Nebgen v. Schentag

Background

George Nebgen, Parviz Ghahramani, and TheraHoldings AG (SA Ltd.) sued Jerome J. Schentag, Mary P. McCourt, Lawrence Mielnicki, Julie Hughes, and TheraSyn Sensors, Inc. The dispute concerned three agreements creating a venture to commercially exploit patents for “cholestosome technology,” which was developed by the individual defendants. The technology was intended to help deliver substances such as insulin orally rather than by injection.

The 2013 agreements included a Share Purchase Agreement, a Contribution Agreement, and a Shareholders Agreement. The Share Purchase Agreement and Contribution Agreement used Swiss law, and the Share Purchase Agreement required disputes to be brought in the courts at TheraHoldings’ registered office in Switzerland. The Shareholders Agreement also contained an exclusive-jurisdiction provision selecting Switzerland.

The plaintiffs alleged that the defendants breached the agreements by refusing to assign the cholestosome technology to TheraHoldings and by seeking rescission of the agreements. They also alleged that Schentag breached a fiduciary duty and that Schentag and Hughes were improperly named as inventors on certain patents. The defendants disputed these allegations and argued, among other things, that Nebgen had not fulfilled alleged commitments to raise money and finance development and patent expenses.

Motions and venue analysis

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(3), which permits dismissal for improper venue. In the alternative, they sought transfer to the Western District of New York under federal transfer statutes. The plaintiffs pointed to meetings in Manhattan and other communications involving the venture.

The court held that the plaintiffs had not made the required initial showing that venue was proper in the Southern District of New York. For the contract claims, the court considered where the agreements were negotiated, where performance was to occur, and where the alleged breach occurred. It found that the plaintiffs had not sufficiently shown that the agreements were negotiated in the district, that performance was required there, or that the alleged breach occurred there. The court noted that the defendants developed the technology, lived and worked, executed patent applications, signed the agreements, and sent the rescission email in the Western District of New York, according to the record discussed in the opinion.

The court reached the same conclusion for the fiduciary-duty claim and the claim challenging the named inventors on certain patents. It found no sufficient showing that significant events giving rise to those claims occurred in the Southern District of New York.

Forum-selection clause

The court separately held that the case had to be dismissed because the Share Purchase Agreement’s forum-selection clause was mandatory and enforceable. The phrase “exclusive jurisdiction” required disputes arising out of or connected with that agreement to be brought in Switzerland. The court found that the plaintiffs’ claims were connected to the agreement because they concerned the parties’ ownership interests, intellectual-property contributions, alleged nonperformance, rescission demand, fiduciary relationship, and patent rights.

The court also held that the Contribution Agreement was covered by the Swiss forum requirement. Although that agreement did not itself contain a forum-selection clause, it was signed as part of the same transaction as the other agreements, cross-referenced the Share Purchase Agreement, and was governed by related choice-of-law provisions. The court therefore read the agreements together and concluded that disputes under the transaction were to be resolved in Switzerland.

The plaintiffs did not show that enforcing the clause would be unreasonable or unjust, that it resulted from fraud or overreaching, or that litigating in Switzerland would effectively deprive them of their opportunity to be heard.

Ruling

Judge Edgardo Ramos granted the defendants’ motion to dismiss and denied their motion to transfer venue. Because the selected forum was in Switzerland, the federal court could not transfer the case there. The court dismissed the plaintiffs’ claims in their entirety, directed the clerk to terminate the motion, and closed the case. The court stated that it therefore did not need to decide the defendants’ request to transfer the case to the Western District of New York or address the forum non conveniens doctrine.