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Retail Pipeline, LLC v. JDA Software Group, Inc.

United States District Court, D. Vermont

March 30, 2018



          Christina Reiss, District Judge United States District Court.

         Plaintiffs Retail Pipeline, LLC and Darryl Landvater (collectively, "Plaintiffs") bring this action alleging breach of contract, breach of the implied covenant of good faith and fair dealing, breach of a contract implied in law or fact, and constructive fraud against Defendant JDA Software Group, Inc.[1] Pending before the court is Defendant's motion to dismiss Plaintiffs' claims for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2). (Doc. 4.)

         On July 13, 2017, the court heard oral argument on Defendant's motion to dismiss and Plaintiffs' request for jurisdictional discovery. The court ruled on the record that it would defer adjudication of the motion until limited jurisdictional discovery was completed. Thereafter, the parties engaged in discovery and filed supplemental memoranda based thereon. Their filings were completed on March 2, 2018, whereupon the court took the pending motion to dismiss under advisement.

         Plaintiffs are represented by Marc B. Heath, Esq., Tristram J. Coffin, Esq., and Jennifer E. McDonald, Esq. Defendant is represented by Karen McAndrew, Esq. and Justin B. Barnard, Esq.

         I. Factual Background.

         The facts are derived from Plaintiffs' Complaint, as well as the affidavits and documents submitted by the parties in relation to the pending motion.[2] Plaintiff Retail Pipeline is a Vermont limited liability company with its principal place of business in Essex Junction, Vermont. Plaintiff Landvater is a Vermont resident who formed Plaintiff Retail Pipeline with Andre Martin, a Canadian citizen and resident of Montreal, Quebec. Although Mr. Martin served as the company's chairman, see Doc. 5-1 at 14, the terms of Plaintiff Landvater's ownership of or employment by Plaintiff Retail Pipeline are not clear.

         Defendant is incorporated in Delaware and has a principal place of business in Scottsdale, Arizona. It is engaged in the business of developing and selling software products for supply chain management. It has no employees and owns JDA Software, Inc.

         In 1997, Plaintiff Landvater and Andre Martin formed and served as the principals of Retail Pipeline Integration Group, Inc. ("RPIG") for the purpose of developing and distributing Flowcasting Technology ("Flowcasting"), a software product that provides time-phased requirement planning for both retail stores and distribution centers so that those entities may forecast and satisfy their distributional needs. According to Plaintiff Landvater's declaration, "Flowcasting was developed entirely in Vermont." (Doc. 12-1 at 1, ¶ 5.) On June 30, 2009, RPIG transferred all right, title, and interest in Flowcasting to Plaintiff Retail Pipeline.

         A. The Parties' Membership Interest Purchase Agreement.

         On July 2, 2009, Plaintiff Retail Pipeline entered into an Intellectual Property Contribution and Assignment Agreement ("IPCAA") with RedPrairie Collaborative Flowcasting Group, LLC (the "Joint Venture"), a Delaware limited liability company. The other member of the Joint Venture was RedPrairie Corporation, a Delaware corporation with its principal place of business in Georgia. Plaintiffs' Complaint is silent as to where the IPCAA was negotiated, signed, and implemented.

         Pursuant to the IPCAA, Plaintiff Retail Pipeline contributed certain intellectual property rights in Flowcasting in exchange for a 50% ownership interest in the Joint Venture. Through a Call Option in the Joint Venture Operating Agreement, RedPrairie Corporation retained the right to purchase Plaintiff Retail Pipeline's 50% membership interest for $10 million. As part of the IPCAA, the Joint Venture secured three major clients to use the Flowcasting software: (1) Kraft Foods; (2) Sony Canada; and (3) Sigma Alimentos. Plaintiffs' Complaint does not specify whether any of these entities had any connection to Vermont or conducted any business in Vermont. The Joint Venture reached a tentative deal with a fourth major client, Walmart, which, if completed, would have been a "breakthrough implementation of Flowcasting[]" and would have brought in $84 million in revenue over three years. (Doc. 9 at 4, ¶ 20.)

         While negotiations with Walmart were underway, RedPrairie Corporation and Defendant entered into a merger on December 4, 2012 whereby Defendant succeeded to RedPrairie Corporation's position as a 50% member in the Joint Venture. The merger occurred without notice to Plaintiffs, but, according to Plaintiffs, "had the potential to be a very positive development for the Joint Venture[, ]" as Defendant was "an even larger, more established software company, with prominence in the supply chain planning software business." Id. at 4, ¶ 24. At the time of the merger, Defendant distributed its own software that forecasted the inventory requirements for distribution centers which was marketed as "Demand/Fulfillment." After the Defendant-RedPrairie Corporation merger, Defendant allegedly "refused to sell Flowcasting and attempted to sell potential customers of the Joint Venture on [Defendant's] own Demand/Fulfillment, a lower-grade [distribution center]-level supply-chain software product." Id. at 5, ¶ 31.

         Shortly after the merger, on February 12, 2013, Defendant's then-CEO Hamish Brewer met with Plaintiff Landvater and Mr. Martin at an unidentified location. Mr. Brewer proposed that they dissolve the Joint Venture and replace it with a new agreement between Defendant and Plaintiff Retail Pipeline. Pursuant to the new agreement, the parties agreed to integrate Flowcasting with Demand/Fulfillment. Plaintiffs represent that, at the time, because Defendant refused to sell Flowcasting they "had no choice but to agree to Mr. Brewer's plan and enter into a new agreement with [Defendant]." (Doc. 51-1 at 4, ¶ 25.) In an email dated February 13, 2013, Mr. Brewer directed Defendant's personnel to work with Plaintiff Landvater and Mr. Martin to develop specific plans to create a product branded '"JDA Flowcasting' to leverage the Flowcasting brand and integrate Flowcasting with Demand/Fulfillment to provide maximum value to [Defendant's customers." (Doc. 9 at 5, ¶ 29.) Plaintiffs allege, and Defendant does not contest, that when Defendant proposed dissolving the Joint Venture and entering into a new agreement with Plaintiff Retail Pipeline, Defendant was "fully aware that [Plaintiff] Retail Pipeline was a Vermont company and that [Plaintiff] Landvater was a resident of Vermont[.]" (Doc. 51-1 at 5, ¶ 27.)

         On April 3, 2013, again at an unidentified location, Mr. Brewer met with Plaintiff Landvater and Mr. Martin to review a jointly-developed business plan. At the meeting, Mr. Brewer confirmed that "he wanted to dissolve the Joint Venture, " pay $3 million to Plaintiff Retail Pipeline "up front, " and pay an additional $7 million based on "future revenues of the new, integrated product offering." (Doc. 9 at 5, Tf 30.) In an email dated July 17, 2013, Mr. Brewer informed Plaintiff Landvater and Mr. Martin that rather than retain Flowcasting as a long-term, stand-alone product, Defendant wanted to integrate Flowcasting into Demand/Fulfillment with a single code base. Defendant offered Plaintiffs a five-year earn-out whereby they would have had one year to integrate Flowcasting into Defendant's current software and four years to earn the purchase price for Plaintiff Retail Pipeline's membership interest in the IPCAA.

         On December 16, 2013, Plaintiff Landvater and Mr. Martin met with Defendant's executives, including Dan Groneck, Vice President of Defendant's Product Management Group, to agree on the necessary steps to develop "Flowcasting 2.0, " a single system integrating Flowcasting and Demand/Fulfillment. Id. at 6, ¶ 34 (internal quotation marks omitted). Plaintiffs' Complaint does not state where this meeting took place. Following the meeting, Mr. Groneck circulated an email to the meeting attendees, including Plaintiff Landvater and Mr. Martin. The email contains Mr. Groneck's notes on the plan for developing "Flowcasting 2.0" and outlines the changes to which Defendant would commit in order to integrate Demand/Fulfillment with Flowcasting.

         On February 25, 2014, Plaintiff Retail Pipeline and Defendant entered into the Membership Interest Purchase Agreement ("MIPA"), which was signed by Plaintiff Landvater and Mr. Martin on Plaintiff Retail Pipeline's behalf. Downs Rachlin Martin PLLC, a law firm with offices in Vermont, represented Plaintiffs and Mr. Martin in the negotiations which occurred in-person in Scottsdale, Arizona and by telephone. During the negotiations, Plaintiff Landvater communicated with Defendant "virtually on a daily basis from [his] home office in Vermont[]" through emails and telephone conference calls. (Doc. 12-1 at 2.) Plaintiff Landvater and Mr. Martin signed the MIPA and related documents in Vermont. Defendant signed the MIPA in Arizona.

         Pursuant to the MIPA, Defendant acquired Plaintiff Retail Pipeline's 50% interest in the Joint Venture and received all right, title, and interest in and to the intellectual property of the Joint Venture, including, without limitation, the Flowcasting software. Defendant agreed to pay Plaintiff Retail Pipeline an aggregate amount of $3 million in three equal installments and up to an additional aggregate amount of $7 million based on certain performance criteria outlined in the MIPA. The sum of $3 million was payable in-full to Plaintiff Retail Pipeline within 270 days of the MIPA signing, whereas the sum of $7 million was an earn-out payment based upon three separate revenue streams: (i) Flowcasting 1.0 and Flowcasting 2.0; (ii) Plaintiff Retail Pipeline's Slow Mover module; and (iii) software license revenue in excess of the first $15 million from sales of Defendant's Demand/Fulfillment to retail customers. The MIPA set an outside date for payment on the earn-out of December 31, 2018. The MIPA does not contain a forum selection clause, however, it provides that the agreement will be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the law that might otherwise govern under applicable conflict of laws principles.

         The MIPA further provides that Plaintiff Landvater and Mr. Martin's employment with Defendant was a condition to Plaintiff Retail Pipeline's right to receive the full value of the earn-out payment. The relevant provision states that unless Plaintiff Landvater or Mr. Martin was terminated "without Cause[, ]" "Resign[ed] for Good Reason[, ]" died, became disabled and unable to work on or prior to the last day of Defendant's fiscal year on which the annual earn-out payment is based, or "if [Mr.] Martin or [Plaintiff] Landvater is not employed by [Defendant] or one of its Affiliates ... on the last day of [Defendant's] fiscal year on which the Annual Earn-Out Payment is based[, ]" then:

any Annual Earn-Out Payment, any payment pursuant to [the Acceleration of the Earn-Out clause] and the Maximum Amount of the earn-out portion of the Purchase Price shall be reduced by fifty-five percent (55%) // [Plaintiff] Landvater ceases to be employed or thirty-five percent (35%) if [Mr.] Martin ceases to be employed under such circumstances. The ineligibility of one of [Mr.] Martin or [Plaintiff] Landvater to receive an Annual Earn-Out Payment or payment pursuant to [the Acceleration of the Earn-Out clause] shall not preclude [Plaintiff] Retail [Pipeline] from receiving an Annual Earn-Out Payment for such year (or payment pursuant to [the Acceleration of the Earn-Out clause]). However, [Plaintiff] Retail [Pipeline] shall be precluded from receiving an Annual Earn-Out Payment or payment pursuant to [the Acceleration of the Earn-Out clause] if both [Mr.] Martin and [Plaintiff] Landvater are ineligible to receive an Annual Earn-Out Payment or payment under [the Acceleration of the Earn-Out clause] pursuant to this Section[.]

(Doc. 5-1 at 5-6, § 1.3.3(d)) (emphasis supplied).

         The MIPA did not require Plaintiff Landvater's employment obligations to be performed in or from Vermont. Correspondingly, it did not require them to be performed in or from an alternative location.

         B. Plaintiff Landvater's Employment with Defendant.

         On March 21, 2014, Plaintiff Landvater accepted an offer of employment from Defendant to work as the Senior Product Director in the company's Product Management Group. Defendant hired Plaintiff Landvater as a "full-time" employee with an annual salary, however,, as Defendant points out, its written offer of employment letter from Defendant does not mandate a specific hourly requirement for Plaintiff Landvater's employment, but rather states that he will devote his "full time, attention and efforts to the performance of [his] duties as [Defendant] may establish from time to time." (Doc. 52-3 at 3.) According to the terms of Plaintiff Landvater's employment agreement, Arizona law governed any legal proceedings arising out of or related to the agreement, and any legal action was required to be brought "exclusively in the federal or state courts located in the State of Arizona." Id. at 6.

         In his declaration, Plaintiff Landvater avers that Defendant's primary purpose for hiring him and Mr. Martin was to facilitate the agreed-upon changes required for integrating Flowcasting and Demand/Fulfillment in accordance with the MIPA. Plaintiff Landvater further avers that his earn-out "was based on developing the store-level market." (Doc. 25-1 at 3, ¶ 11.) According to David Johnston, Defendant's Senior Vice President for Global Solutions Strategy, Plaintiff Landvater was hired to provide support and maintenance to a "handful of customers using the Flowcasting software and to provide support to [Defendant's] employees in development of [Defendant]'s software suite." (Doc. 4-1 at 6, 123.)

         As an employee of Defendant, Plaintiff Landvater worked from an office located at 85 Allen Martin Drive, Essex Junction, Vermont, as well as from a home office located in Williston, Vermont. In his affidavit, John Savari, Group Vice President of Technology for Defendant, states that Defendant preferred "that [Plaintiff Landvater] work from one of [Defendant's] office locations, none of which is in Vermont[, ]" but he was allowed to work from Vermont because "most of [his] work could be completed remotely[.]" (Doc. 29-1 at 2, ¶ 6.) At no point did Defendant request or require that Plaintiff Landvater work out of one of Defendant's office locations outside of Vermont. When Plaintiff Landvater met with Defendant, "those meetings were held over the phone or in Arizona, Maryland, Texas, Georgia, and/or Wisconsin." (Doc. 4-1 at 6, f 25.) As part of his employment, Plaintiff Landvater traveled to Defendant's offices in Rockville, Maryland; Montreal, Quebec; Scottsdale, Arizona; Bentonville, Arkansas; and other locations. Defendant reimbursed Plaintiff Landvater for work-related travel to and from Vermont. Defendant's employees did not travel to Vermont "to speak with [Plaintiff] Landvater or to check-in on him about the customers he was handling." Id.

         With regard to Plaintiff Landvater's Essex Junction office, the parties dispute whether Defendant had a "Vermont office, " and, specifically, whether Defendant owed Plaintiff Landvater reimbursement for office rent. In an email from Plaintiff Landvater to Fred Baumann, an employee for Defendant, Plaintiff Landvater stated that he "owned" the Essex Junction, Vermont office. (Doc. 52-4 at 2.) At the time Defendant succeeded to RedPrairie Corporation's position in the Joint Venture, RedPrairie Corporation had been paying rent for the Essex Junction office at the rate of $1, 200 per month. On February 19, 2014, less than a week before the parties signed the MIPA, Mr. Baumann sent Plaintiff Landvater a "Whiteboard PowerPoint" presentation that Defendant "used ... for calculation of the 2014 budget expense items for the Flowcasting P&L." (Doc. 51-1 at 8, ¶ 48) (internal quotation marks omitted). The presentation was marked "draft" (Doc. 52-5 at 4), and included a budget line-item expense for rent for the Essex Junction office and the notation "[b]udget to continue through 2014." (Doc. 52-5 at 4) (internal quotation marks omitted).[3]

         It is undisputed that Defendant never paid or reimbursed Plaintiff Landvater for the Essex Junction office, nor did it enter into a lease or otherwise formalize an arrangement to pay for a remote workspace. According to an email sent from Mr. Baumann to Plaintiff Landvater on December 16, 2015, Defendant had a policy to "not allow for virtual employees to expense office rental costs." (Doc. 52-6 at 2-3.) While Plaintiff Landvater contends that he did not receive any prior notification that Defendant had decided not to cover the rent for the Essex Junction office, Defendant asserts that Plaintiff Landvater first demanded reimbursement for this expense in connection with his departure in December 2015. Prior to that point, Plaintiff Landvater had not submitted an expense claim for the Essex Junction office.

         Defendant paid for certain office expenses for the duration of Plaintiff Landvater's employment, as it did for other employees who worked remotely, including: (1) cloud computing and managed server hosting; (2) a telephone line and Internet; and (3) WebEx for online meetings and web conferencing. These expenses were paid by Sarah Nemec, Defendant's Director of Financial Reporting, until her departure from the company on January 3, 2014. Thereafter, all day-to-day accounting, including payment of office expenses for Plaintiff Landvater, was handled by Defendant's consultant, Laura Hudson, and Defendant's then-Vice President Assistant Comptroller, Eric Haeussler. If Defendant was delinquent in making these expense payments, Mr. Haeussler authorized Plaintiff Landvater to pay these invoices directly and submit them to Defendant as an expense claim.

         Throughout his employment with Defendant, Plaintiff Landvater had a company email address, conference call number, and login credentials for online meetings and video conferencing. Defendant further provided Plaintiff Landvater with access from Vermont to Defendant's internal servers and a user identification and password for Defendant's internal network. According to Mr. Savari, Defendant "provides these services to all [of] its employees" which were "especially necessary" for Plaintiff Landvater because he "was working remotely." (Doc. 29-1 at 3-4, ¶ 9.)

         From Vermont, Plaintiff Landvater participated in conference calls with Defendant's employees "nearly every day." (Doc. 25-1 at 2, ¶ 11.) He attended sales meetings for Walmart, CVS Pharmacy, and O'Reilly Auto Parts with other employees, although his declaration does not state where these meetings took place. Every project that Plaintiff Landvater worked on, including Princess Auto, Sigma, and Kraft, was completed with Defendant's knowledge and at ...

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