United States District Court, D. Delaware
BENJAMIN VAN ROY, SRINN AS BOLLIMPALLI, EGGERT DAGBJARTSSON, AMIT DESAI, MARTIN FRIEND, JOHN HAIGH, ARNOLD LINDSETH, DINKAR MALLADI, LUIS MARTINS, CIAMAC MOALLEMI, PATRICK NGUYEN, VICTOR PACI, JAYENDU PATEL, JOSEPH SCHMID, ADEEB SHANA' A, BRETT SMITH, JOHN TSITSIKLIS, DANIEL VAN ROY, EDWARD VAN ROY, MARK VERSHEL, RICHARD ZECKHAUSER, HARISH LECAMW ASAN as Trustee of the Lecamwasan Family Trust, and ROEBUCK ASSOCIATES L.P., Plaintiffs,
SAKHR SOFTWARE CO. (K.S.C.C.), FARAD ABDULLAH MOHAMMED ABDUL RAHMAN AL SHAREKH, EXCUSE ME SERVICES, INC., SAKHR STOCK, LLC, and STEVEN L. SKANCKE, Defendants.
John G. Day, Tiffany G. Lydon, Lauren E. Maguire, ASHBY & GEDDES, Wilmington, DE, Daniel J. Lyne, Theodore J. Folkman, Ryan E. Ferch, MURPHY & KING, P.C., Boston, MA, Attorneys for Plaintiffs.
John L. Reed, R. Craig Martin, DLA PIPER LLP (US), Wilmington, DE, David Clarke, Jr., DLA PIPER LLP (US), Washington, DC, Jennifer A. Lloyd, DLA PIPER LLP (US), Austin, TX, Attorneys for Defendants.
LEONARD P. STARK, District Judge.
Pending before the Court is defendants Sakhr Software Co. (K.S.C.C.), et al. 's (collectively "Defendants" or "Sakhr") Motion to Dismiss plaintiffs Benjamin Van Roy, et al. 's (collectively "Plaintiffs") complaint pursuant to Rule 12(b)(1) for lack of subject-matter jurisdiction, Rule 12(b)(2) for lack of personal jurisdiction, Rule 12(b)(6) for failure to state a claim upon which relief can be granted, and Rule 9(b) and the Private Securities Litigation Reform Act ("PSLRA") for failure to plead fraud with sufficient particularity. (D.I. 27) The Court heard oral argument on the motion on December 6, 2013. ( See D.I. 43) For the following reasons, the Court will grant in part and deny in part the motion.
This is a suit for alleged securities fraud under federal law, securities fraud under Delaware law, common law fraud, and breach of contract brought by some of the former shareholders of Excuse Me Services, Inc. ("EMS"), a software company, arising out of the merger of EMS with Sakhr Software Co. (K.S.C.C.) ("Sakhr"), a Kuwaiti shareholding closed company. (D.I. ¶ 1) Sakhr, which specializes in Arabic language translation, agreed to acquire EMS (also known as Dial Directions), a company which specialized in mobile applications and speech recognition technology. (D.I. 1 ¶¶ 12, 13)
The Complaint asserts seven causes of action: securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against Sakhr, EMS, and Sakhr Stock (Count I); a control person claim under Section 20(a) of the Exchange Act against the Individual Defendants Steven L. Skancke and Fahad Al Sharekh (Count II); securities fraud under the Delaware Securities Act against Sakhr, EMS, and Sakhr Stock (Count III); a control person claim under the Delaware Securities Act against the Individual Defendants Skancke and Al Sharekh (Count IV); common law fraud against Sakhr, EMS, and Sakhr Stock (Count V); breach of contract for failure to indemnify against Sakhr (Count VI); and breach of contract for failure to convey the Merger Consideration against Sakhr Stock (Count VII).
Defendants make five arguments in support of their motion to dismiss. First, Defendants contend that Plaintiffs have failed to plead facts sufficient to show that any of the alleged misstatements made by Defendants were false statements of material fact. Second, Defendants argue that Plaintiffs have failed to plead any facts sufficient to show that any of the Defendants knew that the alleged misstatements were false when made. Based on these first two arguments, Defendants contend that the Court should dismiss all fraud-based claims (Counts I through V of the Complaint) for failure to state a claim under Rule 12(b)(6) and for failure to plead fraud with particularity under Rule 9(b) and the PSLRA.
Third, because the secondary "control person" Section 20(a) claim (Count II) requires a showing of primary liability under Section 10b (Count I), Defendants argue that dismissal of the Section 10b claim must lead to dismissal of the Section 20(a) claim as well. Fourth, upon dismissing the federal securities fraud claims (Claims I and II), Defendants argue that the Court should decline to exercise supplemental jurisdiction over the remaining state law claims and dismiss the Complaint as a whole. Fifth, and finally, Defendants argue that the Court does not have personal jurisdiction over individual defendant Fahad Al Sharekh (a Kuwaiti resident) and, therefore, all claims against A1 Sharekh should be dismissed for lack of personal jurisdiction.
II. LEGAL STANDARDS
A. Rule 12(b)(1)
"Federal Rule of Civil Procedure 12(b)(1) authorizes dismissal of a complaint for lack of jurisdiction over the subject matter, or if the plaintiff lacks standing to bring his claim." Samsung Elec. Co., Ltd. v. ON Semiconductor Corp., 541 F.Supp.2d 645, 648 (D. Del. 2008). A Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction presents either a facial attack or a factual attack. See CNA v. United States, 535 F.3d 132, 139 (3d Cir. 2008); Fed.R.Civ.P. 12(b)(1). A facial attack concerns an alleged pleading deficiency, while a factual attack concerns the actual failure of a plaintiffs claim to comport factually with the jurisdictional prerequisites. See CNA, 535 F.3d at 139.
Where the motion presents a facial challenge to the Court's jurisdiction, or one based purely on the allegations in the complaint, the Court must accept those allegations as true and may consider only the complaint and any documents upon which it is based. See Petruska v. Gannon Univ., 462 F.3d 294, 302 n.3 (3d Cir. 2006). Where subject matter jurisdiction is challenged based upon the sufficiency of jurisdictional fact, the Court is not required to attach any presumptive truthfulness to the allegations in the complaint but may consider matters outside the pleadings to satisfy itself that it has jurisdiction. See id.; see also S.R.P. ex rel. Abunabba v. United States, 676 F.3d 329, 332 (3d Cir. 2012). In either case, Plaintiff bears the burden of persuasion. See Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991).
B. Rule 12(b)(2)
Federal Rule of Civil Procedure 12(b)(2) directs the Court to dismiss a case when it lacks personal jurisdiction over the defendant. Determining the existence of personal jurisdiction requires a two-part analysis. First, the Court analyzes the long-arm statute of the state in which the Court is located. See IMO Indus., Inc. v. Kiekert AG, 155 F.3d 254, 259 (3d Cir. 1998). Next, the Court must determine whether exercising jurisdiction over the defendant in this state comports with the Due Process Clause of the Constitution. See id. Due Process is satisfied if the Court finds the existence of "minimum contacts" between the non-resident defendant and the forum state, "such that the maintenance of the suit does not offend traditional notions of fair play and substantialjustice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (internal quotation marks omitted).
Once a jurisdictional defense has been raised, the plaintiff bears the burden of establishing, by a preponderance of the evidence and with reasonable particularity, the existence of sufficient minimum contacts between the defendant and the forum to support jurisdiction. See Provident Nat'l Bankv. Cal. Fed. Sav. & Loan Ass'n, 819 F.2d 434, 437 (3d Cir. 1987); Time Share Vacation Club v. Atl. Resorts, Ltd., 735 F.2d 61, 66 (3d Cir. 1984). To meet this burden, the plaintiff must produce "sworn affidavits or other competent evidence, " since a Rule 12(b)(2) motion "requires resolution of factual issues outside the pleadings." Time Share, 735 F.2d at 67 n.9; see also Philips Elec. N. Am. Corp. v. Contee Corp., 2004 WL 503602, at *3 (D. Del. Mar. 11, 2004) ("After discovery has begun, the plaintiff must sustain [its] burden by establishing jurisdictional facts through sworn affidavits or other competent evidence.").
If no evidentiary hearing has been held, a plaintiff "need only establish a prima facie case of personal jurisdiction." O'Conner v. Sandy Lane Hotel Co., 496 F.3d 312, 316 (3d Cir. 2007). A plaintiff "presents a prima facie case for the exercise of personal jurisdiction by establishing with reasonable particularity sufficient contacts between the defendant and the forum state." Mellon Bank (E.) PSFS, Nat. Ass'n v. Farino, 960 F.2d 1217, 1223 (3d Cir. 1992). On a motion to dismiss for lack of personal jurisdiction, "the plaintiff is entitled to have its allegations taken as true and all factual disputes drawn in its favor." Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir. 2004). A court is always free to revisit the issue of personal jurisdiction if it later is revealed that the facts alleged in support of jurisdiction are in dispute. See Metcalfe v. Renaissance Marine, Inc., 566 F.3d 324, 331 (3d Cir. 2009).
C. Rule 12(b)(6)
Evaluating a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) requires the Court to accept as true all material allegations of the complaint. See Spruill v. Gillis, 372 F.3d 218, 223 (3d Cir. 2004). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997) (internal quotation marks omitted). Thus, the Court may grant such a motion to dismiss only if, after "accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to plaintiff, plaintiff is not entitled to relief." Maio v. Aetna, Inc., 221 F.3d 472, 481-82 (3d Cir. 2000) (internal quotation marks omitted).
However, "[t]o survive a motion to dismiss, a civil plaintiff must allege facts that raise a right to relief above the speculative level on the assumption that the allegations in the complaint are true (even if doubtful in fact).'" Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). At bottom, "[t]he complaint must state enough facts to raise a reasonable expectation that discovery will reveal evidence of [each] necessary element" of a plaintiffs claim. Wilkerson v. New Media Tech. Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008) (internal quotation marks omitted). The Court is not obligated to accept as true "bald assertions, " Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (internal quotation marks omitted), "unsupported conclusions and unwarranted inferences, " Schuylkill Energy Res., Inc. v. Pennsylvania Power & Light Co., 113 F.3d 405, 417 (3d Cir. 1997), or allegations that are "self-evidently false, " Nami v. Fauver, 82 F.3d 63, 69 (3d Cir. 1996).
D. Rule 9(b)
Federal Rule of Civil Procedure 9(b) provides that "[i]n alleging fraud... a party must state with particularity the circumstances constituting fraud.... Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." The purpose of Rule 9(b) is to provide defendants with notice of the precise nature of the claim against them, not to test the factual allegations of the claim. See Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984). Although date, place, and time allegations may fulfill the requirement of pleading with particularity, these types of allegations are not required to satisfy Rule 9(b), so long as the circumstances of the alleged fraud are pled ...