Sadiant, Inc. v. Penstock Consulting, LLC

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SADIANT, INC. and SADIANT HEALTH, LLC, Plaintiffs, v. PENSTOCK CONSULTING, LLC, Defendant.

No. 23 Civ. 7872 (KPF)

United States District Court, S.D. New York

May 30, 2024

OPINION AND ORDER

KATHERINE POLK FAILLA UNITED STATES DISTRICT JUDGE

Sadiant Health, LLC (“Sadiant Health”) and its sole member, Sadiant, Inc. (“Sadiant” or the “Company,” and together with Sadiant Health “Plaintiffs”), operate a mobile- and web-based software application (the “Sadiant Health App” or the “App”) that assists healthcare facilities in filling shift vacancies with qualified nurses and clinicians. In 2022, Plaintiffs and Defendant Penstock Consulting, LLC (“Penstock” or “Defendant”) entered into a Master Services Agreement (the “MSA”) pursuant to which Defendant agreed to perform various software development services related to the Sadiant Health App. In early 2023, the parties' relationship soured culminating in a failed attempt to take over the Company by Defendant's President, Joseph Williams, who was then also serving as Sadiant's Chief Technology Officer. Thereafter, according to Plaintiffs, Defendant endeavored to sabotage Plaintiffs by removing and/or destroying proprietary, copyright-protected information housed on Sadiant's computer systems.

Plaintiffs filed the instant action in September 2023, principally seeking - among other forms of legal and equitable relief - a declaratory judgment concerning certain work product that Defendant had developed for Plaintiffs during the course of their partnership (the “Work Product”). In particular, Plaintiffs seek a declaration that the Work Product constitutes “work made for hire” under the Copyright Act, 17 U.S.C. §§ 201-216, which finding would guarantee Plaintiffs full authorship and ownership rights in the work.

Before the Court is Defendant's motion to dismiss the Complaint for lack of personal jurisdiction and improper venue under Federal Rules of Civil Procedure 12(b)(2) and (3), or, alternatively, to change and/or transfer venue pursuant to 28 U.S.C. §§ 1404(a) and 1406(a). In short, Defendant asks the Court to either dismiss this case or transfer it to federal court in Texas - where both parties reside and where the events underlying the Complaint took place - notwithstanding the MSA's forum selection clause, which bestows “exclusive jurisdiction and venue” upon the federal and state courts of Manhattan, New York. For the reasons set forth below, the Court denies Defendant's motion in full.

BACKGROUND^[1]

A. Factual Background

1. The Parties

Plaintiff Sadiant, a Delaware corporation, develops mobile- and webbased software applications that assist healthcare facilities in filling timesensitive shift vacancies by matching the facilities with appropriately qualified nurses and clinicians. (Compl. ¶ 8). The Company's principal place of business is located in Fort Worth, Texas. (Id.).

Plaintiff Sadiant Health is a Texas limited liability company, of which Sadiant is the sole member. (Compl. ¶ 9). Sadiant Health's principal place of business is also located in Fort Worth, Texas. (Id.).

Defendant Penstock is a Texas limited liability company that provides software development services to other businesses on a contractual basis. (Compl. ¶ 10). Its principal place of business is located in Northlake, Texas, and all of its members are residents of Texas. (Id.).

2. The Founding of Sadiant

Sadiant was founded in 2016 by three individuals: John Kurth, who would ultimately serve as the Company's Chief Financial Officer (“CFO”); Sarah Snetzer, who would ultimately serve as its Chief Executive Officer (“CEO”); and Leah Cooper, Snetzer's sister and a former charge nurse. (Compl. ¶¶ 11-13, 29, 37). The idea for the Company came about when Snetzer and Cooper observed that the traditional process by which healthcare staffing agencies filled shift vacancies - relying on phone calls, texts, and emails - was timeconsuming, inefficient, and expensive. (Id. ¶¶ 12-13). Seeking to streamline this outdated process, Snetzer and Cooper developed a proprietary mobile app and web portal, the Sadiant Health App, that allowed nurses and other healthcare professionals to identify and sign themselves up for available shifts at nearby healthcare facilities. (Id. ¶¶ 14-16). The Sadiant Health App eliminated the need for healthcare staffing agencies to serve as the “middleman” between facilities and practitioners, enabled facilities to request and accept per diem help in minutes, and provided practitioners with greater flexibility in setting their own schedules. (Id. ¶ 15).

The Sadiant Health App was first launched in North Texas in February 2018. (Compl. ¶ 19). In late 2018, the App expanded into East Texas, adding hundreds of health care professionals to its existing North Texas network. (Id. ¶ 20). During the COVID-19 pandemic, the App expanded even further; specifically, into Tennessee, Mississippi, Oklahoma, Florida, and Georgia. (Id.).

Today, the App continues to be used as a solution for alleviating nursing shortages. (Id. ¶ 17).

3. The Development of Sadiant's Relationship with Penstock

On or about October 26, 2019, Sadiant entered into a service contract with software developer Joseph Williams. (Compl. ¶ 23). Pursuant to this agreement, Williams performed software development services for Sadiant; in return, the Company granted Williams so-called “incentive units” upon his completion of certain development milestones. (Id.). In January 2020, Sadiant and Williams entered into a second contract for software development and technology support services, pursuant to which Williams was paid a monthly fee. (Id. ¶ 24). Having sold the Company on his technological prowess, Williams was thereafter offered the position of Sadiant's in-house Chief Technology Officer (“CTO”), which position Williams accepted on March 2, 2020. (Id. ¶¶ 22, 25). As Sadiant's CTO, Williams had access to the Company's proprietary and confidential information, as well as its protected computer and communications systems. (Id. ¶ 26).

Since 2015 - long before the inception of his relationship with Plaintiffs - Williams had served as a Managing Member and the President of another company, Defendant Penstock. (Compl. ¶ 28). After Williams became Sadiant's CTO, Sadiant hired Defendant to perform software development services for the Company, in the same way Williams (in his individual capacity) had previously done. (Id. ¶¶ 28-29). On November 7, 2022, Williams, acting in his capacity as President of Penstock, and Kurth, acting in his capacity as CFO of Sadiant, electronically executed the Master Services Agreement. (Id. ¶ 29; see generally MSA). The MSA broadly governed Defendant's provision of technology and software development services to the Company, “appl[ying] to each [statement of work] entered into between the parties for the furnishing of ... [s]ervices.” (Compl. ¶¶ 28-31). The MSA was backdated to have an effective date of January 1, 2022, almost eleven months prior to its execution. (Id. ¶ 29).

The same day the MSA was executed, Williams and Kurth also executed a Statement of Work (the “SOW”), which agreement was also backdated (providing for an effective date of May 10, 2022). (Compl. ¶ 33). Pursuant to the SOW, Defendant was to provide Sadiant with web development, mobile development, UI/UX design, quality assurance, and business intelligence development services, inter alia. (Id. ¶ 34). Together, the MSA and SOW “had the effect of outsourcing most of Sadiant's technology development needs to [Defendant].” (Id. ¶ 35).

4. Sadiant and Penstock's Relationship Breaks Down

In early 2023, Sadiant began to experience budget shortfalls. (Compl. ¶ 36). Budget cuts were proposed, including reductions to executive salaries and outside technology spend, both of which stood to have a significant impact on Williams and Defendant. (Id.). Threatened by the anticipated changes, Williams, allied with Kurth, attempted a coup. (Id. ¶¶ 37-39). Specifically, on May 26, 2023, at a meeting of Sadiant's Board of Directors (the “Board”) - then comprised of Snetzer, Williams, Kurth, and a fourth director, Amy Chan - Williams and Kurth voted to remove Snetzer as Sadiant's CEO. (Id. ¶ 38). A day later, on May 27, 2023, Sadiant's shareholders foiled the attempted coup by voting to remove Williams and Kurth from the Board. (Id. ¶ 39).

After the coup failed, fearing retaliation from Williams and Defendant, Sadiant demanded that Defendant turn over all work product that it had developed for the Company. (Compl. ¶ 41). On June 12, 2023, Williams resigned as CTO, effective immediately. (Id. ¶ 43). On June 16, 2023, the Board formally terminated Sadiant's contractual relationship with Defendant and again demanded, in writing, that Defendant

cease any and all access [Defendant] may have to [Plaintiffs'] confidential information, intellectual property, or work product (including [Plaintiffs'] technology, code, and/or application) and [turn over] any and all confidential information, intellectual property, or work product in [Defendant's] possession that belongs to [Plaintiffs]. This should be understood to include all work product [Defendant] developed or created for [Plaintiffs] in the course of working for [Plaintiffs].

(the “June 16 Notice”) (Id. ¶ 44 (alterations adopted)).

The next day, June 17, 2023, the Board terminated Williams as CTO “for cause,” with an effective date of June 9 2023, citing Williams's conduct in the days following his removal from the Board on May 27, 2023. (Compl. ¶¶ 39, 46). According to Plaintiffs, after his removal from the Board, Williams (individually and through his company Penstock) commenced a campaign to “sabotage and injure” Sadiant. (Id. ¶ 40). Williams also refused to relinquish the...