Healthstar, LLC v. Dynamic Vision, Inc.

• Court: U.S. District Court — Eastern District of Tennessee
• Writing for the Court: Judge Collier
• Decision Date: 24 November 2020
• Docket Number: No. 3:18-CV-434,3:18-CV-434
• Citation: Healthstar, LLC v. Dynamic Vision, Inc., No. 3:18-CV-434 (E.D. Tenn. Nov 24, 2020)
• Parties: HEALTHSTAR, LLC, et al., Plaintiffs, v. DYNAMIC VISION, INC., et al., Defendants.

HEALTHSTAR, LLC, et al., Plaintiffs, v. DYNAMIC VISION, INC., et al., Defendants.

No. 3:18-CV-434

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF TENNESSEE at KNOXVILLE

November 24, 2020

Judge Collier

MEMORANDUM

Before the Court is Defendant Axene Health Partners, LLC's ("Axene") motion to dismiss Plaintiffs Healthstar, LLC, and Healthstar EVV, LLC's (collectively, "Healthstar") Fourth Amended Complaint for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). (Doc. 96.) Healthstar filed a response in opposition (Doc. 104), and Axene replied (Doc. 106).

For the reasons below, the Court will GRANT Axene's motion to dismiss (Doc. 96) and DISMISS all claims against Axene WITHOUT PREJUDICE.¹

I. BACKGROUND²

This case involves a technology called Electronic Visit Verification ("EVV"), which is used by insurance companies to ensure individuals who give home or community-based medical care actually perform the services they claim to have provided. Healthstar is a corporationincorporated and with its principal place of business in Tennessee that specializes in EVV programs. It developed an EVV program using Global Positioning Satellite ("GPS") technology, a feature which makes its program unique in the EVV market. To develop this technology, Healthstar entered into a contract with Dynamic Vision Incorporated ("Dynamic Vision" or "DV"). Dynamic Vision is a closely held corporation that is incorporated and has its principal place of business in California. Michael Gill serves as Dynamic Vision's sole director, as well as its chief executive officer, chief financial officer, and secretary.

In October 2017, Gill sent Healthstar an email "announcing a merger with Axene Health Partners!" (Doc. 104-1.) Axene is a company which provides consulting and software solutions within the healthcare industry; it is incorporated and has its principal place of business in California. The email continued, "[w]hile Dynamic Vision will remain a fully self-contained operation, this news signifies a partnership with [Axene.]" (Id.) It indicated Dynamic Vision "will continue to operate as DV"; there would be "[n]o changes to our team or people"; and Gill would "continue as the sole operator of DV." (Id.) The email explained Axene would provide financial and administrative support to Dynamic Vision. (Id.) Attached to the email was a press release. The press release similarly announced the "merger" and represented Gill's continued role in operating the business. (Id.)

Despite these announcements, Axene and Dynamic Vision never formally merged. By late October, both Gill and Axene's CEO understood the companies would not merge. Axene, however, absorbed all of Dynamic Vision's employees, as well as the employees' laptopsoriginally provided by Dynamic Vision. Gill also became an officer of Axene. Axene did not provide any of its stock to Dynamic Vision.

While Dynamic Vision no longer had any employees, Gill remained an officer of Dynamic Vision, and Dynamic Vision continued its work with Healthstar on the EVV contract. Healthstar and Dynamic Vision executed four addendums to their original contract, all of which identified Healthstar and Dynamic Vision as the only parties to the agreement. As Dynamic Vision worked on this contract, Axene and Dynamic Vision executed a separate contract in California. The contract provided that former Dynamic Vision, now Axene, employees, would work for Dynamic Vision on the Healthstar project.

In June 2018, Axene entered into a service agreement with Sandata Technologies, LLC ("Sandata"), one of Healthstar's competitors. The agreement between Axene and Sandata provides Sandata a license for a "Request for Services (RFS) web-based application software . . . that allows [customers] the ability to electronically request, select and authorize services with an eligible provider to one of its patients, members, consumers or individuals . . . ." (Doc. 104-15.) The contract generally dealt with the same EVV technology that Dynamic Vision agreed to develop for Healthstar.³ Sandata and Axene also entered into an agreement with Pulsewrx, Inc., ("Pulsewrx"), a corporation incorporated and with its principal place of business in Ohio, to offer EVV services to Managed Care Organizations.

Axene, in collaboration with Sandata, Dynamic Vision, and Pulsewrx, created a presentation shown throughout the country that promised solutions based on EVV technology. One such presentation occurred in Tennessee. At the presentation, the companies represented they were interested in attracting business through EVV technology. Gill planned to come to the meeting, but the parties dispute if he actually arrived in Tennessee.

Healthstar brought this lawsuit alleging, inter alia, Dynamic Vision remained in possession of its EVV system. It requested the Court issue an injunction to compel Axene, Dynamic Vision, and Gill to transfer the EVV technology back to Healthstar, as well as a declaratory judgment as to the rights of each party in the EVV system. It further claims Dynamic Vision breached their contract. Healthstar asserts Axene is liable for this breach because Axene is a successor in interest to Dynamic Vision, or in the alternative, Axene is liable for fraudulent misrepresentation based on Gill's email announcing the merger. Healthstar also claims Axene is liable for theft of trade secrets and tortious interference of contractual and business relations.

Axene moves to dismiss the case on the ground that this Court does not have personal jurisdiction over it. Healthstar argues that Axene is subject to personal jurisdiction for two reasons: (1) Axene has assumed the obligations of Dynamic Vision and, therefore, the contract with Healthstar, a Tennessee corporation; and (2) Healthstar directed tortious activity towards Tennessee. Both parties conducted limited discovery for the purposes of personal jurisdiction in which one relevant discovery dispute arose. During Gill's deposition, Gill's counsel instructed him not to answer two questions: "[H]ave you been involved in any business ventures with Mr. Dillon other than Healthstar" and "Did Mr. Dillon get you involved in a strategic partnership withSandata?" (Doc. 104-3 at 155.) Healthstar has not moved to compel any information from Gill based on his failure to answer these questions.

II. STANDARD OF REVIEW

On a motion to dismiss for lack of personal jurisdiction, the "party seeking to assert personal jurisdiction bears the burden" of proving the court has jurisdiction over the defendant. Youn v. Track, Inc., 324 F.3d 409, 417 (6th Cir. 2003). When a question of jurisdiction is decided without an evidentiary hearing, the plaintiff need only make a prima facie showing that jurisdiction is proper. Theunissen, 935 F.2d at 1458. To meet this standard, the plaintiff cannot "stand on his pleadings, but must show the specific facts demonstrating that the court has jurisdiction." Miller, 694 F.3d at 678.

III. DISCUSSION

A court's exercise of personal jurisdiction is proper if it is consistent with both the long-arm statute of the state in which it sits and the Due Process Clause of the Fourteenth Amendment. Youn, 324 F.3d at 417. Tennessee's long-arm statute provides that a court can hear any case as long as doing so is consistent with the Due Process Clause. Payne v. Motorists' Mut. Ins. Cos., 4 F.3d 452, 455 (6th Cir. 1993) (citing Masada Inv. Corp. v. Allen, 697 S.W.2d 332, 334 (Tenn. 1985)). Therefore, the Court need only determine whether its exercise of personal jurisdiction over Axene is consistent with Due Process.

Personal jurisdiction can be specific or general. Air Prods. & Controls, Inc. v. Safetech Int'l, Inc., 503 F.3d 544, 549-50 (6th Cir. 2007). Healthstar asserts the Court has specific jurisdiction over Axene. While the Court cannot "resort to 'talismanic jurisdictional formulas' forresolving questions of personal jurisdiction," the Court of Appeals for the Sixth Circuit uses a three-part test to determine whether specific jurisdiction exists. LAK, Inc. v. Deer Creek Enters., 885 F.2d 1293, 1294, 1299-30 (6th Cir. 1989) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 485 (1985)).

First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant's activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.

Id. at 1299 (quoting S. Mach. Co. v. Mohasco Indus., Inc., 410 F.2d 374, 381 (6th Cir. 1968)). If any element is not met, the Court lacks personal jurisdiction over the defendant. Id. at 1303.

The first element, purposeful availment, requires that the defendant "acted or caused a consequence in [the forum] such that he invoked the benefits and protections of [the forum's] law." MAG IAS Holdings, Inc. v. Schmuckle, 854 F.3d 894, 900 (6th Cir. 2017). This requirement "ensures that a defendant will not be haled into a jurisdiction solely as a result of random, fortuitous, or attenuated contacts, or of the unilateral activity of another party or a third person." Burger King Corp., 471 U.S. at 475 (internal quotations and citations omitted). Rather, an individual purposely avails himself of the forum's laws when he intentionally engages in "significant activities within a State" or creates "continuing obligations between himself and residents of the forum." Id. at 475-76 (internal quotations omitted).

The Court's determination of Axene's purposeful availment is outcome-determinative to its jurisdictional finding, and thus, only that element will be discussed. Healthstar asserts Axene has purposely availed itself of Tennessee law in four ways: (1) its merger with Dynamic Vision;(2) its alleged fraudulent communication; (3) its sale of EVV technology; and (4) its...