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MacKay v. Donovan

October 14, 2010

JAMES MACKAY AND CELEBRITY FOODS, INC., PLAINTIFFS,
v.
WILLIAM F. DONOVAN AND SPINE PAIN MANAGEMENT, INC. DEFENDANTS.



The opinion of the court was delivered by: Rufe, J.

MEMORANDUM OPINION AND ORDER

Plaintiffs James Mackay and Celebrity Foods, Inc. Bring the instant action against Defendant Spine Pain Management, Inc. ("Versa Card") and its president and CEO William Donovan, alleging fraud and breach of contract related to a 2008 Mutual Release and Settlement Agreement ("Settlement Agreement") entered into by the parties. Now before the Court are Defendants' Motions to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(2), 12(b)(3), and 12(b)(6), asserting lack of personal jurisdiction, improper venue, and failure to state a claim on which relief can be granted.*fn1 For the reasons that follow, Defendants' Motions will be granted in part and denied in part.

I. Factual and Procedural Background

Versa Card was a Delaware corporation with its principle place of business in Philadelphia, Pennsylvania through the end of December 2008.*fn2 As of January 5, 2009, the corporation notified the SEC that its principal place of business was now in Houston, Texas.*fn3

Defendant William Donovan signed an SEC filing dated March 2, 2009, listing himself as CEO of Versa Card.*fn4 On November 11, 2009, Versa Card changed its name to Spine Plain Management, Inc. ("SPM") and changed its primary business from debit cards to medical pain management.*fn5 Defendant William Donovan was listed as the President, CEO, and Prinicipal Financial Officer of SPM on SEC filings dated November 12, 2009.*fn6

Plaintiffs were shareholders in Versa Card. On December 30, 2008, they entered into a Settlement Agreement with Versa Card, under which Plaintiffs tendered most of their shares of Common Stock, but Mackay retained 408,000 shares and Celebrity Foods retained 100,000 shares.*fn7 Plaintiffs therefore remained shareholders in the successor company, SPM, holding retained shares originally issued on September 8, 2008.*fn8 Plaintiffs' shares were subject to a six-month SEC-mandated restricted trading period, which expired on March 9, 2009.*fn9

On March 27, 2009, Versa Card officer Richard Specht sent a Stop Transfer Resolution to the agent for Versa Card, demanding that the restrictions be continued until Versa Card issued written authorization to lift them.*fn10 On March 31, 2009, Plaintiff Celebrity Foods Network, Inc. ("Celebrity Foods") asked Defendant William Donovan, by e-mail letter, to remove the restrictions on the stock certificates.*fn11 This request was repeated on April 2, 2009, this time by both MacKay and Celebrity Foods.*fn12 On April 3, 2009, Defendant Donovan sent an e-mail to Mackay explaining that Versa Card would re-evaluate any stops in place after an audit and further investigations.*fn13 To date, Versa Card has not removed the restrictive legends,*fn14 despite an additional request from Plaintiffs on November 13, 2009.*fn15

On January 19, 2010, Plaintiffs filed the instant complaint, alleging that issuance of the Stop Transfer Resolution violated the Settlement Agreement and constituted fraud and breach of contract, because the Settlement Agreement obligated Versa Card to "fully cooperate [with the] holders of the Retained Shares in causing the restrictive legends to be removed from the certificates evidencing the Retained Shares."

II . Personal Jurisdiction

Defendants' Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction requires Plaintiffs to provide facts demonstrating that jurisdiction is proper.*fn16 Courts reviewing a motion to dismiss for lack of personal jurisdiction must accept all of the plaintiff's allegations as true and construe disputed facts in favor of the plaintiff.*fn17 Federal courts sitting in diversity may exercise personal jurisdiction over non-resident defendants to the extent provided by the law of the state in which the federal court sits.*fn18 Pennsylvania's Long-Arm Statute allows personal jurisdiction over nonresident defendants to the constitutional limits of the due process clause of the Fourteenth Amendment.*fn19 This standard requires that Defendants have minimum contacts with Pennsylvania such that the maintenance of this suit does not offend traditional notions of fair play and substantial justice.*fn20

Minimum contacts ensure a fair warning to a defendant that he or she may be subject to suit in that state.*fn21 Jurisdiction may arise from general or specific contacts. General jurisdiction exists when a defendant has maintained systematic and continuous contacts with the forum state, while specific jurisdiction exists when the claim arises from or relates to conduct purposefully directed at the forum state.*fn22 In this case, Plaintiffs concede that the continuous and systematic contacts needed for general jurisdiction are missing.

Specific jurisdiction exists where plaintiff can show that:(1) the defendant purposely directed activities at the forum; (2) the litigation arose out of or relating to one or more of these activities; and (3) jurisdiction of the court comports with fair play and substantial justice.*fn23

Plaintiffs contend that the requirements of specific jurisdiction are satisfied in this case, because this claim arises from a contract entered into and executed between Plaintiffs and Versa Card. Although a contract with a resident plaintiff is not, by itself, sufficient to establish personal jurisdiction over nonresident defendants, minimum contacts may be supplied by the "terms of the agreement, the place and character of prior negotiations, contemplated future consequences, or the course of dealings between the parties."*fn24 When the parties entered into the Settlement Agreement, both Celebrity Foods and Versa Card operated their businesses from Philadelphia, Pennsylvania. Defendant Donovan, though living in Texas, was an officer of Versa Card while it was still a Philadelphia-based corporation. Although Defendant Donovan denies ever traveling to Pennsylvania on Versa Card business, this Court must resolve factual inconsistencies in Plaintiffs' favor, and Plaintiffs maintain that Donovan came to Philadelphia on at least two occasions for that purpose. Additionally, Defendants knew that Plaintiff Celebrity Foods had its principal place of business in ...


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