Sadiant, Inc. v. Penstock Consulting, LLC

Background

Sadiant, Inc. and Sadiant Health, LLC operate a software application used by healthcare facilities to fill nursing and clinician shift vacancies. In 2022, they entered into a Master Services Agreement with Penstock Consulting, LLC for software-development services. The agreement included a provision stating that federal and state courts in Manhattan would have exclusive jurisdiction and venue over disputes arising from or relating to the agreement, and that both parties submitted to that jurisdiction and venue.

After the parties’ relationship deteriorated, Plaintiffs alleged that Penstock and its employees misused access to Plaintiffs’ computer systems, copied or destroyed proprietary information, and retained or interfered with software and other work product. Plaintiffs filed this federal action asserting claims involving ownership of the work product, trade-secret misappropriation, unauthorized computer access, and requested injunctive relief.

Defendant’s Motions

Penstock moved to dismiss under Federal Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction, meaning the court allegedly lacked power over Penstock, and under Rule 12(b)(3) for improper venue. Alternatively, Penstock sought dismissal or transfer under 28 U.S.C. §§ 1406(a) and 1404(a), principally asking that the case be moved to federal court in Texas.

Personal Jurisdiction

The court observed that Plaintiffs did not dispute that New York’s long-arm statute and ordinary constitutional due-process principles would not independently provide personal jurisdiction over Penstock. The court nevertheless held that personal jurisdiction can be waived and that a party may consent to jurisdiction by contract.

The court found the MSA’s forum-selection provision presumptively enforceable. The provision was clearly stated in the body of an agreement signed by Penstock, required disputes covered by the agreement to be brought in Manhattan, and applied to all of Plaintiffs’ claims because they arose from or related to the MSA. The court rejected Penstock’s argument that the provision resulted from a mutual drafting mistake, finding that only Penstock claimed to have been mistaken and that a party generally cannot avoid a contract term based on its own negligence.

The court also rejected Penstock’s argument that Plaintiffs waived the provision by first bringing a related Texas lawsuit. The court explained that Plaintiffs’ copyright claim could not have been brought in the Texas state court because copyright claims fall within exclusive federal jurisdiction. It further found that Plaintiffs’ Texas claims against Penstock were different state-law claims, that Plaintiffs did not represent that Texas was the proper forum for the claims brought in this case, and that Penstock was involved in the Texas case only briefly. The court therefore held that Plaintiffs had not clearly waived the MSA’s forum-selection provision. It denied Penstock’s motion to dismiss for lack of personal jurisdiction.

Venue

The court held that venue in the Southern District of New York was proper. Because Penstock was subject to personal jurisdiction there, federal venue law treated Penstock as residing in the district for venue purposes. The court also held that the MSA’s valid forum-selection provision independently established that venue was proper. It denied Penstock’s motion to dismiss for improper venue.

Transfer

Because New York was a proper venue, the court denied Penstock’s request under 28 U.S.C. § 1406(a), which addresses cases filed in the wrong venue. The court considered the alternative request under § 1404(a), which allows transfer from a proper venue when transfer would serve the interests of justice.

The court found that the Eastern District of Texas was a possible proper venue, but concluded that transfer was not in the interests of justice. The valid forum-selection provision meant that the court could not weigh the parties’ private convenience interests and could transfer only if public-interest factors overwhelmingly disfavored New York. The court found that the federal-law issues could be handled equally well in either district, had no reason to believe the case would proceed more quickly in Texas, and gave substantial weight to the public interest in enforcing the parties’ contractual choice of forum. It therefore denied the request to transfer under § 1404(a).

Disposition

The court denied Penstock’s motion to dismiss under Rules 12(b)(2) and 12(b)(3). It also denied Penstock’s motion to change or transfer venue under 28 U.S.C. §§ 1406(a) and 1404(a). The court ordered Penstock to file an answer by June 14, 2024, and ordered the parties to meet and confer and submit a proposed case-management plan by June 21, 2024. The opinion resolved jurisdiction and venue only; it did not decide the underlying ownership, trade-secret, computer-access, or injunction claims on their merits.