In re PEAKSolutions Corp.
| Decision Date | 25 May 1994 |
| Docket Number | Bankruptcy No. 3-93-4674. Adv. No. 3-94-28. |
| Citation | 168 BR 918 |
| Parties | In re PEAKSOLUTIONS CORPORATION, Debtor. PEAKSOLUTIONS CORPORATION, Plaintiff, v. The STATE of Ohio, DEPARTMENT OF TRANSPORTATION and Knowledge Solutions, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
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David R. Marshall and William E. Connors, Fredrikson & Byron, P.A., Minneapolis, MN, for plaintiff.
William M. Dickel, Eden Prairie, MN, for defendant Knowledge Solutions, Inc.
Mark R. Miller and Steven T. Hetland, Special Counsel, Hessian, McKasy & Soderberg, Minneapolis, MN, and Marc A. Sigal, Asst. Atty. Gen., State of Ohio, Columbus, OH, for defendant State of Ohio.
ORDER GRANTING MOTION OF DEFENDANT STATE OF OHIO, DEPARTMENT OF TRANSPORTATION FOR DISMISSAL AND REQUEST OF DEFENDANT KNOWLEDGE SOLUTIONS, INC. FOR ABSTENTION
The adversary proceeding came on before the Court on March 18, 1994, for hearing on the motion of Defendant State of Ohio, Department of Transportation ("ODOT") for dismissal or for a transfer of proceedings. ODOT appeared by Mark R. Miller and Steven T. Hetland, as special counsel, and by Marc A. Sigal, Assistant Attorney General, State of Ohio. The Plaintiff ("the Debtor") appeared by its attorneys, David R. Marshall and William E. Connors. Defendant Knowledge Solutions, Inc. ("KSI") appeared by its attorney, William M. Dickel. Upon the moving and responsive pleadings, the arguments of counsel, and all of the other files, records, and proceedings herein, the Court makes the following order.
The Debtor, a Minnesota business corporation, filed a voluntary petition for reorganization under Chapter 11 on September 11, 1993. It remained in possession through the pendency of its case. It obtained confirmation of a plan of reorganization on April 14, 1994, while the matter at bar was under advisement.
At all relevant times, the Debtor was in the business of producing, marketing, and maintaining computer software programs. Its major product was and is a software program known as the "PEAKS RouteBuilder System" ("PRS"). Designed for use by state transportation agencies like ODOT, PRS automates the formulation of routes for the transit of oversized and overweight vehicles across highways within a state, and processes applications from freight haulers for permits to make such transits.1 On January 1, 1991, the Debtor and ODOT entered a nonexclusive license agreement for PRS. Under it, ODOT gained the right to use PRS; the Debtor was to install the program for ODOT and to provide support services to ODOT for twenty-four months after installation; and ODOT was to make certain payments to the Debtor. Pursuant to the agreement, the Debtor installed PRS into ODOT's microcomputer hardware.
KSI is a Minnesota business corporation. It acknowledges that it is a business competitor of the Debtor.2 Since August, 1993 it has been providing ODOT with maintenance and support for the PRS system.
The Debtor filed its complaint in this adversary proceeding on February 14, 1994. In it, the Debtor recites the facts just noted, regarding the parties' several relationships factual and legal. It then alleges that, in violation of Paragraph 6 of the license agreement,3 ODOT has disclosed certain confidential information from PRS to KSI — most specifically, by providing KSI with a copy of the "source code"4 for PRS. Terming the disclosure to have been a breach of the agreement, the Debtor maintains that ODOT's license has been terminated by operation of law pursuant to Paragraph 13 of the license agreement.5
Citing the remedies provision in paragraph 19 of the license agreement,6 the Debtor seeks relief against ODOT and KSI in two different sets of counts. It requests essentially the same results in each. As against ODOT, it seeks a judgment mandating ODOT to return the PRS software and related intellectual property to the Debtor pursuant to Paragraph 14 of the license agreement, and an injunction against ODOT's further use or disclosure of the software and its related materials. As against KSI, the Debtor requests a judgment mandating the surrender of those portions of the PRS software that are in KSI's possession, as well as an injunction against KSI's further use or disclosure of the software and its related materials. It also seeks an award of its costs and attorney fees from both defendants.
As the legal basis for its recovery from ODOT, the Debtor pleads 11 U.S.C. §§ 542(a)-(b)7 as well as the license agreement. As against KSI, the Debtor relies on the same provisions of the Bankruptcy Code, and its allegation that "KSI has violated the federal copyright statutes."
ODOT's initial response to the Debtor's complaint is the motion at bar,8 which it styles under FED.R.CIV.P. 12(b)(1), as incorporated by FED.R.BANKR.P. 7012(b).9 Its main argument is that, on its face, the Eleventh Amendment to the United States Constitution deprives this Court of subject-matter jurisdiction over the Debtor's requests for relief against ODOT,10 and there is no basis for the exercise of such jurisdiction under color of a waiver or statutory abrogation of the Amendment's sovereign immunity. In the alternative, ODOT essentially requests that this Court enforce a "forum selection clause" contained in the license agreement, by abstaining from hearing and determining the Debtor's requests for relief.
KSI has not made a formal motion to parallel ODOT's motion. However, its counsel did serve and file a memorandum11 in which it essentially requested that the Court also abstain from and dismiss the Debtor's requests for relief against KSI. To support this request, it argues that all controversies over the current status of PRS under the license agreement should be heard and determined in a single forum.
The Debtor, of course, strongly opposes both ODOT's motion and KSI's request.
The Eleventh Amendment to the United States Constitution reads:
The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.
This Amendment bars the use of the federal courts as a forum for the seeking of legal or equitable redress against the sovereign entity of a state government. The Supreme Court has repeatedly emphasized that the Eleventh Amendment is a cornerstone of the federal system of government under the Constitution. E.g., Atascadero State Hospital v. Scanlon, 473 U.S. 234, 238 n. 2, 105 S.Ct. 3142, 3145 n. 2, 87 L.Ed.2d 171 (1985); Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 99-100, 104 S.Ct. 900, 907-08, 79 L.Ed.2d 67 (1984); Nevada v. Hall, 440 U.S. 410, 418-420, 99 S.Ct. 1182, 1187-88, 59 L.Ed.2d 416 (Stevens, J., for the majority), 440 U.S. at 430-431, 99 S.Ct. at 1193-94 (Blackmun, J., dissenting), and at 440 U.S. at 437, 99 S.Ct. at 1196 (Rehnquist, J., dissenting) (1979); Hutto v. Finney, 437 U.S. 678, 691, 98 S.Ct. 2565, 2574, 57 L.Ed.2d 522 (1978).
The posture of the parties in this adversary proceeding satisfies the predicate elements for the bar, as they appear on the face of the Amendment. As against ODOT, the Debtor seeks one form of relief that unquestionably lies "in equity" — an injunction against ODOT's further use of PRS and any further disclosure of PRS or its contents to any third party. Categorized as an exercise of in rem jurisdiction over property alleged to have been property of the bankruptcy estate, and having a court-ordered surrender of that property as its goal, its other request for relief could be considered as being equitable in nature. Under the analysis of recent Supreme Court jurisprudence in the bankruptcy area, it may well be also legal in nature. See Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 46 n. 5, 109 S.Ct. 2782, 2793 n. 5, 106 L.Ed.2d 26 (1989) (). As an administrative agency, ODOT is indistinguishable from the State of Ohio for the purposes of the Eleventh Amendment. Deretich v. Office of Administrative Hearings, 798 F.2d 1147, 1154 (8th Cir.1986); Schuler v. Univ. of Minnesota, 788 F.2d 510, 516 (8th Cir.1986); cert. den., 479 U.S. 1056, 107 S.Ct. 932, 93 L.Ed.2d 983 (1987); American Re-Insurance Co. v. Janklow, 676 F.2d 1177, 1184 (8th Cir.1982), app. after remand, 692 F.2d 1158 (8th Cir.1982).
The Debtor has not argued that the Eleventh Amendment does not apply on its face to its complaint against ODOT — and, indeed, there is no conceivable principled basis for such a position. This Court can exercise jurisdiction over the subject matter of the Debtor's complaint against ODOT, then, only if the operation of the Eleventh Amendment has been overridden through one of the fairly narrow means recognized under law. Port Authority Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 304, 110 S.Ct. 1868, 1872, 109 L.Ed.2d 264 (1990); Atascadero State Hospital v. Scanlan, 473 U.S. at 237-241, 105 S.Ct. at 3144-3147; Pennhurst State School & Hospital v. Halderman, 465 U.S. at 99, 104 S.Ct. at 907; In re 995 Fifth Avenue Assoc., L.P., 963 F.2d 503, 507 (2d Cir.1992). Accord, United States v. Mitchell, 463 U.S. 206, 212, 103 S.Ct. 2961, 2965, 77 L.Ed.2d 580 (1983); Small Business Admin. v. Rinehart, 887 F.2d 165, 169 (8th Cir.1989) ().
One such override is provided by an actual or deemed waiver of the Eleventh Amendment immunity.
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