Roller Bearing Co. of America v. American Software, Civil No. 3:07cv1516 (JBA).

Citation570 F.Supp.2d 376
Decision Date13 August 2008
Docket NumberCivil No. 3:07cv1516 (JBA).
PartiesROLLER BEARING COMPANY OF AMERICA, INC., Plaintiff, v. AMERICAN SOFTWARE, INC., and American Software USA, Inc., Defendants.
CourtUnited States District Courts. 2nd Circuit. United States District Court (Connecticut)

James I. Glasser, Joseph W. Martini, Wiggin & Dana, New Haven, CT, Michael

J. Lockerby, Foley & Lardner, LLP, Washington, DC, Robert G. Huelin, Wiggin & Dana, Hartford, CT, for Plaintiff.

Arthur K. Engle, Mark R. Carta, Rucci, Burnham, Carta, Carello & Reilly, LLP, Darien, CT, for Defendants.

RULING ON PLAINTIFF'S MOTION FOR LEAVE TO FILE SECOND AMENDED COMPLAINT AND DEFENDANTS' MOTION TO DISMISS OR TRANSFER

JANET BOND ARTERTON, District Judge.

Plaintiff Roller Bearing Company of America, Inc. ("RBC") brought this action against American Software, Inc. and American Software USA, Inc. (collectively "ASI") seeking a declaratory judgment that RBC had not breached its software licensing agreement with ASI. ASI subsequently filed suit in Georgia state court, claiming RBC breached the licensing agreement. RBC timely removed that action to the United States District Court for the Northern District of Georgia. ASI has now moved to dismiss or transfer this action, arguing that (1) the Georgia action was the first-filed action and should be allowed to proceed, (2) this action should be dismissed as an improper declaratoryjudgment action, (3) this action should be transferred to the Northern District of Georgia pursuant to 28 U.S.C. § 1404(a), and (4) the claims against American Software, Inc. should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction. RBC subsequently filed a Motion for Leave to File Second Amended Complaint on June 2, 2008, seeking to abandon its declaratory-judgment claim and add claims for computer fraud and abuse (pursuant to 18 U.S.C. § 1030), computer crimes (pursuant to Conn. Gen.Stat. § 58-451), unfair trade practices (pursuant to Conn. Gen.Stat. § 41-110a), unlawful tying (pursuant to 15 U.S.C. § 1), monopoly leveraging (pursuant to 15 U.S.C. § 2), attempted monopolization (pursuant to 15 U.S.C. § 2), copyright misuse (pursuant to 17 U.S.C. § 101 and 15 U.S.C. §§ 1-2), trade secret misuse (pursuant to Conn. Gen.Stat. § 35-50, Ga. Code § 10-1-760, and 15 U.S.C. §§ 1-2) and breach of contract. For the reasons that follow, RBC's motion for leave to amend is granted, and ASI's motion to dismiss or transfer is denied.

I. Factual Background for Pending Motions
A. ASI's Motion to Dismiss or Transfer

RBC is a corporation organized under the laws of Delaware with its principal place of business in Connecticut. (Am. Compl.¶ 1.) American Software, Inc. is a corporation organized under the laws of the State of Georgia with its principal place of business in Georgia. (Id. ¶ 2.) American Software USA, Inc. is a wholly owned subsidiary of American Software, Inc., organized under the laws of Georgia with its principal place of business in Georgia. (Id. ¶ 3.) American Software USA, Inc. and American Software, Inc. are listed with the Georgia Secretary of State's office as having the same registered agent, officers, and address. (RBC's Opp'n Dismiss or Transfer at 7, Ex. D.)

On July 28, 1989, RBC and ASI entered into a Basic License Agreement ("license agreement") in which ASI granted RBC use of the "Company's Standard Application Software System" for a 99-year period for a total license fee of $135,150. (¶¶ 7-11, Ex. 1.) RBC timely paid the license fee in full. (Id. ¶¶ 9-10.) The license agreement stipulates that it "shall be governed by and construed in accordance with the laws of the State of Georgia" and that the parties shall "be subject to the jurisdictions of the courts in the State of Georgia in connection with any dispute or action relating to [the license agreement]." (Id. Ex. 1.) The license agreement does not contain any provision limiting the total number of users who may access the software. (Id. ¶ 12.)

On October 31, 1996, RBC and ASI entered into Amendment No. 12 to the license agreement allowing RBC to use an upgrade to the software under the license agreement and an "ADDM module," which "allows separate AS/400 computers in different locations to communicate with each other." (Id. ¶¶ 13-15.) Amendment No. 12 calls for a total license fee of $250,000 for purchase of this new software, which RBC has also paid in full in a timely fashion. (Id. ¶¶ 19-21.) Amendment No. 12 permits RBC to "use the System set forth on [the] Amendment on unlimited number of AS/400 computers provided [RBC] has less than a total of two hundred-fifty (250) users at all locations and divisions." (Id. ¶ 16.) Because the preface to Amendment No. 12 states that the Amendment shall apply only to the "Additional Software" identified in Exhibit A to the Amendment, RBC has understood this 250-user limit to apply only to RBC's use of the ADDM module. (Id. ¶¶ 14, 17.) Amendment No. 12 does not contain any provision that imposes a "per-user fee." (Id. ¶ 22.) RBC never used the ADDM module. (Id. ¶ 18.)

On August 6, 2007, ASI sent RBC a notice of default asserting that RBC was in default under the license agreement because RBC had 604 users, well in excess of the 250-user limit in Amendment No. 12. (Id. ¶ 26.) The notice demanded payment of a $3,000 per-user license fee for every user above the 250-user limit and invoiced RBC for the amount of $1,125,720. (Id. ¶ 27.) The notice also warned RBC that "[i]f this default is not cured in sixty (60) days of your receipt of this letter, RBC will have breached the [license agreement]. In that case, ASI may institute legal action to collect the additional user fee and any other remedy available to it at law and in equity." (RBC's Opp'n Dismiss or Transfer, Ex. B.) The accompanying invoice was addressed from American Software, Inc. and requested that payment of the $1,125,720 fee be remitted to American Software, Inc. (Id. Ex. C.) RBC responded to the notice of default on September 18, 2007, and rejected ASI's interpretation of the license agreement, maintaining that the 250-user limit was solely in connection with the ADDM module which RBC never used. (Am.Compl.¶¶ 28-29.)

RBC filed its declaratory action in Connecticut District Court on October 12, 2007 against American Software, Inc., which was served on October 21, 2007. (RBC's Opp'n Dismiss or Transfer at 4.) The service package sent by certified mail (pursuant to Conn. Gen.Stat. § 33-929(b)) was received by American Software, Inc. on October 26, 2007. (Br. in Supp. of Defs.' Mot. to Dismiss or Transfer.) On October 24, 2007, RBC amended its complaint to add American Software USA, Inc. as a party. (Am.Compl.) American Software USA, Inc. was served on October 25, 2007. (RBC's Opp'n Dismiss or Transfer at 4.)

On October 19, 2007, American Software USA, Inc. brought suit in Georgia state court to collect the license fees referenced in the notice of default. (ASI's Mem. Dismiss or Transfer at 7.) RBC was served on October 23, 2007. (Id.) ASI brought its Motion to Dismiss or Transfer on December 14, 2007.

B. RBC's Motion for Leave to File Second Amended Complaint

RBC represents that it learned of certain facts subsequent to filing its opposition to ASI's Motion to Dismiss or Transfer which form the basis for its motion to amend its complaint. (RBC's Mem. Leave to Amend at 3.) RBC now alleges that ASI, without RBC's written consent, inserted an "Undisclosed Disabling Code" or "logic bomb" in the ASI software licensed to RBC, which will disable the ASI software and the computer on which it operates if the software is relocated to any computer outside the RBC mainframe. (2d Am.Compl. ¶¶ 17-18.) Following RBC's discovery of the logic bomb, RBC alleges that ASI has failed to deactivate the source code and will allow it to go off automatically if the ASI software is relocated to any computer other than the RBC mainframe unless RBC pays ASI a "Deactivation Fee." (Id. ¶¶ 19-20.) Disabling the ASI software or the computer on which it is installed would disable RBC's business. (Id. ¶ 14.) The RBC mainframe on which RBC runs the ASI software is near capacity and must be replaced soon, otherwise RBC risks a shutdown. (Id. ¶ 15.) The license agreement calls for payment of an "Upgrade Fee" when the ASI software is relocated. (Id. ¶ 21.) Rather than quote RBC this upgrade fee, ASI has allegedly demanded payment of the deactivation fee in order to permit relocation of the ASI software but has not specified the amount of the deactivation fee other than to say it "would run in the hundreds of thousands of dollars." (Id. ¶¶ 25-26.)

II. Motion for Leave to File Second Amended Complaint

Previously amended pleadings may be subsequently amended only with the opposing party's written consent or the court's leave. Fed.R.Civ.P. 15(a). In the absence of consent, "[t]he court should freely give leave when justice so requires." Id. Leave should be denied only upon a showing of "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment." Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir.1981). The objective served by freely allowing amendments is to enable a party "to assert matters that were overlooked or were unknown ... at the time ... [of the] original complaint or answer." Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698, 703 (2d Cir.1985).1

RBC's Proposed Second Amended Complaint asserts matters that were unknown to RBC as of the date of RBC's Amended Complaint (the planting of the "logic bomb") and events that have happened since the date of RBC's Amended Complaint (ASI's allegedly "fraudulent and extortionate...

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