Success Sys. v. CRS, Inc.
| Decision Date | 31 March 2023 |
| Docket Number | 3:21-CV-1391 (SVN) |
| Parties | SUCCESS SYSTEMS, INC. and SMART C-STORES, LLC, Plaintiffs, v. CRS, INC. and SHIN HEUNG PRECISION CO., LTD., Defendants. CRS, INC., Counter Claimant, v. SUCCESS SYSTEMS, INC., Counter Defendant. |
| Court | U.S. District Court — District of Connecticut |
RULING AND ORDER ON DEFENDANT CRS, INC.'S MOTION TO TRANSFER AND DEFENDANT SHIN HEUNG PRECISION CO LTD.'S MOTION TO DISMISS
Plaintiffs Success Systems, Inc. (“Success”) and Smart C-Stores, LLC (“Smart C-Stores”) have brought this action against Defendants CRS, Inc. (“CRS”) and Shin Heung Precision, Co., Ltd. (“Shin Heung”), alleging that Defendants caused them damages by abruptly terminating business relationships between the parties and breaching a non-disclosure agreement (the “NDA”). Following dismissal of various claims Plaintiffs' complaint consists of four counts: breach of contract, alleging violations of the NDA (Count Three) unjust enrichment (Count Four); misappropriation of trade secrets pursuant to Connecticut General Statutes § 35-51 (Count Five); and violation of the Connecticut Unfair Trade Practices Act (“CUTPA”), Connecticut General Statutes §§ 42-110a et seq. (Count Seven). CRS now seeks transfer of this action to the U.S. District Court for the District of Minnesota pursuant to 28 U.S.C § 1404(a), while Shin Heung seeks dismissal of Plaintiffs' claims against it pursuant to Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction. For the reasons described below, CRS's motion to transfer is DENIED and Shin Heung's motion to dismiss is GRANTED.
The following facts are drawn from the parties' pleadings and the affidavits and exhibits accompanying their briefing on the present motions.[1]
A. The Parties
Success is a Connecticut company that offers automation solutions for convenience, grocery, liquor, tobacco, and gasoline service stations. SAC, ECF No. 27, ¶ 8; Tarlow Decl. as to CRS's Mot., ECF No. 65-1, ¶ 5. One of the products Success offers is a tobacco loyalty program named “Smokin' Rebates.” SAC ¶ 8; see Sanders Decl., ECF No. 63-2, ¶ 6. Smokin' Rebates is a rebate reporting system through which major tobacco manufacturers, along with certain consumer packaging companies, offer rebates to store owners, who agree to share tobacco sale and scan data from their stores. SAC ¶ 9; see Sanders Decl. ¶ 6. Tobacco manufacturers use this data for research and marketing purposes. SAC ¶ 9.
Since 2010, Success has been a reseller of “SAM4s” electronic cash registers, which are popular among store owners and used in more than sixty countries. Id. ¶¶ 10, 12. Prior to the commencement of this litigation, Plaintiff Smart C-Stores,[2] a separate entity with a principal place of business in Connecticut, was also a dealer of these registers. Tarlow Decl. as to CRS's Mot. ¶¶ 5, 15. Shin Heung, a Korean company, manufactures SAM4s registers in South Korea. Kim Decl., ECF No. 49-2, ¶ 5; see SAC ¶ 12. According to CRS, Shin Heung is the exclusive developer and owner of the SAM4s operating system, software, and technology. Sanders Decl. ¶ 3.
CRS, a Minnesota corporation, is the exclusive importer of the SAM4s register in the United States. Sanders Decl. ¶ 2.[3]CRS purchases the registers from Shin Heung and then distributes them to its network of dealers and distributors, like Sale Point, Inc. d/b/a Longino Distributing, Inc. (“Sale Point”), a former defendant in this action that was dismissed by stipulation in May of 2022, id. ¶ 4; SAC ¶ 4; ECF No. 50. CRS's dealers and distributors then sell the SAM4s registers, along with licenses to use the SAM4s software, to retailers; the dealers and distributors also provide related support services. Sanders Decl. ¶ 4. Success purchases SAM4s registers from Sale Point and resells them to retailers. SAC ¶¶ 8, 12; see Sanders Decl. ¶ 5 ().
CRS President David Sanders avers that, as a distributor and not a manufacturer, CRS does not have possession, custody, or control over the SAM4s software's source code. Sanders Decl. ¶ 3. Rather, Shin Heung licenses the software in “compiled, executable object code form” to CRS, which sublicenses it to users through an End User License Agreement (“EULA”), which the users are required to accept. Id. Sanders further avers that CRS provided Shin Heung with the EULA so that it could be loaded into the SAM4s operating system and presented to users, requiring such users to accept it. Id.
B. The Software Development Project
At some point in 2019, Success, CRS, and Shin Heung discussed working together to integrate the Smokin' Rebates program into the “SAM4s 630/6600” cash register system. SAC ¶ 11; Tarlow Decl. as to CRS's Mot. ¶ 16; Sanders Decl. ¶ 7. Until that time, the SAM4s registers did not support tobacco rewards or loyalty programs. SAC ¶ 11. Success and CRS dispute how the discussions regarding the project originated. Success asserts that CRS and Shin Heung solicited a partnership with Success, id.; Tarlow Decl. as to CRS's Mot. ¶ 16, and that, in or around June of 2019, Success and CRS began discussing the possible writing and integration of code that would enable the SAM4s registers to utilize the Smokin' Rebates program, SAC ¶ 40; Tarlow Decl. as to CRS's Mot. ¶ 17. CRS, by contrast, asserts that Success solicited CRS about the project. Sanders Decl. ¶ 7.
In July of 2019, Success and CRS signed the NDA so that they could explore and proceed with the software development process. SAC ¶ 45; Sanders Decl. ¶ 8. The NDA-which, by its terms, is to be governed by the laws of the state of Connecticut, SAC ¶ 46-provides, in part, that “all Confidential Information disclosed by Owner to Recipient under this Confidentiality Agreement in tangible form (including, without limitation, information incorporated in computer software or held in electronic storage media) shall be and remain property of Owner,” id. ¶ 47.[4]Pursuant to the NDA, Success supplied CRS with confidential information, which included more than fifty unique and proprietary changes to the SAM4s 630/6600 software. Id. ¶ 51.
Shin Heung is not a party to the NDA, Sanders Decl. ¶ 7, and Shin Heung claims that it has never seen a copy of the agreement, Kim Decl. ¶ 10. Success alleges, however, that CRS and Success intended that Shin Heung would be a third-party beneficiary of the agreement because it would benefit directly from the disclosure and use of Success' proprietary and confidential trade secrets, and because it would work directly with CRS and Success to develop and integrate the software modification using Success' confidential information and trade secrets. SAC ¶ 48.
From July of 2019, until May of 2021, Success, Shin Heung, and CRS worked together to develop the new software code, integrate Smokin' Rebates into the SAM4s software, and improve upon the original version of the software. Id. ¶ 49. Much of the testing and design work for the project was accomplished by employees of Success in its Connecticut offices. Id. ¶ 50; Tarlow Decl. as to CRS's Mot. ¶ 29. At some point early in the software development process, CRS provided Success with SAM4s registers for the purposes of testing the software. See Tarlow Decl. as to CRS's Mot. ¶ 48 (discussing the “initial delivery of [a] few registers to Success for use as testing machines in furtherance of the joint venture”); Sanders Decl. ¶ 7 ().
On several occasions, both before and after the execution of the NDA, employees and agents of CRS traveled from Minnesota to Success' offices in Connecticut to solicit a partnership with Success and to complete the software integration. SAC ¶ 41.[5]First, CRS employees Diane Voss and Bruce Mann visited Success in Connecticut several times to solicit business. Id. ¶ 43. In addition, in January of 2020, Troy Lachinski, CRS's product manager for the SAM4s register, visited Success in Connecticut to facilitate the integration pursuant to the NDA. Id. ¶ 44. The first end-user integration of Smokin' Rebates into the SAM4s 630/6600 system occurred in May of 2020, as part of the twenty-ninth version of the software. Id. ¶ 57.
While the software was being developed, CRS and Success exchanged hardware between Minnesota and Connecticut. Id. ¶ 54. For example, in furtherance of the software development partnership and pursuant to the NDA, Voss purchased a SAM4s register from Shin Heung and arranged for it to be shipped to Success' offices in Connecticut so that Success could use the register to design, write, and integrate software. Id. ¶ 52; Tarlow Decl. as to Shin Heung's Mot., ECF No. 65-1, ¶ 33. On another occasion, a register failed, and Success sent it back to CRS in Minnesota; CRS then repaired the register and sent it back to Success in Connecticut. SAC ¶ 53. CRS and Success also regularly and repeatedly engaged in a “back-and-forth exchange” of software and updates between Minnesota and Connecticut. Id. ¶ 54.
Additionally Success, CRS, and Shin Heung conducted numerous telephone and Skype calls and exchanged data, quality testing documentation, design information, and software versions. Id. ¶ 55. On multiple occasions, data, code, and hardware were sent by Shin Heung from Korea to Connecticut. Id. ¶ 55; Tarlow Decl. as to CRS's Mot. ¶ 35. Success contends that, pursuant to the NDA, CRS also provided Shin Heung with Success' confidential information in order to accomplish the integration, SAC ¶ 56, and that, on several occasions, Success sent confidential information to Shin Heung after explicitly...
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