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REPOSITORY TECHNOLOGIES v. SYSTEMS CONSULTANTS

May 15, 2003

REPOSITORY TECHNOLOGIES, A DELAWARE CORPORATION, PLAINTIFF
v.
SYSTEMS CONSULTANTS, INC. N/K/A HUNTER TECHNOLOGY, INC., A MISSOURI, CORPORATION, GOVERNMENT E-MANAGEMENT SOLUTIONS, INC. F/K/A/ GOVERNMENT E-BUSINESS, INC., A MISSOURI CORPORATION, CASS COMMERCIAL BANK, A MISSOURI CORPORATION, AND JOHN A. SHARP, A MISSOURI CITIZEN, DEFENDANTS.



The opinion of the court was delivered by: Marvin E. Aspen, United States District Judge

MEMORANDUM AND OPINION AND ORDER

On November 27, 2002, Plaintiff, Repository Technologies, Inc. ("RTI"), filed a five-count complaint against Defendants, Systems Consultants, Inc. ("SCI"), Government B-Management Solutions, Inc. ("GEMS"), Cass Commercial Bank ("Cass"), and John A. Sharp ("Sharp") (collectively "Defendants"). Plaintiff seeks to enforce against Defendants the judgment it obtained against SCI for money owed pursuant to a Software Licensing Agreement between RTI and SCI (Count II), and to pierce the corporate veil of all Defendants (Count V). Plaintiff also claims that Defendants violated the Uniform Fraudulent Transfer Act ("UFTA"), 740 ILCS 160/5(a)(1), 6(a) (Count I). Plaintiff further alleges that Defendants GEMS, Cass, and Sharp intentionally interfered with RTI's contract with SCI (Count III), and tortiously interfered with RTI's prospective economic advantage (Count IV). Presently before us is the motion of Defendants to dismiss Plaintiff's complaint for lack of personal jurisdiction under Federal Rule of Civil Procedure ("FRCP") 12(b)(2). Also before us are the motions of Defendants GEMS and Cass to dismiss the complaint for improper venue pursuant to FRCP 12(b)(3), for failure to state a claim upon which relief can be granted under FRCP 12(b)(6), and, in the alternative, to transfer venue to the United States District Court for the Eastern District of Missouri pursuant to 28 U.S.C. § 1406. For the reasons stated below, we deny GEMS' and Cass' motion to dismiss for improper venue, but grant their motion to transfer venue to the United States District Court for the Eastern District of Missouri. We deny as moot Defendants' motions to dismiss for lack of personal jurisdiction and GEMS' and Cass' motion to dismiss for failure to state a claim upon which relief may be granted.

I. BACKGROUND*fn1

A. Identity of the Parties

Plaintiff RTI is a Delaware corporation with its principal place of business at 1001 Warrenville Road, Suite 104, Lisle, Illinois. RTI is in the business of developing and selling its CustomerFirst, WebFirst, SalesFirst, TechSearch, and Inventory Management software products. Defendant SCI is a Missouri corporation with its principal place of business at 7350 Cornell Avenue, St. Louis, Missouri. Prior to January 2, 2001, SCI's principle place of business was located at 121 Hunter Avenue, St. Louis, Missouri, and SCI was in the business of providing enterprise application software and software consulting services to customers in the public sector. As of January 2, 2001, SCI effectively ceased ongoing business operations, but remains a Missouri corporation, having changed its name to Hunter Technology.

Defendant GEMS, formerly known as Government e-Business, Inc., is a Missouri corporation with its principal place of business at 121 Hunter Avenue, St. Louis, Missouri, the former location of SCI. GEMS is in the business of providing enterprise application software and software consulting services identical to those provided by SCI prior to January 2, 2001 to customers in the public sector. GEMS is either a wholly-owned subsidiary of Cass or of Cass Information Systems, Inc. ("CIS"). Defendant Cass is a Missouri corporation with its principle place of business at 13001 Hollenberg Drive, Bridgeton, Missouri. Cuss is in the business of providing banking services to privately-held businesses in the St. Louis metropolitan area, as well as to churches and ministries throughout the country. Cass is a wholly-owned subsidiary of CIS. Defendant Sharp is a Missouri citizen who resides at 7350 Cornell Avenue, St. Louis, Missouri. Sharp was, at all times relevant to Plaintiff's complaint, the majority shareholder of SCI.

B. Facts

On February 16, 2001, RTI filed a one count breach of contract suit against SCI in the United States District Court for the Northern District of Illinois, Case No. 01-C-1103, to recover contractually mandated fees due from SCI to RTI for the licensing of software and the provision of services pursuant to a written agreement between RTI and SCI. On April 16, 2001, the Honorable Elaine E. Bucklo entered judgment in favor of RTI and against SCI, awarding RTI $178,694.89 plus costs and postjudgment interest. On or about June 14, 2001, RTI registered the judgment in the State of Missouri and filed a supplemental proceeding in the United States District Court for the Eastern District of Missouri, Eastern Division, Case No. 4:01MC00173 CEJ ("Supplemental Proceeding"), seeking to satisfy the judgment. To date, RTI is still the owner and holder of the judgment, no portion of which has been paid.

RTI's inability to satisfy the judgment stems from a series of events that followed SCI's default on a loan made by Cass. On or about December 6, 1999, SCI and Cass executed a promissory note ("Note") in favor of Cass for $3,500,000.00. Cuss secured repayment of the Note through a Commercial Security Agreement. Sharp and his wife, Victoria Sharp, were, at all relevant times, personal guarantors of the Note. Prior to September 21, 2000, SCI defaulted on the Note. On or about September 21, 2000, Cass entered into a Standstill and Forbearance Agreement ("Standstill Agreement") with SCI and the Sharps. In the Standstill Agreement, SCI acknowledged that it was in default under the terms of the Note. Sharp agreed to a list of thirty-five actions that effectively transferred to Cass the power to operate SCI.*fn2 In turn, Cass agreed to forebear collection of the Note until October 9, 2000.

The Standstill Agreement was modified on or about October 3, 2000 to extend Cass' forbearance until November 30, 2000. Pursuant to the modification, Sharp agreed to cooperate with Cass in the transition that followed the sale of SCI assets or shares of stock. Specifically, Sharp agreed to join the purchaser of SCI stock or assets under an employment contract as a full-time CEO for a period of up to two years or us a consultant for up to one year. Cass extended the forbearance once more on or about November 30, 2000. At that time, Cass developed a scheme to transport business from SCI to GEMS through a sham foreclosure sale to benefit GEMS, Cass, and Sharp at the expense of SCI's creditors, including RTI.

As part of Defendants' plan, on or about December 21, 2000, GEMS and Sharp entered into an Employment Agreement detailing the intent of GEMS, Cass, and Sharp to transfer SCI's customer contracts, revenue, web site, and goodwill to GEMS without any consideration being paid to SCI, leaving it a shell corporation. Sharp was thereafter entitled to the following bonuses based on revenues received by GEMS from SCI's customers:

[a] bonus of $20,000 in the event [GEMS] receives cash collected revenues over $1,200,000 during the period January 1, 2001 to March 31, 2001 and [GEMS] retains substantially all current customers, but, in any event, customers with 200 hours of undelivered software services and all business from such customers during this period. Such bonus shall be paid on or before May 15, 2001. § 4(f)(i).
The Agreement also sets forth that Sharp will receive a 24% ownership interest in GEMS if GEMS sells SCI's business before December 31, 2003.*fn3 SCI will not receive any value for its customer contracts, goodwill, name, website, or the generated proceeds and profits in exchange for Sharp's receipt of his ownership interest.

On January 2, 2001, SCI, Cass, GEMS and Sharp staged a purported foreclosure sale at 121 Hunter Avenue, St. Louis, Missouri, SCI's then-headquarters and GEMS' current headquarters, to pay off the Note. At the sale, GEMS, acting either as a wholly-owned subsidiary of Cass or of CIS, was the lone bidder, acquiring the right, title, or interest in any contracts between SCI and its customers for $3,700,000.00.*fn4 SCI, through Sharp, gratuitously transferred most, if not all of its customer contracts to GEMS. Cass never reduced the balance due on the Note to reflect GEMS' purchase and payment. Cass has not taken action against Sharp and his wife to collect the amount due on the Note.

On the same day as the foreclosure sale, GEMS' Executive Vice President, William C. Bouchein ("Bouchein") sent form letters to all known SCI creditors stating that GEMS purchased certain SCI assets at a foreclosure sale and that "[GEMS] does not accept any responsibility for the payment of [creditor's] outstanding balance." GEMS sent this letter to at least forty-six creditors across the country, including RTI. Bouchein did not inform creditors of GEMS' relationship to Cass, instead referring to Cass as "a lender, a secured party." Bouchein also did not inform SCI's creditors that GEMS and ...


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