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Seiden v. Schwartz, Levitsky, and Feldman LLP

United States District Court, D. Delaware

November 7, 2018

ROBERT W. SEIDEN, ESQ. Receiver for SOUTHERN CHINA LIVESTOCK, INC., Plaintiff,
v.
SCHWARTZ, LEVITSKY, AND FELDMAN LLP, Defendant.

          Daniel K. Hogan, Hogan McDaniel, Wilmington, DE - attorneys for Plaintiff

          Patrick M. McGrory, Tighe & Cottrell, P. A., Wilmington, DE - attorneys for Defendant

          MEMORANDUM OPINION

          NOREIKA, U.S. DISTRICT JUDGE

         Before the Court is a motion to dismiss (D.I. 6) filed by Defendant Schwartz, Levitsky, and Feldman LLP ("Defendant" or "SLF") seeking dismissal of the Complaint (D.I. 1) filed by Plaintiff Robert W. Seiden, Esq. ("Plaintiff or "Seiden"), Receiver for Southern China Livestock, Inc. because of a number of deficiencies, including: lack of personal jurisdiction under Rule 12(b)(2), forum non conveniens under Rule 12(b)(3), insufficient process under Rule 12(b)(4), as well as failure to state a claim given the statutes of limitations and in pari delicto under Rule 12(b)(6). For the following reasons, the Court will dismiss Plaintiffs Complaint against SLF for lack of personal jurisdiction.[1]

         I. BACKGROUND

         Southern China Livestock International, Inc. was a company incorporated under the laws of Nevada as a holding company for a registered company in China. (D.I. 1 at ¶ 6). SLF is a limited liability partnership organized under the laws of Canada with a principal office in Toronto. (D.I. 7 at 3, Exh. B at ¶ 2). SLF is registered with the Public Company Accounting Oversight Board ("PCAOB") as is required by 15 U.S.C. § 7211 et seq. to prepare or furnish audit services to U.S. entities. (Id. at 11). As is mandated by 15 U.S.C. § 7216, SLF maintains an "agent in the United States upon whom may be served any request by the Commission or the Board under this section or upon who may be served any process, pleading, or other papers in any action brought to enforce this section." SLF designated the Corporation Services Company, a Delaware corporation, as its agent for these purposes. (D.I. 1 at ¶ 5). SLF does not itself own or maintain any offices in Delaware. (D.I. 7 at 3, Exh. B at ¶¶ 3-5).

         On November 25, 2009, SLF was retained to audit the financial statements of Southern China Livestock International, Inc. for fiscal years 2008 and 2009. (D.I. 1 ¶ 20, Exh. C). On January 28, 2010, SLF concluded its audit of consolidated financial statements and stated that they "present fairly, in all material respects, the financial position of Southern China Livestock International Inc." (Id. at ¶ 19). Months later, on March 29, 2010, Expedite 4, Inc. ("Expedite"), a Delaware corporation, acquired Southern China Livestock International, Inc. in a reverse takeover transaction. (Id. At ¶ 7). On July 9, 2010, Expedite changed its name to Southern China Livestock, Inc. ("SCLI"). (Id. At ¶ 8).

         Throughout 2010, SLCI sought to raise $10 million through a private placement memorandum ("PPM") based on the strength of SLF's audit report. (Id. at¶ 22). The PPM raised approximately $7, 594, 965 from investors. (Id.). SCLI filed a registration statement with the Securities and Exchange Commission ("SEC") in May 2010, but ultimately withdrew the statement in August 2011. (Id. At ¶ 10). Between August 2010 and February 2011, SLF continued its role as SCLI's auditor and signed off on several filings to the SEC. (Id. at ¶ 29). On August 15, 2011 SCLI filed a form 15-12G with the SEC terminating its responsibilities to make filings. (Id. at ¶ 30). Plaintiff alleges that SCLI executives transferred cash from the company to themselves and misappropriated monies for their personal gain. (Id. at ¶ 27).

         Seiden was appointed receiver of SCLI by the Court of Chancery of the State of Delaware on January 17, 2014. (Id. at ¶ 31). As SCLI's receiver, Seiden brought an action in the United States District Court for the Southern District of New York asserting six claims against SLF: (1) breach of contract; (2) negligence/gross negligence; (3) aiding and abetting or participating in breach of fiduciary duty; (4) aiding and abetting or participating in fraud; (5) fraudulent conveyances; and (6) unjust enrichment. See Seiden v. Schwartz, Levitsky, and Feldman LLP, Civ. No. 16-cv-05666, 2017 WL 2591785 (S.D.N.Y. June 14, 2017) ("Seiden I”) The Court dismissed Seiden's claims for lack of personal jurisdiction. Id.

         On December 28, 2017, Plaintiff filed this action, alleging claims identical to those in his S.D.N.Y complaint. (D.I. 1 at ¶¶ 33-52). Plaintiff seeks both actual and punitive damages from SLF. (Id. at ¶¶ 53-56). On February 2, 2018, SLF filed a motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2), forum non conveniens under Rule 12(b)(3), insufficient process under Rule 12(b)(4), as well as failure to state a claim given the statutes of limitations and in pari delicto Tinder Rule 19(b)(6) (D.L 6, 7).

         II. LEGAL STANDARDS

         Pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure, the Court may dismiss a suit for lack of jurisdiction over the person. When a defendant challenges a court's exercise of personal jurisdiction under Rule 12(b)(2), "the plaintiff bears the burden of establishing personal jurisdiction by a preponderance of the evidence and must do so by 'establishing with reasonable particularity sufficient contacts between the defendant and the forum state.'" Turner v. Prince Georges County Public Schools, 694 Fed.Appx. 64, 66 (3d Cir. 2017) (quoting Mellon Bank (East) PSFS, Nat'l Ass'n v. Farino, 960 F.2d 1217, 1223 (3d Cir. 1992)). "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 of the pleadings.'" Erasure's Pest Control, Inc. v. Air Cleaning Equip., Inc., C.A. No. 17-323-RGA-MPT, 2018 WL 337747, at *1 (D. Del. Jan. 9, 2018) (quoting Time Share Vacation Club v. Atlantic Resorts, Ltd., 735 F.2d 61, 67 n.9 (3d Cir. 1984)). "[W]hen the court does not hold an evidentiary hearing on the motion to dismiss, [however], the plaintiff need only establish a prima facie case of personal jurisdiction and 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) (citing Pinker v. Roche Holdings, Ltd., 292 F.3d 361 (3d Cir. 2002)); see also Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999) ("Where a 'court [has chosen] not to conduct a full blown evidentiary hearing on the motion, the plaintiff need make only a prima facie showing of jurisdiction through its own affidavits and supporting materials.'") (quoting Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981)).

         Two requirements, one statutory and one constitutional, must be satisfied for personal jurisdiction to exist over a defendant. Bell Helicopter Textron, Inc. v. C & C Helicopter Sales, Inc., 295 F.Supp.2d 400, 403 (D. Del. 2002). "First, a federal district court may assert personal jurisdiction over a nonresident of the state in which the court sits to the extent authorized by the law of that state." Id. (citing Fed.R.Civ.P. 4(e)). The Court must, therefore, "determine whether there is a statutory basis for jurisdiction under the Delaware long-arm statute." Id., (citing 10 Del. Code § 3104(c)). "Second, because the exercise of jurisdiction must also comport with the Due Process Clause of the United States Constitution, the Court must determine if an exercise of jurisdiction violates [defendants'] constitutional right to due process." Id. (citing International Shoe Co. v. Washington, 326 U.S. 310 (1945)); see also IMO Industries, Inc. v. Kiekert AG, 155 F.3d 254, 259 (3d Cir. 1998).

         Delaware's long arm statute, 10 Del. C. § 3104, provides in pertinent part:

(c) As to a cause of action brought by any person arising from any of the acts enumerated in this section, a court may exercise personal jurisdiction over any nonresident, or a personal ...

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