Path to Riches, LLC v. CardioLync, Inc.
Path to Riches, LLC v. CardioLync, Inc.
Opinion of the Court
*283This is a dispute over whether one Israel-based company improperly obtained confidential and proprietary information from another. Plaintiff Path to Riches purports to bring direct and derivative claims on behalf of MMT, an Israeli company in which it holds a majority share, against Defendants CardioLync and its owners. Defendants now move to dismiss based on lack of personal jurisdiction, lack of subject matter jurisdiction, and forum non conveniens. Without deciding either jurisdictional issue, I find that Israel is an adequate alternative forum for this dispute, and that the deference owed to Plaintiff's choice of forum is outweighed by the substantial private and public interests in holding this proceeding in Israel. Specifically, all of the parties and essential non-party witnesses are either Israeli residents or have significant ties to Israel; two of the three companies are based there; and Israeli law likely governs most of Plaintiff's claims. Accordingly, Defendants' motion to dismiss will be granted on FNC grounds.
I. Background
This case arises from Plaintiff Path to Riches, LLC's (PTR's) allegation that Defendants Gamliel Kagan (Gam) and Jacob Levy (Dr. Levy), through their company, Defendant CardioLync, misappropriated proprietary information belonging to M.M.T. Diagnostics (2014), Ltd., by inducing MMT's CEO to breach his contractual and fiduciary duties. Because I ultimately decide this motion on FNC grounds, the location of and relationship among the parties and witnesses are of primary importance.
PTR is a limited liability company organized under the laws of Delaware and based in New York state. It is wholly owned by Dr. and Ms. Minkowitz, non-parties whose primary residence is in New York. The Minkowitzes have a second home in Israel, where they visit each year for extended periods and where their children attend school. Their neighbor in Israel is Jeremy Kagan, an Israeli who is not a party but around whom this dispute centers. Jeremy's brother is Defendant Gam, who also resides in Israel.
In 2013, Jeremy and Dr. Minkowitz entered into a telemedicine business venture, which the pair would eventually incorporate under the laws of Israel as MMT. (MMT is named as both a plaintiff and a nominal defendant in this action.) MMT initially focused on pathology, but according to PTR, hoped to expand into other fields, including cardiology. Jeremy owns 40 percent of MMT, and PTR (the Minkowitzes' company) owns the remaining 60 percent. Although MMT's incorporation documents provide for a five-member board of directors-three to be appointed by Dr. Minkowitz and two by Jeremy-Jeremy is the sole board member. Schreiber Decl. ¶ 22, ECF No. 14. In 2014, Jeremy also became the CEO of MMT via an employment agreement created under the laws of Israel. He remained in that post through 2015.
Although MMT is based in Israel, PTR alleges that Jeremy and Dr. Minkowitz agreed in August 2015 to hire two people to work on MMT's product in New York. Jeremy allegedly refused to cooperate with these employees or speak with them by phone, and "never traveled to the United States to visit" them. Compl. ¶ 44. PTR alleges that in November 2015, "as a result of Gam's funding," a cease and desist letter was served upon Dr. Minkowitz and the New York employees claiming they *284were misappropriating MMT's confidential information. Then, on January 26, 2016, Jeremy filed a lawsuit individually and on behalf of MMT in New York state court alleging that Dr. Minkowitz had formed a new company and was misappropriating MMT's intellectual property.
In this lawsuit, PTR alleges the opposite. On the same day that Jeremy sued Dr. Minkowitz, Gam and Dr. Levy (a cardiologist who is Jeremy's brother-in-law), incorporated CardioLync in Delaware-Gam and Dr. Levy are its shareholders and directors. CardioLync is a cardiology telemedicine company based in Israel, and PTR alleges that it targets the same market as MMT. PTR claims that Gam and Dr. Levy, through CardioLync, misappropriated MMT's proprietary information by inducing Jeremy to breach his fiduciary duties and employment agreement with MMT. PTR brings one federal and nine state claims "directly and derivatively" on behalf of MMT.
Defendants now move to dismiss for lack of subject-matter jurisdiction, lack of personal jurisdiction over Gam and Dr. Levy, and on the basis of FNC, arguing that Israel is the more appropriate forum. Central to Defendants' subject matter jurisdiction argument is their claim that PTR lacks standing because it has not complied with Israeli requirements for bringing a shareholder's derivative action on behalf of MMT. The parties have provided dueling affidavits as to what Israeli law requires and whether PTR should be exempted from Israel's pre-suit demand requirement. Schreiber Decl. ECF No. 14; Stein Decl. ECF No. 22.
II. Standard
Although Defendants raise multiple grounds for dismissal, this case calls for resolution of only one: forum non conveniens (FNC). The FNC doctrine empowers federal courts to dismiss an action when "a foreign tribunal is plainly the more suitable arbiter of the merits of the case." Sinochem Int'l Co. v. Malaysia Int'l Shipping Corp. ,
FNC is a discretionary tool that empowers a district court "to dismiss an action on the ground that a court abroad is the more appropriate and convenient forum for adjudicating the controversy."
To decide whether FNC is appropriate, district courts engage in a three-step analysis. First, the court must determine "whether an adequate alternate forum" exists to entertain the case. Eurofins Pharma US Holdings v. BioAlliance Pharma SA ,
*286Windt v. Qwest Commc'ns Int'l, Inc. ,
As defendants seeking dismissal on the basis of FNC, Gam, Dr. Levy, and CardioLync bear the burden of persuasion as to all elements of the FNC analysis, see Lacey v. Cessna Aircraft Co. ,
In performing this FNC analysis, the court "generally becomes entangled in the merits" to the extent required to "scrutinize the substance of the dispute." Van Cauwenberghe v. Biard ,
III. Analysis
Through several rounds of briefing containing undisputed facts and numerous affidavits, Defendants have satisfied their burden to show that an adequate alternative forum exists, and that the relevant private and public interests outweigh the deference owed to PTR's forum choice.
A. Adequate Alternative Forum
Defendants have met their burden to show that an adequate alternative forum exists because all of them are or soon will be Israeli residents and, moreover, have consented to personal jurisdiction there. In Piper , the Supreme Court explained that "[o]rdinarily, [the alternative forum] requirement will be satisfied when the defendant is amenable to process in the other jurisdiction." 454 U.S. at 255 n.22,
But PTR argues that Defendants must do more to meet their burden. Plaintiff asserts that Defendants, in order to show that an adequate alternative forum exists, must prove not only that they are amenable to process in Israel, but also that there is an adequate cause of action under Israeli law that provides redress for Plaintiff's injury. Pl.'s Resp. 23; Pl.'s Sur-Reply 6-7, ECF No. 30. It is possible, albeit rare, for a plaintiff to show that an alternative forum is inadequate, despite defendants' amenability to service there-but there is nothing in the record to suggest that is the case here. In Piper 's often-cited footnote 22, the Supreme Court explained that in "rare circumstances ... where the remedy offered by the other forum is clearly unsatisfactory, the other forum may not be an adequate alternative." 454 U.S. at 254 n.22,
Here, Plaintiff has presented no evidence, or even argument, that a legal remedy would be unavailable to it in Israel. Instead, PTR seeks to reverse Piper 's language to impose an affirmative duty on Defendants to show that Israel permits litigation of PTR's claims. But the Piper Court made clear in its plain language and by reference to a case as an exemplar, that although courts may properly consider a plaintiff's evidence that there is no remedy in the alternative forum, the defendant has no affirmative duty show that a remedy exists. See
To support its expanded view of Defendants' burden, PTR relies on a single district court case: H.Y.C. v. Hyatt Hotels Corp. See Pl.'s Resp. 23 (citing H.Y.C. ,
*288Because PTR itself has presented no evidence that its legal remedies are unavailable in Israel-and because I find no basis for Plaintiff's assertion that Defendants must show the sufficiency of PTR's Israeli remedies-I easily conclude that Defendants' consent to the jurisdiction of Israeli courts renders that country an adequate alternative forum for this dispute.
B. Deference to Plaintiff's Choice of Forum
Having held that an alternative forum is available, I next decide how much deference to afford PTR's choice of forum. See Eurofins ,
Defendants argue that PTR's choice of forum deserves "little or no deference" because it brings this action merely as a shareholder of MMT (a foreign corporation) and should therefore be treated as a foreign plaintiff for purposes of FNC. Defs.' MTD 20-21. Defendants also argue that PTR is based in New York and is "fully owned and controlled by New York residents," "nearly all of the facts giving rise to the Complaint" occurred in a foreign country, "none of the parties have any connection to Delaware," and "the dispute lacks any material connection to this forum." Defs.' MTD 20-21; Defs.' Reply 1-2. In response, PTR simply counters that it is "entitled to a high degree of deference" because it is a Delaware company "that operates in New York and its owners both reside in the United States." Pl.'s Resp. 22.
Although I reject Defendants' assertion that PTR's forum choice warrants "no deference," several factors weigh against affording full deference to PTR. Most importantly, MMT-an Israeli corporation-is a real party in interest and may be the only real party in interest this case. In cases like this, where a shareholder brings suit "derivatively in the name of a corporation, the Supreme Court has held that the corporation is the real party in interest" and the shareholder is "at best the nominal plaintiff." See Gatz v. Ponsoldt ,
*289Because MMT is a real party in interest to this case and is a foreign company, the presumption in favor of its choice of forum applies with less force. See Piper , 454 U.S. at 255,
Moreover, MMT is likely the only real party in interest, as PTR has not alleged a basis for its direct claims and failed to respond to Defendants' argument that this is purely a derivative action. Piper requires the court to identify the real parties in interest in order to determine the appropriate level of deference to the plaintiff's forum. See 454 U.S. at 255,
Here, where the only possible basis for subject-matter jurisdiction is federal question jurisdiction, the court must "look to federal choice of law principles" to determine whether state or federal common law governs. See Bhd. of Locomotive Eng'rs v. Springfield Terminal Ry. Co. ,
The parties must carry "the burden of adequately proving foreign law to enable the court to apply it." Bel-Ray Co. v. Chemrite (Pty) Ltd. ,
Absent any assistance from PTR in applying the relevant foreign law, my own review of Israel's Companies Law, 5759-1999 (translated to English from Hebrew), reveals that it recognizes a distinction between direct and derivative actions, but provides no guidelines for distinguishing between them. Without any discernable facts suggesting that PTR has suffered harm that is different or apart from the harm it alleges MMT has suffered-or guidance from PTR suggesting that Israeli corporation law provides a different basis for direct claims-I conclude that PTR brings only derivative claims. As such, the real party in interest is MMT, a foreign corporation entitled to lesser deference. However, because I ultimately conclude that the balance of conveniences tips decidedly toward FNC dismissal even if the action includes a valid direct claim, and PTR is thus a real party in interest, the question is non-dispositive.
Having identified the factors that cut against full deference to PTR's forum choice,
The entirety of PTR's convenience argument is that it is organized under Delaware law, based in New York, and owned by New Yorkers. This is not enough. Although PTR is a creature of Delaware law, its connection to the forum ends there. PTR has not alleged that it has buildings, business, contracts, or any other connection in Delaware. For PTR's owners, who live in New York and have a second home in Israel, Delaware is admittedly closer than Israel, but is not their home forum. PTR has pointed to no aspect of the case that relates to Delaware, other than the *291mere act of CardioLync's incorporation-no evidence, no parties, no contracts, and no controlling law. As I discuss in more detail below, nearly all of the relevant parties (including MMT, a real party in interest), non-party witnesses, and evidence are located in Israel, an ocean away. Moreover, MMT was created by Israeli law, and Jeremy's employment agreement was executed there.
I must weigh all of these considerations to identify the appropriate deference to PTR's forum choice. The Third Circuit does not require courts "somehow to mark on a continuum the precise degree of deference it accords a plaintiff's choice"-indeed, it is "impossible to quantify" the applicable level of deference. Lacey II ,
C. Private interests
Defendants have identified compelling private interests that weigh heavily in favor of Israel and against Delaware. In Gilbert , the Supreme Court identified the bounds of the private interest analysis:
Important considerations are the relative ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; ... and all other practical problems that make trial of a case easy, expeditious and inexpensive. There may also be questions as to the [enforceability] of a judgment if one is obtained. The court will weigh relative advantages and obstacles to fair trial.
330 U.S. at 508,
Within these limits, Defendants set out strong private interests in favor of Israel and against PTR's choice of forum. Defendants argue that, in contrast to the "utter lack of private interest factors connected to Delaware," nearly all of the evidence and witnesses, including the essential (non-party) witness, Jeremy, are located in Israel, and that PTR's owners (the Minkowitzes) have already engaged Israeli counsel in this action. Defs.' MTD 22; Defs.' Reply 4-5. With all of the major players-MMT, Jeremy, Gam, and (soon) Dr. Levy-based in Israel, I am convinced that "fewer evidentiary problems would be posed" if the trial were held in Israel because it is safe to say that a "large proportion of the relevant evidence" is located there. See Piper , 454 U.S. at 258,
Plaintiff's private interest arguments in favor of Delaware and against Israel have either been rendered moot or are significantly less weighty. PTR counters that Delaware is "the one place where all Defendants are subject to the court's personal jurisdiction," that the Minkowitzes would need to travel from New York for the trial-a more burdensome trip than to Delaware-and that the "miscellaneous pieces of evidence" located in Israel can be obtained through the Hague Evidence Convention. Pl.'s Resp. 25-26. But, as discussed above, all Defendants have consented to jurisdiction in Israel, so an alternative forum exists. And while forcing the Minkowitzes to travel to Israel, rather than to Delaware, for the trial is certainly a relevant private interest, the fact that they are part owners of an Israeli corporation (MMT), maintain a home in Israel, and spend "extended periods of time" there each year diminishes the burden the forum would otherwise impose. See Jeremy Decl., ECF No. 27. Moreover, the Minkowitzes are not parties to the action but are instead shareholders to the nominal plaintiff, PTR, itself a shareholder of the real party in interest.
Finally, and most significantly, PTR's assertion that there is important evidence in Delaware and only "miscellaneous pieces of evidence" in Israel is unconvincing.
*293
D. Public interests
I am likewise persuaded that the public interests Defendants raise tilt decidedly in favor of dismissal. Gilbert identified the public interests relevant to an FNC analysis:
Administrative difficulties follow for courts when litigation is piled up in congested centers instead of being handled at its origin. Jury duty is a burden that ought not to be imposed upon the people of a community which has no relation to the litigation. In cases which touch the affairs of many persons, there is reason for holding the trial in their view and reach .... There is a local interest in having localized controversies decided at home.
330 U.S. at 508-09,
To determine this dispute's connection to PTR's chosen forum, I "consider the locus of the alleged culpable conduct, often a disputed issue, and the connection of that conduct" to Delaware. See Lacey I ,
As to the difficulties posed by governing law in this case, Piper instructs that FNC "is designed in part to help courts avoid ... complex exercises in comparative law." See 454 U.S. at 251,
Here, Defendants have set forth a compelling choice-of-law analysis, suggesting that Israeli law would govern many of PTR's claims and, in doing so, have highlighted the complex choice-of-law analyses that would be unavoidable in this case. See Defs.' MTD 21-29. As established above, the parties' dispute over whether the pre-suit demand requirement has been met in the derivative claim is a question of Israeli corporation law. It also seems clear that Israeli contract law governs Jeremy's employment contract with MMT. See Eurofins ,
E. Balancing
To prevail on their FNC motion, Defendants must show that the balance of private and public interest factors "tips decidedly in favor of trial in the foreign forum," outweighing the deference to PTR's chosen forum. See Lacey II ,
IV. Conclusion
I conclude that trial in Israel will "best serve the convenience of the parties and the ends of justice" and accordingly grant Defendants' motion to dismiss on FNC grounds, contingent on Defendants' consent to personal jurisdiction in that forum.
PTR asserts the following claims: Misappropriation of Trade Secrets Under the Defense of Trade Secrets Act,
Without deciding either jurisdictional question, I note that the grounds for both personal and subject-matter jurisdiction are tenuous. On personal jurisdiction, Delaware law makes clear that Defendants Levy and Gam's status as shareholders or as directors of CardioLync is an insufficient basis for personal jurisdiction under the state's long-arm statute,
As to subject-matter jurisdiction, PTR has alleged a patently inadequate basis for diversity jurisdiction, as complete diversity is unquestionably lacking; both the plaintiff and defendant corporations (PTR and CardioLync) are incorporated in, and therefore "reside" for purposes of diversity jurisdiction, in Delaware. Although the companies' ties to Delaware are limited to their incorporation there-a feebleness that will be relevant to the FNC analysis-those limited ties are enough to establish corporate residency, and therefore destroy diversity, for § 1332 jurisdiction. (PTR correctly notes that Defendants have not challenged diversity jurisdiction, see Pl.'s Answering Br. 10 n.4, ECF No. 21 [hereinafter "Pl.'s Resp."]; however, courts have an independent duty to determine if subject-matter jurisdiction exists, even without a challenge by a party, Arbaugh v. Y & H Corp. ,
This analysis applies FNC principles under federal law. The Supreme Court has not yet resolved the Erie question of whether federal courts sitting in diversity should apply state or federal FNC rules, Piper Aircraft Co. v. Reyno,
PTR asserts, without citing any legal basis, that Israeli courts might refuse to assert jurisdiction over Dr. Levy in spite of his consent. Putting aside for the moment that courts routinely allow FNC dismissal based on defendants' consent to jurisdiction in the alternative forum, Dr. Levy's imminent relocation to Israel should assuage any genuine concern by PTR on this point.
I note that, while this prevailing Supreme Court precedent would classify MMT as the real party in interest, there are divergent philosophies as to whether the corporation on whose behalf a derivative action is brought is more closely aligned with-and therefore the real party in interest to-the plaintiff or the defendant in that action. See generally Subject-Matter Jurisdiction in Shareholder-Derivative Actions-Status, Citizenship, and Alignment of the Corporation in Diversity Cases, 7C Wright & Miller Fed. Prac. & Proc. Civ. § 1822 nn.12, 13 (3d ed.) (2017) (discussing these conflicting perspectives in the context of subject-matter jurisdiction analyses in shareholder derivative actions). However, since the FNC analysis generally is a balancing test, and the specific question of deference to plaintiff's forum is a "sliding scale" of convenience, MMT's Israeli connections (its incorporation and principal place of business) would be relevant even if I were to consider MMT as a real party in interest to Defendants, rather than to PTR. See Kisano ,
Defendants' choice of law analysis, with which PTR seems to go along, applies Delaware choice-of-law rules (apparently assuming this case rests on diversity jurisdiction), but nevertheless arrives at Israeli law, via Delaware's internal affairs doctrine, as the relevant source of law for corporate governance questions like this. See Defs.' MTD 9-10, Pl.'s Resp. 10-11 (discussing Israel's pre-suit demand requirements).
In addition to identifying MMT as a foreign real party in interest, I also consider-but give far less weight to-the Supreme Court's counsel not to "overlook the peculiarities" of derivative actions and to afford lesser deference to plaintiffs' choice of forum in derivative actions. See Koster , 330 U.S. at 524-25,
Technically, the employment agreement was never signed but PTR alleges that "all parties operated in accordance with its terms and treated it as binding in all respects." Compl. ¶ 31.
It is also noteworthy, in terms of relative ease of access to proof, that "documents in English need not be translated because Israel courts are typically proficient in English." Kisano ,
For PTR's claim on behalf of MMT, Koster 's guidance on the evidentiary realities in derivative actions is apt: "It might well be that the books, records and witnesses to establish all or a part of the cause of action are in or near the chosen forum. But in other cases they may all be in some distant jurisdiction, perhaps that of the defendants, as in the case here. In the ordinary suit it is plaintiff's own books and records and transactions that are important-in the derivative action it is more likely that only the corporation's books, records and transactions will be important ...." 330 U.S. at 526,
Basic information about CardioLync's incorporation is available for free through Delaware's Division of Corporations: https://tinyurl.com/hwszf8v. A payment of $20 grants any member of the public immediate access to CardioLync's "status, tax, and history information."
I note PTR's allegation that a "newly-hired team in New York" may have contributed to MMT's development in late 2015. Compl. ¶ 42. But this is of only limited significance since Jeremy allegedly refused to cooperate with them and "never traveled to the United states to visit" them. See Compl. ¶ 44.
In Eurofins , the court held that FNC dismissal was appropriate even where the underlying contracts were governed by Delaware law because the litigation focused on the foreign defendant's alleged breach of contract and fiduciary duties.
Even if some of PTR's claims would be governed by Delaware law, that would not tilt the public interest analysis against dismissal; FNC dismissal can be appropriate "even where the alternative forum will be faced with questions of American law," Eurofins ,
Reference
- Full Case Name
- PATH TO RICHES, LLC, directly and derivatively ON BEHALF OF M.M.T. DIAGNOSTICS (2014), LTD. v. CARDIOLYNC, INC., Gamliel Kagan a/k/a/ Gam Kagan, and Dr. Jacob Levy, and M.M.T. Diagnostics (2014), Ltd. a/k/a Gam Kagan, and Dr. Jacob Levy, Nominal
- Cited By
- 5 cases
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- Published