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Jda Ehealth Systems, Inc v. Chapin Revenue Cycle Management

June 23, 2011

JDA EHEALTH SYSTEMS, INC., PLAINTIFF,
v.
CHAPIN REVENUE CYCLE MANAGEMENT, LLC;
AUDITZ, L.L.C., KEITH HENTHORNE; AND TIMOTHY CARDA, DEFENDANTS.



The opinion of the court was delivered by: Judge Blanche M. Manning

MEMORANDUM AND ORDER

JDA eHealth Systems, Inc. sued Chapin Revenue Management Cycle, LLC, Auditz, L.L.C. and individual defendants Keith Henthorne and Timothy Carda alleging copyright infringement, unfair trade practices and competition under the Lanham Act and various state law claims resulting from a nascent business relationship. Defendants Chapin, Henthorne and Carda have filed a motion to dismiss for lack of personal jurisdiction and failure to state a claim. All defendants have filed a separate motion to transfer. For the reasons stated below, the motion to dismiss for lack of personal jurisdiction is granted as to Henthorne and Carda. The motion to transfer is granted and the case is hereby transferred to the United States District Court for the Middle District of Florida. Given the transfer, the court did not consider and does not rule on the issues raised by the motion to dismiss for failure to state a claim.

Facts

Bon Secours Health Systems, Inc. is a not-for profit health care system that owns, manages or forms joint ventures with 18 acute-care hospitals, one psychiatric hospital, five nursing care facilities, four assisted living facilities and 14 home care and hospice programs in seven states, primarily on the East Coast. BSHS bills individuals directly for medical services not covered by insurance. It outsources most of its debt collections to third-party debt collection companies.

JDA is a software developer that licenses its proprietary software. Over the course of more than 15 years, JDA developed its proprietary copyrighted Parathon revenue cycle solution, primarily for hospitals and health care systems. JDA and BSHS began a business relationship in 1999. On or about July 26, 2002, BSHS executed a Master Services Agreement which includes provisions regarding confidential disclosures and access to JDA's intellectual property licensed to BSHS.

Chapin is a debt collection company. At some point before January 1, 2008, Chapin contracted to be a debt collection agent for BSHS. Because much of BSHS's patient accounts receivable information was stored in JDA's Parathon revenue cycle solution, BSHS requested that JDA provide Chapin and individual defendants Henthorne and Carda access to JDA's Parathon revenue cycle solution. JDA did so.

JDA alleges that, on information and belief, Henthorne and Carda formed Auditz, L.L.C. on or around April 10, 2008, for the purpose of covertly developing a revenue cycle management software solution that competes with and infringes JDA's Parathon revenue cycle solution.

In January 2010, JDA and Chapin entered into a confidentiality agreement under which JDA would disclose certain trade secret information to Chapin and its principals Carda and Henthorne. The agreement binds the parties until January 29, 2012. According to JDA, Chapin, Carda, Henthorne and Auditz used their access to JDA's revenue cycle solution and confidential information to develop a competing software that infringes on JDA's revenue cycle solution. The defendants then sold and/or licensed their revenue cycle software to Emdeon, Inc. for $18.9 million.

JDA brings suit alleging the following claims: Count I--Copyright Infringement; Count II--Unfair Trade Practices under the Lanham Act; Count III--Unfair Competition under 815 ILCS 505/1; Count IV--Deceptive Trade Practices under 815 ILCS 505/2; Count V--Trade Secret Misappropriation under the Illinois Trade Secrets Act, 765 ILCS 5/1065; and Count VI--Breach of the Confidentiality Agreement.

Because the court concludes that personal jurisdiction does not exist as to Henthorne and Carda, the action is dismissed as to these defendants. The court also concludes in its discretion that the case be transferred to the United States District Court for the Middle District of Florida. Because the case is being transferred, the court does not rule on the motion to dismiss for failure to state a claim.

Analysis

A. Motion to Dismiss for Lack of Jurisdiction

1. Personal Jurisdiction--Applicable Law

Neither the Copyright Act nor the Lanham Act authorize nationwide service of process. See Janmark v. Reidy, 132 F.3d 1200, 1201 (7th Cir. 1997) (Copyright Act); ISI Int'l, Inc. v. Borden Ladner Gervais LLP, 256 F.3d 548, 551 (7th Cir. 2001) (Lanham Act). "In [a] federal question case where federal statutes do not authorize nationwide service of process, a federal court in Illinois may exercise personal jurisdiction over [the defendant] if it would be permitted to do so under the Illinois long-arm statute." Ubid, Inc. v. The GoDaddy Group, 623 F.3d 421, 425 (7th Cir. 2010)*fn1 . Because Illinois' long-arm statute extends to the maximum extent permitted by the Illinois and United States constitutions, jurisdiction under the long-arm statute is coextensive with federal due process requirements. 735 ILCS 5/2-209(c); see, e.g., RAR, Inc. v. Turner Diesel Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997). Thus, "the personal jurisdiction analysis collapses into a federal due process inquiry." Foley v. Yacht Management Group, Inc., No. 08 C 7254, 2009 WL 2020776, at *2 (N.D. Ill. Jul. 9, 2009) (citations omitted).

The Due Process Clause of the Fourteenth Amendment to the United States Constitution limits when a state may assert personal jurisdiction over nonresident defendants. Pennoyer v. Neff, 95 U.S. 714, 733 (1878). To exercise personal jurisdiction consistent with federal due process, a defendant must have certain minimum contacts with the forum state such that the "maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.'" Int'l. Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citations omitted).

"Personal jurisdiction can be either general or specific, depending on the extent of the defendant's contacts with the forum state." Ubid, Inc., 623 F.3d at 425. Specific jurisdiction refers to jurisdiction over a defendant if a suit "arises out of" or "relates to" the cause of action even if those contacts are "isolated and sporadic." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472-73 (1985). General jurisdiction is applicable when the lawsuit neither arose from nor was related to the defendant's contacts with the forum state. RAR, Inc., 107 F.3d at 1277. Such jurisdiction is permitted only where the defendant has "continuous and systematic general business contacts" with the state. Id.

"When a defendant's motion to dismiss is based on the submission of written materials, without the benefit of an evidentiary hearing, the plaintiff need only make out a prima facie case of personal jurisdiction." GCIU-Employer Retirement Fund v. Goldfarb Corp., 565 F.3d 1018, 1023 (7th Cir. 2009) (citation omitted). The court draws all reasonable inferences in favor of the plaintiff and resolves all factual disputes in its favor. Purdue Research Foundation v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 783 & n.14 (7th Cir. 2003) (citations omitted).

Defendants Chapin, Carda and Henthorne contend that this court cannot exercise personal jurisdiction over them. Defendant Auditz does not move to dismiss for lack of personal jurisdiction.

2. Personal Jurisdiction over Chapin, Carda and Henthorne

The defendants have set forth in affidavits the facts they believe are relevant to the resolution of the personal jurisdiction issue.

Defendant Henthorne. Henthorne's affidavit indicates that he was the chairman of the board of directors of Chapin for the time relevant to this dispute. As the chairman of the board of directors, he attests that he had no responsibility for day-to-day management of Chapin and that his responsibilities related solely to strategic management issues. According to Henthorne, he met with JDA's president once in Florida where they discussed potential strategic alliances between Chapin and JDA. Henthorne then executed a confidentiality agreement and "was invited" to meet with JDA representatives at JDA's offices in Illinois in February 2010. This was the only meeting with JDA in Illinois. Henthorne attests that all negotiations between JDA and Chapin were completed by the end of March 2010 and that no relationship ever materialized between the companies.

Henthorne currently has no ownership interest in Chapin and prior to June 21, 2010, he did not have a majority ownership in Chapin. As for Auditz, Henthorne was a member of its board of directors prior to June 21, 2010, but is no longer a member of Auditz's board. He states he was never an employee of Auditz and that any ownership interest he has is indirect in that he has ownership in an entity (Emdeon) that owns Auditz. Finally, Henthorne states that he has never lived in Illinois, has not maintained any offices in Illinois, has not owned any property in Illinois, has not reached into Illinois to solicit or initiate any business, has not "deliberately engaged in significant or long-term business activities in Illinois," and has not "purposefully directed any commercial activities into the State of Illinois."

Defendant Carda. Carda's affidavit indicates that he has been employed by Emdeon Business Services, Inc., as vice president of its subsidiary Chapin Revenue Cycle Management, LLC. From February 2009 through June 21, 2010, he served as president of Chapin and was responsible for the day-to-day management of the company. In January 2010, Carda met with the president of JDA at the Richmond, Virginia offices of BSHS to have initial discussions regarding potential strategic alliances between Chapin and JDA. Dudley then traveled to the Chapin offices in Tampa on January 26, 2010 for an additional meeting to explore the strategic alliance. Carda never traveled to Illinois to meet with JDA regarding any matters. After the initial two meetings between Carda and Dudley, Henthorne communicated with JDA.

Carda presently has no ownership interest in Chapin and prior to June 21, 2010, he did not hold a majority interest in Chapin. From its inception in 2008 to June 21, 2010, Carda was the chief executive officer of Auditz, but is no longer employed there and is contractually prohibited from actively participating in Auditz's day-to-day business operations. Carda never had a direct ownership interest in Auditz of more than 5% and any indirect ownership he has in Auditz has never constituted a majority interest. Like Henthorne, Carda also attests that he has never lived in Illinois, has not maintained any offices in Illinois, has not owned any property in Illinois, has not reached into Illinois to solicit or initiate any business, has not "deliberately engaged in significant or long-term business activities in Illinois," and has not "purposefully directed any commercial activities into the State of Illinois."

James Dudley. Dudley attests that at all relevant times he was the principal of JDA eHealth Systems. Sometime shortly after January 1, 2008, BSHS asked him to provide login credentials to Chapin to access JDA's proprietary software and database that warehouses significant amounts of BSHS accounts receivable information. JDA provided several sets of login credentials to Henthorne and Carda for use by Chapin and its agents. Since then, Dudley attests that Chapin, Henthorne and Carda have used the login credentials to access the software interface and database warehoused on JDA's servers located at JDA's offices in Naperville, Illinois.

Beginning in early March 2008, after having accessed JDA's software for nearly two months, Chapin requested that JDA make changes to JDA's software to provide specialized access for Chapin. Chapin identified the specific categories of information it required and JDA modified the source code to export the data. The changes were made on JDA's servers located in Naperville. Dudley asserts that from 2008 through at least December 2010, Chapin "has regularly, systematically, and continuously accessed JDA's software and database to access BSHS data warehoused on JDA's servers and in JDA's database located on servers in Naperville, Illinois. Chapin's access was solely for a commercial purpose." Dudley Aff. at ¶ 6. According to Dudley, he was contacted by Carda in early 2010 to discuss possible business relationships between Auditz and JDA and/or Chapin and JDA. Dudley traveled to Chapin's offices in Tampa, Florida, in late January 2010. On February 4, 2010, Henthorne traveled to JDA's offices in Naperville. As a result of these meetings, the parties signed a written confidentiality agreement regarding information that JDA was to disclose to Chapin.

a. Chapin

i. General Jurisdiction

The plaintiff asserts that the court may exercise general jurisdiction over Chapin because it engaged in a business relationship with JDA since January 2008 at the earliest and January 2010 at the latest, which included at least one meeting between JDA and Chapin in Illinois. In addition, Chapin acknowledges that it has at least one additional client in Illinois, and JDA contends ...


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