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SEC v. CAPT. CRAB

December 30, 1986

Securities and Exchange Commission, Plaintiff,
v.
Capt. Crab, Inc., Edward R. Scharps, Lewis Leeds, Inter-Financial Consulting Corp., Joseph Lugo, Randolph Pace, Rooney, Pace Inc., Martin Rothman, Defendants



The opinion of the court was delivered by: LEVAL

PIERRE N. LEVAL, U.S.D.J.

 This is an enforcement action brought by the Securities and Exchange Commission (the "SEC") seeking permanent injunctive and other equitable relief against eight defendants: Capt. Crab, Inc., Edward R. Scharps, Lewis Leeds, Inter-Financial Consulting Corp., Joseph Lugo, Randolph Pace, Rooney Pace, Inc., and Martin Rothman. The complaint alleges various violations of the federal securities laws in connection with the offer and sale of securities of two related Florida corporations, Crab House, Inc. and Capt. Crab's Take-Away, Inc., which have since merged under the corporate name Capt. Crab, Inc. The alleged violations include market manipulation and misrepresentation in connection with public offerings.

 Capt. Crab, Inc. and Martin Rothman have settled with the SEC. The remaining six defendants move to have this action transferred to the Southern District of Florida pursuant to 28 U.S.C. § 1404(a)(1982), for convenience of the parties and witnesses and in the interest of justice.

 Background

 Capt. Crab, Inc. ("Capt. Crab") is a Florida corporation engaged in the operation and franchise of fast food and full service seafood restaurants. Capt. Crab became the successor corporation to Crab House, Inc. ("Crab House") and Capt. Crab's Take-Away, Inc. ("Take-Away") following the merger of Crab House into its subsidiary Take-Away and its corporate name change to Capt. Crab in June 1984.

 Defendant Edward Scharps and an associate established Crab House in 1981 and Take-Away in 1982. In 1982 and 1983, Scharps supervised the operation of the corporation and its subsidiary and served as their chief public spokesperson. In 1982, he employed a New York brokerage firm to underwrite an initial public offering of Take-Away securities, and sent prospectuses to various brokers and analysts, including Randolph Pace at Rooney Pace, Inc. in New York. The initial public offering became effective on June 15, 1982, and further sales information was subsequently circulated among brokers and analysts. Information was also sent to national trade and financial publications representing that several franchise agreements had been signed.

 On May 21, 1983, Take-Away filed a registration statement for a secondary offering of common stock. This offering was not publicized, but solicitation efforts were made in Ohio, Illinois, Georgia and Florida. The secondary offering became effective on July 21, 1983.

 Defendant Lewis Leeds, a Miami resident and the manager of the Miami branch office of First Affiliated Securities ("FAS"), a San Diego based broker-dealer, made a market in Crab House and Take-Away securities in 1982 and 1983. Leeds, working on behalf of FAS, was responsible for selling 88% of the units sold in the public phase of the initial public offering, and for engaging broker-dealers to solicit purchases in Georgia and Ohio. Defendant Inter-Financial Consulting Corp. ("IFCC"), a Florida corporation owned and directed by Leeds, traded Take-Away securities and rendered financial consulting services to Crab House in 1983.

 Defendant Rooney Pace, Inc., a New York corporation, is a broker-dealer with corporate headquarters in New York City and an office in Miami. Defendant Lugo, a Florida resident employed by Rooney Pace, Inc. in Miami, was principally responsible for Rooney Pace, Inc.'s making a market in Crab House and Take-Away securities in 1983. At all relevant times, Lugo was supervised by defendant Randolph Pace, president of Rooney Pace, Inc. and a New York resident. Lugo has since moved to New York.

 Discussion

 Defendants move to transfer this action to the United States District Court for the Southern District of Florida pursuant to 28 U.S.C. § 1404(a)(1982). This provision allows a district court to transfer a civil action to any district court where the action "might have been brought," for the purpose of preventing "the waste 'of time, energy and money' and 'to protect litigants, witnesses and the public against unnecessary inconvenience and expense.'" Van Dusen v. Barrack, 376 U.S. 612, 616, 11 L. Ed. 2d 945, 84 S. Ct. 805 (1964)(quoting Continental Grain Co. v. The F.B.L. - 585, 364 U.S. 19, 26, 4 L. Ed. 2d 1540, 80 S. Ct. 1470 (1960)). Section 1401(a) is applicable to actions governed by the special venue provisions of the federal securities laws. See, e.g., H. L. Green Co. v. MacMahon, 312 F.2d 650, 652 n.3 (2d Cir. 1962), cert. denied, 372 U.S. 928, 9 L. Ed. 2d 736, 83 S. Ct. 876 (1963). *fn1"

 In deciding whether to transfer an action, the court should consider the convenience of parties and witnesses, the relative ease of access to sources of proof, and the practical problems of trying the case. See Berg v. First American Bankshares, Inc., 576 F. Supp. 1239, 1241 (S.D.N.Y. 1983); Schneider v. Sears, 265 F. Supp. 257, 263 (S.D.N.Y. 1967)(Weinfeld, J.). Plaintiff's choice of forum will be disturbed only if defendants make a convincing showing that these factors weigh in favor of transfer. Somerville v. Major Exploration, Inc., 576 F. Supp. 902, 908 (S.D.N.Y. 1983).

 The SEC conducted its investigation of this case from its home office in Washington, D.C., where the relevant files and documents remain. Staff members responsible for the litigation are also located in Washington. Acknowledging that the transportation of staff and files will be necessary whether this case is heard in New York or Florida, the SEC claims that it would be "far less expensive in time and money" to litigate in New York than in Miami (Mem. p. 13). Flights are shorter and more frequent between Washington and New York than between Washington and Miami. In addition, its New York office is a well-staffed regional office located across the street from the federal courthouse, while the SEC office in Miami is only a branch of the Atlanta regional office and is neither centrally located nor heavily staffed. *fn2"

 The SEC further contends that transfer is inappropriate because "this action is nationwide in scope and not [a] parochial matter." (Mem. p. 17.) It argues that no forum will be ideal for all non-party witnesses because they are located throughout the country. It has supplied the names and likely testimony of witnesses it intends to call from California, Ohio, Illinois, Georgia, Pennsylvania, New ...


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