Shepard's McGraw-Hill, Inc. v. Legalsoft Corp., 91-B-0063.

• Decision Date: 09 July 1991
• Docket Number: No. 91-B-0063.,91-B-0063.
• Citation: 769 F. Supp. 1161
• Parties: SHEPARD'S McGRAW-HILL, INC., Plaintiff, v. LEGALSOFT CORPORATION, a Colorado Corporation, Max Wharton, individually, Peter Westphal, individually, Software Technology, Inc., a Nebraska Corporation, United Systems, Inc., an Oklahoma Corporation, Lanier Worldwide, Inc., a Delaware Corporation, and Barrister Information Systems Corporation, a New York Corporation, Defendants.
• Court: U.S. District Court — District of Colorado

769 F. Supp. 1161

SHEPARD'S McGRAW-HILL, INC., Plaintiff, v. LEGALSOFT CORPORATION, a Colorado Corporation, Max Wharton, individually, Peter Westphal, individually, Software Technology, Inc., a Nebraska Corporation, United Systems, Inc., an Oklahoma Corporation, Lanier Worldwide, Inc., a Delaware Corporation, and Barrister Information Systems Corporation, a New York Corporation, Defendants.

No. 91-B-0063.

United States District Court, D. Colorado.

July 9, 1991.

William W. Maywhort, Todd W. Miller, John J. Coates, Denver, Colo., for plaintiff.

Julie K. McCurdy, W. David Pantle, Sherman and Howard, Stephen N. Berkowitz, Lutz and Berkowitz, P.C., Denver, Colo., Marvin N. Benn, Dawn M. Cassie, Hamman & Benn, Chicago, Ill., Mark C. Donadio, Barrister Information Systems Corp., Buffalo, N.Y., Richard Kransler, Zuckerman & Kleinman, P.C., Denver, Colo., Alvin R. Leonard, Oklahoma City, Okl., for defendants.

AMENDED MEMORANDUM OPINION & ORDER

BABCOCK, District Judge.

On June 21, 1991, hearing was held on three motions in this copyright infringement action: (1) motion to dismiss plaintiff Shepard's McGraw-Hill, Inc.'s (Shepard's) complaint for lack of personal jurisdiction and improper venue, filed by defendant United Systems, Inc. (United); (2) motion to stay or dismiss or for more definite statement, filed by defendant Software Technology, Inc. (STI); and (3) motion to dismiss, filed by defendants Legalsoft Corporation (Legalsoft), Max Wharton (Wharton) and Peter Westphal (Westphal) (collectively Legalsoft).

In its complaint, Shepard's alleges that it and Legalsoft entered into a contract (the Umbrella Agreement) whereby Legalsoft would write and Shepard's would publish computer software. The Umbrella Agreement has been recorded in the United States Copyright Office. Under the Umbrella Agreement, Legalsoft wrote and Shepard's published legal software called "CMS." Shepard's alleges that Legalsoft, through its agents Wharton and Westphal, wrote a program and related modules, called "LMS," which perform tasks substantially similar to the CMS software. Shepard's contends that it owns the copyright to CMS and that LMS infringes on its copyright. It further claims that defendants United and STI have infringed on its copyright to CMS by publishing and distributing LMS. Lanier and Barrister are also named in the complaint, but no motions from those defendants are before me.

I. UNITED'S MOTION TO DISMISS

United, an Oklahoma corporation, contends that this court does not have personal jurisdiction over it. I agree.

A. Personal Jurisdiction

To defeat the 12(b)(2) motion, Shepard's need only make a prima facie case of personal jurisdiction. Kennedy v. Freeman, 919 F.2d 126, 128 (10th Cir.1990).

The plaintiff bears the burden of establishing personal jurisdiction over the defendant. Prior to trial, however, when a motion to dismiss for lack of jurisdiction is decided on the basis of affidavits and other written materials, the plaintiff need only make a prima facie showing. The allegations in the complaint must be taken as true to the extent they are uncontroverted by the defendant's affidavits. If the parties present conflicting affidavits, all factual disputes are resolved in the plaintiff's favor, and the plaintiff's prima facie showing is sufficient notwithstanding the contrary presentation by the moving party.

Behagen v. Amateur Basketball Ass'n., 744 F.2d 731, 733 (10th Cir.1984) (citations omitted), cert. denied, 471 U.S. 1010, 105 S.Ct. 1879, 85 L.Ed.2d 171 (1985); see Leidy's, Inc. v. H2O Eng'g, Inc., 811 P.2d 38 (Colo.1991).

Shepard's must satisfy a two-prong test to make its prima facie showing that I have personal jurisdiction over United. See Schocket v. Classic Auto Sales, Inc., 817 P.2d 561 (Colo.App.1991) (LEXIS Colo library, Cases file). First, it must show that the Colorado long-arm statute, Colo. Rev.Stat. § 13-1-124, extends to reach United. This is true even in federal question actions where, as here, the underlying federal statute does not provide for nationwide service of process and process is served under the state long-arm statute. Fed.R.Civ.Proc. 4; Omni Capital Int'l, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 104-05, 108 S.Ct. 404, 409-10, 98 L.Ed.2d 415 (1987); Petroleum Helicopters, Inc. v. Avco Corp., 804 F.2d 1367, 1371 (5th Cir. 1986); DeJames v. Magnificence Carriers, Inc., 654 F.2d 280, 283 (3d Cir.), cert. denied, 454 U.S. 1085, 102 S.Ct. 642, 70 L.Ed.2d 620 (1981); Time, Inc. v. Manning, 366 F.2d 690, 693 (5th Cir.1966) (copyright); see Volk Corp. v. Art-Pak Clip Art Serv., 432 F.Supp. 1179, 1180-81 n. 2 (S.D.N.Y.1977).

The reach of Colorado's long-arm statute is a matter of Colorado state law. Taylor v. Phelan, 912 F.2d 429, 431 (10th Cir. 1990), cert. denied, ___ U.S. ___, 111 S.Ct. 786, 112 L.Ed.2d 849 (1991). Should I conclude that Colorado state law requires dismissal for lack of personal jurisdiction, then I must dismiss, for I may not exercise personal jurisdiction where Colorado state courts would not.

Second, United must show that the requirements of the fifth amendment due process clause of the federal constitution are satisfied. D & D Fuller CATV Constr., Inc. v. Pace, 780 P.2d 520, 523 (Colo.1989); see Taylor, 912 F.2d at 431-32; Leney v. Plum Grove Bank, 670 F.2d 878, 879-80 (10th Cir.1982); Pillar Corp. v. Enercon Indus., 1989-1 Trade Cas. (CCH) ¶ 68,597, 1989 WL 77667 (E.D.Wis. May 16, 1989).

There are two ways to establish personal jurisdiction.

Jurisdiction may be either general or specific. General jurisdiction arises from a defendant's continuous and systematic activity in the forum state. See Rambo v. American So. Ins. Co., 839 F.2d 1415, 1418 (10th Cir.1988); Behagen, 744 F.2d at 733. Specific jurisdiction arises in the absence of such activity and is predicated on a defendant's minimum contacts with the forum which give rise to the cause of action.

Kennedy, 919 F.2d at 128 n. 2. See Waterval v. District Court, 620 P.2d 5, 9 (Colo. 1980), cert. denied, 452 U.S. 960, 101 S.Ct. 3108, 69 L.Ed.2d 971 (1981). Shepard's admits that United did not and does not have an on-going and continuous business presence in Colorado. Rather, Shepard's relies on specific jurisdiction analysis.

1. Reach of the Colorado Long-Arm Statute

The first inquiry is whether the Colorado long-arm statute reaches United. Colorado Revised Statute section 13-1-124(1)(a) extends the jurisdiction of Colorado courts to any person who engages in "the transaction of any business within" Colorado. It is this section upon which Shepard's relies. I employ a three-prong test to determine whether United transacted any business within Colorado:

First, the defendant must purposefully avail himself of the privilege of acting in the forum state or of causing important consequences in that state. Second, the cause of action must arise from the consequences in the forum state of the defendant's activities. Finally, the activities of the defendant or the consequences of those activities must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.

Van Schaack & Co. v. District Court, 189 Colo. 145, 538 P.2d 425, 426 (1975); see Panos Inv. Co. v. District Court, 662 P.2d 180, 181 (Colo.1983); Waterval, 620 P.2d at 9; Marquest Medical Prod., Inc. v. Daniel McKee & Co., 791 P.2d 14, 16 (Colo.App. 1990). To establish that United transacted business in Colorado, Shepard's alleges three Colorado contacts.

The first centers on a software licensing agreement between United and Legalsoft. The significance of the agreement, according to Shepard's, is four part: (1) the product involved in that agreement, LMS, is made in Colorado; (2) by the terms of the agreement, United would pay to Legalsoft, a Colorado corporation, money for LMS sales; (3) because Legalsoft is located in Colorado and United's president visited Colorado, it is reasonable to infer that the agreement was negotiated in part when at least one party to it was in Colorado; and (4) the agreement contains a choice-of-law clause identifying Colorado law as governing its interpretation.

The second contact alleged is an agreement between United and STI, a Nebraska Corporation. Under that agreement there was a possibility that money paid by United to STI would ultimately be paid by STI to Legalsoft in Colorado.

The third and final contact identified concerns a letter written by counsel for United to Legalsoft demanding that, pursuant to the United-Legalsoft contract, Legalsoft defend United in this litigation.

As discussed below, these contacts, viewed singly or collectively, do not show that United purposefully availed itself of the privilege of acting or of causing important consequences in Colorado. Nor does Shepard's cause of action against United arise from the consequences in Colorado of the United's activities. Finally, neither the activities of United nor the consequences of those activities have a substantial enough connection with Colorado to make the exercise of jurisdiction over the defendant reasonable.

As to the United-Legalsoft licensing agreement, it is undisputed that (1) United is an Oklahoma corporation, with its only place of business in Oklahoma City, (2) United has no offices, agents or representatives in Colorado, (3) although the contract concerned a product produced in Colorado, no product was ever sent from Colorado to United and (4) United has never advertised, sold any goods or licensed any computer software in Colorado. More specifically, the evidence is uncontroverted that United never sold any copies of LMS at all, or made any payments to Legalsoft.

Shepard's contends that the agreement was negotiated at least in part by phone with the United representative in Colorado. The evidence, however, is far too speculative to support this argument. First, the initial meeting between United and Legalsoft took place in Lincoln, Nebraska, not Colorado.

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