Knowledgeaz, Inc. v. Jim Walters Resources, Inc., 1:05-cv-1019-RLY-DML.
| Decision Date | 30 September 2008 |
| Docket Number | No. 1:05-cv-1019-RLY-DML.,1:05-cv-1019-RLY-DML. |
| Citation | 617 F.Supp.2d 774 |
| Parties | KNOWLEDGEAZ, INC., Plaintiff, v. JIM WALTERS 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 |
Dennis Scott Schell, Kevin M. Boyle, Paul B. Overhauser, Overhauser Law Offices, Greenfield, IN, for Plaintiff.
Briana Lynn Kovac, Kandi Kilkelly Hidde, Rafael A. Sanchez, Bingham McHale LLP, John T.L. Koenig, Barnes & Thornburg LLP, Indianapolis, IN, for Defendants.
Daniel Maddox, Palmyra, IN, pro se.
ENTRY ON DEFENDANT HENSLEY'S MOTION TO DISMISS, DEFENDANTS SEIPEL'S AND ACTION AUTHORITY'S MOTION FOR SUMMARY JUDGMENT, DEFENDANTS HENSLEY'S AND JIM WALTERS RESOURCES' MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT
Plaintiff, KnowledgeAZ, Inc. ("KAZ"), is a software company. It has brought this lawsuit against two of its former employees, their new businesses, a former customer and two of its employees. The suit alleges 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.
KAZ is an Indiana corporation and the successor to Action Systems Associates, Inc. ("ASA"). Nigam Arora is the president, sole officer and sole shareholder of KAZ. Nigam Arora is an entrepreneur who claims to have started over fifty businesses. His wife, Lovi Arora is the former CFO of KAZ. Dennis Seipel and Daniel Maddox are former employees of KAZ. Nickellie, LLC ("Nickellie") is an Indiana business started by Maddox, and Action Authority, LLC ("Action Authority") is an Indiana business with which Seipel is now involved. Jim Walters Resources, Inc. ("JWR") is a business based and incorporated in Alabama, and a former customer of KAZ. James Beasley worked for JWR until his death shortly after this suit was filed. Guy Hensley is the general counsel for JWR and a resident of Alabama. Maddox, Nickellie, Seipel, Action Authority, JWR, Beasley and Hensley, have all been named by KAZ as Defendants in this lawsuit.
To date, the court has entered judgment in favor of Defendant, James Beasley, because following Beasley's death KAZ made no effort to substitute his estate as the appropriate party. The clerk has entered a default against Nickellie, for its failure to respond. No judgment for damages has been entered against Nickellie because the calculation of damages, if any, is premature until such time as the liability, if any, of the other Defendants has been determined. This entry addresses the renewed motion to dismiss for lack of personal jurisdiction filed by Defendant Hensley, the pending summary judgment motions filed by Defendants JWR, Hensley, Action Authority and Seipel and also the partial summary judgment motion filed by KAZ.
In April of 1992, ASA registered a copyright in a computer program known as Action Material Manager Plus ("AMMP"). ASA was acquired by an Arora owned entity, which was then merged into KAZ in June of 2000. On January 10, 2001, KAZ and JWR entered into a System Sales Agreement ("SS Agreement") whereby JWR agreed to purchase, and KAZ agreed to provide, computer software called eWarehouseA-Z along with hardware and support services. The SS Agreement utilized by KAZ has a set of general terms and conditions, but begins with two pages of descriptions and three pages of exhibits which are specific to the agreement with JWR. Paragraphs four and six on the first page of the SS Agreement contain most of the specific substantive provisions at issue in this dispute and in pertinent part read as follows:
4. KnowledgeAZ [KAZ] grants Client [JWR] a perpetual, non-exclusive and non-transferrable license to the software in the system. The software in the system is the property of KnowledgeAZ and is licensed to Client for use in one system and with only the number of terminals authorized by KnowledgeAZ. Client shall not copy, rent, distribute, sell, lease, sublicense, alter, modify, translate, decompile, disassemble or shall also not disclose, display or otherwise make available the licensed software to any person or persons not authorized by KnowledgeAZ. If Client violates this Agreement in any manner, the license granted to Client will be immediately terminated. If at any time KnowledgeAZ should become insolvent KnowledgeAZ shall provide the current eWarehouseA-Z source code to Jim Walter Resources.
6. Licensee understands that certain hardware is an integral part of the eWarehouseA-Z systems and for eWarehouseA-Z to function properly, such hardware must be properly integrated with eWarehouseA-Z. Client agrees to purchase all such hardware and services related to eWarehouseA-Z from KnowledgeAZ, under the condition that KnowledgeAZ shall provide the products to Client at prices equal to or less than Client can purchase the same products from the manufacturer or authorized distributor/reseller, and so long as KnowledgeAZ agrees that they will provide the products to Client in a timely manner. If KnowledgeAZ does not meet both of the previous conditions, Client may purchase the products from the manufacturer or authorized distributor/reseller and KnowledgeAZ will provide the required changes to the hardware at a minimal cost to Client. Should KnowledgeAZ cease to provide the services required to make the hand-helds and RF hardware units function with the eWarehouseA-Z Software, KnowledgeAZ shall provide to Client the right, instructions and access to the process that will permit Client to make those changes. Such hardware does not include client PC's non-RFnetworks, laser printers and dot matrix printers.
KAZ and JWR entered into a System Support Upgrade Agreement (the "Upgrade Agreement") on August 16, 2002, which extended, through August 4, 2003, KAZ's maintenance and support of the eWarehouse system. JWR paid $23,217 for the extension of those services. Finally, because KAZ has initiated the lawsuit, both agreements provide for the application of Indiana law in interpreting their terms.
Dennis Seipel was a programmer for KAZ and its predecessors, who graduated into project management. Seipel signed the SS Agreement on behalf of KAZ and played a role in the management of that project during its first few months. Seipel left the employ of KAZ at the end of July 2001. KAZ contends that Seipel failed to return tapes containing the source code for eWarehouseA-Z when it fired him. It also contends that when confronted about his possession of the eWarehouseA-Z source code on several occasions by Nigam Arora, he gave inconsistent responses with regard to whether he had the source code or intended to use it. KAZ alleges that Seipel was conspiring with Maddox and Hensley to provide the source code to JWR.
Daniel Maddox was a programmer for KAZ who also participated in the management of KAZ and handled the JWR project. He left KAZ's employment in December 2002. He claims he left because KAZ was unable to make payroll and owed him considerable salary. It does not appear from the record that KAZ has ever specifically denied its failure to make payroll during late 2002, but it does claim that the same day that Maddox left, its server and backup tapes were stolen. The backup tapes contained the source code for eWarehouseA-Z, and KAZ believes Maddox stole the server and backup tapes in order to obtain the source code. In fact, Nigam Arora testified in deposition that he spoke with Maddox after he left and was told by Maddox that he had the missing server and source code and had reached an agreement with JWR to provide it with support. A program's source code is its programming instructions in original readable form. After written, source code goes through a translation process where it is transferred into a code or language understood by the computer, so that the program can be executed. With a program's source code, a person can modify the program or alter the way the program is executed. The code also allows one to troubleshoot problems with the program. JWR says that it had no deal with Maddox or his company to provide support for its system until well after KAZ had given up any effort to provide program maintenance.
On January 2, 2003, legal counsel for KAZ sent a letter to JWR, which stated:
We are attorneys representing Knowledge A-Z, Inc. (The "Company"). Due to the unexpected departure of its employees, the Company has suspended operations at this time and, unfortunately, can no longer offer you support.
In addition, the Company no longer has control over its intellectual property, including passwords used to log on to your systems. You are advised to take whatever security measures you deem appropriate.
At the present time, the Company is exploring the possibility of finding a buyer capable of supporting you.
You will be given additional information as it becomes available to us.
After unsuccessfully attempting to reach Nigam Arora directly, JWR drafted a written response, dated January 6, 2003, and sent it directly to Nigam Arora at KAZ, advising KAZ that it was in breach of the SS Agreement and had been for almost a month, the period of time which JWR had been attempting to procure service assistance without response from KAZ. The letter asked that KAZ either satisfy its contractual obligations immediately or return a portion of the payment JWR made to procure the extended service and maintenance. If KAZ was insolvent, JWR asked that it be provided with the source code for eWarehouse-AZ.
Nigam Arora, claims to have written and sent a letter to JWR on behalf of KAZ on the same date that JWR's letter to KAZ was sent, January 6, 2003. Mr. Arora's letter accuses JWR of "colluding" with ...
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