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NATIONAL UNION FIRE INS. CO. v. FRASCH

January 23, 1990

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., PLAINTIFF,
v.
DWAYNE A. FRASCH AND BOBBIE FRASCH, DEFENDANTS.



The opinion of the court was delivered by: Stanton, District Judge.

OPINION AND ORDER

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.

BACKGROUND

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 Blitstein,

  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,
  ¶ 4.

The Fraschs allege that Trujillo and Blitstein were National Union's agents.

  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 ...


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