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University Accounting Service LLC v. Scholarchip Card LLC

United States District Court, E.D. Wisconsin

October 27, 2017

UNIVERSITY ACCOUNTING SERVICE LLC, Plaintiff,
v.
SCHOLARCHIP CARD LLC, Defendant.

          ORDER

          J. P. STADTMUELLER U.S. DISTRICT JUDGE

         The parties in this case, University Accounting Service LLC (“UAS”) and ScholarChip Card LLC (“ScholarChip”), negotiated contracts concerning cloud-based software ScholarChip developed for UAS. UAS alleges that ScholarChip breached their agreements. ScholarChip has moved to dismiss the complaint, arguing that this Court lacks personal jurisdiction over it. For the reasons stated below, the motion must be granted.

         1. LEGAL STANDARD

         Under Federal Rule of Civil Procedure 12(b)(2), a party may move to dismiss on the ground that the court lacks jurisdiction over it. Fed.R.Civ.P. 12(b)(2). The plaintiff bears the burden of establishing personal jurisdiction when the defendant contests it. N. Grain Mktg., LLC v. Greving, 743 F.3d 487, 491 (7th Cir. 2014). However, in cases such as this one, where the matter is decided on a motion to dismiss and without an evidentiary hearing, the plaintiff “‘need only make out a prima facie case of personal jurisdiction.'” Id. (quoting Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 713 (7th Cir. 2002)).

         Unlike some other challenges to a plaintiff's complaint, when questions of personal jurisdiction arise, the Court may consider affidavits and other evidence outside the pleadings. Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). Indeed, it can “accept as true any facts contained in the defendant's affidavits that remain unrefuted by the plaintiff.” GCIU-Employer Ret. Fund v. Goldfarb Corp., 565 F.3d 1018, 1020 n.1 (7th Cir. 2009). Nevertheless, the court will “accept as true all well-pleaded facts alleged in the complaint and resolve any factual disputes in the affidavits in favor of the plaintiff.” Purdue, 338 F.3d at 782.

         2. RELEVANT FACTS

         The operative facts, drawn from the second amended complaint and the parties' evidentiary submissions, are as follows.[1] UAS, a Wisconsin limited liability company, is a student loan servicer, and its customers- both lenders and borrowers-are located across the country. Its principal place of business is and always has been in Wisconsin.

         UAS was owned by Outsourcing Solutions Inc. (“OSI”), a Missouri corporation, until 2008, when it was sold to NCO Group, Inc. (“NCO”), a Pennsylvania corporation. In late 2014, UAS was sold again, this time to Platinum Equity, a private equity firm based in California, which also owns Transworld Systems, Inc. (“TSI”), a national debt collection agency. UAS was made a wholly owned subsidiary of TSI. TSI was incorporated in California, and during the relevant period its principal place of business was in Illinois.

         ScholarChip, founded in 2000 by Dr. Maged Atiya (“Atiya”), is a New York LLC with its principal place of business in Hicksville, New York. ScholarChip provides and hosts software for use in education markets. ScholarChip does not maintain any offices in Wisconsin; it does not maintain any accounts in a financial institution in Wisconsin; it does not own, lease, or otherwise occupy any real property in Wisconsin; it does not pay taxes in Wisconsin; it has never initiated a lawsuit in Wisconsin; and it is not listed in any telephone or business directories in Wisconsin. Further, ScholarChip does not do business with any entity in Wisconsin other than UAS. While ScholarChip runs national mass-marketing efforts directed at K-12 school administrators, including letters and emails, it has never specifically targeted Wisconsin with those efforts.

         UAS's relationship with ScholarChip began in 2001. At that time, Lori Bennett (“Bennett”), then Director of Information Technology Operations at UAS, reached out to Atiya by telephone to request that ScholarChip build UAS an online electronic payment portal to process student loan payments. ScholarChip agreed, and the parties regularly corresponded via letter, telephone, and email about the portal. ScholarChip provided ongoing maintenance services and training related to the portal to UAS employees. Through servicing this portal, ScholarChip learned that UAS had some customers in Wisconsin, though the majority of its customers were located in other states.

         In 2005, during a conference on platforms for servicing student loans in Wisconsin, UAS employees, including Bennett and others, met with Atiya and asked ScholarChip to convert UAS's existing portal into a new, personalized software platform system (the “eUAS Software” or “the Software”) on which UAS's client data would be hosted. Atiya agreed that ScholarChip would perform the conversion. Negotiations regarding the terms of the contract for these services began by telephone between Atiya in New York and an employee of OSI, which then owned UAS, in Ohio. No negotiations occurred in Wisconsin; instead, they occurred in Missouri, Ohio, and New York. Further, the negotiations took place only between ScholarChip and OSI, not UAS directly.

         The deal was memorialized in three agreements, executed in March 2006: (1) the Master Terms and Conditions Agreement (the “MTC”), which established the terms pursuant to which ScholarChip would develop the eUAS Software; (2) the Software Development Agreement (the “SDA”), which had a 3-year term; and (3) the Hosting and Support Services Agreement (the “HSA”), which had a 2-year term with an option to extend the term by three years, for a total term of five years. These are referred to collectively herein as “the Agreements.” Atiya executed the Agreements in New York. UAS's signatory was Gary Weller, an OSI employee who did not work in Wisconsin. However, the Agreements identify UAS as the contracting party and identify UAS's sole address as being in Brookfield, Wisconsin. Also of note, the MTC has a choice-of-law provision that selects Missouri law for the resolution of any disputes between the parties arising from any of the three contracts.

         ScholarChip developed the eUAS Software as agreed. It was a cloud-based software platform, meaning that any UAS employee or customer could access the software remotely from any computer with an internet connection. ScholarChip's development work took place in New York. The hosting data center for the eUAS Software is located in the city of New York. The methodology employed by ScholarChip to host that software, as well as the lender and student borrower customer data, is as follows: (1) the lender or student borrower customer sends information to ScholarChip's servers in New York; (2) ScholarChip's servers process the customer data into a readable format and, once processed, the data is made accessible via an internet browser; and (3) UAS customer service representatives access the customer data remotely.

         UAS's servers that receive information generated from the eUAS Software platform were initially located in Wisconsin. However, within a few years of the Software's inception in 2006, UAS switched to using servers located in Horsham, Pennsylvania. (Those servers have since been moved to Las Vegas.) Since that time, no software information was delivered directly to Wisconsin because UAS no longer maintained any servers in Wisconsin that received information related to the eUAS Software or UAS lender or student borrower customer data. All of ScholarChip's ongoing servicing efforts took place from its offices in New York. However, when hard copies of documents were sent to UAS by borrowers, it would scan them in Wisconsin and transfer them electronically to ScholarChip for storage on the Software platform.

         The Agreements required ScholarChip to give UAS daily copies of the data hosted on the eUAS Software. Additionally, ScholarChip agreed to provide continuing hosting, maintenance, support, development, and training services to UAS throughout the terms of the Agreements. ScholarChip was granted access to UAS's Wisconsin facilities to enable such work. ScholarChip also agreed not to interfere with UAS's access to the software, even if disputes arose between them. Finally, ScholarChip acknowledged that UAS owned the eUAS Software, and ScholarChip was obligated to deliver to UAS all documentation and code for the Software, including the source code, object code, technical information, documentation, and derivative works of software, and deliver updated information as it arose. According to the Agreements, these obligations survive termination thereof.

         For years, the parties' relationship continued amicably. ScholarChip provided ongoing maintenance, support, training, troubleshooting, and development services via telephone, email, and weekly webinars. As UAS grew more accustomed to the Software, the technical support and troubleshooting calls and correspondence subsided. Nevertheless, they did not die out completely. Additionally, the parties regularly exchanged information and data by electronic file transfer and email. See (Docket #37 ¶¶ 7, 13-14). Bennett avers that she herself had “many calls, email exchanges, and meetings with ScholarChip employees, including [Atiya], ” since their work together began in 2001, including “routine calls” on troubleshooting and training after the eUAS Software was developed. Id. ¶¶ 4, 9. She also claims to have participated in calls related to “software development and related business strategy, ” though she gives no specifics about the contents of these discussions. Id. ¶ 10.

         Further, Atiya traveled to Wisconsin approximately six times between 2006 and 2011 to meet with UAS representatives to discuss the development and servicing of the eUAS Software. Atiya avers that neither he nor any other ScholarChip employee visited Wisconsin after 2011. Additionally, ScholarChip represents that while it continued hosting training webinars for UAS after 2011, it was not obligated to do so under the Agreements.

         ScholarChip maintains that higher-level contractual and business matters were not discussed with UAS during this time. Instead, those matters were directed to UAS's parent companies, including OSI, NCO, TSI, and Platinum Equity. None of these firms was organized in or has its principal place of business in Wisconsin. These sorts of negotiations ...


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