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Standard M S Processing, Inc. v. Flechner

United States District Court, N.D. Alabama, Middle Division

March 26, 2015

STANDARD M S PROCESSING, INC., Plaintiff,
v.
STEVEN E. FLECHNER, Defendant.

MEMORANDUM OPINION

STACI G. CORNELIUS, Magistrate Judge.

This is a declaratory judgment action filed by plaintiff, Standard M s Processing, Inc.-formerly known as Standard Gold Holdings, Inc. and Standard Gold, Inc.-concerning a January 21, 2011 amendment of a stock option agreement (the "Amendment") and subsequent attempts by defendant, Steven E. Flechner, to exercise options granted under the Amendment. As relief, Standard M s seeks a declaration that the Amendment is invalid and either: (1) Flechner's options under the Amendment are limited to a pro-rata portion of available shares; or (2) all option rights created by the Amendment are void. (Doc. 1-2 at 6).

Currently pending are Flechner's motion to dismiss for lack of personal jurisdiction (Doc. 3), [1] Standard M s' motion for leave to file an amended complaint (Doc. 20), and Flechner's motion for leave to file a sur-reply to arguments regarding personal jurisdiction raised by Standard M s in response to the undersigned's order to show cause (Doc. 35). For the reasons that follow, the undersigned concludes personal jurisdiction over Flechner is lacking and this matter is due to be dismissed.

I. PROCEDURAL HISTORY

Standard M s originally filed its complaint for declaratory judgment on April 21, 2014, in the Circuit Court of Etowah County, Alabama, naming Flechner and fictitious parties. (Doc. 1-2). On May 28, 2014, Flechner removed, invoking federal diversity jurisdiction under 28 U.S.C. § 1332. (Doc. 1). Once removed, the matter was assigned to a magistrate judge pursuant to Local Rule 72.1 and the court's General Order for Referral of Civil Matters to the United States Magistrate Judges, dated January 14, 2013. Before the matter was reassigned to the undersigned, the parties consented to magistrate judge jurisdiction pursuant to 28 U.S.C.§ 636(c). (Doc. 8).

After Flechner filed the pending motion to dismiss, Standard M s filed a motion to remand (Doc. 6). On Standard M s' motion (Doc. 10), the previously-assigned magistrate judge granted a stay of briefing on Flechner's motion to dismiss until after a ruling on the motion to remand (Doc. 11). However, Standard M s subsequently briefed the issues raised in Flechner's motion to dismiss. (Doc. 28 at 3-9; Doc. 34). Because Standard M s has advanced previously un-briefed arguments regarding personal jurisdiction, Flechner's motion for leave to reply (Doc. 35) is GRANTED and the undersigned has considered the arguments set forth therein.

The undersigned denied Standard M s' motion to remand on December 30, 2014. (Doc. 29). On the same day, the undersigned entered an order acknowledging Standard M s' response in opposition to Flechner's arguments regarding personal jurisdiction and ordering Standard M s to show cause why this matter should not be transferred to the District of Colorado, where Flechner filed a parallel lawsuit. (Doc. 30). As noted above, Flechner has since withdrawn his request for the alternative relief of transfer. Accordingly, all pending motions are fully briefed and ripe for adjudication.

II. FACTS

Standard M s currently maintains its principal place of business in Alabama. The complaint alleges Flechner, a Colorado resident, "engaged in numerous actions and communications in Etowah County, Alabama, related to the subject matter of this action." (Doc. 1-2 at 3). The complaint asserts jurisdiction and venue is proper in Alabama "because a substantial part of the events or omissions giving rise to the claims occurred in Etowah County, Alabama, and based on Defendant's repeated communications to Plaintiff in Etowah County, Alabama." ( Id. at 4).

When the Amendment was passed, Flechner was President of Standard M s' predecessor, Standard Gold. Standard M s alleges the Amendment was improper because it was not approved by stockholders and because there are not enough shares to honor the options provided for in the Amendment. (Doc. l-2 at 4-5). The complaint alleges subsequent corporate officers discovered the impropriety of the Amendment and devised a plan to divide on a pro rata basis the available pre-Amendment shares. (Doc. 1-2 at 5). On March 19, 2014, Flechner sent formal written notice to Standard M s in Alabama regarding his intention to exercise stock options under the Amendment. (Doc. 1-2 at 5). Standard M s offered to honor the pro-rata portion of Flechner's shares, but Flechner refused, demanding to exercise all of his options under the Amendment. (Doc. 1-2 at 5).

The motion to dismiss is supported by Flechner's declaration, which asserts the following relevant facts.[2] Flechner is a resident and citizen of Colorado. (Doc. 3-1 at 2). He has never been a resident or citizen of Alabama and has never visited Alabama for any purpose. (Doc. 3-1 at 2-3). Flechner does not do business in Alabama, is not licensed to do so, and he does not own any property located in this state. (Doc. 3-1 at 3). From April 1, 2010 to May 19, 2011, Flechner served as President of Standard M s' predecessor, Standard Gold, Inc. (Doc. 3-1 at 3). During Flechner's tenure as President, Standard Gold was a Colorado corporation with its principal place of business in Denver, Colorado. (Doc. 3-1 at 3). While President, Flechner conducted business from Denver, Colorado, and did not complete work or have contacts within Alabama. ( Id. ).

Flechner entered into agreements with Standard Gold in 2010 and 2011, including an employment agreement and two stock option agreements. (Doc. 3-1 at 4). On June 1, 2011, Flechner and Standard Gold executed a separation agreement, which included a provision requiring any options to be exercised within three years. (Doc. 3-1 at 4; see also Doc. 3-5 at 3). Each of these agreements was executed in Colorado. (Doc. 3-1 at 4). At some point after Flechner separated from the company, Standard Gold changed its name and incorporated in Nevada. (Doc. 3-1 at 3). In or about December, 2012, approximately eighteen (18) months after Flechner and Standard M s parted ways, Standard M s moved its principal place of business to Gadsden, Alabama. (Doc. 3-1 at 3).

Between February 26, 2014, and April 1, 2014, Flechner exercised all of his stock options. (Doc. 3-1 at 4). Standard M s refused to issue the shares of common stock, informing Flechner there were insufficient shares available to satisfy his demand. (Doc. 3-1 at 4). Between January 31, 2014, and April 17, 2014, Flechner states he sent approximately twenty-three e-mails to individuals affiliated with Standard M s. (Doc. 3-1 at 4). Of these e-mails, Flechner states: (1) fourteen were sent to Standard M s' counsel in New York City; (2) five addressed the exercise of stock options and were sent to individuals in Alabama; and (3) the remaining four emails "did not address the subject matter of this litigation and included personal correspondence like Easter greetings and communications on unrelated matters." (Doc. 3-1 at 4).

Eight days after Standard M s filed its complaint in Etowah County, Flechner filed a lawsuit against Standard M s in the United States District Court for the District of Colorado, styled as Flechner v. Standard M s Processing, Inc., No. 14-1213 (D. Colo. filed April 29, 2014). ( See Doc. 13-1). The parallel lawsuit arises from precisely the same controversy and asserts claims for breach of contract, promissory estoppel, unjust enrichment, and declaratory judgment regarding the number of shares available and Standard M s' obligation to honor ...


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