Nebraska Department of Education Did Not Waive Its Sovereign Immunity with Respect to Software Company's Copyright Claims
On April 6, 2020, eScholar LLC ("eScholar" or the "Company") filed a Complaint against the Nebraska Department of Education (the "Department") for breaching its software licensing contract and violating federal copyright law and Nebraska trade secret law. According to eScholar, the Department reverse-engineered and effectively copied the Company's student record tracking software and then ended its license. We previously reported on this case on June 8, 2020 and April 13, 2020.
The Complaint triggered a volley of back-and-forth motions that peaked with a May 29th motion to dismiss for failure to state a claim. The central issue of the motion was the Department's claim that it, as a state entity, could not be sued because of 11th Amendment sovereign immunity. eScholar claimed that the Department had waived its sovereign immunity by signing the software licensing agreement, which included a forum selection clause.
On October 28, 2020, the judge in the case filed a memorandum and order ruling on the motion to dismiss and on eScholar's request for a preliminary injunction. The judge concluded that the forum selection clause did constitute a valid waiver of sovereign immunity; however, based on the language of the clause, the waiver only applied to claims arising directly out of the contract. In other words, the Department had waived its immunity with respect to breach of the contract while maintaining its immunity for statutory claims.
Accordingly, the Department was deemed immune from eScholar's claims arising out of federal copyright law and Nebraska trade secret law, and these claims were dismissed. It appears that the case will move forward with respect to the contract claims and limited claims made against two particular Department officials under the Ex Parte Young doctrine. The court declined to issue a preliminary injunction since the harms eScholar claims are speculative, and since freezing the Department's use of its student record software during the pandemic would cause extreme difficulty.