, with the Onboarding Services." (Agreement § 1.4.)
Section 5.5 (Non-solicitation). For one year after the Agreement ended (for any reason other than a termination for cause), SmartRecruiters agreed not to "contact, solicit," induce, or convert any customer that used both SmartRecruiters' product and the Onboarding Solution "to another product or service that is a replacement for or competitive with" the Onboarding Solution. (Id. § 5.5.) If SmartRecruiters breached this provision, SmartRecruiters agreed to "pay Click Boarding a Customer acquisition fee equal to the last 12 months of fees and other amounts received by and/or payable to Click Boarding from such Customer" before terminating its use of the Onboarding Solution. (Id.)
Section 9.2 (Limitation of Liability). Except for claims relating to intellectual property violations, liability for breaches of the Agreement cannot not exceed the greater of either: (1) the "amounts paid and owed to Click Boarding" under the Agreement in the "24 months preceding the incident giving rise to liability"; or (2) $3,000,000. (Id. ¶ 9.2.)
"Customer X" is a joint customer of the parties—that is, a customer that used SmartRecruiters' underlying platform and Click Boarding's Onboarding Solution.5 (ECF No. 88 ("Epperly Decl.") ¶ 45.) During the period that Customer X used the Onboarding Solution, it had disputes with Click Boarding over what the Onboarding Solution should contain and how it should operate. (Id. ¶¶ 52-53; ECF No. 93 ("Wormsbecker Decl.") ¶¶ 3-4.) These disputes—and Click Boarding's alleged inability to resolve them to Customer X's satisfaction—led Customer X to decline to renew its contract for the Onboarding Solution. Customer X continued to use SmartRecruiters' platform, just without Click Boarding's product. (Wormsbecker Decl. ¶ 5; Epperly Decl. ¶¶ 47-51, 53-55; ECF Nos. 88-1, 88-2.)
A preliminary injunction is an "extraordinary" remedy, which the Court never awards "as of right." Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24 (2008) (citation omitted). In analyzing a motion for preliminary injunctive relief, the Court considers the four Dataphase factors: (1) the potential threat of irreparable harm to the movant in the absence of injunctive relief; (2) the balance of the harms the parties will suffer in the presence or absence of an injunction; (3) the likelihood that the movant will ultimatelysucceed on the merits; and (4) the public interest. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc). The party seeking the injunction bears the burden of showing that an injunction is proper. Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003).
The foundation of issuing an injunction "has always been irreparable harm and inadequacy of legal remedies." Id. (citation omitted). In any injunction case, the Court's "threshold inquiry is whether the movant has shown the threat of irreparable injury." Glenwood Bridge, Inc. v. City of Minneapolis, 940 F.2d 367, 371 (8th Cir. 1991) (quotation omitted). "[T]o warrant a preliminary injunction, the moving party must demonstrate a sufficient threat of irreparable harm." Bandag, Inc. v. Jack's Tire & Oil Co., 190 F.3d 924, 926 (8th Cir. 1999) (citation omitted).
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