Mates v. North American Vaccine, Inc., Civ.A. AW98-3678.

• Decision Date: 18 June 1999
• Docket Number: No. Civ.A. AW98-3678.,Civ.A. AW98-3678.
• Citation: 53 F.Supp.2d 814
• Parties: Sharon MATES, Plaintiff, v. NORTH AMERICAN VACCINE, INC., et al., Defendants.
• Court: U.S. District Court — District of Maryland

53 F.Supp.2d 814

Sharon MATES, Plaintiff, v. NORTH AMERICAN VACCINE, INC., et al., Defendants.

No. Civ.A. AW98-3678.

United States District Court, D. Maryland, Southern Division.

June 18, 1999.

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COPYRIGHT MATERIAL OMITTED

Jonathan M. Jacobs, Daniel E. Loeb, and Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C., for plaintiff.

Timothy F. Maloney, and Joseph, Greenwald and Laake, Greenbelt, Maryland, and Stephen H. Sachs, and Wilmer, Cutler and Pickering, Washington, D.C. for defendant North American Vaccine, Inc.

David Clarke, Jr., and Piper & Marbury, Washington, D.C., and Eugene E. Stearns, Bradford Swing, and Stearns Weaver Miller Weissler Alhadeff & Sitterson, Miami, FL, for defendant Phillip Frost, M.D.

Thomas D. Yannucci, Kevin Michael Loftus, and Kirkland & Ellis, Washington, D.C. for defendants Francesco Bellini, Ph.D. and BioChem Pharma, Inc.

MEMORANDUM OPINION

WILLIAMS, District Judge.

Pending before the Court are four motions to dismiss filed by each of the four defendants. Plaintiff has responded with a consolidated opposition to the motions, and each of the defendants replied accordingly. A hearing was held on May 3, 1999. Following the hearing, Plaintiff filed a First Amended Complaint to add a count for breach of contract against Defendant North American Vaccine, Inc. Before disposition of the aforementioned motions, the Court directed the defendants to answer, or otherwise respond to, Plaintiff's First Amended Complaint. Accordingly, all four defendants filed motions to dismiss the First Amended Complaint, which are now before the Court.¹ No other hearing is deemed necessary. Local Rule 105.6 (D.Md.). For the reasons set forth below, the Court will grant each defendant's motion to dismiss the First Amended Complaint.

BACKGROUND

Plaintiff Dr. Sharon Mates, a Maryland resident, was the former director and president of Defendant North American Vaccine, Inc. ("NAVI"). NAVI is a publicly held Canadian corporation involved in the research, development, production, and sales of vaccines for the prevention of human diseases.² Mates was the director and president of NAVI from its inception in 1989 until 1998, when she was removed from the board of directors and then terminated from her employment. Mates brings this action against Defendants NAVI, Dr. Phillip Frost³, BioChem Pharma, Inc. ("BioChem")⁴, and Dr. Francesco Bellini⁵, alleging violations of federal securities laws and the Canadian Business Corporations Act. Mates also has brought Maryland common law claims based on alleged incidents arising out of her removal from the board and subsequent termination.

Incorporated in Canada in 1989, NAVI began its operations in the United States in 1990. It is one of only five companies that the Food and Drug Administration ("FDA") has licensed to sell pediatric vaccines in the United States. The first eight years of NAVI's operations in the U.S., however, were spent trying to obtain FDA approval of its commercial product, CERTIVA. CERTIVA is an active immunization against diphtheria, tetanus and pertussis (whooping cough) in infants and children six weeks to seven years of age. NAVI expected that once CERTIVA was approved, the company would immediately experience dramatic financial growth and enjoy a substantial share of the pediatric vaccine market. However, CERTIVA's approval in the summer of 1998 came too late. The significant delay in the approval process caused potential investors to divest, and consequently NAVI's share price dropped significantly.⁶ It was at this time that Mates alleges that Defendants Frost, Bellini, and BioChem secretly decided to acquire a controlling interest in NAVI in order to sell it.

In her First Amended Complaint, Mates claims that Frost and Bellini engaged in a scheme to increase Frost's and BioChem's ownership interest and control of NAVI through insider transactions. Mates alleges that this secret plan involved a "sweetheart" deal in which Frost and BioChem provided $25 million in needed financing to NAVI in exchange for convertible debentures. Mates claims that the conversion price of these debentures was approximately three dollars less than the then closing price of the stock on the day the deal was considered.⁷ Thus, Mates argues that Frost and BioChem stood to make a considerable profit due to the significantly low price that the debentures were sold in relation to its then higher selling price.

The gravamen of the complaint, however, concerns the Defendants' alleged efforts to keep Mates from the details of the financing deal. Mates claims that "[b]ecause the proposed financing involved [NAVI] insiders and terms unfavorable to [NAVI]," Defendants excluded her from board meetings and discussions concerning the proposed deal, despite her being NAVI's president and ranking member of its board of directors. Mates further claims that when the financing deal was to be voted upon by NAVI's board of directors, she was not notified of the meeting, and as such was not given an opportunity to participate. Consequently, Mates alleges that the financing deal between Frost and BioChem, and NAVI was approved without her consent.

In addition, on the day the financing deal was approved, Mates was told by a member of the board that one of the conditions of the deal was that she resign, or be terminated, from the company. Because Mates refused to resign, the board of directors immediately terminated her. The very next day, NAVI issued a press release announcing the board's approval of the $25 million financing deal, and that Mates would be replaced as president of NAVI. Mates then filed this action.

Although Mates has accused Defendants of corporate improprieties and federal securities laws violations, she has brought this action in her individual capacity, and not derivatively as a NAVI shareholder.⁸ In her eleven-count First Amended Complaint, Mates seeks to compel Frost and BioChem, pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the "Act"), 15 U.S.C. § 78m et seq., and Rule 13d-1, promulgated thereunder, to make the required public disclosures of their alleged intention to sell NAVI. Against NAVI, Mates seeks to enforce her rights as a board member to be given notice of and access to board meetings, and the books and records of NAVI. She also requests that the Court enjoin NAVI from taking steps to effectuate the financing of the alleged insider, secret deal. Finally, with regard to her termination, Mates has filed a claim for abusive discharge, and seeks declaratory relief against NAVI for its alleged vote to terminate her, which she claims was contrary to NAVI's bylaws and the Canadian Business Corporations Act ("CBCA"). She also has filed a claim for defamation against NAVI for publishing on its Internet website that she had been removed from the board, and a claim for tortious interference with business relations against Frost, Bellini, and BioChem.

DISCUSSION

I. Personal Jurisdiction

As a threshold matter, the Court must first determine whether it has personal jurisdiction over the Defendants. Other than NAVI, Defendants Frost, Bellini, and BioChem are not residents of the State of Maryland, and each has argued that they do not have sufficient contacts with the state so as to confer personal jurisdiction over them. As such, the burden is on Mates to prove that the Court may exercise jurisdiction over the nonresident Defendants. See Baker & Kerr, Inc. v. Brennan, 26 F.Supp.2d 767, 769 (D.Md. 1998). However, when the Court rules on a motion to dismiss for lack of personal jurisdiction without the benefit of an evidentiary hearing, the plaintiff's burden is "`simply to make a prima facie showing of a sufficient jurisdictional basis in order to survive the jurisdictional challenge.'" Owens-Illinois, Inc. v. Rapid American Corp., 124 F.3d 619, 628 (4th Cir.1997) (quoting Combs v. Bakker, 886 F.2d 673, 676 (4th Cir.1989)). Mates, however, does have the benefit of having all relevant pleadings and inferences construed in her favor. Id.

With regard to the claims brought against Frost and BioChem under Section 13(d) of the Securities Exchange Act of 1934, Section 27, of the same act, grants federal courts jurisdiction and provides for venue and service of process. 15 U.S.C. § 78aa; see also Touche Ross & Co. v. Redington, 442 U.S. 560, 577, 99 S.Ct. 2479, 2489, 61 L.Ed.2d 82 (1979). Section 27 provides, in relevant part:

Any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder, or to enjoin any violation of such chapter or rules and regulations, may be brought in any such district (wherein any act or transaction constituting the violation occurred) or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found.

(Emphasis Supplied).

Although Section 27 has been construed as permitting nationwide service of process in any district in which the defendant is found, see Securities Investor Protection v. Vigman, 764 F.2d 1309, 1315 (9th Cir.1985), it still must not offend "traditional notions of fair play and substantial justice." International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). However, the relevant question under Section 27 becomes whether the party has sufficient contacts with the United States, not any particular state. See Securities Investor Protection Corp., 764 F.2d at 1315; Fitzsimmons v. Barton, 589 F.2d 330, 333 (7th Cir.1979); Mariash v. Morrill, 496 F.2d 1138, 1143 (2d Cir. 1974). Thus, this Court can exercise personal jurisdiction over the Defendants if it is found that they have minimum contacts with the United States.

While Frost's and BioChem's contacts with Maryland may be lacking, it is clear that they each have significant...