Beskrone v. Berlin

Background

Don A. Beskrone sued Kenneth A. Berlin, Ron Kalfus, and Brian Markison, former executives of Rosetta Genomics, Ltd. and Rosetta Genomics, Inc. Beskrone asserted claims in three capacities: as trustee for Rosetta Inc.’s estate, as trustee or assignee concerning claims of Rosetta Ltd.’s estate, and as an assignee of claims held by Sabby Healthcare Master Fund, Ltd. and Sabby Volatility Warrant Master Fund, Ltd.

The second amended complaint alleged that the defendants oversaw or knew about a scheme involving false coding of Rosetta Inc.’s medical test for Medicare and commercial-insurance reimbursement. It further alleged that they failed to disclose the problem and its effects on Rosetta’s revenues, liabilities, and financial condition while Rosetta raised investments and debt financing and pursued a merger with Genoptix, Inc. The claims included breach of fiduciary duty, fraud, gross negligence, and negligent misrepresentation.

The Motion and Personal Jurisdiction

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the complaint failed to state valid claims, and under Rule 12(b)(2), arguing that the court lacked personal jurisdiction over them. Personal jurisdiction is the court’s authority to exercise power over a particular defendant. The defendants also argued that the case should be dismissed based on the doctrine that allows a court to decline a case when another forum is more appropriate.

The court addressed personal jurisdiction first. It explained that jurisdiction required both a basis under New York law and compliance with federal due-process requirements. The court considered general jurisdiction, which can apply when a defendant is essentially at home in New York or has a continuous and systematic business presence there, and specific jurisdiction, which requires a substantial connection between the defendant’s New York conduct and the claims.

General Jurisdiction

The court found that the second amended complaint did not allege concrete facts showing that any defendant was domiciled, physically present, or engaged in continuous and systematic individual business activity in New York. The complaint contained only a general statement that the defendants had transacted business and had significant personal contacts with the district.

The court also held that the defendants’ alleged activities as officers or agents of Rosetta entities could not establish general jurisdiction over them individually. There were no allegations that any defendant conducted business in New York in an individual capacity.

Specific Jurisdiction and Contract Provisions

Beskrone argued that various agreements supplied specific jurisdiction because they contained New York choice-of-law and forum provisions. The court examined the August 3, 2017 securities purchase agreement as the agreement most favorable to Beskrone’s position. That agreement was between Rosetta Ltd. and Sabby, not the individual defendants. Although its forum provision referred to proceedings involving affiliates, directors, officers, shareholders, employees, and agents, the separate provision waiving objections to personal jurisdiction applied only to the agreement’s “parties.”

The court therefore concluded that the personal-jurisdiction waiver did not extend to Berlin, Kalfus, or Markison. The defendants had acted for Rosetta entities in connection with the agreements, but they were not parties to them. The court relied on decisions reasoning that a contractual forum clause cannot establish personal jurisdiction over a non-signatory who lacks the required minimum contacts with the forum. It also rejected an argument based on treating the defendants as alter egos of the Rosetta entities because the complaint did not allege facts such as disregard of corporate formalities, commingling of funds, or other circumstances supporting that theory.

Disposition

The court found no basis for either general or specific personal jurisdiction over the defendants. It granted the defendants’ motion to dismiss for lack of personal jurisdiction and dismissed all claims in the second amended complaint for that reason. The dismissal was without prejudice to Beskrone pursuing the claims in a forum where personal jurisdiction exists. Because of that ruling, the court did not decide the defendants’ Rule 12(b)(6) arguments or their forum-related arguments. The Clerk of Court was directed to terminate the pending motions and close the case.