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Kelly v. Waters Corp.

Superior Court of Massachusetts, Suffolk

September 26, 2017

Douglas M. Kelly
v.
Waters Corporation et al. [1]

          Filed September 27, 2017

          MEMORANDUM OF DECISION AND ORDER ON DEFENDANTS' MOTION TO DISMISS

          Edward P. Leibensperger, Justice of the Superior Court

         Plaintiff, Douglas M. Kelly, filed this action against defendants, Waters Corporation and NuGenesis Technologies Corporation (referred to collectively as " NuGenesis" ). The dispute involves Kelly's claim that NuGenesis owes him millions of dollars in compensation related to software he created, developed, and later sold to NuGenesis. Kelly asserts the following five claims against NuGenesis in his Complaint: fraud (Count I), breach of contract (Count II), violation of Chapter 93A (Count III), audit and accounting (Count IV), and piercing the corporate veil (Count V). NuGenesis now moves to dismiss all claims pursuant to Mass.R.Civ.P. 12(b)(6). For the reasons stated below, NuGenesis's motion to dismiss is allowed.

         BACKGROUND

         The facts as revealed by Kelly's Complaint and the documents referenced in the Complaint are as follows.

         Kelly, a professional computer software developer and distributor, is a resident of Spring Lake, New Jersey. Waters is a Delaware corporation with a principal place of business in Milford, Massachusetts. In February 2004, Waters acquired NuGenesis and assumed all of NuGenesis's liabilities and contractual obligations to Kelly. Complaint at para. 2. NuGenesis is a Delaware corporation with a principal place of business in Milford. It has operated as a wholly owned subsidiary of Waters since February of 2004.

         From 1987 to 1999, Kelly developed the computer software product lines called TriRidian, also known as Archive, and VP Office. Kelly designed Archive to meet the needs of companies obligated to comply with regulations promulgated by the Food and Drug Administration (FDA) in 1997, that specified the criteria that had to be met for the FDA to accept electronic records/signatures as the equivalent of paper records/signatures from drug makers and other FDA-regulated industries. Archive also allows users to collect and store raw data from laboratory instruments and retrieve the data on demand by FDA inspection teams. VP Office allows lab users to work directly with data from laboratory instruments using Microsoft Office's Word and Excel products.

         NuGenesis was founded in 1997. In 1999, NuGenesis was still a start-up company that had one viable product, UNIFY & VISION (UV), an efficiency tool that performed the same function as VP Office. NuGenesis executives wanted to present the company to underwriters and potential investors as a two-product software company. They approached Kelly about developing and selling Archive and VP Office. NuGenesis represented to Kelly that it was well qualified and had sufficient financial, personnel, sales, and technical resources. Kelly asserts in his Complaint that NuGenesis lacked these resources to develop and sell Archive or VP Office.

         NuGenesis, known as Mantra Software Corporation in 1999, entered into an Asset Purchase Agreement (Agreement), dated February 23, 1999, with Kelly. Under the Agreement, NuGenesis purchased all rights, title, and interest in the Archive and VP Office products. Kelly was not represented by counsel in any of his negotiations with NuGenesis or in the closing of his sale of the software to NuGenesis. Until 2004, NuGenesis enjoyed a market essentially free of competing products to Archive.

         The Agreement required NuGenesis to pay Kelly sixty percent of all Archive sales revenue from certain customers, thirty percent of all Archive revenue from other customers or resellers, and twenty percent of Archive revenue for maintenance licenses for the Archive products. The Agreement also contained certain revenue caps on royalty payments for Archive and VP Office products.

         In addition, Article 9.13 of the Agreement contains the following language:

GOVERNING LAW. THIS AGREEMENT, INCLUDING THE VALIDITY HEREOF AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY IN SUCH STATE (WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PROVISIONS THEREOF). EACH OF THE PARTIES HERETO AGREES THAT ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE THE RIGHTS OR OBLIGATIONS OF ANY PARTY HERETO UNDER THIS AGREEMENT MAY BE COMMENCED AND MAINTAINED IN ANY COURT OF COMPETENT JURISDICTION LOCATED IN MASSACHUSETTS, AND THAT THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS SHALL HAVE EXCLUSIVE JURISDICTION OVER ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT BY ANY OF THE PARTIES HERETO. EACH OF THE PARTIES HERETO FURTHER AGREES THAT PROCESS MAY BE SERVED UPON IT IN ANY MANNER PRESCRIBED IN SUCH JURISDICTION, BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED AS MORE GENERALLY PROVIDED IN SECTION 9.3 HEREOF, AND CONSENTS TO THE EXERCISE OF JURISDICTION OVER IT AND ITS PROPERTIES WITH RESPECT TO ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ENFORCEMENT OF ANY RIGHTS UNDER THIS AGREEMENT.

         Agreement at 23-24 (emphasis added).

         On November 19, 2001, the parties executed an amendment to the Agreement (the " 2001 Amendment" ). Under Section 5(b) of the 2001 Amendment, " [t]he provisions of Article IX of the Agreement are incorporated by this reference and made a part hereof." Thus, the forum selection clause language contained in Article 9.13 of the Agreement, quoted above, was incorporated in the amended agreement.

         In addition, the 2001 Amendment reduced the percentage of revenue payable to Kelly on all sales of Archive, VP Office, and maintenance licenses to five percent. Also, the 2001 Amendment capped the aggregate amount payable to Kelly at $1 million per year, beginning with the 2002 calendar year. According to NuGenesis executives, Archive sales were falling well below the expected amounts, and most of NuGenesis's sales were of UV, not Archive. NuGenesis executives implied that NuGenesis would develop an alternative to Archive and pay Kelly nothing unless he cooperated by reducing his royalties under the 2001 Amendment. Following the 2001 Amendment, NuGenesis's royalty payments to Kelly continued at a low level, indicating that its Archive sales remained relatively low and that it was making no VP Office sales at all.

         In 2003, NuGenesis and Waters announced that Waters planned to acquire NuGenesis. Soon after this announcement, Kelly began to receive reports from various NuGenesis employees indicating that NuGenesis might have engaged in malfeasance in the administration of the Agreement. Kelly sent an email to Waters and others about this possible malfeasance. More specifically, Kelly inquired about Archive maintenance license sales that NuGenesis never invoiced to its customers.

         On January 28, 2004, Waters announced the closing of its acquisition of NuGenesis. Thereafter, Kelly sent a letter dated February 17, 2004 to Jonathan Karis, then counsel to NuGenesis, about the allegations he previously raised in the e-mail ...


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