Grail Seminconductor, Inc. v. Stern

Filing 62

ORDER granting in part and denying in part 20 Defendant Stern's Motion to Dismiss for Lack of Jurisdiction or, Alternatively, to Dismiss State Law Claims for Lack of Supplemental Jurisdiction; and denying 25 Motion to Strike Declaration of Brad Woods. See attached ORDER for details. Signed by Judge Robert N. Scola, Jr. on 11/26/12. (jky)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 12-60976-Civ-SCOLA

GRAIL SEMICONDUCTOR, INC.,
Plaintiff,
vs.
ROBERT B. STERN,
Defendant.
_____________________________________/
ORDER ON MOTION TO DISMISS
THIS MATTER is before the Court upon the Motion to Dismiss for Lack of Personal
Jurisdiction [ECF No. 20], filed by Defendant Robert B. Stern (“Stern”). Stern seeks dismissal
of the entire case for lack of personal jurisdiction or, alternatively, dismissal of pendent state law
claims for lack of subject matter jurisdiction. For the reasons explained below, the Motion to
Dismiss is denied as to the issue of personal jurisdiction, but granted in part as to the issue of
supplemental jurisdiction.
Introduction
This lawsuit arises from Stern’s attempts to transfer or sell restricted stock shares in Grail
Semiconductor, Inc. (“Grail”) to third-parties. Grail filed suit alleging that Stern’s attempted
sales and/or transfers violated the Securities Act of 1933, 15 U.S.C. § 77a et seq., and the
Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. The Complaint also raises pendent
state law claims. According to the Complaint, there were 44 unlawful transactions, or attempted
transactions, involving the transfer of restricted stock shares to “persons located in Florida,
California and New York, as well as persons in both Canada and Israel.” Compl. ¶ 17. As to
Florida, there was just a single transaction in which Stern allegedly gifted 4,500 shares to a South
Florida resident named Howard Moskow. The remaining 10 million shares at issue involved
transactions outside of, and unrelated to, Florida.

There is conflicting evidence as to whether Stern’s long-time business acquaintance,
David Rothschild, also solicited two Florida residents to buy Stern’s shares. According to
Rothschild, Stern asked him to seek out interested persons in September 2009 and, as a result, he
“forwarded the then current Grail business plan to two Florida residents, Aaron Dukes of Coral
Springs, Florida, someone well known to [Stern], and Stuart Schulman of Boca Raton, Florida.”
Rothschild Decl. ¶ 5. Stern contends, however, that he asked Rothschild to assist with finding
“potential investors in Grail Semiconductor, Inc. in an effort to raise capital to pay off Grail
Semiconductor Inc.’s liabilities,” and that “[t]here was never any discussion between [Stern] and
Rothschild that any potential investors were residents or situated in Florida.” Stern Decl. ¶¶ 1011. Stern also states that he never gave Rothschild any authority to solicit, or offer for sale, any
of his Grail shares. Id. ¶ 12. Nor, according to Stern, did he ever solicit, offer, transfer, or sell
any of his shares to the two Florida residents at issue, Aaron Dukes or Stuart Schulman. Id. ¶ 14.
Stern, former CEO of Grail, is a California citizen and resident. Grail is a California
corporation founded in 2000. Since 2010, Grail has kept its principal place of business in
Naples, Florida. Stern has limited contacts with Florida. In fact, he has never lived in the State,
nor owned property here. He also has never been employed in Florida.
Given his limited contacts with Florida, Stern seeks dismissal for lack of personal
jurisdiction. According to Stern, Florida’s Long-Arm Statute does not confer general or specific
personal jurisdiction and he does not have sufficient minimum contacts with the forum, as
required by the Due Process Clause of the Fourteenth Amendment. Stern also argues that Grail’s
pendent state law claims should be dismissed for lack of supplemental jurisdiction because they
do not arise from the same set of facts as Grail’s federal law claims.
Grail responds that there is specific jurisdiction under Florida’s Long-Arm Statute
because Stern allegedly committed a tort in Florida. Grail also contends that Stern’s connections
with Florida satisfy the Due Process Clause. As to the state law claims, Grail argues they are
sufficiently connected to the federal claims and, as such, should not be dismissed.
Legal Standards
A. Personal Jurisdiction
Federal Rule of Civil Procedure 12(b)(2) governs motions to dismiss for lack of personal
jurisdiction. “A court must dismiss an action against a defendant over which it has no personal
jurisdiction.” Verizon Trademark Servs., LLC v. Producers, Inc., 810 F. Supp. 2d 1321, 1323-24

(M.D. Fla. 2011) (Hernandez Covington, J.). To withstand a motion to dismiss, the plaintiff
must plead sufficient facts to establish a prima facie case of jurisdiction over the non-resident
defendant’s person. Virgin Health Corp. v. Virgin Enters. Ltd., 393 F. App’x 623, 625 (11th Cir.
2010). The district court must accept the facts alleged in the complaint as true, to the extent they
are uncontroverted by the defendant’s affidavits. See Consol. Dev. Corp. v. Sherritt, Inc., 216
F.3d 1286, 1291 (11th Cir. 2000).

If the defendant sustains its burden of challenging the

plaintiff’s allegations through affidavits or other competent evidence, the plaintiff must
substantiate the jurisdictional allegations in the complaint by affidavits, testimony, or other
evidence of its own. Future Tech. Today, Inc. v. OSF Healthcare Sys., 218 F.3d 1247, 1249
(11th Cir. 2000). The plaintiff must do more than “merely reiterate the factual allegations in the
complaint.” Id. (citation omitted). Where the evidence conflicts, however, the district court
must construe all reasonable inferences in favor of the plaintiff. See PVC Windoors, Inc. v.
Babbitbay Beach Const., N.V., 598 F.3d 802, 810 (11th Cir. 2010). “If such inferences are
sufficient to defeat a motion for judgment as a matter of law, the court must rule for the plaintiff,
finding that jurisdiction exists.” Id.
B. Supplemental Jurisdiction
Motions to dismiss for lack of subject matter jurisdiction are governed by Federal Rule of
Civil Procedure 12(b)(1). Federal subject matter jurisdiction is typically found only where a case
involves a question of federal law or diversity of citizenship between the parties. See Chen v.
Cayman Arts, Inc., 2011 WL 744657, at *2 (S.D. Fla. Feb. 11, 2011) (Cohn, J.); see also
28 U.S.C. §§ 1331-1332. “When a case involves additional claims forming part of the same case
or controversy as those over which there is original jurisdiction, the court may assert
supplemental jurisdiction over the additional claims.” Chen, 2011 WL 744657, at *2; see also
28 U.S.C. § 1367(a).
The district court’s supplemental jurisdiction reaches “to the full extent allowed by the
‘case or controversy’ standard of Article III.” See Palmer v. Hosp. Auth. of Randolph Cnty., 22
F.3d 1559, 1566 (11th Cir. 1994). The relevant inquiry is whether the pendent state law claims
“arise out of a common nucleus of operative fact” as the “substantial federal claim” supplying
jurisdiction. See Lucero v. Trosch, 121 F.3d 591, 597 (11th Cir. 1997); see also United Mine
Workers of Am. v. Gibbs, 383 U.S. 715, 724-25 (1966). “A federal court’s power or jurisdiction
to entertain supplemental state claims is ordinarily determined on the pleadings.” Lucero, 121
F.3d at 598.

Legal Analysis
A. Personal Jurisdiction
In the typical case, “[w]hether the court has personal jurisdiction over a defendant is
governed by a two-part analysis.” Verizon Trademark Servs., 810 F. Supp. 2d at 1324. First,
the court determines whether, consistent with state law, the applicable state long-arm statute is
satisfied. Future Tech. Today, 218 F.3d at 1249; see also see also Stubbs v. Wyndham Nassau
Resort & Crystal Palace Casino, 447 F.3d 1357, 1361 (11th Cir. 2006). Second, if the state
long-arm statute is satisfied, the court considers “whether the exercise of jurisdiction over the
defendant comports with the Constitution’s requirements of due process and traditional notions
of fair play and substantial justice.” See Verizon Trademark Servs., 810 F. Supp. 2d at 1324;
Sculptchair, Inc. v. Century Arts, 94 F.3d 623, 626 (11th Cir. 1996).
Both parties devote substantial argument to whether there is personal jurisdiction under
Florida’s Long-Arm Statute on the assumption that the above framework automatically applies
here. As previously noted, however, this case is here on federal question jurisdiction; Grail has
sued under the federal securities laws, specifically the Securities Act of 1933, 15 U.S.C. § 77a et
seq., and the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. See Koch v. Royal Wine
Merchants, 847 F. Supp. 2d 1370, 1374 (S.D. Fla. 2012) (Hurley, J.) (“Inexplicably, the parties
in this case limited their discussion of personal jurisdiction to the traditional analysis applied to a
state’s long-arm statute and the Fourteenth Amendment’s requirement of ‘minimum contacts.’
Both parties ignored the [federal law] claim’s impact on personal jurisdiction.”).
“When a federal statute provides for nationwide service of process, it becomes the
statutory basis for personal jurisdiction.” Republic of Panama v. BCCI Holdings (Luxembourg)
S.A., 119 F.3d 935, 942 (11th Cir. 1997). Because these federal securities laws provide for
worldwide service of process, the applicable forum for personal jurisdiction purposes is the
United States as a whole, not Florida. See S.E.C. v. Carrillo, 115 F.3d 1540, 1544 (11th Cir.
1997); see also ATO RAM II, Ltd. v. SMC Multi. Corp., 2004 WL 744792, at *2 (S.D.N.Y. Apr.
4, 2004) (Baer, J.).
In this analysis, the Fifth Amendment’s Due Process Clause serves as the constitutional
touchstone because “when, as here, a federal statute provides the basis for jurisdiction, the
constitutional limits of due process derive from the Fifth, rather than the Fourteenth,
Amendment.” BCCI Holdings, 119 F.3d at 942. The Eleventh Circuit has made clear that “a
defendant’s contacts with the forum state play no magical role in the Fifth Amendment analysis,”

as “[t]here is nothing inherently burdensome about crossing a state line.” Id. at 946. “A court
must therefore examine a defendant’s aggregate contacts with the nation as a whole rather than
his contacts with the forum state in conducting the Fifth Amendment analysis.” Id. at 946-47.
Yet, minimum contacts with the Nation as a whole will not automatically satisfy the
requirements of the Fifth Amendment in all cases. See id. at 947. “There are circumstances,
although rare, in which a defendant may have sufficient contacts with the United States as a
whole but still will be unduly burdened by the assertion of jurisdiction in a faraway and
inconvenient forum.” See id. The Eleventh Circuit has cautioned, though, “it is only in highly
unusual cases that inconvenience will rise to a level of constitutional concern.” See id.
(emphasis added). In most cases, “[m]odern means of communication and transportation” will
lessen “the burden of defending a lawsuit in a distant forum.” See id. at 947-48 (citations
omitted). “The burden is on the defendant to demonstrate that the assertion of jurisdiction in the
forum will make litigation so gravely difficult and inconvenient that he unfairly is at a severe
disadvantage in comparison to his opponent.” See id. at 948 (citations and alternations omitted).
“When a defendant makes a showing of constitutionally significant inconvenience,
jurisdiction will comport with due process only if the federal interest in litigating the dispute in
the chosen forum outweighs the burden imposed on the defendant.” See id. Consideration of
“the federal interest” requires an examination of “the federal policies advanced by the statute, the
relationship between nationwide service of process and the advancement of these policies, the
connection between the exercise of jurisdiction in the chosen forum and the plaintiff’s
vindication of his federal right, and concerns of judicial efficiency and economy.” See id. If the
defendant fails to demonstrate “any constitutionally significant inconvenience,” however, the
Court “need not balance the federal interests at stake in [the] lawsuit.” See id.
Turning to the facts of this case, the Court finds that Stern has sufficient minimum
contacts with the United States as a whole. Stern’s contacts with this forum are clearly related to
the plaintiff’s causes of action and evidence purposeful availment. He is a California resident
and the allegations concern his voluntary transfer of restricted stock shares to persons residing
mostly in the United States. Compl. ¶¶ 12-24, 40-46. Indeed, of the 44 transactions that provide
the basis for Grail’s securities laws claims, all but 10 of them allegedly involve transfers, or
attempted transfers, to persons within the United States. See Attachment to Stern’s Email of
11/2/2011. As such, Stern’s contacts with the forum are also such that he should reasonably
anticipate being haled into court in the United States.

Having found sufficient minimum contacts, the Court must now consider whether an
exercise of jurisdiction would offend traditional notions of fair play and substantial justice. The
focus here is on inconvenience and burden to the defendant. As noted above, it is only in the
rare case that the degree of “inconvenience will rise to a level of constitutional concern.”
See BCCI Holdings, 119 F.3d at 947. Because the defendant bears the burden “to demonstrate
that the assertion of jurisdiction in the forum will make litigation so gravely difficult and
inconvenient that he unfairly is at a severe disadvantage in comparison to his opponent,” we
must consider whether Stern has come forward with anything to substantiate such an
unconstitutional burden. See id. at 948.
He has not.

The only evidence of burden whatsoever is Stern’s statement, in his

affidavit, that “[i]t would be extremely difficult for [him] to litigate in the State of Florida”
because he “reside[s] in California and [has] no business or personal dealings in Florida.” Stern
Aff. ¶ 13. These statements are essentially mere conclusions; they do not furnish the Court with
anything substantive that would show why or how the burden on Stern would be of constitutional
concern. As this Court has noted before, “generalized inconvenience of litigating in a foreign
forum is typically not sufficient to establish that the exercise of jurisdiction is constitutionally
unreasonable.” See H.E.R.O., Inc. v. Self, 2012 WL 1802431, at *6 (S.D. Fla. May 17, 2012)
(Scola, J.) (citation omitted). Moreover, the burdens of defending suit in another state have been
largely ameliorated by modern technology and travel conveniences. Sculptchair, 94 F.3d at 632.
As this discussion makes clear, Stern has not carried his burden to demonstrate “any
constitutionally significant inconvenience.” See BCCI Holdings, 119 F.3d at 948; Koch Wine
Merchants, 847 F. Supp. 2d at 1375. Therefore, the analysis is done and the Court “need not
balance the federal interests at stake in [the] lawsuit.” See BCCI Holdings, 119 F.3d at 948.
Asserting jurisdiction over Stern does not offend constitutional notions of fair play and
substantial justice.1
1

In finding personal jurisdiction over Stern, the Court expresses no opinion on whether this case
is properly venued in this District. Such a determination should be made, if at all, upon proper motion
from the defendant under 28 U.S.C. § 1404(a), which provides that “[f]or the convenience of the parties
and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or
division where it might have been brought[.]” “Section 1404(a) is the statutory codification of the
common law doctrine of forum non conveniens.” Am. Aircraft Sales Int’l, Inc. v. Airwarsaw, Inc., 55 F.
Supp. 2d 1347, 1350 (M.D. Fla. 1999) (Kovachevich, J.). The Supreme Court has remarked that
“[s]ection 1404(a) is intended to place discretion in the district court to adjudicate motions for transfer
according to individualized, case-by-case consideration of convenience and fairness.” See Stewart Org.,
Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988) (citation omitted).

B. Supplemental Jurisdiction
The Court finds that Count IV (Accounting), Count V (Sums Due Under the Terms of the
Note), and Count VI (Un-Reimbursable Expense Advances) must be dismissed for lack of
jurisdiction under 28 U.S.C. § 1367(a). Count III (Breach of Fiduciary Duty) shall remain in the
case, however.
As stated above, the Court may exercise subject matter jurisdiction over pendent state law
claims only if they stem from the same nucleus of facts as the federal claims. See Lucero,
121 F.3d at 597; Gibbs, 383 U.S. at 724-25. Grail’s federal claims concern Stern’s alleged
44 transfers, or attempted transfers, of restricted stock shares in or around 2011. The state law
breach of fiduciary duty claim in Count III also pertains to those transactions. Indeed, Count III
arises from the same nucleus of operative facts as the federal claims. Thus, there is supplemental
jurisdiction over Count III.
By contrast, the pendent state law claims in Counts IV, V, and VI have nothing to do with
Stern’s allegedly unlawful stock transfers. Instead, those claims are directed to Stern’s failure to
pay back a promissory note dating to 2000, his taking of improper advances for nonreimbursable expenses in 2008 and 2010, and his general use (or misuse) of corporate funds and
corporate opportunities as a director of Grail. Grail nevertheless contends that supplemental
jurisdiction exists because Stern’s “thirst for money” led him to peddle his restricted stock shares
and “also caused him to fail to repay a corporate loan (Count V) and to withdraw corporate funds
for personal expenses which he failed to reimburse to the company (Count VI).” Resp. at 12.
This line of argument is mistaken.
Supplemental jurisdiction under section 1367(a) is not established simply because the
federal and state claims arise from the same subjective motivations of the defendant;2 the claims
must stem from the same common nucleus of facts. As compared to the federal claims, Grail’s
state law claims in Counts IV, V, and VI do not. They will require the presentation of different
facts, evidence, and witnesses. Thus, the Court does not have supplemental jurisdiction over
them. See, e.g., Kinsey v. King, 257 F. App’x 136, 139 (11th Cir. 2007) (affirming dismissal of
state law claims that did not share common nucleus of fact with federal claims); Delgado v. De
Ona, 2012 WL 1792630, at *2 (S.D. Fla. May 15, 2012) (Simonton, J.) (no supplemental
2

If that were the test, supplemental jurisdiction would be virtually boundless. It would lie as to
all claims stemming from a defendant’s commonly motivated bad acts against the plaintiff, no matter how
disconnected the facts and events. Such a rule would see federal court jurisdiction extended well beyond
that conferred by section 1367(a).

jurisdiction over state law claims that “involve different factual predicates, will require the
presentation of different types of evidence at trial, and will involve testimony from different
witnesses”); Southern-Owners Ins. Co. v. Hayden, 2009 WL 3818379, at *5 (S.D. Fla. Nov. 13,
2009) (Martinez, J.) (same).
The state law claims in Counts IV, V, and VI will be dismissed. They may be brought, if
at all, in an appropriate state court forum.3 Cf. Baggett v. First Nat’l Bank of Gainesville, 117
F.3d 1342, 1353 (11th Cir. 1997) (when state law claims are so disconnected from the federal
claims supporting jurisdiction, “[s]tate courts, not federal courts, should be the final arbiters of
state law.”)
Conclusion
For the reasons explained herein, it is hereby ORDERED and ADJUDGED that Stern’s
Motion to Dismiss for Lack of Personal Jurisdiction [ECF No. 20] is GRANTED IN PART and
DENIED IN PART. Stern’s request to dismiss for lack of personal jurisdiction is DENIED;
his request to dismiss Count III for lack of supplemental jurisdiction is also DENIED. Stern’s
request to dismiss Counts IV, V, VI for lack of supplemental jurisdiction is GRANTED,
however.

The pendent state law claims set forth in Counts IV, V, and VI are hereby

DISMISSED. Also, Stern’s Motion to Strike the Declaration of Brad A. Woods is DENIED AS
MOOT. The Court did not rely upon Woods’s declaration in reaching a decision as to personal
jurisdiction.
DONE and ORDERED in chambers, at Miami, Florida, on November 26, 2012.

________________________________
ROBERT N. SCOLA, JR.
UNITED STATES DISTRICT JUDGE
Copies to: Counsel of Record
3

Grail’s reliance upon the decision in McCalla v. Avmed, Inc., 2011 WL 6780872, at *2
(S.D. Fla. Mar. 7, 2011) (Cohn, J.), is misplaced. There, the Court considered whether to exercise its
discretion to decline jurisdiction under section 1367(c), not whether it had jurisdiction under section
1367(a). As to section 1367(a), the Court has no discretion to exercise jurisdiction once it determines
that the claims do not arise from the same nucleus of operative facts. It is simply without subject matter
jurisdiction and powerless to do anything but dismiss the pendent claims. See Steel Co. v. Citizens for a
Better Env’t, 523 U.S. 83, 94 (1998) (“when [subject matter jurisdiction] ceases to exist, the only
function remaining to the court is that of announcing the fact and dismissing the cause”) (quoting Ex
parte McCardle, 7 Wall. 506, 514 (1868)).