The opinion of the court was delivered by: GURFEIN
The defendants move to dismiss certain counts of the second amended complaint upon the ground of improper venue and to transfer certain other counts to the Eastern District of Pennsylvania pursuant to the provisions of 28 U.S.C. § 1404(a). The plaintiffs move for summary judgment.
The plaintiffs are alleged to be corporations organized in the Netherlands Antilles and established at Curacao: Paragon International, N.V. ("International") and Paragon Ventures, N.V. ("Ventures"). The citizenship of all the defendants is Pennsylvania. Under the venue provisions of the judicial code when jurisdiction is founded only on diversity of citizenship venue lies in the district where all the plaintiffs or all the defendants reside; or, since the 1966 amendment "in which the claim arose." 28 U.S.C. § 1391. No party resides in the Southern District of New York, and, hence, as to the diversity counts, venue can be properly laid here only if this is the District "in which the claim arose."
The complaint is in five counts. The first and third counts sound in breach of contract and seek damages on behalf of International. The second count sounds in breach of contract and apparently seeks specific performance on behalf of Ventures. The third count charges breach of contract and asks damages on behalf of Ventures. The fourth count is alleged to ground jurisdiction on Section 27 of the 1934 Securities and Exchange Act (15 U.S.C. § 78aa) and purports to set forth a claim for relief under Section 10 of the 1934 Act, and Rule 10(b)(5) thereunder. The fifth count sounds in common law fraud and, hence, may be supported jurisdictionally on diversity grounds.
The defendants have moved to dismiss for improper venue only counts two and three. Since venue may be waived by the serving of an answer to a complaint, the defendants have by answering the first amended complaint with respect to the first, fourth and fifth counts waived any objection to venue on those counts.
Before determining the venue questions that remain (counts two and three) it is necessary to state the operative facts giving rise to these claims variously stated, including the facts in affidavits on the companion motion for summary judgment.
International and Ventures are investment companies in Curacao for whom the investment adviser is Arno Advisory, Inc. which in turn is managed by Arno D. Schefler who has his office in New York City.
In April 1970 Schefler was approached by an investment banker who informed him that Standard Plastics, Inc. ("Standard") was about to commence a private placement of its securities and suggested that International buy some. International already held 8,000 shares of Standard stock. It was arranged that Schefler would meet Paul Sarver, President of Standard in New York, where Sarver in early May 1970 gave Schefler an offering brochure dated April 27, 1970, describing the proposed private placement. The negotiations culminated in the execution of two written agreements dated May 26, 1970, (1) a subscription agreement for 10,000 shares of common stock at $5 per share, executed in the name of "Paragon International, N.V. by Arno Advisory, Inc. by Arno D. Schefler"; and (2) a letter of even date addressed to "Paragon International, N.V., c/o Arno Advisory, Inc. 767 Fifth Avenue, New York" and signed by Standard, and individually by Sarver and by Thomas L. Bamonti, Lewis E. Tremaine, Jr. and William R. Eaton, described as officers of Standard.
The subscription agreement in which International was the subscriber was a purchase agreement and was conditioned on an exception being effective under the Pennsylvania Securities Act.
The check for $50,000 was delivered under the conditions that the subscription would become void unless before June 1, 1970 Standard received a bank loan of not less than $415,000 and there was a full subscription to the shares offered. Standard had until June 15, 1970 to accept the subscription offer and upon acceptance by it both parties would be bound.
The subscriber warranted that he is acquiring the shares entirely for investment and not with a view to distribution and has no present intention of selling, pledging or otherwise disposing of the shares. The subscriber further warranted that he is not acquiring the shares for resale upon occurrence or nonoccurrence of some particular predetermined event; and that he knows of no particular circumstances which would make it necessary or expedient for the subscriber to sell any of the shares in the foreseeable future.
The subscriber undertook that he would not sell the shares unless he first furnished to Standard an opinion of counsel that registration is not necessary in the circumstances. A suitable legend was provided for the stock certificates.
Standard undertook to notify the subscriber if within three years from April 27, 1970 it went into registration under the 1933 Act and agreed to use its best efforts to register the subscribers' shares at the latter's option.
Despite its representation that it had no present intention to sell in the subscription agreement, International procured from Standard and its officers the May 26, 1970 letter previously mentioned. That letter stated that "Standard intends to register its stock and that of its shareholders under the Securities Act and for the registration statement to become effective before the end of 1970. In connection with the underwriting with respect to such a registration, Paragon would be able to sell all its shares." It also stated: "If the above is not accomplished by the end of 1970, and if you purchase 10,000 shares of common stock pursuant to Standard's offering brochure dated April 27, 1970, at your request the undersigned officers of Standard, individually or ...