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GENERALE BANK, N.Y. BRANCH v. WASSEL

December 2, 1991

GENERALE BANK, NEW YORK BRANCH, PLAINTIFF,
v.
BERNARD V. WASSEL, DEFENDANT.



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

OPINION AND ORDER

BACKGROUND

This action arises out of a purported investment by Wassel in Southampton Resort Co-op Associates ("Southampton"), a New York limited partnership. However, as will become apparent, the parties' theories of the case, and the facts they consider to be relevant, are in sharp dispute.

According to Generale, this is a straight-forward action by a bank seeking to recover on a promissory note. Generale contends that, on January 5, 1989, Wassel executed a $180,000 promissory note ("Note") in favor of Southampton. The Note was assigned, on March 6, 1989, to U.S. Note Corporation ("U.S. Note"), a New York corporation, as collateral for a bridge loan made to Southampton. Subsequently, on March 24, 1989, Generale purchased the Note from U.S. Note as part of a transaction wherein Generale extended a loan to Southampton, secured by investor notes. Wassel made his first quarterly payment on June 6, 1989. However, Generale claims that Wassel has been in default on the Note since he failed to make the quarterly payment due on September 6, 1989.

In contrast, Wassel asserts that the Note on which Generale is suing was fraudulently procured. Wassel contends that he was contacted, on January 4, 1989, by Ronald Samuel ("Samuel"), a salesman for Island Planning Corporation of America, who allegedly was not properly registered pursuant to Maryland securities laws. Wassel claims that he and Samuel discussed a prospective investment by Wassel in Southampton, and that Samuel represented that he would send to Wassel a packet of papers which, if executed by Wassel, would reserve a unit in Southampton and serve as an application for financing for the purchase. According to Wassel, he received a Federal Express package from Samuel on January 5, 1989, containing a series of signature pages, which Samuel had told him needed to be signed and returned immediately. Wassel asserts that, in reliance on this time limit, he executed the documents without any knowledge of their true contents, in the belief that they were merely an application for financing that reserved his right to invest in one unit of Southampton.

In fact, the documents Wassel executed on January 5, 1989 were the Note, a Subscription Agreement concerning Southampton, an Estoppel Letter, an Investor Note Security Agreement, a Suitability Questionnaire, a Financial Statement and a Specific Power of Attorney, which authorized changes to these documents. Further, it is clear from the face of a number of the documents that they concerned a promissory note, and not an application for financing. See, e.g., Estoppel Letter ("the obligation evidenced by his Note is his valid and binding obligation, and [the undersigned] agrees to make payment thereof"). Wassel claims that he subsequently was informed that, to qualify for financing for the first unit, he would have to purchase a second unit for cash. Accordingly, Wassel wrote a check for $192,000 for the purchase of a second unit. Thereafter, claims Wassel, the documents he had executed on January 5, 1989 were altered without his permission.

On May 8, 1989, Wassel filed a complaint in the United States District Court for the District of Maryland, claiming that he was fraudulently induced to invest in Southampton. On March 14, 1991, Generale brought the instant action seeking to recover on Wassel's obligation under the Note. Wassel has moved the Court to transfer the instant action to the District of Maryland, where his action is pending. Generale opposes this motion, and moves the court for summary judgment on its action to collect on the Note.

DISCUSSION

A. Section 1404(a) Transfer

The Court first considers defendant's motion for a change of venue under 28 U.S.C. § 1404(a). Section 1404(a) provides that: "For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." This section "is intended to place discretion in the district court to adjudicate motions for transfer according to an `individualized, case-by-case consideration of convenience and fairness.'" Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29, 108 S.Ct. 2239, 2244, 101 L.Ed.2d 22 (1988) (quoting Van Dusen v. Barrack, 376 U.S. 612, 622, 84 S.Ct. 805, 812, 11 L.Ed.2d 945 (1964)). Its purpose "is to prevent the waste `of time, energy and money' and `to protect litigants, witnesses and the public against unnecessary inconvenience and expense.'" Van Dusen, supra, 376 U.S. at 616, 84 S.Ct. at 809 (quoting Continental Grain Co. v. Barge FBL-585, 364 U.S. 19, 26, 27, 80 S.Ct. 1470, 1474, 1475, 4 L.Ed.2d 1540 (1960)).

The moving party bears the burden of showing that a change of venue is appropriate under section 1404(a). See Filmline (Cross-Country) Productions, Inc. v. United Artists Corp., 865 F.2d 513, 521 (2d Cir. 1989). Some of the factors for the Court to consider in making this decision include the plaintiff's choice of forum, the convenience of the parties and witnesses, the ease of access to proof and the availability of process to compel the presence of unavailable witnesses. See Employers Ins. of Wausau v. Triton Lines, Inc., 708 F. Supp. 54, 56 (S.D.N.Y. 1989).

1. General Considerations

Wassel's motion for a change of venue begins by pointing to the action that he filed in Maryland in 1989, which was supposed to go to trial on October 15, 1991.*fn1 Wassel asserts that the Maryland suit involves the same facts, transactions or occurrences as the instant action, and that a change of venue will avoid duplicative litigation. When suits involving the same parties and transactions are filed in different districts, "the first suit should have priority." Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215, 218 (2d Cir. 1978), cert. denied, 440 U.S. 908, 99 S.Ct. 1215, 59 L.Ed.2d 455 (1979). However, Generale Bank is not a party to the Maryland suit, and the two actions appear to be distinct: the Maryland action involves Wassel's claim that he was the victim of fraud, whereas the instant suit is an action by a lender to recover on an unambiguous promissory note. Moreover, the allegations in the two actions are inconsistent. Before this Court, Wassel claims that he had no knowledge of the content of the documents he was signing, and that he believed he was merely applying for financing; in contrast, in the Maryland action he asserts that he "determined to invest in the Partnership" as early as December 1988, and "invested in one unit" by filling out "subscription documents." Complaint in the United States District Court for the District of Maryland ¶¶ 15-17.

Another factor to be considered by the Court is the convenience of the parties and witnesses and ease of access to proof. In this regard, plaintiff asserts that all of its witnesses and documents are in New York. The events resulting in Generale's purchase of the Note occurred in New York, and the partnership and its sponsors are all located here. To support his motion for a change of venue, Wassel cites the objection of his key witness, who lives in New York, to being deposed in the New York action, because he has already been deposed in the Maryland action. However, even this factor weighs in favor of plaintiff, since process is available to compel the witness to be present at a deposition and trial in New York, which is his state of residence.

Ultimately, the only factor that defendant cites that clearly weighs in his favor is his residence in Maryland, and this factor is insufficient to overcome these other factors, including plaintiff's choice of New York as a forum. See Factors, supra, 579 F.2d at 218 (respecting plaintiff's choice of forum). Based on this balancing of factors, the Court finds that Wassel has not carried his burden of showing that a section 1404(a) transfer would be proper, and his motion for a change of venue is denied.

2. Choice of Forum Clause

In addition to the factors enumerated above, which convince the Court that the case should remain in New York, the Court also must examine the impact on venue of the forum selection clause signed by Wassel. As a threshold matter, this inquiry poses two choice of law issues. First, the Court finds that federal law controls the role of the forum selection clause in the section 1404(a) inquiry. See Stewart, supra, 487 U.S. at 32, 108 S.Ct. at 2245 ("federal law, specifically 28 U.S.C. § 1404(a), governs the District Court's decision whether to give effect to the parties' forum-selection clause and transfer this case"). Thus, "[t]he presence of a forum-selection clause . . . will be a significant factor that figures centrally," though the Court also must give weight to the "fairness of transfer in light of the forum-selection clause and the parties' relative bargaining power." Id. But see Carnival Cruise Lines, Inc. v. Shute, ___ U.S. ___, 111 S.Ct. 1522, 1529, 113 L.Ed.2d 622 (1991) (Stevens, J., dissenting) (criticizing enforcement of forum selection clause because cruise liner "forc[es] this choice on its passengers").

The second choice of law inquiry relates to whether federal or state law determines whether a forum selection clause should be invalidated as the product of fraudulent misrepresentation. In his dissenting opinion in Stewart, Justice Scalia asserted that "the question of what weight should be given the forum-selection clause can be reached only if as a preliminary matter federal law controls the issue of the validity of the clause between the parties." See Stewart, 487 U.S. at 35, 108 S.Ct. at 2246 (Scalia, J., dissenting). However, this Court believes that Stewart only addresses the weight that a forum selection clause should receive in the section 1404(a) inquiry, and does not mandate creation of a body of federal common law concerning fraudulent procurement of forum selection clauses.*fn2 ...


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