Escholar LLC v. Neb. Dep't of Educ., 8:20-CV-135
| Decision Date | 28 October 2020 |
| Docket Number | 8:20-CV-135 |
| Citation | 497 F.Supp.3d 414 |
| Parties | ESCHOLAR LLC, Plaintiff, v. NEBRASKA DEPARTMENT OF EDUCATION; Dean Folkers, in his individual capacity; and Matt Hastings, in his individual capacity, Defendants. |
| Court | U.S. District Court — District of Nebraska |
Eric Berry, Berry Law Firm-New York, Paul R. McMenamin, McMenamin Law Firm, New York, NY, Richard J. Gilloon, Erickson, Sederstrom Law Firm, Omaha, NE, for Plaintiff.
Charles E. Chamberlin, Attorney General's Office-Lincoln, Ryan S. Post, Attorney General's Office-Nebraska, Lincoln, NE, for Defendants.
This matter is before the Court on plaintiff eScholar LLC's motion (filing 5) for preliminary injunction and defendants Nebraska Department of Education (NDE)’s, Dean Folkers’, and Matt Hastings’ motion (filing 31) to dismiss. eScholar claims that the defendants breached a software license agreement by reverse-engineering its software, and in doing so infringed its registered copyrights and violated the Nebraska Trade Secrets Act, Neb. Rev. Stat. § 87-501 et seq. See generally filing 16. Defendants argue that they are all immune from suit in this Court under the Eleventh Amendment.
For the reasons set forth below, the Court will deny eScholar's motion for preliminary injunction and grant in part and deny in part defendants’ motion to dismiss.
The plaintiff, eScholar, is a software and systems developer specializing in products for educational institutions. Filing 16 at 5. eScholar's core software product is the Uniq-ID© system, which permits licensees, including NDE, to assign and manage unique identifiers for students in K-12 schools, early childhood education programs, and post-secondary public universities. Filing 16 at 10. The software also collects data under a student's profile and generates reports that are helpful in preventing duplicate records for any one student (e.g., when a student changes schools or districts). See filing 16 at 6, 10-11; filing 16-9 at 2.
The plaintiff first developed Uniq-ID© in 2003 and it has evolved through 11 versions, eight of which have copyright registrations with the United States Copyright Office. Filing 16 at 5-7, 12-13; see filing 16-1; filing 16-3. According to eScholar, it has invested and continues to invest millions of dollars and substantial effort to develop, commercialize, maintain, and improve the Uniq-ID© system. Filing 16 at 5-10. And to protect its investment, eScholar has taken steps to protect its intellectual property by registering copyrights, prominently displaying those copyrights, and including provisions restricting a licensee's use and disclosure of its products and other confidential information. See filing 16 at 14-16.
On November 1, 2004, eScholar and NDE entered into a Software License Agreement (filing 16-2) for the Uniq-ID© system. Filing 16 at 10; filing 16-2 at 2. The License Agreement was executed by Polly Feis, Deputy Commissioner of NDE, and Wolf Boehme, President of eScholar. Filing 16-2 at 5. Before executing the final License Agreement, Boehme and representatives from NDE negotiated the terms of the agreement and exchanged draft agreements. See filing 37-1 at 1-2; filing 37-3. Particularly relevant to the present motion, a forum selection clause was contained in both the draft agreement and the final agreement, which read:
12. Governing Law. This Agreement will be governed by the laws of the State of Nebraska, without reference to conflicts of law principles. The parties consent to the jurisdiction of the federal and state court of Nebraska for any legal action arising out of this Agreement.
Filing 16-2 at 5. No changes were suggested by NDE to the forum selection clause, and at the time of execution, NDE provided eScholar with a Contract Routing/Approval Form which had a box checked next to the statement "[s]ufficient legal authority exists to contract for these services." Filing 37-4. The form was signed by S. Summers as NDE's general counsel, and indicated that either the Commissioner or a Deputy Commissioner had to sign the contract. See filing 37-4.
NDE and eScholar maintained their contractual relationship from 2004 until January 15, 2020, when Dean Folkers, NDE's Chief Information Officer, e-mailed Boehme a memorandum stating that NDE would not be renewing its license for Uniq-ID © for 2020. Filing 16 at 1, 16; see filing 16-5 at 2-4. Boehme asked when the termination was to be effective, and Folkers responded that it was meant to be retroactive to November 1, 2019. Filing 16 at 16; see filing 16-5 at 2. After receiving the termination notice, eScholar learned that NDE had replaced Uniq-ID© with what NDE calls the "ADVISOR Person ID" system. Filing 16 at 16.
eScholar alleges that NDE reverse-engineered the Uniq-ID© system and improperly used its copyrighted work to create ADVISOR in violation of the License Agreement and state and federal law. See filing 16 at 17. Specifically, eScholar suggests, at minimum, ADVISOR's "Compare" web page and "Student Information" web page impermissibly copy data fields, layout, look, and feel from Uniq-ID's© own "Compare" and "Individual Person Information" pages. See filing 16 at 18-21. Matthew Hastings, the final defendant in this case, is a Senior Administrator of Data, Research and Evaluation for NDE. Filing 16 at 2. And according to eScholar, Hastings and Folkers are both responsible for the use of the ADVISOR system and violations of eScholar's copyrights. Filing 16 at 1-2.
eScholar filed suit in this Court on April 6, 2020 against NDE claiming (1) copyright infringement and (2) breach of contract. Filing 1. And on April 7, 2020 it filed its motion for preliminary injunction under Fed. R. Civ. P. 65 asking the Court to prohibit NDE from using the ADVISOR system; enjoin existing and future violations of the United States Copyright Act, 17 U.S.C. § 101 et seq. ; and prohibit continued misappropriation and publication of its trade secrets. See filing 5.
But on April 13, 2020 the Court ordered eScholar to show cause why its copyright claims should not be dismissed for lack of subject matter jurisdiction. Filing 14. Specifically, the Court asked why the Supreme Court's decision of March, 23, 2020 in Allen v. Cooper , ––– U.S. ––––, 140 S. Ct. 994, 1007, 206 L.Ed.2d 291 (2020), holding unconstitutional Congress's attempt to abrogate state sovereign immunity in The Copyright Remedy Clarification Act of 1990 (CRCA), didn't require dismissal. Filing 14 at 3.
In response, eScholar filed an amended complaint (filing 16) alleging that NDE consented to federal jurisdiction through the forum selection clause contained in the License Agreement. Filing 16 at 2-3. It also added Folkers and Hastings as defendants, alleging jurisdiction was proper pursuant to Ex Parte Young , 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). Finally, eScholar now claimed (1) rescission and damages for breach of the License Agreement against NDE, (2) copyright infringement against NDE, (3) violation of the Nebraska Trade Secrets Act against NDE and (4) copyright infringement against Folkers and Hastings. See filing 16 at 23-31. eScholar seeks both monetary damages and injunctive relief on its copyright and trade secrets act claims against NDE and solely injunctive relief against Folkers and Hastings. See id.
On May 29, 2020 defendants filed a motion to dismiss based on Fed. R. Civ. P. 12(b)(1) —each defendant argues that Eleventh Amendment sovereign immunity prevents this court from exercising jurisdiction over eScholar's claims.1 See filing 31, filing 32.
A motion pursuant to Federal Rule of Civil Procedure 12(b)(1) challenges whether the court has subject matter jurisdiction. The party asserting subject matter jurisdiction bears the burden of proof. Great Rivers Habitat Alliance v. FEMA , 615 F.3d 985, 988 (8th Cir. 2010).
Rule 12(b)(1) motions can be decided in three ways: at the pleading stage, like a Rule 12(b)(6) motion; on undisputed facts, like a summary judgment motion; and on disputed facts. Jessie v. Potter , 516 F.3d 709, 712 (8th Cir. 2008). A court deciding a motion under Rule 12(b)(1) must distinguish between a "facial attack" and a "factual attack." Branson Label, Inc. v. City of Branson, Mo. , 793 F.3d 910, 914 (8th Cir. 2015). In a facial attack, the Court merely needs to look and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction. Id. Accordingly, the Court restricts itself to the face of the pleadings and the non-moving party receives the same protections as it would defending against a motion brought under Rule 12(b)(6). Id. ; Hastings v. Wilson , 516 F.3d 1055, 1058 (8th Cir. 2008).
Conversely, in a factual attack, the existence of subject matter jurisdiction is challenged in fact, irrespective of the pleadings, and matters outside the pleadings, such as testimony and affidavits, may be considered. Branson Label , 793 F.3d at 914.
Here, the defendants raise a factual attack to subject matter jurisdiction. Thus, eScholar does not enjoy the benefit of the allegations in its pleadings being accepted as true by the Court, and the Court will decide the present motion on the full record before it, including matters outside of the pleadings. See id. ; Osborn , 918 F.2d at 729-30. The Court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. Osborn , 918 F.2d at 730.
A preliminary injunction is an extraordinary remedy and the party seeking injunctive relief bears the burden of proving that the relevant factors weigh in its favor. MPAY Inc. v. Erie Custom Comput. Applications, Inc. , 970 F.3d 1010, 1015 (8th Cir. 2020). A plaintiff seeking a preliminary injunction must establish four factors showing such relief is warranted: he is likely to succeed on the merits; (2) he is likely to suffer irreparable harm...
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