The opinion of the court was delivered by: Stanton, District Judge.
National Union Fire Insurance Company of Pittsburgh ("National
Union"), an issuer of financial guarantee bonds, sues to enforce
an indemnity agreement between itself and limited partners in a
tax shelter limited partnership, and to enforce its rights as
subrogee on the limited partners' promissory notes which it
honored on their behalf. National Union issued a bond which
guaranteed, to the limited partnership and to the bank which
financed the limited partnership, that the limited partners would
make all of their capital contributions represented by the
promissory notes. When the limited partners stopped making their
required contributions, National Union made them on their behalf.
Now it seeks reimbursement, under the indemnity agreement it
claims defendants gave them at the time it guaranteed their
payments, and as subrogee on the notes on which they defaulted.
The defendant limited partners, Dwayne and Bobbie Frasch, move
to dismiss for lack of personal jurisdiction under Fed.R. Civ.P.
12(b)(2), improper venue under Fed. R.Civ.P. 12(b)(3), failure to
name indispensable parties under Fed.R.Civ.P. 19(b), or to
transfer this action to the United States District Court for the
District of Colorado under 28 U.S.C. § 1404(a) or § 1406(a). The
motion to transfer under section 1404(a) is granted.
National Union, a Pennsylvania corporation, has its principal
place of business in New York City and does business in many
states. Dwayne and Bobbie Frasch are both residents of Colorado.
In March, 1985 the Fraschs purchased a limited partnership
interest in Sacramento Office Park Associates Limited Partnership
("SOPA"), a New York limited partnership. The purchase price for
the interest included an initial cash payment of $3975 and
promissory notes for $117,900 (the "notes"). The Fraschs state
that their financial planner,
Phillip Trujillo, and another securities representative, Raymond
had us sign all of the paperwork for the investment
in the partnership in blank, stating that they would
fill in the details based upon previous financial
information that we had given Trujillo. We requested
a prospectus but were not given one. We were told
that the total cost of the investment would be the
principal sum of $120,000, and that it was payable in
installments we could afford. We were not informed
that there would be finance charges, that the
investor note would be assigned to a third party, or
that we were applying for any type of an investor
bond. It was not disclosed to us that we were making
a speculative investment or that there were
suitability requirements. We didn't know that we
didn't come anywhere close to meeting the suitability
requirements for investing in the partnership.
Affidavit of Dwayne Frasch, sworn to April 22, 1989,
The Fraschs allege that Trujillo and Blitstein were National
The promissory notes state that they shall be
governed by, and interpreted under, the laws of the
State of New York applicable to contracts made and to
be performed therein without giving effect to the
principles of conflict of laws. The parties hereto
consent to the jurisdiction of the courts of the
State of New York to resolve any controversy or claim
arising out of or relating to this Note. For such
purposes, venue shall be in the County of New York,
which shall be the place of trial.
National Union issued a financial guarantee bond in favor of
Intercontinental Monetary Corporation, and The Connecticut
National Bank, as the permitted assignee, guaranteeing payment of
the limited partners' notes.*fn1 The Connecticut National Bank
assigned the Bond to the Gulf Bank, K.S.C., New York Agency. That
bank assigned the Bond to Credit du Nord (the "Bank").
In return, the Fraschs executed an indemnity agreement whereby
they agreed to reimburse National Union for any payments made on
their behalf. The indemnity agreement contains a permissive forum
selection clause which states:
Any action or proceeding of any kind against the
Undersigned arising out of or by reason of this
Indemnification and Pledge Agreement may be brought
in any state or federal court of competent
jurisdiction in any County in the State of New York,
in addition to any other court in which such action
might properly be brought.
The Fraschs failed to make payments on their notes and National
Union paid the Bank $11,294.90 on their behalf. National Union
commenced this action in the Supreme Court of the State of New
York, New York County, to recover the amount it paid the Bank
under the terms of the indemnity agreement, and as subrogee of
the Bank's rights under their notes. The Fraschs removed the
action to this court pursuant to 28 U.S.C. § 1441(a), which
permits removal when citizenship of the parties is diverse.
The Fraschs have also commenced an action in Colorado state
court against SOPA, the general partner of SOPA, Charterhouse
Capital Investment Corp. ("Charterhouse"), the distributor of
SOPA, Rothschild Registry International, Inc., and others seeking
rescission of their investment and damages. Frasch v.
Pro-Financial Securities, Inc. et al., 88-Cv-697 (Larimer County
Dist.Ct., filed June 8, 1988). They state that they "are in the
process of filing a motion to join National Union as an
indispensable party ...