Ashwood Comput. Co. v. Zumasys, Inc.

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Ashwood Computer Co., Inc., Plaintiff, v. Zumasys, Inc., et al., Defendants.

No. 1:20-cv-00029

United States District Court, S.D. Ohio, Western Division

July 10, 2024

OPINION & ORDER

MICHAEL R. BARRETT JUDGE

Pending before the Court are the motions to dismiss Plaintiff's Second Amended Complaint filed by Defendants Zumasys, Inc. and jBASE International, Inc. (Doc. 81) and Defendant Cook Inc. (Doc. 82), which are fully briefed (see Docs 83/86^[1], 84/87^[2], 89, 90) and ripe for decision. Both motions are filed pursuant to Fed.R.Civ.P. 12(b)(6), which allows a party to move to dismiss a complaint for “failure to state a claim upon which relief can be granted.” Both motions will be granted in part and denied in part.

I. BACKGROUND

A. The Parties & Subject-Matter Jurisdiction

Plaintiff Ashwood Computer Co., Inc. (“Ashwood”) is an Ohio corporation with its principal place of business located in Cincinnati, Ohio. (Doc. 79 (¶ 1)).

Defendant Zumasys, Inc. (“Zumasys”) is a California corporation with its principal place of business located in Irvine, California. (Id. (¶ 3)). Defendant jBASE International, Inc. (“JII”) is an Oregon corporation with its principal place of business located in Irvine, California. (Id. (¶ 2)).

Defendant Cook Inc. (“Cook”) is an Indiana limited liability corporation with its principal place of business located in Bloomington, Indiana. (Id. (¶ 5)).^[3]

This Court has subject-matter jurisdiction pursuant to 28 U.S.C. § 1332(a)(1), because there is complete diversity between the parties and the amount in controversy is satisfied. (Doc. 79 (¶ 8); see id. (¶¶ 157, 166, 173, 179, 190, 207, 214, 224, 275)).

B. Facts Alleged in Plaintiff's Second Amended Complaint

Plaintiff Ashwood “specializes in providing sales assistance, programming services assistance and systems support services for MultiValue database users” across the United States. (Id. (¶ 16)). Put another way, Ashwood is “a full-service value-added reseller [hereinafter ‘VAR'] and systems integrator with extensive experience.” (Id.). “The principal business of a VAR is to acquire the appropriate licenses from software producers, like JII, Rocket Software, IBM, Oracle, SAP and others and to sub-license and install and implement and service that software for use by the VAR's end-users.” (Id. (¶ 33)). VARs like Ashwood purchase licenses from software producers under one contract and resell the licenses to their end-users under a separate contract. (See id. (¶ 39)).

Ashwood alleges that the business relationship between it and software producer jBASE is (or, at least, was) governed by the “Value Added Reseller Agreement” (“VAR Agreement”)^[4]that JII sent to Ashwood in February 2004. (See id. (¶ 18)). This Agreement “was intended as a written memorialization of the terms under which the parties had been doing business with each other for the prior fifteen (15) years.” (Id. (¶ 22)). “With few modifications, having to do only with pricing and discounts, [Ashwood] and JII have been continuously operating under the terms of the . . . VAR Agreement from May 2004 to the present.” (Id. (¶ 24)).

Under the 2004 VAR Agreement, Ashwood agreed to purchase jBASE software licenses from JII and then sub-license them to its own end-users. (Id. (¶¶ 25, 26)). In return, Ashwood earned renewal and monthly service fees on each sub-license it sold as long as Ashwood's end-user continued to use jBASE software. (Id. (¶ 27); see id. (¶¶ 53, 54)). Defendant Cook was one of Ashwood's end-users. (See id. (¶¶ 30, 32)). Cook began as a “small Indiana medical device manufacturer” that has since “grown into a multi-national company with annual sales of $3,000,000,000.00[.]” (Id. (¶¶ 36, 37)). Over the past 20 years, Ashwood “grew” the number of sub-licenses sold to Cook from a few dozen to over 6,000. (Id. (¶ 32); see id. (¶ 47)).^[5]“Cook has become the largest end user in the world of jBASE software.” (Id. (¶ 48); see id. (¶ 58)).

Ashwood requires all its end-users, Cook included, to enter into a service agreement. (Id. (¶ 51)). The most recent Master Sales, License, and Support Agreement (“Master Agreement”)^[6]between Ashwood and Cook was executed in 2012. (Id. (¶ 125)). “[E]ach jBASE license that is separately licensed to a company server to enable the enduser access to the database is subject to an initial sub-licensing fee of $500.00 per license and a monthly license and support fee of approximately $6.00 to $13.00 per month depending on each license's capability.” (Id. (¶ 55)).^[7]Both fees must be paid by the enduser, Cook included, to continue to access its own database. (Id.).

Defendant Zumasys “purchased” JII in 2015. (See id. (¶ 60)).

Beginning in July 2017, Zumasys (through its President Paul Giobbi) made numerous attempts to renegotiate the (current, according to Ashwood) 2004 VAR Agreement to allow JII the right to terminate without cause, which Ashwood resisted. (Id. (¶¶ 61, 62)). “Concurrently and coincident with Zumasys' efforts to force Ashwood to execute a new agreement in 2017, Cook began to send signals that it wanted to terminate its Service Agreements with Ashwood and to continue with JII instead.” (Id. (¶ 63)). To this end, Cook sent a notice of termination to Ashwood on October 31, 2017. (Id. (¶ 64)). Ashwood responded with letters to both Zumasys and Cook asserting its rights under the (current, according to Ashwood) 2004 VAR Agreement and warning Cook not to interfere with these rights. (Id.). Cook thereafter “backed away” from its “termination position” and continued to “use and pay” for Ashwood's services. (Id. (¶ 65)).

In June 2019, Giobbi informed Ashwood that he met personally with Cook's IT Manager, David Breedlove. (Id. (¶¶ 66, 128)). During that meeting, Breedlove told Giobbi that he wanted Zumasys to eliminate Ashwood as its “Reseller of Record” so that Cook could deal directly with Zumasys. (Id. (¶ 66); see id. (¶ 128)). Breedlove followed with a letter to Giobbi (dated June 7, 2019) requesting the right to deal “directly” with Zumasys. (Id. (¶ 67)). Giobbi made several proposals to Ashwood in this regard, all of which were rejected. (Id. (¶¶ 68, 69); see id. (¶ 93)). In a letter dated September 9, 2019, Ashwood advised Giobbi that Zumasys “had no contractual right to take over Ashwood's end-user, Cook or deprive Ashwood of the future revenues Ashwood had already earned.” (Id. (¶ 70); see id. (¶ 94)).

Giobbi emailed Ashwood on November 21, 2019, stating he was “putting an end date on Ashwood's role as Zumasys' value added reseller to Cook.” (Id. (¶ 71)). In a telephone conversation on December 5, 2019, Giobbi informed Ashwood's Rod Owens that Zumasys would terminate its VAR Agreement unless Ashwood “gave up” Cook. (Id. (¶ 72); see id. (¶¶ 95, 134)). Giobbi followed up with an email dated December 27, 2019, in which he terminated Ashwood's VAR Agreement. (Id. (¶ 73)).^[8]

C. Motion Practice and Proceedings to Date

Ashwood's (original) Complaint (Doc. 1) was filed (on January 9, 2020) less than two weeks after the termination. JII and Zumasys thereafter filed a Rule 12(b)(6) motion to dismiss (Doc. 17), as did Cook (Doc. 19). Ashwood filed a motion for leave to amend (Doc. 21) and a memorandum in opposition to JII and Zumasys' motion (Doc. 22) (only). The parties then stipulated to Ashwood filing a first amended complaint. (Doc. 24). A second round of motions to dismiss followed. (Docs. 29, 30, 35, 36, 38, 40). Ashwood filed a motion for a temporary restraining order and preliminary injunction on June 24, 2020. (Doc. 42). Discovery and a first round of briefing was completed by August 27, 2020 (Docs. 43, 44, 46, 47), with a hearing date eventually set for September 3, 2020 (06/30/2020, 07/02/2020, 07/09/2020 & 07/10/2020 Minute Entries). The hearing date was vacated, however, in the wake of General Order 20-25^[9], with the parties agreeing to submit the matter on briefs. (08/27/2020 NOTATION ORDER). Ashwood filed a supplemental brief (Doc. 48) and, in a letter motion (Doc. 51 PAGEID 1789), asked that the Court “revisit [its] request for a temporary restraining order pending [a] decision on the balance of the motion.” A motion hearing (by telephone) occurred on October 20, 2020. (10/20/2020 Minute Entry & Doc. 61). In January 2021, Cook filed an out-of-the-blue response to Ashwood's supplemental brief (Doc. 48) that reads, in part,

[I]n a show of good faith and in an effort to move toward resolving this dispute, Cook will delete all jBASE software (not just license keys) sub-licensed by Ashwood from its systems and replace it with software and license keys obtained directly from jBASE. Cook will delete only the jBASE software sub-licensed by Ashwood; the Master Agreement does not require Cook to delete any non-jBASE software that merely accesses or utilizes jBASE software. Cook will begin the process on January 4, 2021. Cook anticipates that it will take nine months to complete the software deletion and replacement. Because Cook did not receive jBASE software via any tangible device, there is nothing tangible to return to Ashwood.

Cook maintains that it has fully complied with its obligations under the Master Agreement with Ashwood, and that it is not required to replace its existing jBASE software. But in any event, Cook's agreement to delete the Ashwood sub-licensed software moots Ashwood's request for injunctive relief against Cook.

(Doc. 62 PAGEID 1974 (italics emphasis in original, other emphases added)). JII and Zumasys filed its “position statement” the next day, stating, in part,

[T]hese Defendants have no objection to Cook continuing to use the jBASE software, and these Defendants will never claim Ashwood should have demanded that Cook remove the jBASE software. Nonetheless, and in response to Cook's

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