R.C. Olmstead, Inc. v. Cu Interface, LLC

• Decision Date: 27 March 2009
• Docket Number: Case No. 5:08CV234.
• Parties: R.C. OLMSTEAD, INC., Plaintiff, v. CU INTERFACE, LLC, et al., Defendants.
• Court: U.S. District Court — Northern District of Ohio

657 F.Supp.2d 878

R.C. OLMSTEAD, INC., Plaintiff, v. CU INTERFACE, LLC, et al., Defendants.

Case No. 5:08CV234.

United States District Court, N.D. Ohio, Eastern Division.

March 27, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Daniel J. Clark, Vorys, Sater, Seymour & Pease, Columbus, OH, David A. Campbell, III, Vorys, Sater, Seymour & Pease, Cleveland, OH, for Plaintiff.

Andrew M. Holford, Columbus, OH, for Defendants.

MEMORANDUM OPINION AND ORDER

SARA LIOI, District Judge.

This Memorandum Opinion and Order arises out of the following:

(1) The motion of Plaintiff R.C. Olmstead, Inc. ("RCO") for partial summary judgment on its claims against Defendants Software Properties LLC, CU Interface LLC ("CUI"), and Thomas Burkhart (collectively, "Developer Defendants") for misappropriation of trade secrets, copyright infringement, and violation of the Digital Millennium Copyright Act (DMCA). (Doc. No. 100.) Defendants have filed an opposition (Doc. No. 119), and RCO has filed a reply (Doc. No. 133).

(2) The motion of Developer Defendants for summary judgment¹ on the claims of RCO for misappropriation of trade secrets, tortious interference with contractual and business relationships, copyright infringement, violation of the DMCA, and unjust enrichment. (Doc. No. 101.) RCO has filed an opposition² (Doc. No. 125), and Defendants have filed a reply (Doc. No. 132).

For the reasons that follow, the motion of RCO for partial summary judgment is DENIED and the motion of Developer Defendants for summary judgment on all of RCO's remaining claims against Defendants is GRANTED.

I. FACTUAL AND PROCEDURAL HISTORY

Unless otherwise noted, the following are undisputed facts. RCO is an Ohio corporation that develops and sells data processing software, hardware, and related services to credit unions in Ohio and nationwide. On November 17, 1999, RCO entered into a Data Processing Agreement (the "Agreement") with Canton School Employees Federal Credit Union ("CSE"). (Barnes Dep. I³ at 56-57; Data Processing Agreement, Kambeitz Aff. Ex. 1.) Under the Agreement, RCO licensed the use of its hardware and credit union processing software to CSE for a five-year term. (Data Processing Agreement at 5.) RCO retained ownership of the hardware and software at all times. (Id.) An individual could gain access to RCO-1 only by entering a username and password (Radcliff Dep.⁴ at 15-16), but the Agreement did not restrict to whom CSE could issue usernames and passwords.⁵ (See Data Processing Agreement.) In fact RCO's software, known as RCO-1, was designed to run on a single OpenVMS server, but also could run on other "dumb terminals"—that is, other personal computers connected to the server—through the use of an emulator. (West Dep. at 67-68; Akin Aff. ¶¶ 5-6; Burkhardt Aff. ¶¶ 5-6.) The Agreement provided that CSE would be responsible for acquiring a local support firm to perform maintenance and support for all personal computers. (Data Processing Agreement at 3.) The Agreement also indicated that any troubleshooting assistance provided by RCO would be billed to CSE at an hourly rate. (Id.) As permitted by the Agreement, CSE hired Defendant CUI—a developer, marketer, and seller of credit union data processing software—to provide its maintenance and support. (Akin Aff. ¶¶ 1, 2, 7, 8, 9; Burkhardt Aff. ¶¶ 1, 2, 7, 8, 9.) RCO was aware that CUI provided this support and never voiced any opposition. (Olmstead Dep. at 204-05.)

On October 14, 2003, CSE entered into a Software Development Agreement (the "Development Agreement") with CUI to develop a new data processing program to replace RCO-1. (Barnes Aff. ¶ 4; Software Development Agreement, Radcliff Aff. Ex. 1.) The Development Agreement expressly required CUI to "use reasonable diligence to avoid infringement on the proprietary rights of any third party" to create the new software, and also provided that CSE could purchase an ownership interest in the CUI software.⁶ (Software Development Agreement at 00021, 00024.)

The two primary CUI programmers were Jason Akin ("Akin"), one of the individuals who formed CUI in 2006 (Akin Aff. ¶ 3), and Jay Lash ("Lash"), a former teller at CSE who was hired to develop the interface for the new software (Lash Dep. at 7, 14, 22). The Developer Defendants contend that much of the requirements for the new software came from federal regulations and accounting principles, such as those promulgated by the National Credit Union Administration (NCUA) and found in the Generally Accepted Accounting Principles (GAAP). (Akin Aff. ¶¶ 14-16; Burkhardt Aff. ¶¶ 14-16; Akin Dep. I⁷ at 83-84.) Lash heavily relied on his own experience as a CSE teller—and his work with several different credit union data processing interfaces during that period, including that of RCO—to develop the interface. (Lash Dep. at 19, 29.) Additionally, Lash and Akin also interviewed many CSE employees with regards to the jobs they performed and what the new software would be required in order to perform those jobs. (Akin Dep. I at 83-85; Lash Dep. at 30.) Lash and Akin also accessed the RCO interface with teller-level usernames and passwords during the development of the new software. (Akin Dep. I at 64-65; Akin Dep. II at 62; Lash Dep. at 22.) According to Akin and Lash, these teller-level accounts allowed them only to interact with a screen (Akin Dep. I at 65; Lash Dep. at 22)—Akin expressly denied that he or any other CUI employee accessed RCO's source code or programming code (Akin Aff. ¶ 25), and there is no evidence in the record to the contrary.

As CUI developed components of the new software, it released them as "modules," which were designed to work alongside the RCO-1 system. (Akin Dep. I at 138.) Thus, for a roughly two-year period, CSE was paying both RCO and CUI. RCO's own director of sales and marketing acknowledged that this type of double-payment is not unusual in the credit union industry, especially where a credit union desires to convert from one software to another. (See Lieb Dep. at 34-35.) Before CUI completed its new software, the Agreement between RCO and CSE was set to expire. (Data Processing Agreement at 5.) Not wishing to renew the RCO contract for another five years, CSE requested to extend the Agreement for an additional year, until March 30, 2006, to which RCO agreed. (Amendment to Data Processing Agreement, Kambeitz Aff. Ex. 2.) After March 30, 2006, the Agreement automatically renewed on a month-to-month basis until either party gave 60 days' written notice of termination. (Id.)

In October 2005, CUI's software—the CUDP Circa 2005 software—was complete, and CSE began transferring its customer data and operating the software developed by CUI; all of the customer data was archived by July 2006. (Barnes Dep. II at 15-16, 31; Akin Dep. II at 38.) CSE employees received training on the new CUI software. (Rodriguez Dep. at 37.) And while the transition from RCO-1 to CUDP Circa 2005 was relatively smooth, it had some initial problems. (Rodriguez Dep. at 34.)

RCO eventually learned that CSE had completely changed to using the CUDP Circa 2005 software, and on May 8, 2006, RCO provided CSE with written notice of RCO's termination of the Agreement, effective July 31, 2006. (Letter of Rogers to Barnes (May 8, 2006), Kambeitz Aff. Ex. 3.)

On January 29, 2008, RCO filed a Complaint against CSE and Developer Defendants. (Doc. No. 1.) RCO alleged that CSE breached its contract with RCO and that CSE spoliated evidence by refusing to return—and eventually destroying—a set of RCO hard drives. Against CSE, RCO also alleged misappropriation of trade secrets, contributory copyright infringement, violation of the Digital Millennium Copyright Act (DMCA), tortious interference with contractual and business relationships, and unjust enrichment. With respect to Developer Defendants, RCO claimed that they wrongly copied RCO-1 in the development of their own software product, and asserted claims for misappropriation of trade secrets, copyright infringement, violation of the DMCA, tortious interference with contractual and business relationships, and unjust enrichment.⁸

On October 30, 2008, and December 2, 2008, respectively, RCO and CSE filed cross-motions for partial summary judgment on RCO's spoliation and breach of contract claims against CSE. (Doc. Nos. 71 (redacted), 92 (unredacted) (RCO motion); Doc. No. 83, 87 (CSE motion).) RCO and CSE reached a settlement agreement between them, and accordingly these motions—as well as RCO's claims against CSE for spoliation, breach of contract, misappropriation of trade secrets, contributory copyright infringement, violation of the Digital Millennium Copyright Act (DMCA), tortious interference with contractual and business relationships, and unjust enrichment—are not before this Court. (Minutes of Proceedings, 2/20/2009; Doc. Nos. 145, 152.)

RCO also filed a separate motion for partial summary judgment on its claims against Developer Defendants for misappropriation of trade secrets, copyright infringement, and violation of the DMCA. (Doc. No. 100.) CSE, which at the time was still a Defendant in the case, and the Developer Defendants filed a joint cross-motion for partial summary judgment on RCO's remaining claims, i.e., misappropriation of trade secrets, copyright infringement, violation of the DMCA, tortious interference with contractual and business relationships, and unjust enrichment. (Doc. No. 101.) In light of the settlement between RCO and CSE, these motions are MOOT with respect to all claims by RCO against CSE. With respect to RCO's claims against Developer Defendants for misappropriation of trade secrets, copyright infringement, violation of the DMCA, tortious interference with contractual and business relationships, and unjust enrichment, however, these motions are ripe for review.

II. STANDARD OF REVIEW

On motion for summary judgment, a party is entitled to judgment as a matter of law "if the pleadings,...