MPAY Inc. v. Erie Custom Computer Applications, Inc.

Background

The dispute concerned OnePoint Solutions, LLC, a venture involving MPAY and the defendant entities. MPAY licensed payroll-processing software to OnePoint under a Software Development and License Agreement (SDLA), while a separate Member Control Agreement (MCA) gave OnePoint and its members rights to use, sublicense, and update the software.

MPAY initially claimed that defendants improperly provided its source code to unauthorized developers. After the Eighth Circuit rejected that theory, MPAY proceeded to trial on a different theory: that Erie Custom Computer Applications, Inc. and Payroll World, Inc. breached MCA section 5.4 by licensing the software to entities in which a defendant did not have majority ownership and voting control. The defendants argued that the MCA had been amended in 2016 to permit broader sublicensing.

After a seven-day trial in June 2022, the jury found that Erie and Payroll World had not breached the MCA. Because the jury found no breach, it did not decide the remaining questions on MPAY’s copyright-infringement and tortious-interference claims. Judgment was entered for defendants on all claims.

MPAY’s Motion for a New Trial

MPAY argued that jury instruction 20 improperly made its copyright and tortious-interference claims depend on a finding of breach of contract. The court explained that a new trial under Rule 59(a) requires an error that affected substantial rights, misled the jury, or probably affected the verdict.

The court rejected MPAY’s copyright argument. A licensee may infringe copyright by exceeding the scope of its license, but the written MCA expressly contemplated sublicensing. The jury reasonably could find that the challenged sublicenses did not exceed the license’s scope, particularly because the defendants presented evidence that the MCA had been properly amended and that the amendment permitted the sublicensing. That finding meant there was no copyright infringement under MPAY’s theory.

The court also rejected MPAY’s argument concerning tortious interference. That claim required independently wrongful conduct, and MPAY identified no underlying wrongful conduct other than alleged copyright infringement. The court therefore held that it was not erroneous to prevent the jury from deciding tortious interference without an underlying tort. MPAY’s motion for a new trial was denied.

Renewed Motion for Judgment as a Matter of Law

MPAY renewed its Rule 50(b) motion, arguing that the evidence could not support the jury’s finding of no breach. The court described the Rule 50 standard as demanding: judgment is appropriate only when a reasonable jury lacks a legally sufficient evidentiary basis for its decision, viewing the evidence and reasonable inferences in favor of the nonmoving party.

The court determined that the jury reasonably could find that the MCA amendment was valid. Earlier rulings had found the contract terms ambiguous, making their interpretation a factual question for the jury. The parties presented competing evidence about whether the amendment affected MPAY’s rights, whether it affected a possible distribution right upon a sale or dissolution of OnePoint, and whether the challenged sublicenses were issued before or after the amendment. The jury was entitled to credit the defendants’ evidence.

The court likewise rejected MPAY’s arguments concerning sublicenses to Taslar, other entities, and what MPAY called ten lost customers. The evidence supported the jury’s finding that no breach occurred. Because there was no breach, the defendants did not exceed the scope of MPAY’s copyright license, so MPAY was not entitled to judgment as a matter of law on its copyright claims or to a permanent injunction. MPAY’s renewed motion for judgment as a matter of law was denied.

Attorney-Fee Requests

Erie and Payroll World sought more than $4 million in attorney’s fees. Kevin Clayton, PayDay USA, Inc., Proliant Technologies, Inc., and Proliant, Inc. sought just under $1.2 million. The defendants relied on the SDLA’s fee provision and, for the copyright claims, the Copyright Act.

The court denied Erie and Payroll World’s request under the SDLA. The SDLA’s fee provision applied to the agreement’s defined “Parties”—MPAY and OnePoint—not to members such as Erie, Payroll World, or Proliant. The court also concluded that a 2007 mediated settlement agreement had essentially ended the SDLA, apart from specified obligations, and that the defendants had not shown that they were in contractual privity with OnePoint or intended third-party beneficiaries of the SDLA’s fee provision.

The court also denied Erie and Payroll World’s request for fees under the Copyright Act. Although the Act permits an award to a prevailing party, the court found that MPAY’s claims against them were not frivolous or objectively unreasonable. Several claims survived summary judgment and the defendants’ earlier request for judgment as a matter of law, showing that genuine factual disputes required a trial.

The court reached a different conclusion for Clayton and the Proliant defendants. It found that MPAY acted unreasonably by continuing to pursue its claims against them after the Eighth Circuit’s August 2020 decision and after Clayton denied knowing about Taslar, when MPAY had no evidence contradicting him. The court determined that attorney’s fees were warranted for fees incurred after the appellate decision to further the Copyright Act’s purposes.

The court reduced the requested rates by 30 percent because the case did not require national counsel and the requested rates exceeded rates prevailing in the relevant local community. It otherwise declined to exclude transition work, case-coordination tasks, discovery costs shared with a parallel state-court case, or the challenged billing entries. The resulting award was $823,660.94.

Order

Judge Tostrud ordered that MPAY’s renewed motion for judgment as a matter of law was denied; MPAY’s motion for a new trial was denied; Erie and Payroll World’s amended motion for attorney’s fees was denied; and the amended fee motion by Kevin Clayton, PayDay USA, Inc., Proliant Technologies, Inc., and Proliant, Inc. was granted in part, with MPAY ordered to pay those defendants $823,660.94 in attorney’s fees.