AFSCME Council 5 v. Employee Based Systems

Background

AFSCME Council 5 sued Employee Based Systems, LLC (EBS), alleging that EBS breached a contract to provide payroll software and six years of maintenance and support services. The contract required AFSCME to pay $231,712.48. AFSCME alleged that EBS failed to develop functional software.

AFSCME is a union based in St. Paul, Minnesota. EBS is a Colorado-based company that develops and provides payroll software and related services. EBS was not registered to do business in Minnesota, did not own, use, or possess real property there, did not have Minnesota bank accounts, and did not advertise there.

AFSCME selected EBS after issuing a request for proposals. EBS submitted a proposal knowing that AFSCME was a Minnesota entity. The parties negotiated by telephone, computer, and email, without EBS employees traveling to Minnesota. EBS also performed the contract remotely, but it repeatedly accessed AFSCME’s Minnesota computer systems and servers and communicated frequently with AFSCME in Minnesota.

EBS moved to dismiss for lack of personal jurisdiction and improper venue. Personal jurisdiction is a court’s authority to exercise power over a defendant. Venue concerns whether the case was filed in a legally proper federal district.

Personal Jurisdiction

The court applied Minnesota’s long-arm statute and the constitutional requirement of due process. Because Minnesota’s statute extends as far as due process permits, the court focused on whether EBS had sufficient minimum contacts with Minnesota to make the lawsuit there fair and reasonably foreseeable.

The court analyzed specific personal jurisdiction, which applies when the lawsuit arises from or relates to the defendant’s activities in the forum state. It held that AFSCME made an initial showing that EBS was subject to specific jurisdiction in Minnesota.

The court emphasized that the lawsuit concerned EBS’s alleged failure to perform a contract with a Minnesota entity for software and services to be delivered to and used in Minnesota over six years. EBS solicited AFSCME’s business while knowing AFSCME was located in Minnesota. Although EBS did not send employees to Minnesota to negotiate or sign the contract, it communicated regularly and frequently with AFSCME there and remotely accessed AFSCME’s computer systems to perform the contract.

Considering the circumstances as a whole, the court concluded that EBS conducted business in Minnesota virtually. Because EBS’s performance under the contract was directly at issue, the court found that EBS’s purposeful and frequent Minnesota contacts connected to the contract were sufficient for specific personal jurisdiction.

Venue

The court held that venue was proper in Minnesota because EBS was subject to personal jurisdiction there. It also found venue proper because a substantial part of the events or omissions giving rise to AFSCME’s claim occurred in Minnesota.

Disposition

The court denied EBS’s motion to dismiss. The order resolved EBS’s jurisdiction and venue arguments and did not decide the underlying breach-of-contract claim.