F. McConnell and Sons, Inc. v. Target Data Systems

• Decision Date: 02 February 1999
• Docket Number: No. 1:98-CV-312.,1:98-CV-312.
• Citation: 84 F.Supp.2d 961
• Parties: F. McCONNELL AND SONS, INC., Plaintiff, v. TARGET DATA SYSTEMS, INC., Defendant.
• Court: U.S. District Court — Northern District of Indiana

84 F.Supp.2d 961

F. McCONNELL AND SONS, INC., Plaintiff, v. TARGET DATA SYSTEMS, INC., Defendant.

No. 1:98-CV-312.

United States District Court, N.D. Indiana, Fort Wayne Division.

February 2, 1999.

COPYRIGHT MATERIAL OMITTED

Alan VerPlanck, James Fenton, Eilbacher Scott Inc., Fort Wayne, IN, for F. McConnell and Sons Inc.

Martin T. Fletcher, Sr., Rothberg and Logan, Fort Wayne, IN, Brian P. Daniels, Brenner Saltzman and Wallman, New Haven, CT, for Target Data Systems Inc.

MEMORANDUM OF DECISION AND ORDER

WILLIAM C. LEE, Chief Judge.

I. INTRODUCTION

On October 9, 1998, the Plaintiff, F. McConnell & Sons, Inc. ("M & S") filed the underlying diversity action alleging a breach of contract. The matter currently before the Court is the motion to dismiss filed by the Defendant, Target Data Systems, Inc. ("Target"), on November 9, 1998, which contends that the Court lacks personal jurisdiction over Target, and in the alternative that the complaint fails to state a claim upon which relief can be granted. M & S filed a response to the motion on December 15, 1998, and Target filed a reply on December 30, 1998. The factual record before the Court includes the affidavits of Steven Darn ("Daren aff. ¶ ____"), Paul Freeman ("Freeman aff. ¶ ____"), Sam Flannery ("Flannery aff. ¶ ____"), James McConnell ("McConnell aff. ¶ ____"), and Paul Offerle ("Offerle aff. ¶ ____").¹ For the reasons hereinafter provided Target's motion to dismiss for lack of personal jurisdiction will be DENIED, and its motion to dismiss for failure to state a claim will be GRANTED in part and DENIED in part.

II. FACTUAL BACKGROUND

According to the Complaint, Target is a Connecticut corporation having its principal place of business in Connecticut, and M & S is an Indiana corporation whose principal place of business is New Haven, Indiana. (Pl.Compl.¶¶ 1-2.) Indeed, Target's facilities consist solely of its offices located in New London, Connecticut (although Flannery, who has been a Target employee since 1996, does operate out of offices in Maryland and Delaware), while M & S's only facility, a 60,000 square foot warehouse, is located in New Haven, Indiana. (Daren aff. ¶ 6; Flannery aff. ¶¶ 2-4; McConnell aff. ¶ 4.) None of Target's shareholders, officers, or directors reside in Indiana, nor does Target own any real estate or maintain a bank account or telephone listing in Indiana. (Daren aff. ¶¶ 7-8.) Indeed, Target is not registered or licensed to do business in Indiana. (Daren aff. ¶ 9.)

Target is in the business of developing and licensing computer software designed to assist wholesale food distributors in managing every aspect of their business. (Daren aff. ¶ 3.) The first program developed and marketed by Target is called the "Distributor 4GL," which allows "broadline food service distributors" (that is, entities which distribute food-related products to wholesale distributors) to run every aspect of their company. (Daren aff. ¶ 5.)² However, Distributor 4GL is not designed for entities who distribute products to "retail" sales locations such as convenience stores, which sell candy and tobacco products. Id. Tobacco products in particular require special tax treatment that can vary from state to state. (McConnell aff. ¶ 5.)

M & S is a food distributor, and is in the business of supplying food-related products to both broadline food service distributors and retail industries, such as convenience stores. (Id. ¶¶ 4-5.) Prior to its relationship with Target, M & S began developing its own software package that would assist it and its customers in the supply and reordering of inventory in its retail business. (Id. ¶ 7.)³ Beginning around 1992 or 1993, M & S developed a "retail module" that could run on its own computers, but the cost of developing its own complete retail module forced it to begin looking in the market for software packages designed to run the distribution, inventory, and accounting aspects of its retail distribution business. (Id. ¶¶ 8, 11.) At this time few such software packages existed, but in due course, Target and M & S crossed paths.

In 1993 McConnell, the president and CEO of M & S, met with Flannery, then an employee of an independent sales representative of Target, at an industry trade show. (Id. ¶ 9.) McConnell and Flannery discussed the Distributor 4GL software, and McConnell demonstrated an interest in licensing this software from Target. (Id. ¶ 9.) McConnell and Julius Fingerle, M & S's computer programmer, subsequently traveled to Connecticut in May of 1994 and met with Flannery and Freeman, vice-president and secretary of Target, to see a demonstration of Distributor 4GL and to further discuss the licensing of the software. (Freeman aff. ¶ 14.)

Although the affidavits submitted by the parties are not crystal clear, it appears that in early June of 1994 M & S agreed to purchase a Distributor 4GL User license with software code from Target for $45,000 with the understanding that M & S would develop a retail module to be incorporated into the Distributor 4GL system. (McConnell aff. ¶ 11.) The parties specifically contemplated that this process would require M & S to make significant modifications to the Distributor 4GL package, and that Target would act in an advisory capacity to M & S to ensure that these modifications were properly executed. (Pl. Compl. Exh. A ¶ 5.) M & S also agreed to serve as a demonstration site for prospective buyers of the retail module, so that these buyers could see Target's Distribution 4GL system "up and running" in a real world application. (McConnell aff. ¶ 17.) In consideration for developing the retail module and for serving as a demonstration site, M & S was to receive from Target a commission on future licenses sold by Target for the Distributor 4GL software.⁴ (Pl.Compl.Exh. A.¶ 3.)

The creation of the retail module by M & S and its incorporation into the Distributor 4GL system was a formidable and technically complex undertaking that required a great deal of collaboration between the computer programmers of M & S and Target. (See generally Offerle aff.) Indeed, the contract itself provided that Freeman, Target's computer programmer, would travel to M & S's facility in Indiana for three days of on-site training. (Pl. Compl.Exh. A.¶ 7.) Freeman in fact visited M & S in November 1994 to assist with various technical difficulties, in February 1995 to train Paul Offerle, who had recently replaced M & S's previous computer programmer, and again in January 1996 to assist in incorporating the retail module created by M & S into the Distributor 4GL software. (Freeman aff. ¶¶ 26-28.)⁵ In addition to Freeman's visits to M & S, Target employee Dennis Lincoln apparently spent three days at M & S in September 1995 "to get some hands-on feel of the new system as well as identification of any changes that we feel must be made prior to cut over to the new system." (Offerle aff. ¶ 18 & Exh. 4.)⁶ In addition to the four visits to M & S in Indiana by Target employees, Target and M & S communicated frequently by phone, fax, and E-mail in order to complete the retail module. (Offerle aff. ¶¶ 15, 19.) Moreover, Target provided M & S a computer modem that enabled Target to "dial in" to M & S, thus allowing Target access to the software code the companies were developing. (Offerle aff. ¶¶ 8-11.)⁷

According to Target, the collaborative effort was largely fruitless because it contends that M & S never produced a commercially viable retail module. Nevertheless, it appears that M & S did in fact serve as a demonstration site for other potential customers of Target's Distribution 4GL software, because several businesses, including two Indiana companies, visited M & S to see Distribution 4GL in a real world operating environment. (McConnell aff. ¶¶ 17-18, 21.) Target and M & S later discussed other possible business ventures, but none of them ever came to fruition.

III. DISCUSSION

A. Personal Jurisdiction

"When the issue of personal jurisdiction is raised via a Rule 12(b)(2) motion to dismiss, the burden of proof rests on the party asserting jurisdiction." Charlesworth v. Marco Mfg. Co., 878 F.Supp. 1196, 1199 (N.D.Ind.1995) (citation omitted); see also RAR, Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1276 (7th Cir.1997) (citation omitted). When deciding a Rule 12(b)(2) motion, the court may receive and weigh affidavits, exhibits or other evidence submitted by the parties, but must construe all facts concerning jurisdiction, including factual disputes, in favor of the plaintiff. Deluxe Ice Cream Co. v. R.C.H. Tool Corp., 726 F.2d 1209, 1215 (7th Cir. 1984); Charlesworth, 878 F.Supp. at 1199.

This Court recently recited the basic principles governing the personal jurisdiction inquiry as follows:

A federal district court exercising diversity jurisdiction has personal jurisdiction over a nonresident defendant "only if a court of the state in which it sits would have such jurisdiction." Wilson v. Humphreys (Cayman) Ltd., 916 F.2d 1239, 1243 (7th Cir.1990), cert. denied, 499 U.S. 947, 111 S.Ct. 1415, 113 L.Ed.2d 468 (1991) (quoting Turnock v. Cope, 816 F.2d 332, 334 (7th Cir.1987)). The Wilson court explained that a two-step procedure is traditionally employed when determining whether a state court would have jurisdiction over a nonresident defendant. First, we examine whether the state long-arm statute allows jurisdiction, and second, we determine whether the assertion of jurisdiction complies with constitutional due process standards. Wilson, 916 F.2d at 1243 (citations omitted). It is well established that Indiana's long-arm statute extends personal jurisdiction to the limit allowed under the Due Process clause of the Fourteenth Amendment, and therefore we need only consider whether the assertion of jurisdiction over [Target] violates due process. See, e.g., NUCOR Corp. v. Aceros Y Maquilas de Occidente, S.A., 28 F.3d 572, 580 (7th Cir. 1994) (citing Wilson, 916 F.2d at 1243).

The due process...