Sperzel v. Chembio Diagnostics, Inc.

JOHN J. SPERZEL, III, Plaintiff v. CHEMBIO DIAGNOSTICS, INC., Defendant

No. 2:20-cv-00193-GZS

UNITED STATES DISTRICT COURT DISTRICT OF MAINE

February 7, 2021

RECOMMENDED DECISION ON MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION

In this suit arising from the alleged unlawful refusal of defendant Chembio Diagnostics, Inc. ("Chembio") to allow its former chief executive officer, plaintiff John J. Sperzel, III, to exercise his Chembio stock options, Chembio moves pursuant to Federal Rule of Civil Procedure 12(b)(2) to dismiss the complaint for lack of personal jurisdiction. See Motion to Dismiss ("Motion") (ECF No. 16) at 1-2; Complaint and Demand for Jury Trial ("Complaint") (ECF No. 1) ¶¶ 1-10. For the reasons that follow, I conclude that Sperzel fails to demonstrate the appropriateness of the exercise of personal jurisdiction over Chembio in this forum and, hence, recommend that the court grant the Motion and dismiss the Complaint without prejudice.¹

I. Applicable Legal Standards

"When a court's jurisdiction is contested" pursuant to Rule 12(b)(2), "the plaintiff bears the burden of proving that jurisdiction lies in the forum state." Sawtelle v. Farrell, 70 F.3d 1381, 1387 (1st Cir. 1995). "To establish personal jurisdiction in a diversity case" such as this, "a plaintiff must satisfy both the forum state's long-arm statute and the Due Process Clause of theFourteenth Amendment." C.W. Downer & Co. v. Bioriginal Food & Sci. Corp., 771 F.3d 59, 65 (1st Cir. 2014). "Because the Law Court has deemed Maine's long-arm statute coextensive with the permissible exercise of personal jurisdiction under the Due Process Clause of the Fourteenth Amendment, the due process inquiry controls in the present case." Lucerne Farms v. Baling Techs., Inc., 226 F. Supp. 2d 255, 257 (D. Me. 2002).

The "constitutional touchstone for personal jurisdiction" is "minimum contacts" between a defendant and the forum state. United Elec., Radio & Mach. Workers of Am. v. 163 Pleasant St. Corp., 960 F.2d 1080, 1087 (1st Cir. 1992). A defendant must have "sufficient contacts with the forum state so that subjecting him, her, or it to the forum's jurisdiction does not offend traditional notions of fair play and substantial justice." Id. (citation and internal quotation marks omitted).

In turn, "[i]n analyzing minimum contacts," the First Circuit has "recognized two types of personal jurisdiction: general and specific." Id. at 1088. "General jurisdiction exists when the litigation is not directly founded on the defendant's forum-based contacts, but the defendant has nevertheless engaged in continuous and systematic activity, unrelated to the suit, in the forum state." Id. Specific jurisdiction exists when "(1) [the] claim[s] directly arise[ ] out of or relate[ ] to the defendant's forum activities; (2) the defendant's forum contacts represent a purposeful availment of the privilege of conducting activities in that forum, thus invoking the benefits and protections of the forum's laws and rendering the defendant's involuntary presence in the forum's courts foreseeable; and (3) the exercise of jurisdiction is reasonable." Plixer Int'l, Inc. v. Scrutinizer GmbH, 905 F.3d 1, 7 (1st Cir. 2018).

There are three recognized standards for determining whether the exercise of personal jurisdiction is lawful: the prima facie standard, the preponderance standard, and the likelihood standard. Rodriguez v. Fullerton Tires Corp., 115 F.3d 81, 83 (1st Cir. 1997); see also Foster-Miller, Inc. v. Babcock & Wilcox Can., 46 F.3d 138, 145-47 (1st Cir. 1995) (outlining standards and circumstances under which they apply).

When, as here, the court makes a jurisdictional ruling without holding an evidentiary hearing, the prima facie standard applies. See, e.g., Phillips v. Prairie Eye Ctr., 530 F.3d 22, 26 (1st Cir. 2008). Under that standard, "the inquiry is whether the plaintiff has proffered evidence which, if credited, is sufficient to support findings of all facts essential to personal jurisdiction." Id. "It is not enough for [the plaintiff] to rely on unsupported allegations in [the] pleadings." A Corp. v. All Am. Plumbing, Inc., 812 F.3d 54, 58 (1st Cir. 2016) (citation and internal quotation marks omitted). "Rather, [the plaintiff] must put forward evidence of specific facts to demonstrate that jurisdiction exists." Id. (citation and internal quotation marks omitted).

In assessing this showing, the court "must accept the plaintiff's (properly documented) evidentiary proffers as true . . . (whether or not disputed) and construe them in the light most congenial to the plaintiff's jurisdictional claim." Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A., 290 F.3d 42, 51 (1st Cir. 2002) (citations and internal quotation marks omitted). Here, I have done so, taking into account relevant evidence adduced by Chembio only to the extent that it does not conflict with Sperzel's evidence.

Sperzel seeks to make a prima facie showing that the court has specific jurisdiction over Chembio, conceding that, in the absence of jurisdictional discovery, he cannot show that general jurisdiction exists. See Plaintiff's Opposition to Defendant's Motion to Dismiss ("Opposition") (ECF No. 23) at 10-11.

II. Factual Background

Sperzel is the former president and CEO of Chembio, a publicly-traded Nevada corporation with its principal place of business in Hauppauge, New York, which is on Long Island. Affidavit of John J. Sperzel, III ("Sperzel Aff.") (ECF No. 24) ¶ 1; Declaration of Neil Goldman ("GoldmanDecl.") (ECF No. 17) ¶ 3. Chembio develops point-of-care diagnostic tests for infectious diseases. Complaint ¶ 1. Sperzel grew up in Maine, spent his freshman year at the University of Maine in Orono, Maine, and has been a Maine resident since 2014. Sperzel Aff. ¶ 2. Before then, he lived in New Jersey. Id. ¶¶ 12, 45.

Chembio has no employees located in Maine and is not registered with the Maine Secretary of State to do business in Maine. Goldman Decl. ¶¶ 17-18. Although Chembio does not maintain an official office in Maine, Chembio sales representatives cover certain sales territories that include Maine. Sperzel Aff. ¶ 48. Chembio's website is also accessible to Maine residents. Id. ¶ 50. Between January 2019 and June 2020, Chembio shipped product totaling $2,306.23 in value to Maine. Goldman Decl. ¶ 19. Chembio's total gross product sales in 2019 were $28.8 million, of which $4.8 million was generated from product sales in the United States. Sperzel Aff. ¶ 49.

In December 2013, Sperzel was contacted by an executive search firm that had been retained by the Chembio Board of Directors to identify a new CEO. Id. ¶ 4. In negotiating his potential employment, Sperzel communicated with the executive search firm and members of the Chembio Board of Directors while he was physically located in Maine. Id. ¶ 5. Those negotiations culminated in the execution of an employment agreement dated March 13, 2014 (the "2014 Employment Agreement"), which Sperzel signed while in Maine and which bears his Maine residential address. Id. ¶¶ 6-7; [2014] Employment Agreement, Exh. A (ECF No. 17-1) to Goldman Decl., at 13. The 2014 Employment Agreement contained provisions applying New York law to disputes arising out of the contract and setting forth Sperzel's consent to the personal jurisdiction of the federal and state courts of New York with respect to any lawsuit filed against him by Chembio relating to the contract. 2014 Employment Agreement at 12, § 16.

During negotiations over the 2014 Employment Agreement, Sperzel recommended that Chembio open a small corporate office in Massachusetts because it is a hub of life science technology and innovation, investors, and senior executives. Sperzel Aff. ¶ 8. Chembio agreed that this was a good idea and added a provision to Sperzel's employment agreement contemplating travel between Massachusetts and New York. Id.; 2014 Employment Agreement at 3, § 5(f). Although the proposal was never implemented, Sperzel continued to be entitled pursuant to the 2014 Employment Agreement to reimbursement of expenses of travel between Massachusetts and New York. Sperzel Aff. ¶ 9; 2014 Employment Agreement at 3, § 5(f). The 2014 Employment Agreement provided that notice to Sperzel was to be sent to his Maine address. 2014 Employment Agreement at 12, § 17 & 13.

When Sperzel joined Chembio, the company asked him to complete Form ID, an application for an access code to file documents through the electronic filing system of the United States Securities and Exchange Commission (SEC). Sperzel Aff. ¶ 11. Sperzel completed the form, which lists his Brunswick, Maine, residential address, and returned it to Richard Larkin, Chembio's chief financial officer, who filed it with the SEC. Id.; Exh A. (ECF No. 24-1) thereto at Page ID ## 326-27.

In connection with the 2014 Employment Agreement, Sperzel was granted options to purchase up to 250,000 shares of Chembio's stock. 2014 Employment Agreement at 4, § ¶ 6(a). The grant of those options, which was negotiated as part of Sperzel's initial offer of employment, was set forth in seven separate stock agreements (the "2014 Stock Option Agreements"), each dated March 18, 2014, and bearing Sperzel's Maine residential address. Sperzel Aff. ¶ 16; Exhs. C (ECF No. 24-1) thereto at Page ID ## 343-53, D (ECF No. 24-1) thereto at Page ID ## 355-65, E (ECF No. 24-2) thereto at Page ID ## 367-77, F (ECF No. 24-2) thereto at Page ID ## 379-89,G (ECF No. 24-2) thereto at Page ID ## 391-401, H (ECF No. 24-2) thereto at Page ID ## 403-13, I (ECF No. 24-2) thereto at Page ID ## 415-25.

Chembio's commuting records indicate that Sperzel was working at Chembio's offices in New York during the week of March 16-22, 2014. Goldman Decl. ¶ 8; Exh. C (ECF No. 17-3) thereto at Page ID ## 252-53. The 2014 Stock Option Agreements were executed on Chembio's behalf by Richard Larkin, who at that time was Chembio's chief financial officer and worked full-time in New York....