Entropy Solutions, LLC v. Stasis Group, Inc.

Background

Entropy Solutions, LLC sued Stasis Group, Inc., Michael Cecchini, Robert Morton, and Jose Radzinsky. Entropy alleged breach of contract, breach of the implied duty of good faith and fair dealing, attorneys’ fees and costs, piercing the corporate veil or alter ego, money had and received, and unjust enrichment.

Entropy is a Minnesota limited liability company with its principal place of business in Plymouth, Minnesota. Stasis Group is a Delaware corporation with its principal place of business in Albuquerque, New Mexico. Cecchini was Stasis Group’s executive vice president, chief operating officer, and 50% owner, and he resided in New Mexico.

Entropy and Stasis Group discussed a possible business relationship beginning in 2016. On June 7, 2017, they entered into a Project Agreement under which Entropy agreed to fund, and continue providing minimum additional funding for, Stasis Group’s work developing prototypes, testing products, and developing software models using Entropy’s phase-change material. The agreement also contemplated possible future negotiations for a mutually exclusive supply agreement. It provided that Minnesota law would govern.

Cecchini removed the case from state court to federal court and moved to dismiss for lack of personal jurisdiction. Personal jurisdiction is a court’s authority to decide a case involving a particular defendant. In the alternative, he asked the court to transfer the action to the United States District Court for the District of New Mexico.

Personal Jurisdiction

Cecchini argued that Minnesota lacked personal jurisdiction over him because he lived in New Mexico, had never been to Minnesota, was not a party to the Project Agreement, and communicated with Entropy only by telephone and email regarding the agreement and product testing. He maintained that these contacts did not satisfy the constitutional requirement of sufficient “minimum contacts.”

Entropy argued that Cecchini was directly involved in negotiating and overseeing the Project Agreement. It submitted evidence that, as a co-owner and officer of Stasis Group, Cecchini sent at least 260 emails to Entropy’s Minnesota-based vice president of operations between March and May 2018. The communications concerned requests for funding, Stasis Group’s performance, test results, budget issues, and negotiations after the parties reached the project’s “proof of concept.”

The court evaluated whether Cecchini purposefully directed activities toward Minnesota and whether Entropy’s claims arose from or related to those activities. It considered the nature, quality, and quantity of Cecchini’s contacts; the connection between those contacts and Entropy’s claims; Minnesota’s interest in providing a forum for a Minnesota company; and the convenience of the parties.

The court concluded that Entropy had made the required initial showing of specific personal jurisdiction. It found that Stasis Group had initiated contact with Entropy in Minnesota, Cecchini had ongoing communications with Entropy there, the Project Agreement was signed by Entropy in Minnesota, the agreement selected Minnesota law, and the claims directly related to Cecchini’s contacts. The court also stated that Cecchini’s lack of physical presence in Minnesota did not by itself prevent jurisdiction.

Transfer of Venue

Under 28 U.S.C. § 1404(a), a court may transfer a civil case to another federal district for the convenience of the parties and witnesses and in the interests of justice. Cecchini argued that New Mexico was more convenient because Stasis Group’s principal place of business and production activities were there, and because relevant witnesses were located in New Mexico and California.

Entropy argued that Minnesota was not inconvenient, that relevant parties and witnesses were located in multiple states, and that many third-party witnesses and documents were connected to California. The court first found that the record did not clearly establish that the action could have been brought in New Mexico as to all defendants. The court therefore concluded on that basis alone that transfer was not appropriate.

The court also considered the transfer factors. It found that keeping the case in Minnesota would not simply impose an unfair burden on Cecchini because transferring the case would shift the inconvenience to Entropy and potentially other defendants. Witnesses were located in Minnesota, New Mexico, and California, so New Mexico would not be more convenient for the group of witnesses. The court also found that documents did not materially affect the analysis.

Finally, the court found that a substantial part of the events or omissions underlying the claims occurred in Minnesota, Minnesota had an interest in providing a forum for Entropy, and Cecchini had not shown that litigation costs would be lower in New Mexico. The interests-of-justice factor therefore did not favor transfer.

Disposition

The court denied Cecchini’s motion to dismiss for lack of personal jurisdiction and denied his alternative motion to transfer venue. Judge Donovan W. Frank’s order addressed jurisdiction and venue; it did not resolve the merits of Entropy’s underlying claims.