EFiled: Oct 31 2014 01:54PM EDT
Transaction ID 56274285
Case No. 9465-VCN
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
JOHN W. NOBLE 417 SOUTH STATE STREET
VICE CHANCELLOR DOVER, DELAWARE 19901
TELEPHONE: (302) 739-4397
FACSIMILE: (302) 739-6179
October 31, 2014
Peter J. Walsh, Jr., Esquire Catherine A. Gaul, Esquire
Potter Anderson & Corroon LLP Ashby & Geddes
1313 North Market Street 500 Delaware Avenue, 8th Floor
Wilmington, DE 19801 Wilmington, DE 19801
Re: Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
Date Submitted: May 28, 2014
Dear Counsel:
Defendant NeoMedia Technologies, Inc. (“NeoMedia”) has moved, pursuant
to Court of Chancery Rule 12(b)(3), to dismiss for improper venue Plaintiff
Scanbuy, Inc.’s (“Scanbuy”) Verified Complaint for Declaratory, Injunctive, and
Other Relief (the “Complaint”). NeoMedia relies on a forum selection clause
contained in Section 11 of the “Settlement and License Agreement” between
Scanbuy and NeoMedia (the “Agreement”), effective October 16, 2009.1 That
clause provides that “any dispute” between the parties must be brought in a federal
or state court in Atlanta, Georgia. Scanbuy argues that the Agreement was
1
Compl. Ex. A.
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 2
terminated before it filed the Complaint and, regardless, its claims are not subject
to the forum selection clause.
I. BACKGROUND
Scanbuy and NeoMedia are both providers of “Quick Response” or “QR”
codes and services. NeoMedia also licenses its patents. The parties entered into
the Agreement to resolve then-pending patent infringement litigation. The
Agreement granted a license from NeoMedia to Scanbuy, as well as one from
Scanbuy to NeoMedia.
The parties agree that Scanbuy’s license was terminated in 2013. However,
the parties dispute (i) whether the license was terminated on September 17, 2013 or
December 2, 2013, and (ii) whether the cancellation of Scanbuy’s license
terminated the entire Agreement.
In February and March 2014, NeoMedia sent, or caused to be sent, letters to
many of Scanbuy’s customers, alleging that their use of Scanbuy’s services
infringed on some of NeoMedia’s patents.2 Scanbuy claims that “[t]hese letters
contain false and/or misleading information about Scanbuy and NeoMedia’s
2
See Compl. Exs. E-H.
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 3
patents, and have affected Scanbuy’s current and expected business relationships
with its customers, thereby causing irreparable harm to Scanbuy.”3 The letters
have apparently caused many of its largest customers to seek shorter contracts, or
fail to renew their contracts altogether.
Scanbuy filed the Complaint with this Court on March 21, 2014, alleging
that NeoMedia (i) violated 6 Del. C. § 2532(a)(8), by disparaging the goods,
services, or business of Scanbuy through false or misleading representations of
fact, (ii) violated 6 Del. C. § 2532(a)(12), by engaging in conduct that creates a
likelihood of confusion or of misunderstanding, and (iii) tortiously interfered with
Scanbuy’s business relationships and expected business relationships. Scanbuy
seeks injunctive relief to prevent NeoMedia from sending more letters.
Scanbuy also seeks a declaratory judgment, pursuant to 10 Del. C. ch. 65
and Court of Chancery Rule 57, declaring that Scanbuy and its customers, are
covered by a current license agreement between NeoMedia and Microsoft
Corporation.
3
Compl. 1.
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 4
NeoMedia argues that this Court is an improper venue because the
Agreement’s forum selection clause directs “any dispute” between the parties to
Georgia. NeoMedia contends that the Agreement was in effect when Scanbuy
filed the Complaint.
II. ANALYSIS
“The courts of Delaware defer to forum selection clauses” and grant
Rule 12(b)(3) motions to dismiss “where the parties ‘use express language clearly
indicating that the forum selection clause excludes all other courts before which
those parties could otherwise properly bring an action.’” 4 The Agreement
provides: “[t]he parties agree that any dispute . . . shall be brought in a Federal or
state court seated in Atlanta, Georgia . . . and the parties hereby consent to the
exclusive jurisdiction and venue of such court.”5 Therefore, if (i) the Agreement
was effective when Scanbuy filed the Complaint, and (ii) the mandatory forum
selection clause encompasses Scanbuy’s claims, the Court will dismiss the
Complaint.
4
Ashall Homes Ltd. v. ROK Entm’t Gp. Inc., 992 A.2d 1239, 1245 (Del. Ch. 2010)
(quoting Eisenbud v. Omnitech Corp. Solutions, Inc., 1996 WL 162245, at *1 (Del.
Ch. Mar. 21, 1996)).
5
Compl. Ex. A ¶ 11.
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 5
A. Was the Agreement in Effect When Scanbuy Filed the Complaint?
The parties dispute whether the entire Agreement, or only Scanbuy’s license
under the Agreement, has been terminated. Section 2 governs the scope of the
licenses granted pursuant to the Agreement. Section 2.1 provides, “[s]ubject to the
terms and conditions of this Agreement . . . NeoMedia grants to Scanbuy a royalty-
bearing, non-exclusive, license . . . .” Section 2.2 provides “[s]ubject to the terms
and conditions of this Agreement . . . Scanbuy grants to NeoMedia (a) a paid-up,
irrevocable, non-exclusive license . . . and (b) a paid-up, non-exclusive
sublicense . . . .”
According to Section 2.3, “[t]he NeoMedia license granted in [Section 2.1]
to Scanbuy shall terminate . . . upon any [] material breach of this Agreement by
Scanbuy . . . . For the avoidance of doubt, the Scanbuy license granted to
NeoMedia [in Section 2.2] shall not terminate, but the Scanbuy sublicense granted
to NeoMedia is terminable . . . .”
On September 17, 2013, NeoMedia informed Scanbuy that Scanbuy was in
material breach of the Agreement due to its failure to provide required audited
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 6
financials.6 Therefore, “[p]er section 2.3 of the Agreement, [Scanbuy’s] license to
NeoMedia’s patents granted in section 2.1 is terminated effective immediately.”7
On December 2, 2013, Scanbuy responded to NeoMedia’s purported
termination of its license. Scanbuy claimed that it was not in breach of the
Agreement; however, Scanbuy accepted “termination of the Agreement and the
license contained therein on the basis set forth in [NeoMedia’s] letter of
September 17.”8 On December 16, 2013, NeoMedia replied, “disagree[ing] with
the assertion . . . that the [Agreement] is terminated. NeoMedia did not terminate
the Agreement, it terminated Scanbuy’s license to NeoMedia’s patents.”9
According to NeoMedia, Section 2.3 contains a one-way termination right
allowing for the cancellation Scanbuy’s license without affecting Scanbuy’s
ongoing obligations to NeoMedia.
6
Transmittal Aff. of Jacob R. Kirkham in Supp. of Pl.’s Answering Br. in Opp’n to
Def.’s Mot. to Dismiss Ex. B.
7
Id.
8
Id. Ex. C.
9
Id. Ex. D.
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 7
However, Scanbuy relies on Section 7 of the Agreement to argue that the
cancellation of its license terminated the entire Agreement. Section 7 provides
The Term of this Agreement shall be until the last to expire of the
NeoMedia Licensed Patents, in which case all payment obligations
under Section 3, not then due and payable, shall cease, or upon the
occurrence of the events described in Section 2.3 of this Agreement, in
which case any then accrued payment obligations shall become due
and payable.10
The parties do not dispute that before Scanbuy filed the Complaint, its
license was terminated “[p]er section 2.3 of the Agreement.” NeoMedia alleges
that the license terminated on September 17, 2013, due to Scanbuy’s material
breach of the Agreement, which was a triggering event described in Section 2.3.
While Scanbuy disputes its breach, on December 2, 2013, it accepted NeoMedia’s
termination of its license “on the basis set forth in [NeoMedia’s] letter of
September 17.” Scanbuy thus agreed to accept the termination of its license under
Section 2.3.
Scanbuy argues that Section 7’s unambiguous language makes clear that the
Agreement was terminated since an event described in Section 2.3 occurred, or at
least was stipulated to have occurred. Since Scanbuy believes that the Agreement
10
Compl. Ex. A ¶ 7 (emphasis added).
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 8
was terminated before it filed the Complaint, it argues that the forum selection
clause is irrelevant to this dispute.
Scanbuy’s argument may have merit, especially when Section 7 is read in
isolation. However, Section 2.3 provides that Section 2.2, which governs
NeoMedia’s license from Scanbuy, survives the occurrence of events that void
Scanbuy’s license. Because at least this piece of the Agreement arguably survived
the termination of Scanbuy’s license, NeoMedia contends that the Agreement
never terminated in its entirety and the forum selection clause remains enforceable.
The “interpretation of the [Agreement’s] termination provision . . . [is an]
issue[] for the court identified in the [forum selection clause] to decide.”11 The
parties present conflicting interpretations of the contract and “the court selected by
the parties to adjudicate disputes under the [Agreement] might reasonably
conclude” the issue either way.12 This Court “cannot decide whether the
termination provision applies without usurping the role of the [Georgia courts],
which were expressly charged with adjudicating disputes over the [Agreement].” 13
11
Ashall Homes, 992 A.2d at 1247.
12
Id. at 1248.
13
Id.
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 9
Disputes over whether the Agreement has been terminated or the forum selection
clause survives should be resolved by the courts in Atlanta.14
B. If the Agreement Survives, Does the Forum Selection Clause Apply
to Scanbuy’s Claims?
“When a contract contains a forum selection clause, this court will interpret
the forum selection clause in accordance with the law chosen to govern the
contract.”15 Scanbuy and NeoMedia chose “the laws of [the] United States of
America and the State of Georgia, without reference to the State’s choice of law
provisions” to govern their relationship.16 This Court must therefore apply either
Federal or Georgia law in interpreting the forum selection clause.
Had Scanbuy filed its claims in Atlanta, it would have been limited to state
court. The Complaint provides no basis for diversity jurisdiction, since both
Scanbuy and NeoMedia are Delaware corporations. Federal question jurisdiction
is likewise inappropriate because “federal jurisdiction exists only when a federal
14
The question of whether the Agreement (or part of it) has survived is reasonably
subject to debate. An obvious answer that it did not survive would likely lead to a
different outcome.
15
Id. at 1245.
16
Compl. Ex. A ¶ 11.
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 10
question is presented on the face of the plaintiff’s properly pleaded complaint.”17
“Federal jurisdiction cannot be predicated on an actual or anticipated defense . . .
or rest upon an actual or anticipated counterclaim.” 18 Scanbuy’s well-pleaded
complaint, asserting state law tort claims and a request for declaratory judgment
based upon contract interpretation, does not present a federal question. Since a
state court is the appropriate forum for Scanbuy to bring its claims in Atlanta, this
Court will interpret the forum selection clause in accordance with Georgia law.19
Georgia law recognizes that tort claims, such as tortious interference with
business relations, may be subject to a contractual forum selection clause when the
tort claims arise either “directly or indirectly” from a contractual relationship.20
17
Caterpillar Inc. v. Williams, 482 U.S. 386, 392 (1987).
18
Vaden v. Discover Bank, 556 U.S. 49, 50 (2009).
19
The Court does not overlook the possibility that a federal court might exercise its
supplemental jurisdiction to hear Scanbuy’s claims in a case otherwise properly
before it. However, the choice between Federal law and Georgia law does not
affect the outcome of the Court’s analysis. District courts in the Eleventh Circuit
defer to forum selection clauses. See, e.g., Infectious Disease Solutions, PC v.
Synamed, 2007 WL 2454093, at *4 (N.D. Ga. Aug. 23, 2007). Further, under
Federal law, broad contractual forum selection clauses cover tort claims that
“aris[e] directly or indirectly from the business relationship evidenced by the
contract.” Stewart Org., Inc. v. Ricoh Corp., 810 F.2d 1066, 1070 (11th Cir.
1987), aff’d and remanded, 487 U.S. 22 (1988).
20
Brinson v. Martin, 469 S.E.2d 537, 540 (Ga. Ct. App. 1996).
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 11
The Agreement’s forum selection clause mandates that “any dispute” be brought in
Georgia, and such phrase creates a broad scope of coverage. Scanbuy charges
NeoMedia with engaging in deceptive trade practices and tortiously interfering
with Scanbuy’s present and prospective business relationships. The Complaint
frequently references the Agreement, and its claims relate to the Agreement’s
subject matter. While Scanbuy is not directly asserting contract claims, its claims
are indirectly related to the Agreement, and certainly constitute disputes between
the parties.21
Scanbuy is not attempting to recast contract-based claims as tort claims to
avoid the forum selection clause.22 However, to respect the parties’ contractual
21
Through Count 4 of the Complaint, Scanbuy seeks a declaratory judgment that it
and its customers are covered by a license granted by NeoMedia to Microsoft.
While this claim does not directly implicate the Agreement, it is a dispute between
the parties regarding Scanbuy’s authorization to use NeoMedia’s patents. This
count is related to the other claims in the Complaint and is within the broad scope
of the forum selection clause. Further, in the interests of judicial economy, this
count should not be severed from the others when a Georgia court can consider all
claims together.
22
NeoMedia argues that Scanbuy acknowledged that it is really asserting a “breach
of contract” claim when, in September 2013, it sought to arbitrate the propriety of
NeoMedia’s September 17, 2013 letter purportedly terminating Scanbuy’s license.
Def.’s Reply Br. 21. Scanbuy’s current causes of action arise from letters sent to
its customers in February and March 2014. Scanbuy’s September 2013 arbitration
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 12
agreement, the tort claims are subject to the forum selection clause if that clause
was in effect when Scanbuy filed the Complaint. Therefore, if the Agreement has
not been terminated, dismissal for improper venue is warranted.23
III. CONCLUSION
A plaintiff has “substantial discretion” over its choice of venue.24 However,
such discretion may be limited by a valid forum selection clause. The courts
identified in the forum selection clause are proper forums to determine whether the
Agreement has been terminated. If the Agreement, and hence its broadly worded
forum selection clause, was effective when Scanbuy filed the Complaint, then
dismissal for improper venue is proper.
filing did not concede that causes of action that had yet even to arise were breach
of contract claims. In addition, the claims made in the Complaint are distinct from
the arbitration claims.
23
Section 8 of the Agreement sets forth the parties’ agreement “to resolve any
dispute (other than patent infringement, patent validity, patent enforceability, or
any other issue concerning a substantive patent right), by arbitration . . . .”
Whether or not the arbitration clause is applicable depends on (i) whether the
Agreement has been terminated and (ii) whether Scanbuy’s claims are subject to
the clause. These issues of contract interpretation should be decided in Georgia.
24
Troy Corp. v. Schoon, 2007 WL 949441, at *3 (Del. Ch. Mar. 26, 2007).
Scanbuy, Inc. v. NeoMedia Technologies, Inc.
C.A. No. 9465-VCN
October 31, 2014
Page 13
For the foregoing reasons, NeoMedia’s Motion to Dismiss is granted, and
the Complaint is dismissed without prejudice.
IT IS SO ORDERED.
Very truly yours,
/s/ John W. Noble
JWN/cap
cc: Register in Chancery-K