Knowledgeaz, Inc. v. Jim Walter Resources, Inc.

• Decision Date: 01 September 2006
• Docket Number: No. 1:05-cv-1019-DFH-TAB.,1:05-cv-1019-DFH-TAB.
• Citation: 452 F.Supp.2d 882
• Parties: KNOWLEDGEAZ, INC., Plaintiff, v. JIM WALTER RESOURCES, INC., Guy Hensley, James Beasley, Dennis Seipel, Daniel Maddox, Nickellie, LLC and Action Authority, LLC, Defendants.
• Court: U.S. District Court — Southern District of Indiana

452 F.Supp.2d 882

KNOWLEDGEAZ, INC., Plaintiff, v. JIM WALTER RESOURCES, INC., Guy Hensley, James Beasley, Dennis Seipel, Daniel Maddox, Nickellie, LLC and Action Authority, LLC, Defendants.

No. 1:05-cv-1019-DFH-TAB.

United States District Court, S.D. Indiana, Indianapolis Division.

September 1, 2006.

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James A. Knauer, Reynolds B. Brissenden, Kroger Gardis & Regas, LLP, Indianapolis, IN, for Plaintiff.

Kandi Kilkelly Hidde, Rafael A. Sanchez, Bingham McHale, Indianapolis, IN, John T.L. Koenig, John R. Maley, Barnes & Thornburg LLP, for Defendants.

Daniel Maddox, Palmyra, IN, Pro se.

ENTRY ON MOTION TO DISMISS AND RELATED MATTERS

HAMILTON, District Judge.

Plaintiff KnowledgeAZ, Inc. ("KAZ") has sued a former customer, its agents, as well as several of its own former employees and their new businesses on a variety of claims, including copyright infringement and inducement to infringe, breach of contract, breach of fiduciary duty, tortious interference with contract relationships, conversion, civil conspiracy, and fraud.

Defendants Jim Walter Resources, Inc. ("JWR") and Guy Hensley have moved to dismiss the claims against them for lack of personal jurisdiction. They have also moved for dismissal of the claims against James Beasley because he has died and KAZ has not made any effort to substitute his estate as a defendant. For the reasons explained below, the motion to dismiss is denied as to both JWR and Hensley. KAZ's claims against Beasley are dismissed. Defendants' motion to strike Nigam Arora's affidavits is granted in part and denied in part. KAZ's motion to strike and for sanctions is denied in its entirety.

The Parties and the Claims

Plaintiff KAZ is an Indiana corporation with its principal place of business in Indianapolis, Indiana. Cplt. ¶ 1. Defendant JWR is an Alabama corporation with its principal place of business in Brookwood, Alabama. Sergent Aff. ¶¶ 7, 8. JWR is a wholly owned subsidiary of Walter Industries, Inc., a Delaware corporation with its corporate offices in Florida. Rice Aff. ¶ 3. Defendant Guy Hensley is in-house counsel for JWR and an Alabama resident. Hensley Aff. ¶¶ 2, 6. Defendant James Beasley was an employee of JWR until his death on August 28, 2005. Sergent Aff. ¶ 20.

KAZ is in the business of developing and licensing computer software and providing customization and support services. Arora Aff. ¶ 4. JWR operates three underground coal mines in Alabama and is a major producer of coal used in the steelmaking and electrical utility industries. Sergent Aff. ¶ 9. KAZ President Nigam Arora testified that, beginning in 1998, JWR and other subsidiaries of Walter Industries solicked KAZ to develop custom software for them. Arora Aff. ¶ 13. In January 2001, KAZ and JWR entered into a perpetual license agreement for JWR to use KAZ's "eWAREHOUSE A-Z" software to manage inventory in several of its Alabama warehouses. Sergent Aff. ¶ 5, Ex. B.

In August 2002, KAZ and JWR entered into a system support/upgrade agreement for KAZ to provide follow-on support and services in relation to JWR's use of the e-WAREHOUSE software. See Pl.Ex. N. Arora testified that JWR entered into two subsequent agreements for KAZ to design, program, integrate, and test additional software enhancements and a new software module. Arora Aff. ¶¶ 65-66.¹

In December 2004, JWR filed an action against KAZ and Arora in Alabama state court, claiming that it was entitled to the source code of the e-WARE HOUSE software based on a provision in the license agreement providing for such in the event that KAZ became insolvent. See Pl.Ex. F. The case was removed to federal court, and KAZ and Arora moved to dismiss on the basis of improper venue or, alternatively, to transfer the case here under 28 U.S.C. § 1404. See Pl.Ex. U. On May 12, 2006, the United States District Court for the Northern District of Alabama remanded the action to the state court for lack of subject matter jurisdiction. See Def. Rep. Ex. C.

KAZ brought this suit in July 2005 and filed its amended complaint on August 25, 2005. KAZ alleges that JWR and its employees violated the license agreement by, among other things, making and retaining unauthorized copies of its eWarehouse software. KAZ alleges that JWR's actions were facilitated by three of its own employees who left employment with KAZ, created new business entities in Indiana, and entered into unlawful side deals with JWR for additional software support and customization work.

I. Motions to Strike and for Sanctions

Both sides have filed motions to strike affidavits or portions of affidavits submitted by the opposing side.

A. JWR and Hensley's Motion to Strike

JWR and Hensley move to strike several paragraphs of Arora's affidavit, arguing that his statements are not based on personal knowledge, contain impermissible legal conclusions or argument, or constitute hearsay. In response to these criticisms, Arora has filed a second affidavit. JWR and Hensley move to strike several paragraphs of that affidavit as well.

"A plaintiff opposing a motion to dismiss for lack of personal jurisdiction must present `evidence of specific facts that, when taken as true, are sufficient to support a finding of personal jurisdiction." Blubaugh v. American Contract Bridge League, 2002 WL 31040339, *2 (S.D.Ind. July 31, 2002), quoting Andersen v. Sportmart, Inc., 57 F.Supp.2d 651, 654 (N.D.Ind.1999). See also Employee Benefit Managers, Inc. v. A Medex Transition Admin. Co., 2006 WL 1128646, *4 n. 3 (N.D.Ind. Apr. 24, 2006) (striking portions of affidavit that were "legal conclusions, unsupported by specific facts and lacking a basis in personal knowledge" offered to oppose motion to dismiss for lack of personal jurisdiction); Search Force, Inc. v. Dataforce International, Inc., 112 F.Supp.2d 771, 774 n. 7 (S.D.Ind.2000) (considering as evidence offered to oppose motion to dismiss for lack of personal jurisdiction only those statements in affidavit by senior corporate officer that were "factual assertions and not merely vague generalizations or unsupported allegations"), citing Cushing v. City of Chicago, 3 F.3d 1156, 1161 n. 5 (7th Cir.1993).

After reviewing the statements in dispute and the arguments of both sides, the court concludes that some, but not all, of the challenged testimony must be stricken, along with the corresponding portions of KAZ's response brief. First, JWR objects to Arora's testimony about the specific (yet "estimated") numbers of telephone calls, faxes, and interactive computer sessions between KAZ and JWR, and hours of work spent by KAZ on JWR projects, in 2001 and 2002. See Arora Aff. ¶¶ 35, 38-40, 43, 49, 53-55. Arora's position as a hands-on president of such a small company provides sufficient foundation for these aspects of his testimony. See, e.g., China Industries (USA), Inc. v. New Holland Tire, Inc., 2006 WL 2290975, *2 (N.D.Ill. Aug. 7, 2006) (denying motion to strike testimony about company's sales by company's general manager and person also in industry who would have had access to this information). As the president of a closely-held corporation, Arora testified that he had direct involvement allocating resources and reviewing time records, budgets, and project plans at KAZ, and that these experiences provide a basis for his testimony. See Arora Second Aff. ¶¶ 18-20.

The same cannot be said with respect to Arora's testimony about phone calls exchanged between JWR and the Indiana business entities started by former KAZ employees, or invoices exchanged between the Indiana businesses. See Arora Aff. ¶¶ 92, 94, 97, 99, 102, 104. JWR also challenges Arora's testimony about the number of alleged interactive computer sessions between JWR and the other Indiana businesses.. See Arora Aff. ¶ 91, 96, 101. Finally, JWR challenges Arora's testimony concerning the number of telephone calls exchanged between JWR and former KAZ employee Daniel Maddox's home or personal cellular telephone. See Arora Aff. ¶¶ 47, 57.

All of this testimony must be stricken. Arora testified generally that his knowledge derives from the "over 5,000 hours" of time he has spent preparing for this litigation, and his review of "over 3,000 pages" of documents before executing his affidavit. He claims that his testimony about phone calls is also taken from phone bills, but he has not submitted these records into evidence. None of these bases is adequate to support a finding that Arora's testimony is based on firsthand personal knowledge, as required by Federal Rule of Evidence 602. Arora could easily have offered the documents he purports to rely on in his affidavit. His conclusion in his supplementary affidavit that "there is a solid foundation of evidence behind each statement" adds nothing as a basis for his testimony and is also stricken. See Arora Second. Aff. ¶ 17.

Second, JWR's motion to strike ¶¶ 26, 29, 33, 63 is denied as to the testimony relating to Arora's understanding of the factual details surrounding execution of the license agreement, but granted as to his interpretation of the legal obligations created by that agreement. JWR's motion to strike ¶ 59 (first sentence) is granted because Arora has not shown that he has first-hand knowledge of JWR's execution of the support agreement, independent of the document.

Third, JWR objects to Arora's testimony that independent Indiana businesses were created by existing or former KAZ employees, citing print-outs from the Indiana Secretary of State's website. See Arora Aff. ¶¶ 11, 64. The court is satisfied that Arora has sufficient personal knowledge to testify on that issue, though the documents must speak for themselves.

Fourth, JWR objects to much of Arora's testimony about the events at the heart of this dispute, that is, the alleged interactions between JWR employees and NickEllie, LLC, the company formed by Maddox after leaving KAZ. See Arora Aff. ¶¶ 70-73, 75, 78,...