RETURN ON INTELLIGENCE, LTD. et al v. SHENKMAN
MEMORANDUM AND ORDER THAT DEFENDANT GREGORY SHERNKMAN'S MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION, LACK OF PERSONAL JURISDICTION AND LACK OF PROPER VENUE IS GRANTED; ETC.. SIGNED BY HONORABLE J. WILLIAM DITTER, JR ON 8/2/17. 8/3/17 ENTERED AND E-MAILED.(jl, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
RETURN ON INTELLIGENCE, LTD. :
August 2, 2017
Plaintiffs Return on Intelligence, Ltd. (“ROI, Ltd.”) and Return on Intelligence,
Inc. (“ROI, Inc.”) (collectively, “ROI” or “Plaintiffs”) allege that they were harmed as the
result of Defendant Gregory Shenkman’s illegal interference with a sale of their business
assets. Before me is Shenkman’s motion to dismiss for lack of subject matter jurisdiction,
lack of personal jurisdiction, and lack of proper venue pursuant to Federal Rule of Civil
Procedure 12(b)(1), (2) and (3). Jurisdictional discovery is now complete. For the
reasons discussed, Defendant’s motion will be granted.
ROI is a global technology services firm providing technology consulting, systems
integration and commercial software solutions services. ROI alleges that their principal
place of business and headquarters is in King of Prussia, Pennsylvania, and allege
complete diversity between them and Defendant Shenkman, who is a citizen of
California. According to ROI’s complaint, Shenkman is a shareholder and sometime
director of ROI who, between 2006 and 2012, contributed millions of dollars to ROI,
personally and through a family trust. Shenkman contends that ROI owes him and his
family trust nearly $4 million in principal and interest. ROI alleges that Shenkman
harmed them in his effort to collect this money, ultimately resulting in Shenkman sending
a letter to a prospective purchaser of ROI’s assets, EPAM Systems, Inc., located in
Pennsylvania. As a result of his actions, EPAM refused to move ahead with the purchase
SUBJECT MATTER JURISDICTION
Under Federal Rule of Civil Procedure 12(b)(1), a complaint must be dismissed for
lack of subject matter jurisdiction. Shenkman contends that complete diversity of
citizenship is lacking and the court has no subject matter jurisdiction because he and ROI,
Inc., are citizens of California. Plaintiffs counter that subject matter jurisdiction is
established by the fact that one of the two plaintiffs, ROI, Inc., is a Delaware corporation
which claims that its principal place of business is Pennsylvania, thus establishing the
requisite diversity.1 Alternatively, ROI, Inc., claims that its principal place of business is
Massachusetts.2 See Pls.’ Mem. of Law in Opp’n, at 13-16 (Doc. No. 16). While
The second plaintiff, ROI, Ltd., is a holding company incorporated in Bermuda with no
active U.S. operations.
Plaintiffs concede that their CEO ultimately approves all major decisions in Boston,
Massachusetts. See Pls.’ Mem. of Law in Opp’n., at 2.
interesting, this latter observation does not change the fact that ROI asserts it is a citizen
The party invoking jurisdiction must justify his allegations by a preponderance of
the evidence. McNutt v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178, 189
(1936). I determine the citizenship of the parties based on the relevant facts at the time
the complaint was filed. Washington v. Hovensa, LLC, 652 F.3d 340, 344 (3d Cir. 2011).
The Supreme Court has defined a “principal place of business” as follows:
“principal place of business” is best read as referring to the place where a
corporation's officers direct, control, and coordinate the corporation's
activities. It is the place that Courts of Appeals have called the corporation's
“nerve center.” And in practice it should normally be the place where the
corporation maintains its headquarters—provided that the headquarters is
the actual center of direction, control, and coordination, i.e., the “nerve
center,” and not simply an office where the corporation holds its board
meetings (for example, attended by directors and officers who have traveled
there for the occasion).
Hertz Corp. v. Friend, 559 U.S. 77, 92 93, 130 S. Ct. 1181, 1192, 175 L. Ed. 2d 1029
The Court has pointed out that “in this era of telecommuting, some corporations
may divide their command and coordinating functions among officers who work at
several different locations, perhaps communicating over the Internet” making a “nervecenter” test difficult. Id. at 95-96. “That said, [the Supreme Court] test nonetheless
points courts in a single direction, towards the center of overall direction, control, and
coordination.” Id. at 96. The burden of persuasion for establishing diversity jurisdiction
remains on the party asserting it. Id. (citations omitted).
This action was commenced on January 26, 2016. Discovery has revealed that
little business was conducted out of ROI’s Pennsylvania in the time leading up to the
filing of the complaint. ROI’s Board of Directors met in Massachusetts in October
2015. See Def.’s Supp. Br. in Supp. Mot. to Dismiss (Doc. No. 42), Ex. E, Resp. to
Interrog. No. 2. Although it appears that some correspondence was sent to the
Pennsylvania office, it was also sent to ROI’s California office. See Pls.’ Mem. of Law
in Opp’n, at 8; Def.’s Supp. Br. in Supp. Mot. to Dismiss (Doc. No. 42), Ex. E, Resp. to
Interrog. No. 1. No employees of the Pennsylvania office had the authority to make
budgeting, financial, planning, strategy or business decisions on ROI’s behalf. See
Novak Declaration (Doc. No. 16-1), par. 22, 25; Def.’s Supp. Br. in Supp. Mot. to
Dismiss (Doc. No. 42), Ex. E, Resp. to Interrog. No. 3. Instead, those decisions were
made by the advisory management board members all of whom were based outside of
Pennsylvania.3 Id. Indeed, at the time of the filing of the complaint, ROI concedes that
they only had seven remaining employees and executives in the United States who
worked outside of Pennsylvania “for the most part.” See Pls.’ Mem. of Law in Opp’n,
at 6; Novak Declaration (Doc. No. 16-1), par. 21.
ROI has failed to establish that its office in Pennsylvania was the “nerve center”
With the notable exception of Raffaele Iodice, a Vice President of ROI, who resides in
New Jersey but sporadically conducted business out the King of Prussia, Pennsylvania, office.
See Novak Declaration (Doc. No. 16-1), par. 22; Def.’s Supp. Br. in Supp. Mot. to Dismiss (Doc.
No. 42), Ex. E, Resp. to Interrog. No. 3.
of its operations. The overall direction, control and coordination of the business was
conducted by its Board members residing outside of Pennsylvania.
“The Due Process Clause protects an individual’s liberty interest in not being
subject to the binding judgments of a forum with which he has established no
meaningful ‘contacts, ties, or relations.’” Burger King Corp. v. Rudzewicz, 471 U.S.
462, 471-472 (1985) (citations omitted). There are two types of personal jurisdiction,
general and specific.
General jurisdiction may be exercised over a defendant if the defendant’s
“‘affiliations with the State are so ‘continuous and systematic’ as to render [it]
essentially at home in the forum State.’” Daimler AG v. Bauman, 134 S. Ct. 746, 761
(2014) (quoting Goodyear Dunlop Tires Operations v. Brown, 131 S. Ct. 2846, 2851
(2011)). ROI initially failed to allege that this court had general jurisdiction over this
matter. See Pls.’ Mem. of Law in Opp’n, at 17-24. Although it now appears that
Plaintiffs are attempting to claim that the court has general jurisdiction over Shenkman,
see Pls.’ Supp. Submission, at 13 (Doc. No. 43), they have failed to allege the requisite
“continuous and systematic” affiliations required for general jurisdiction. Daimler AG,
134 S. Ct. at 761. Indeed, Plaintiffs’ sole reference to general jurisdiction is the
assertion that “Shenkman’s numerous communications with EPAM are sufficient to
lend support to this Court’s exercising general jurisdiction over Mr. Shenkman since it
appears that he regularly conducted business in this forum.” See Pls.’ Supp.
Submission, at 13.
Discovery fails to support Plaintiffs’ claim that Shenkman regularly conducted
business in Pennsylvnia. Prior to appearing in Pennsylvania for his deposition,
Shenkman had not visited Pennsylvania for more than 20 years, nor does he own any
businesses or real estate in Pennsylvania. See Def.’s Supp. Br. in Supp. Mot. to
Dismiss, Ex. A, Shenkman Dep., at 20:8-20:12, 24:12-20. Although Shenkman did
communicate with Arkady Dobkin, the CEO of EPAM, in 2015, Shenkman testified
that those communications were limited to a business introduction unrelated to ROI. Id.
at 59-61, 64. He also noted that the introduction was a favor performed without any
expectation of economic benefit. Id. at 106-107. Review of documentary evidence
produced by EPAM confirms that a number of brief emails were exchanged between
Shenkman, Arkady Dobkin and Viktar Dvorkin, another EPAM employee, from March
- November 2015 in relation to setting up a potential business relationship with a third
party. See Pls’ Supp. Br. in Supp. Mot. to Dismiss, Ex. 3. These communications do
not provide a basis for a finding of “continuous and systematic” affiliations. Daimler
AG, 134 S. Ct. at 761. As a result, I conclude Plaintiffs have failed to establish general
Specific jurisdiction over an out-of-state defendant can be established when a
defendant “purposefully avails itself of the privilege of conducting activities in the
forum State, thus invoking the benefits and protections of its laws.” J. McIntyre
Machinery, Ltd. v. Nicastro, 564 U.S. 873, 881-882 (2011). Here, Plaintiffs must show
that Shenkman did something in Pennsylvania that harmed them. Putting it slightly
differently, Plaintiffs must show that Shenkman’s conduct was of the type that he could
reasonably expect to be hailed into a Pennylvania court if what he had done caused
harm. It is not enough for ROI to have suffered harm in Pennsylvania by something
Shenkman did elsewhere.
Plaintiffs have alleged that this court has personal jurisdiction over Shenkman
because he “knowingly reached out to ROI and ROI’s business partner in Pennsylvania
and broke the deal” by sending a letter to EPAM. See Pls.’ Mem. of Law in Opp’n, at 2.
ROI bases its allegation that Shenkman sent a letter to EPAM upon a demand letter
Shenkman’s lawyer sent to ROI’s California and Bermuda offices on July 13, 2015. See
Compl. at par. 37 & Ex. B. Attached to the demand letter was a draft of a payoff letter
addressed to EPAM. Id. at 39 & Ex. C. The payoff letter outlined the money
Shenkman believed he was owed by ROI - $3,873,755 - in the event that EPAM were to
purchase ROI. Id. Shenkman asked ROI to forward the payoff letter to EPAM. Id. at
39 & Ex. B. ROI declined to send the letter to EPAM and advised Shenkman that he
should not contact EPAM or interfere with the EPAM deal in any way. Id. at 42-43, Ex.
D. There is no evidence that Shenkman forwarded the letter or reached out to EPAM
regarding the matter. Shenkman testified that he did not send a letter to EPAM and did
not recall discussing a letter with EPAM. See Dep. of Shenkman, 11/11/16, at 87:989:1; 93:3-12; see also Shenkman Decl. (Doc. No. 17-2), Ex. 1. Moreover, EPAM’s
CEO, Arkadiy Dobkin, testified that he had not seen the letter Shenkman had sent to
ROI prior to his deposition. See Dep. of Dobkin, 9/14/16, at 45:10-46:6. Dobkin also
testified that he had not received any communication from Shenkman about the ROI
deal and that he only learned of the dispute between ROI and Shenkman from ROI. Id.
at 35:7-16. Discovery has not revealed any evidence that Shenkman contacted EPAM
in relation to its purchase of ROI. Since Shenkman did nothing in Pennsylvania
regarding ROI, there is no basis for finding specific jurisdiction
ROI also alleges, however, that specific jurisdiction is established by the fact that
Shenkman harmed the business relationship between ROI and EPAM in other forums
and caused them to close the office in Pennsylvania.4 I disagree. Essentially ROI is
arguing that Shenkman’s business dealings with EPAM, though unrelated to the sale of
ROI, were conducted at the expense of ROI’s relationship with EPAM and consituted a
breach of his fiduciary duty to ROI. This allegation is insufficient to form the basis for
ROI claims he harmed the business relationship by filing a frivolous arbitration claim in
Plaintiffs have failed to meet the minimum contacts requirement. There is no
ROI has failed to carry its burden of establishing that its principal place of
business was in Pennsylvania at the time the complaint was filed. Because ROI has not
established complete diversity by a preponderance of the evidence, this court lacks
subject matter jurisdiction. Moreover, Shenkman’s contacts with the Eastern District of
Pennsylvania are insufficient to establish personal jurisdiction.
I conclude that granting leave for Plaintiffs to amend their complaint would be
futile. Accordingly, Defendant’s motion to dismiss will be granted.
An appropriate order follows.
Since this court has no jurisdiction over this matter, there is no need to discuss the issue
of venue. “The question of personal jurisdiction, which goes to the court’s power to exercise
control over parties, it typically decided in advance of venue, which is primarily a matter of
choosing a convenient forum.” Leroy v. Great W. United Corp., 443 U.S. 173, 180 (1979).
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