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Saeed v. Omex Systems, Inc.

United States District Court, D. Massachusetts

September 22, 2017

MUHAMMED SAEED, Plaintiff,
v.
OMEX SYSTEMS, INC., f/k/a OMEX SYSTEMS, LLC; WALLACHBETH SOFTWARE, LLC; MICHAEL WALLACH; DAVID BETH; and WALLACHBETH CAPITAL, LLC, Defendants.

          MEMORANDUM AND ORDER ON MOTION TO DISMISS AND MOTION FOR ENTRY OF DEFAULT JUDGMENT

          ALLISON D. BURROUGHS, ALLISON D. BURROUGHS U.S. DISTRICT JUDGE.

         On August 24, 2016, Plaintiff Muhammed Saeed initiated this suit against Defendants Omex Systems, Inc. (“Omex”), WallachBeth Software, LLC (“WBS”), Michael Wallach, David Beth, and WallachBeth Capital, LLC (“WBC”) asserting breach of contract, breach of fiduciary duty, and unjust enrichment claims under Delaware law. Presently pending before the Court is a motion to dismiss brought by WBS, Wallach, Beth, and WBC[1] [ECF No. 10], on the grounds that this Court lacks personal jurisdiction over any of the moving Defendants and, alternatively, on the grounds that Saeed has failed to state a claim upon which relief can be granted. Also pending before the Court is Saeed's Motion for Entry of Default of Omex [ECF No.18]. For the reasoning set forth below, the Court grants the motion to dismiss and denies without prejudice the motion for entry of default.

         I. BACKGROUND

         a. Factual Background

         The following are the facts as alleged in the Complaint [ECF No. 1] unless otherwise noted. In 2008, Saeed and WBS jointly founded Omex Systems, LLC, now known as Omex Systems, Inc., a company which provides a computer-based financial investment platform. Compl. ¶¶ 1, 13. During the relevant time period, Omex was a Delaware corporation with a primary place of business in the state of New York. Id. ¶ 8. WBS is a New York limited liability company with a primary place of business in New York. Id. ¶ 9. Wallach and Beth are both individual residents of either New York or New Jersey. Id. ¶¶ 9-10; Wallach Decl. [ECF No. 11-2] ¶ 27; Beth Decl. [ECF No. 11-1] ¶ 4. Wallach and Beth also own WBC, a broker-dealer through which Wallach and Beth operated Omex, which is also a New York limited liability company with a primary place of business in the state of New York. Compl. ¶¶ 9, 15. Saeed, Wallach, and Beth, through WBS, co-managed Omex. Id. ¶¶ 14-15.

         The operation of Omex was governed by an Operating Agreement (“the Agreement”) [ECF No. 11-3] signed by Wallach, Beth, and Saeed. Compl. at ¶¶ 16-17. The Agreement outlined the classes of each of the limited liability company members and the rights corresponding to each class of membership. Id. at ¶¶ 19-21. WBS is listed as a “Class A” member and Saeed is listed as a “Class B” member. Id. at 20; see also Agreement at 59-60. As a Class B member, pursuant to the Agreement, Saeed was entitled to a 20% share of net profits and net losses and a 20% gain on sale allocation. Compl. ¶ 21; Agreement at 58.

         On February 18, 2011, Wallach and Beth, as managers and on behalf of all other Class A members, sent a letter to Saeed informing him that he had been removed as a manager, reducing his share of net profits and losses to 0% and his gain on sale allocation to 10%. Compl. at ¶ 22.

         The letter cited provisions of the Agreement which outlined the process for involuntary withdrawal of a member. Id. at ¶¶ 24-26. On April 6, 2011, Saeed received another letter notifying him that he had been terminated as a member of Omex entirely, and that his gain on sale allocation had been further reduced to 0%. Id. at ¶ 29. In 2015, Omex was purchased by Raptor Trading Systems, Inc. for total consideration exceeding two million dollars. Id. at ¶¶ 31, 35. Saeed alleges that he never received the $500, 000.00 he is entitled to from the sale of Omex, as stipulated in the Agreement. Id. at ¶¶ 34-35; [ECF No. 11-3].

         b. Procedural Background

         Saeed filed the Complaint on August, 24, 2016 against Omex, WBS, WBC, and Wallach and Beth individually. On October 28, 2016, Defendants WBS, WBC, Wallach, and Beth filed the instant Motion to Dismiss [ECF No. 10] on the grounds of lack of personal jurisdiction over any of the moving Defendants, and failure to state a claim upon which relief can be granted. See also [ECF No. 11].

         On December 21, 2016, Saeed moved for an entry of default of Omex [ECF No. 18] for Omex's failure to file a timely response to Saeed's complaint. To date, Omex has not responded to the complaint or entered an appearance in this matter.

         II. MOTION TO DISMISS

         To evaluate a motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court must accept as true all well-pleaded facts, analyze those facts in the light most hospitable to the plaintiff's theory, and draw all reasonable inferences from those facts in favor of the plaintiff. U.S. ex rel. Hutcheson v. Blackstone Med. Inc., 647 F.3d 377, 383 (1st Cir. 2011). The Court may consider the “complaint, documents annexed to it, and other materials fairly incorporated within it, ” which “sometimes includes documents referred to in the complaint but not annexed to it” and “matters that are susceptible to judicial notice.” Rodi v. S. New Eng. Sch. of Law, 389 F.3d 5, 12 (1st Cir. 2004). Although detailed factual allegations are not required, a complaint must set forth “more than labels and conclusions.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A “formulaic recitation of the elements of a cause of action” is not enough, id. at 545; the complaint must state “factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory.” Gagliardi v. Sullivan, 513 F.3d 301, 305 (1st Cir. 2008) (internal quotations and citation omitted).

         When a motion to dismiss asserts grounds for dismissal based both on the merits and on jurisdictional deficiency, the jurisdictional issues must be resolved prior to an analysis of the merits. See Bell v. Hood, 327 U.S. 678, 682 (1945) (“Whether the complaint states a cause of action on which relief could be granted is a question of law and just as issues of fact it must be decided after and not before the court has assumed jurisdiction over the controversy.”).

         Defendants argue that this Court lacks personal jurisdiction over them. There are two types of personal jurisdiction: general and specific. See, e.g., Foster-Miller, Inc. v. Babcock & Wilcox Canada, 46 F.3d 138, 144 (1st Cir. 1995). 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. (quoting United Elec. Workers v. 163 Pleasant St. Corp., 960 F.2d 1080, 1088 (1st Cir. 1992)). To establish specific jurisdiction, the plaintiff must show that “the cause of action arises directly out of, or relates to, the defendant's forum-based contacts.” Pritzker v. Yari, 42 F.3d 53, 60 (1st Cir. 1994) (quoting United Elec. Workers, 960 F.2d at 1088-89).

         The plaintiff bears the burden of proving the existence of personal jurisdiction. See, e.g., Foster-Miller, 46 F.3d at 145. Here, the Court will employ the “prima facie” standard, which is the most common method used to evaluate personal jurisdiction. Adelson v. Hananel, 510 F.3d 43, 48 (1st Cir. 2007). It requires the Court to consider whether the plaintiff has “proffered evidence that, if credited, is enough to support findings of all facts essential to personal jurisdiction.” Boit v. Gar-Tec Products, Inc., 967 F.2d 671, 675 (1st Cir. 1992). The plaintiff “cannot rest upon the pleadings, but is obliged to adduce evidence of specific facts.” Foster-Miller, 46 F.3d at 145. The court may “add to the mix facts put forward by the defendants, to the extent that they are uncontradicted.” Daynard v. Ness, Motley, Loadholt, Richardson & Poole, P.A., 290 F.3d 42, 51 (1st Cir. 2002).

         A. General Jurisdiction

         Saeed does not argue that this Court has general jurisdiction over individual Defendants Wallach or Beth, or over WBS. [ECF No. 17 at 4-5]. Saeed only asserts that the Court has general jurisdiction over WBC.

         Saeed first argues that the Court has general jurisdiction over WBC because it has been registered with the Massachusetts Securities Division since 2009, but he has not cited relevant case law to support the proposition that registration with the Division is sufficient to establish general jurisdiction, and his argument and citations conflate the requirements of general and specific jurisdiction. See [ECF No. 17 at 4-5]. Plunkett v. Valhalla Investment Services, Inc., 409 F.Supp.2d 39, 42 (D. Mass. 2006), which the Court believes is one of the cases Saeed intended to cite, [2] held that a Massachusetts District Court had specific jurisdiction over an out- of-state defendant investment company alleged to have violated the Massachusetts Uniform Securities Act, Mass. Gen. Laws ch. 110A, because the investment company “had minimum contacts with Massachusetts.” The facts relevant to the jurisdictional analysis are not fully fleshed out in Plunkett because the court denied the motion to dismiss on alternative grounds, but there is no indication of an allegation that the defendant was registered with the Massachusetts Securities Division, and the case never addresses general personal jurisdiction. 409 F.Supp.2d at 42-43. Saeed also apparently intended to cite Bulldog Investors Gen. P'ship v. Sec'y of the Commonwealth, 929 N.E.2d 293, 300-01 (Mass. 2010), in which the Massachusetts Supreme Judicial Court held that it had personal jurisdiction over an out-of-state defendant company that directed an offer of unregistered securities to a Massachusetts resident. This case, too, only addresses specific jurisdiction, and does not speak to general jurisdiction. Bulldog Investors, 929 N.E.2d at 300-01. Moreover, Saeed's reliance on this case to support the proposition that registration with the Massachusetts Securities Division is sufficient to confer general jurisdiction is inapposite because the case is fundamentally premised on allegations that the defendant company hadn't registered its securities in violation of the Massachusetts Uniform Securities Act. Id. As such, the cases upon which Saeed primarily relies to assert this Court's general jurisdiction over WBC do not support his position.

         Next, Saeed contends that WBC “admits to providing services to multiple institutional brokerage clients in the Commonwealth of Massachusetts over the past five plus years” [ECF No. 17 at 5], but he has not provided factual evidence to support this allegation. Defendants submit, without contradiction, that they conduct less than 3% of their business in Massachusetts. [ECF No. 21 at 4]. Moreover, even “continuous activity of some sorts within a state is not enough to support the demand that the corporation be amenable to suits unrelated to that activity;” general jurisdiction may only be asserted in jurisdictions “in which the corporation is fairly regarded as at home.” Daimler AG v. Bauman, 134 S.Ct. 746, 757, 760 (2014) (citing Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 924 (2011)); see also International Shoe Co. v. State of Wash., Office of Unemployment Compensation and Placement, 326 U.S. 310, 318 (1945). For corporate defendants, “the place of incorporation and principal place of business are paradigm bases for general jurisdiction, ” Daimler, 134 S.Ct. at 757, 760, and Plaintiff does not allege that WBC is either incorporated or has a principal place of business in Massachusetts. While there may be an “exceptional case” in which a corporation is “essentially at home” in a location other than the place of incorporation or principal place of business, Daimler, 134 S.Ct. at 761 n.19, Saeed has not demonstrated that such an exception is warranted here. See id. at 752, 761-62 (holding that 2.4% of global sales and 10% of U.S. sales occurring in forum state were not sufficient to support general jurisdiction over corporate defendant); see also Campbell Pet Co. v. Miale, 542 F.3d 879, 884 (1st Cir. 2008) (finding that two percent of defendant's total sales occurring in forum state falls “far short” of the amount sufficient to exercise general jurisdiction over the defendant). Therefore, Saeed has not met his burden to prove that the Court has general jurisdiction over WBC.

         B. ...


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