Opinion
No. 15–P–1282.
09-29-2016
OPENRISK, LLC v. Marc ROSTON & others.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The plaintiff, OpenRisk, LLC (OpenRisk), initiated this action against Marc Roston and three entities he allegedly controls, Spectant Group, LLC (Spectant), MNR Capital, LLC (MNR Capital) and Arcvandam Corp. (Arcvandam) (collectively, the Roston defendants), claiming, inter alia, that they conspired with several OpenRisk employees, consultants, and vendors to misappropriate confidential and proprietary information and interfere with OpenRisk's business relationships. A judge of the Superior Court allowed the Roston defendants' motion to dismiss for lack of personal jurisdiction pursuant to Mass.R.Civ.P. 12(b)(2), 365 Mass. 754 (1974), and judgment entered accordingly. OpenRisk appeals. For the reasons discussed herein, we affirm the judgment.
1. Background. OpenRisk is a start-up company, founded in 2011 to develop a software platform (platform) to host catastrophe models for use by insurers and reinsurers to estimate the potential financial damage to a portfolio of real property resulting from natural disasters. It is a Delaware limited liability company, registered in Massachusetts as a foreign corporation, with a principal place of business at 65 Clark Street in Belmont, the home of its chief executive officer, James Aylward. Aylward and Scott Waxler, another Massachusetts resident, beneficially own a majority interest in OpenRisk.
Aylward and Waxler's interests were held through limited liability companies in which they were members.
OpenRisk had four employees: Aylward; Craig Ott, a New Jersey resident, who served as president; Shajy Mathai, another New Jersey resident, who was chief technical officer; and Richard Murnane, a Maryland resident, who was chief scientist. Ott, Mathai, and Murnane (collectively, the former employees) were each party to OpenRisk's operating agreement, as well as to their own respective service agreements, all of which included provisions protecting against the wrongful use and disclosure of OpenRisk's confidential information. OpenRisk also retained two software engineering consultants, Nitish Mathew and Dileep Shivagangoppa, both based in India (consultants). The former employees and consultants all performed their work for OpenRisk from outside Massachusetts.
OpenRisk also had contracts with third-party vendors, including Netezza, a Massachusetts-based company retained to write a software code to allow a particular hurricane loss model to run on the platform; Adeptia, Inc. (Adeptia), a software engineering firm incorporated in Delaware with a principal place of business in Illinois, engaged to help develop the infrastructure for the platform; and MicroStrategy Services Corp. (MicroStrategy), a Delaware corporation with a principal place of business in Virginia, retained to provide the infrastructure to host the platform in the “cloud” for access by end users.
At some point prior to August, 2011, an in-house investment banker at Guy Carpenter & Company, LLC (Guy Carpenter), a “global reinsurance intermediary,” contacted defendant Marc Roston, an investor who resided in New Jersey and had experience with the risk management processes of large reinsurance companies, and suggested he consider investing in OpenRisk. There is no evidence that any of the contacts between Guy Carpenter and Roston occurred in Massachusetts. On September 14, 2011, Roston, acting in his capacity as the managing member of defendant MNR Capital, a New Jersey limited liability company with a principal place of business at Roston's then-home address in South Orange, New Jersey, executed a confidentiality agreement with OpenRisk to facilitate the parties' exchange of information. Ott executed the confidentiality agreement on behalf of OpenRisk. The confidentiality agreement contained a New Jersey choice of law provision, but no forum selection clause. Roston conducted negotiations with OpenRisk remotely, from outside Massachusetts. He never traveled to Massachusetts during the negotiations and only met in person with OpenRisk personnel on one occasion, in New York City. To the extent that Roston communicated during negotiations with the Massachusetts-based Aylward and Waxler, he did so by telephone or electronic mail message (e-mail).
According to OpenRisk, Mathai previously worked at Guy Carpenter and was secretly working on a partnership agreement with Guy Carpenter to be exploited only after Roston acquired control of OpenRisk and ousted Aylward and Waxler.
Roston subsequently moved to Montana.
Both Roston and Ott executed the confidentiality agreement in New Jersey.
Initially, Roston contemplated becoming a passive investor in OpenRisk, but subsequently sought to acquire a controlling interest in OpenRisk and to move certain parts of OpenRisk to another company he controlled. Specifically, on September 22, 2011, Roston submitted a proposal, offering to invest $200,000 in OpenRisk in return for a controlling interest. Aylward and Waxler, however, thought that Roston's valuation of OpenRisk was extremely low and let the offer expire, by its own terms, on September 26, 2011. Subsequently, on October 6, 2011, Roston submitted a second offer, which varied only slightly from the first. Once again, Aylward and Waxler did not accept Roston's offer, which expired by its own terms on October 11, 2011. Roston thereafter continued to negotiate with Aylward and Waxler through November 1, 2011, but no agreement was reached.
According to OpenRisk, Roston also had been communicating directly with the three former employees since at least August, 2011, and had promised them compensation packages, including equity and benefits, that exceeded what they were then receiving from OpenRisk, if he acquired control of OpenRisk. Having allegedly been induced by this offer, the former employees decided to work secretly with Roston and began to apply pressure of their own on Aylward and Waxler in an effort to effectively force the pair to accept Roston's offer. For example, on the evening of September 26, 2011, the date that Roston's first offer expired, he sent an e-mail to Ott expressing frustration with Aylward and Waxler and suggesting that the two would “need to be gone from this company if I'm going to be involved.” Ott responded the following day, informing Roston that the former employees were prepared to notify OpenRisk that their contracts with OpenRisk were no longer valid if Aylward and Waxler “continue to look for ways to preserve their own positions in the company without any regard for the core employees.” Then, on October 11, 2011, the day Roston's second offer expired, the former employees did just that, when they caused their attorney to send a letter to OpenRisk, declaring their agreements with OpenRisk “null and void, effective immediately” due to the alleged nonpayment of their salaries.
Two days later, on October 13, 2011, OpenRisk's counsel sent written demands to the former employees for the return of all OpenRisk property in their possession. The former employees never responded. On November 2, 2011, OpenRisk's counsel sent a second letter, reiterating the demand. By that time, however, it is alleged that the former employees, acting in conspiracy with the Roston defendants and certain of OpenRisk's vendors, had begun to misappropriate OpenRisk's property. Specifically, on October 13, 2011, within two days of their mass resignation, the former employees, with the assistance of the Virginia-based vendor MicroStrategy, began “porting over” items of OpenRisk property into the platform cloud space provided by MicroStrategy, as if the former employees were still employees of OpenRisk. Among the OpenRisk property secretly “ported over” were “database dumps” from the Massachusetts-based vendor, Netezza.
Roston, meanwhile, allegedly established a new entity, the defendant Spectant, a New Jersey-based limited liability company, for the purpose of effectively taking over what he had been unsuccessful in acquiring, namely, OpenRisk's business. He also allegedly established a second New Jersey-based limited liability company, the defendant Arcvandam, to provide capital to fund Spectant. The former employees, as well as OpenRisk's consultants, then joined Spectant as consultants. Spectant essentially stepped into and took over OpenRisk's contractual relationships with vendors MicroStrategy and Adeptia and began using OpenRisk's property to pursue the very same line of business. Subsequently, Roston, among other efforts in pursuit of this business, allegedly traveled to Massachusetts with Mathai in January, 2012, to meet with AIR–Worldwide, a risk catastrophe modeler. There is no evidence in the record, however, that OpenRisk had a prior relationship with AIR–Worldwide.
Arcvandam, in turn, was allegedly funded by Roston's other entity, the defendant MNR Capital.
On November 29, 2011, the owners of OpenRisk, including Aylward and Waxler, filed a derivative action in the Superior Court against the former employees, alleging, inter alia, that they had conspired with Roston to misappropriate confidential and proprietary information. Almost three years later, on June 9, 2014, OpenRisk commenced the present action against the Roston defendants, MicroStrategy and Adeptia. According to its second verified amended complaint, OpenRisk asserted claims against the Roston defendants for aiding and abetting breaches of fiduciary duty by the former employees (count I); tortious interference with OpenRisk's existing vendor relationships and prospective customer relationships (count II); common-law misappropriation of confidential and proprietary information (count III); misappropriation of OpenRisk's trade secrets in violation of G.L. c. 93, §§ 42 and 42A (count IV); civil conspiracy (count V); unfair and deceptive trade practices in violation of G.L. c. 93A (count VII); and an accounting (count VIII). The Roston defendants then successfully moved to dismiss for lack of personal jurisdiction, and this appeal ensued.
The record indicates that this lawsuit was settled and dismissed.
Adeptia and MicroStrategy were both separately dismissed from the case due to the presence of forum selection clauses in their respective contracts with OpenRisk. They are not parties to this appeal.
Only Roston is named as a defendant in count I.
2. Standard. “Where, as here, [the trial] court dismisses a case for lack of personal jurisdiction based on the prima facie record, rather than after an evidentiary hearing or factual findings, our review is de novo.” C.W. Downer & Co. v. Bioriginal Food & Science Corp., 771 F.3d 59, 65 (1st Cir.2014). When personal jurisdiction has been challenged under Mass.R.Civ.P. 12(b)(2), “a plaintiff must make a prima facie showing of evidence that, if credited, would be sufficient to support findings of all facts essential to personal jurisdiction.” Fern v. Immergut, 55 Mass.App.Ct. 577, 579 (2002). “In resolving the issue, we accept as true only the uncontroverted facts as they appear in the materials which were before the Superior Court judge.” Heins v. Wilhelm Loh Wetzlar Optical Mach. GmbH & Co. KG., 26 Mass.App.Ct. 14, 16 (1988). “Generally speaking, inquiries into whether the exercise of personal jurisdiction is permissible in a particular case are sensitive to the facts of each case.” Good Hope Indus., Inc. v. Ryder Scott Co., 378 Mass. 1, 2 (1979) (quotation omitted). See Sawtelle v. Farrell, 70 F.3d 1381, 1388 (1st Cir.1995) (“[T]he fact-sensitive inquiry of whether a forum may assert personal jurisdiction over a defendant ... is not a rote, mechanical exercise”).
“Generally, a claim of personal jurisdiction over a nonresident defendant presents a two-fold inquiry: (1) is the assertion of jurisdiction authorized by statute, and (2) if authorized, is the exercise of jurisdiction under State law consistent with basic due process requirements mandated by the United States Constitution? Jurisdiction is permissible only when both questions draw affirmative responses.” Good Hope Indus., Inc., 378 Mass. at 5–6. The Massachusetts long-arm statute, G.L. c. 223A, § 3, however, allows for “an assertion of jurisdiction over the person to the limits allowed by the Constitution of the United States.” ‘ ‘Automatic” Sprinkler Corp. of America v. Seneca Foods Corp., 361 Mass. 441, 443 (1972). “It is appropriate, therefore, for the court to ‘sidestep the statutory inquiry and proceed directly to the constitutional analysis....' “ Wolverine Proctor & Schwartz v. Aeroglide Corp., 394 F.Supp.2d 299, 306 (D.Mass.2005), quoting from Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A., 290 F.3d 42, 52 (1st Cir.2002).
“The Due Process Clause of the Fourteenth Amendment [to the United States Constitution] constrains a State's authority to bind a nonresident defendant to a judgment of its courts.” Walden v. Fiore, 134 S.Ct. 1115, 1121 (2014), citing World–Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1980). To establish specific personal jurisdiction under the United States Constitution, a plaintiff must satisfy a three-part test. “First, the claim underlying the litigation must directly arise out of, or relate to, the defendant's forum-[S]tate activities. Second, the defendant's in-[S]tate contacts must represent a purposeful availment of the privilege of conducting activities in the forum [S]tate, thereby invoking the benefits and protections of that [S]tate's laws and making the defendant's involuntary presence before the [S]tate's courts foreseeable. Third, the exercise of jurisdiction must, in light of the [so-called] Gestalt factors, be reasonable.” United Elec., Radio & Mach. Workers of Am. v. 163 Pleasant St. Corp., 960 F.2d 1080, 1089 (1st Cir.1992). See International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945), quoting from Milliken v. Meyer, 311 U.S. 457, 463 (1940) (defendant must “have certain minimum contacts with [the State] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice’ ”). “An affirmative finding on each of the three elements of the test is required to support a finding of specific jurisdiction.” Phillips Exeter Academy v. Howard Phillips Fund, Inc., 196 F.3d, 284, 288 (1st Cir.1999). In allowing the rule 12(b)(2) motion, the judge concluded that OpenRisk could not satisfy either the first (relatedness) or second (purposeful availment) elements of the test.
We are concerned here with “specific” jurisdiction, because OpenRisk has not sought to establish “general” jurisdiction. See Heins, 26 Mass.App.Ct. at 22 n. 6 (“specific” jurisdiction involves suit arising out of or related to defendant's contacts with forum, whereas “general” jurisdiction requires contacts of “continuous and systematic nature”).
3. Relatedness. OpenRisk first argues that the judge erred by focusing exclusively on the “arise out of” portion of the first prong of the due process analysis and ignoring the “relate to” portion. Ultimately, that is of no import to our decision because our review is de novo. We observe, nevertheless, that the judge did not err. The terms “arise out of” and “relate to” are often used interchangeably. Indeed, the first prong of the due process analysis is often referred to simply as the “relatedness” prong, even though that might seem to overlook the “arise out of” portion of the analysis. See Ticketmaster–New York, Inc. v. Alioto, 26 F .3d 201, 206 (1st Cir.1994) (noting that “[t]he [United States Supreme] Court has kept its own counsel on the question of whether, on the one hand, the two halves of the relatedness requirement are merely two ways of expressing the same thought or, on the other hand, they are meant to import different values into the jurisdictional equation”). “[W]e think it significant that the constitutional catchphrase is disjunctive in nature, referring to suits ‘arising out of, or relating to,’ in-forum activities,” and “this added language portends added flexibility and signals a relaxation of the applicable standard.” Ibid. In any event, even if we were to view the terms at issue in the disjunctive, for the reasons discussed below, OpenRisk fares no better.
OpenRisk argues that the judge failed to apply such a “flexible, relaxed standard.” Again, our review is de novo. Regardless, we agree such a standard is required, see Sawtelle, 70 F.3d at 1389, and have applied it in reaching our decision.
As the Supreme Court recently stated, “[t]he inquiry whether a forum State may assert specific jurisdiction over a nonresident defendant focuses on the relationship among the defendant, the forum, and the litigation.... For a State to exercise jurisdiction consistent with due process, the defendant's suit-related conduct must create a substantial connection with the forum State.” Walden, 134 S.Ct. at 1121 (quotation omitted). This requirement of a direct and substantial connection between the defendant's own suit-related conduct and the forum State, however, is not new to the relatedness analysis. See, e.g., Fern, 55 Mass.App.Ct. at 584, quoting from Sawtelle, 70 F.3d at 1389 (“The relatedness requirement is not met merely because a plaintiff's cause of action arose out of the general relationship between the parties; rather the action must directly arise out of the specific contacts between the defendant and the forum [S]tate”); United Elec., Radio & Mach. Workers of Am., 960 F.2d at 1089 ; United States v. Swiss Am. Bank, 274 F.3d 610, 623 (1st Cir.2001) ; C.W. Downer & Co., 771 F.3d at 66. This requirement particularly applies in cases, like this one, involving tort claims. See, e.g., Massachusetts Sch. of Law v. American Bar Assn., 142 F.3d 26, 35 (1st Cir.1998) ; Swiss Am. Bank, 274 F.3d at 622 (“The relatedness inquiry for tort claims focuses on whether the defendant's in-forum conduct caused the injury or gave rise to the cause of action”). OpenRisk has identified three alleged contacts between the Roston defendants and the forum State of Massachusetts. None of those contacts, however, satisfies the relatedness requirement.
Citing Nowak v. Tak How Invs., Ltd., 94 F.3d 708, 714–716 (1st Cir.1996), OpenRisk not only urges application of the “but for” test, it seeks an extremely liberal application of that test. In Nowak, however, the United States Court of Appeals for the First Circuit affirmed its adherence to the proximate or legal cause test for purposes of the relatedness element, and only allowed for a “slight loosening of that standard when circumstances dictate.” Id. at 716. See Dagesse v. Plant Hotel N.V., 113 F.Supp.2d 211, 218 (D.N.H.2000). Even if the Nowak exception applied here, therefore, our conclusion would not change.
In Swiss Am. Bank, 274 F.3d at 623, the court further held that the in-forum “effects” theory established in Calder v. Jones, 465 U.S. 783 (1984), does not apply to satisfy the relatedness prong: “the ‘effects' test is a gauge for purposeful availment and is to be applied only after the relatedness prong has already been satisfied.” Accordingly, the fact that the Roston defendants' alleged out-of-State conduct may have had an impact in Massachusetts is not relevant at this stage.
It is not clear what the cognizable contacts were between Massachusetts and MNR Capital, Spectant, or Arcvandam, unless Roston's contacts are to be attributed to them by virtue of his controlling stake in, or his role as an agent of, each entity. Given our conclusion that Roston's contacts are not sufficient, however, we need not address that issue.
OpenRisk first points to Roston's e-mail and telephone communications with the Massachusetts-based Aylward and Waxler during the failed negotiations to purchase control of OpenRisk. The claims OpenRisk has asserted against the Roston defendants, however, do not arise out of or relate to those contacts with the forum State. Those contacts did not cause, legally or in fact, OpenRisk's alleged injuries. At best, even applying a flexible, relaxed standard, those e-mail and telephone contacts create an attenuated, insubstantial nexus to the asserted causes of action.
Notably, OpenRisk has not asserted claims against the Roston defendants for violation of the confidentiality agreement executed in connection with the negotiations. Nor has OpenRisk claimed that the Roston defendants misappropriated confidential or proprietary information obtained during those negotiations. Instead, OpenRisk claims that the Roston defendants conspired with the former employees, consultants, MicroStrategy, and Adeptia to misappropriate OpenRisk's intellectual property and, in so doing, aided and abetted the former employees in breaching their fiduciary duties to OpenRisk. All of those individuals and entities, and thus the Roston defendants' contacts with them, occurred outside Massachusetts. Those contacts, therefore, do not aid OpenRisk in satisfying the relatedness element of the test.
In an effort to overcome that deficiency, OpenRisk next suggests that the former employees and MicroStrategy, in furtherance of their alleged conspiracy with the Roston defendants, “ported over” to the cloud space at Virginia-based MicroStrategy “database dumps” from the Massachusetts-based vendor, Netezza. The Roston defendants, however, are not alleged to have been involved in that “contact” with Massachusetts. In effect, therefore, OpenRisk is asking us to recognize the so-called “conspiracy theory of personal jurisdiction.” Textor v. Board of Regents of N. Ill. Univ., 711 F.2d 1387, 1392–1393 (7th Cir.1983) (to plead such theory, “a plaintiff must allege both an actionable conspiracy and a substantial act in furtherance of the conspiracy performed in the forum [S]tate”). To date, no Massachusetts State court has recognized such a theory. Nor has any court in the First Circuit. In fact, one such court held that it did “not believe that the First Circuit would recognize a conspiracy theory of personal jurisdiction, whereby jurisdiction can be obtained over nonresident defendants based upon the jurisdictional contacts of co-conspirators .” In re New Motor Vehicles Canadian Export Antitrust Litigation, 307 F.Supp.2d 145, 157–158 (D.Me.2004) (further noting that while the theory has been adopted in a few other jurisdictions, it has been “rejected by a growing number of courts” and “scholars have been skeptical of the doctrine's conformance to notions of constitutional due process”). See Glaros v. Perse, 628 F.2d 679, 682 n. 4 (1st Cir.1980). Given the state of the law, the alleged Netezza contact is of no consequence to the due process analysis.
Contrary to OpenRisk's suggestion, the judge considered and addressed the Netezza contact in his analysis.
Finally, OpenRisk contends that Roston's visit, with Mathai, to Massachusetts to meet with AIR–Worldwide in January, 2012, is directly related to its claims because, OpenRisk alleges, the visit represented the improper use of the stolen technology. We disagree. At most, the visit represented a visit with an entity that may have had a future relationship with OpenRisk—no relationship previously existed. There is no evidence of an actual disclosure of any OpenRisk proprietary information at that meeting. Moreover, there is no evidence that the meeting resulted in any business for Spectant, either. The AIR–Worldwide meeting, therefore, fails to create a substantial nexus to the claims asserted against the Roston defendants.
4. Purposeful availment. “Due process requires that a defendant be haled into court in a forum State based on his own affiliation with the State, not based on the ‘random fortuitous or attenuated contacts' he makes by interacting with other persons affiliated with the State.” Walden, 134 S.Ct. at 1123, quoting from Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985). “The proper question is not where the plaintiff experienced a particular injury or effect but whether the defendant's conduct connects him to the forum in a meaningful way.” Id. at 1125. “The purposeful availment prong ‘represents a rough quid pro quo: when a defendant deliberately targets its behavior toward the society or economy of a particular forum, the forum should have the power to subject the defendant to judgment regarding that behavior.’ “ C.W. Downer & Co., 771 F.3d at 66, quoting from Carreras v.. PMG Collins, LLC, 660 F.3d 549, 555 (1st Cir.2011). “[T]he cornerstones upon which the concept of purposeful availment rest are voluntariness and foreseeability.” Sawtelle, 70 F.3d at 1391.
While the focus belongs on the Roston defendants, we note that OpenRisk itself does not have an overwhelming connection to Massachusetts. The two majority beneficial owners of OpenRisk, Aylward and Waxler, reside in Massachusetts and Aylward's residence served as the principal place of business. OpenRisk is incorporated elsewhere, all of its other employees and its consultants are located and work elsewhere, and its vendors, but for Netezza, are located elsewhere. In fact, one vendor, the Virginia-based MicroStrategy, was going to host OpenRisk's proprietary platform in that somewhat nebulous place known as the cloud. By this, we do not mean to diminish OpenRisk's connections with Massachusetts, but it does provide some perspective as to whether Roston, through his own limited contacts, voluntarily availed himself of the privilege of conducting activities within the State, such that he could reasonably foresee being subject to jurisdiction here.
The confidentiality agreement, which had a New Jersey choice of law provision, was executed by Roston and OpenRisk's New Jersey-based president, Ott, in New Jersey. Meanwhile, the one time Roston actually met with OpenRisk personnel was in New York. Otherwise, apart from the visit to AIR–Worldwide in January, 2012, Roston's only other contacts with Massachusetts were via the failed e-mail and telephone negotiations with Aylward and Waxler. The Supreme Court has “consistently rejected” a physical contact test for personal jurisdiction. See Burger King Corp., 471 U.S. at 476 (“[I]t is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across [S]tate lines”). Here, however, Roston's limited contacts with Massachusetts, especially when viewed in light of all of the circumstances, do not suggest that he “engaged in any purposeful activity related to the forum that would make the exercise of jurisdiction fair, just, or reasonable.” Rush v. Savchuk, 444 U.S. 320, 329 (1980). Even if OpenRisk had satisfied the relatedness prong, therefore, personal jurisdiction still would not lie due to its failure to satisfy the purposeful availment prong .
To the extent that we have not addressed other points made by OpenRisk, they “have not been overlooked.” Department of Rev. v.. Ryan R., 62 Mass.App.Ct. 380, 389 (2004), quoting from Commonwealth v. Domanski, 332 Mass. 66, 78 (1954). We have considered them and found them to be without merit.