Sharma v. Crosscode, Inc.

Background

Aditya R. Sharma, representing himself, sued Crosscode, CodeLogic, and seven individuals who were current or former Crosscode or CodeLogic executives or board members. Sharma alleged that he developed software called Panoptics while working for Crosscode, that Crosscode wrongfully terminated him and removed him from its board, and that the defendants engaged in corporate fraud, harassment, and mail fraud. He also alleged that the defendants used his home address as a business address, leading to an Internal Revenue Service lien on his residence.

Sharma sought an order barring the defendants from using his residence for business purposes, at least $3.6 million for alleged mail-fraud counts, declarations that the defendants committed crimes, and an order directing federal prosecutors to prosecute a non-party law firm and attorneys. He also asserted breach of fiduciary duty against several individual defendants.

The opinion described related litigation in Minnesota, California, and a bankruptcy proceeding. In the bankruptcy settlement, Sharma released claims against Crosscode and specified related people concerning matters arising on or before the settlement’s effective date. The bankruptcy plan also released and barred claims against Crosscode and CodeLogic that arose before December 10, 2020.

Motion to Dismiss

The court granted the defendants’ motion to dismiss. First, it ruled that Sharma had not adequately established diversity subject-matter jurisdiction because it appeared to a legal certainty that his claims could not meet the required $75,000 amount in controversy. The court concluded that criminal penalties could not be recovered through this civil action, that Sharma had not actually asserted the claimed settlement-breach damages, and that alleged losses suffered by non-party companies could not count toward the amount in controversy.

The court also ruled that Minnesota lacked personal jurisdiction over the individual defendants. The complaint did not adequately allege their contacts with Minnesota. Their limited visits and other contacts were not continuous and systematic enough for general jurisdiction, and Sharma did not show that his claims arose from suit-related contacts that the individuals themselves created with Minnesota. The court also rejected relying on Sharma’s Minnesota residence or the corporate defendants’ Minnesota contacts to establish jurisdiction over the individuals.

Separately, assuming jurisdiction existed, the court held that the complaint failed to state legally sufficient claims. The settlement and bankruptcy orders barred allegations concerning events before the relevant effective dates. The court dismissed Counts 1, 2, and 3 because a private citizen cannot bring a federal criminal prosecution or obtain civil relief under the federal mail-fraud statute. It dismissed Count 4 because it sought criminal-prosecution-related relief against non-parties that the court could not provide. It dismissed Count 5 because the alleged mail fraud could not be repackaged as a breach-of-fiduciary-duty claim and because the allegations did not meet the heightened requirement to plead fraud with particularity.

The court dismissed the complaint with prejudice, including the specified pre-effective-date allegations and Counts 1 through 5. The court declined to strike portions of the complaint as redundant, immaterial, impertinent, or scandalous, even though it found many allegations appeared to fit those descriptions.

Sanctions and Filing Restriction

Judge Susan Richard Nelson granted in part and denied in part the defendants’ motion for sanctions under Federal Rule of Civil Procedure 11. The court denied monetary sanctions because dismissal with prejudice was expected to deter similar litigation. It granted the request for a filing restriction, requiring Sharma to obtain leave of the United States District Court for the District of Minnesota before filing any civil action there against Crosscode, CodeLogic, or affiliated parties, including current or former officers, directors, employees, counsel, agents, bankers, and investors.

The court denied Sharma’s motion for sanctions and demand for criminal prosecution. It found that Emily Wang Fairbairn had made a good-faith correction after her memory was refreshed about communications with Sharma, and it found that Sharma had not complied with Rule 11’s requirement to give the opposing party an opportunity to correct the challenged conduct before filing a sanctions motion. The court also ruled that criminal prosecution was not relief available through Sharma’s motion.

Disposition

The court ordered that the defendants’ motion to dismiss was granted; the complaint was dismissed with prejudice; the defendants’ sanctions motion was granted in part as to the filing restriction and denied in part as to monetary sanctions; and Sharma’s sanctions and demand for criminal prosecution was denied.