United States District Court, S.D. New York
September 12, 2005.
SALTIRE INDUSTRIAL, INC. f/k/a SCOVILL INC., AND ALPER HOLDINGS USA, INC., Plaintiffs,
WALLER LANSDEN DORTCH & DAVIS, PLLC, Defendant.
The opinion of the court was delivered by: JOHN KOELTL, District Judge
OPINION AND ORDER
This is a motion to dismiss pursuant to Fed.R.Civ.P.
12(b)(6) for failure to state a claim and 9(b) for failure to
plead fraud with particularity, or alternatively, for summary
judgment pursuant to Fed.R.Civ.P. 56. The defendant also moves
in the alternative to transfer this action to the Middle District
of Tennessee. Plaintiffs Saltire Industrial, Inc. ("Saltire")
(formerly known as Scovill, Inc.) and Alper Holdings USA, Inc.
("Alper") allege that the defendant, Waller Lansden Dortch &
Davis, PLLC ("Waller Lansden"), committed fraudulent joinder of a
defendant in order to defeat federal diversity jurisdiction in a
case filed in Tennessee state court entitled Norman, et al. v.
Scovill, Inc., et al., No. CV 383 (the "Tennessee Action"). I.
The relevant facts, as alleged in the First Amended Complaint,
affidavits, and declarations submitted by the parties in
connection with the current motion, are as follows.
Plaintiff Saltire is a corporation organized under Delaware
law. (First Am. Compl. ¶ 7.) Saltire represents that its current
principal place of business is Westport, Connecticut, but that at
the time of filing its Chapter 11 bankruptcy proceeding in August
2004, Saltire's principal place of business was in New York
County. Plaintiff Alper is a corporation organized under Delaware
law, with its principal place of business in Westport,
Connecticut. (First Am. Compl. ¶ 8.) Alper is the parent company
of Saltire. (First Am. Compl. ¶ 5.) The defendant, Waller
Lansden, is a professional limited liability company organized
under Tennessee law. (First Am. Compl. ¶ 8.)
The plaintiffs' claim for damages arises out of the Tennessee
Action, which was brought in the Tennessee Circuit Court for the
Twenty-Third Judicial District in 1994. In the Tennessee Action,
Waller Lansden represented the plaintiffs (the "Tennessee
plaintiffs") in a case against Saltire for trespass, nuisance,
and battery as a result of the alleged contamination of the
Tennessee plaintiffs' ground water and supply wells by hazardous wastes discharged from a manufacturing facility
operated by Saltire in Dickson, Tennessee. The Tennessee
Plaintiffs also brought their action against the Industrial
Development Board of Dickson, Tennessee ("IDB"), which had become
the successor owner of the facility and property previously owned
by Saltire that continued to cause contamination. (Aff. of James
M. Doran, Jr. ("Doran Aff.") ¶ 2, April 4, 2005.)
In June 1994, Saltire and IDB (the defendants in the Tennessee
Action) removed the Tennessee Action to the United States
District Court for the Middle District of Tennessee on the basis
of alleged diversity jurisdiction. On or about September 8, 1994,
Saltire and IDB stipulated to the remand of the Tennessee Action
back to Tennessee state court. (Doran Aff. ¶¶ 3-4.)
In February 2003, Waller Lansden, on behalf of the Tennessee
plaintiffs, filed a Second Amended Complaint, adding Alper as an
additional defendant in the Tennessee Action. On or about January
2004, Alper filed a Notice of Removal to the United States
District Court for the Middle District of Tennessee, arguing that
IDB had been fraudulently joined. (Doran Aff. ¶ 6.) On or about May 7, 2004, before Alper's motion to remove was
decided, the Tennessee Action was settled when the parties
entered into a Settlement Agreement and Mutual Release (the
"Settlement Agreement"). (Doran Aff. ¶ 7.) As part of the
Settlement Agreement, the parties agreed to remand the case to
the Tennessee state court for approval of the Settlement
Agreement. (Settlement Agreement ¶ 2.)
On August 17, 2004, Saltire filed a voluntary petition for
Chapter 11 bankruptcy in the Bankruptcy Court for the Southern
District of New York (In re Saltire Industrial, Inc., Case No.
04 B 15389). On or about September 9, 2004, Saltire and Alper
filed a complaint in this action against Waller Lansden, alleging
that the defendant engaged in fraudulent joinder of IDB to defeat
federal diversity jurisdiction in the Tennessee Action. (First
Am. Compl. ¶ 1.) Both parties agree that the law of Tennessee
governs the underlying claim. In February 2004, the plaintiffs
Saltire and Alper were given leave to amend their complaint, and
their First Amended Complaint was served on or about February 18,
2004. The First Amended Complaint alleged common law fraud and
stated 28 U.S.C. § 1334 as the sole basis for subject matter
jurisdiction on the ground that the action was "related to"
Saltire's bankruptcy case under Title 11. (First Am. Compl. ¶ 10.) Venue was properly asserted pursuant to
28 U.S.C. § 1409(a). (First Am. Compl. ¶ 11.)
On February 23, 2005, this action was referred to the
Bankruptcy Court for the Southern District of New York. On or
about March 16, 2005, Waller Lansden filed a motion to withdraw
the reference to the Bankruptcy Court, and the plaintiffs
stipulated that they had no objection to the withdrawal. The
motion to withdraw the reference was granted by an order dated
March 16, 2005.
The defendant Waller Lansden now moves to dismiss the action,
for summary judgment, or alternatively, to transfer the action to
the Middle District of Tennessee. It is appropriate to address
the motion to transfer first.
The Court begins with the motion to transfer. The defendant
moves to transfer this action to the Middle District of Tennessee
pursuant to 28 U.S.C. § 1404(a). Section 1404(a) provides that,
"[f]or 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."
The first issue is whether the action "might have been brought"
in the Middle District of Tennessee. Venue in this case was properly asserted in this District pursuant to
28 U.S.C. § 1409, which provides that, with certain exceptions not relevant
here, "a proceeding arising under title 11 or arising in or
related to a case under title 11 may be commenced in the district
court in which such case is pending." However, § 1409 does not
bar a transfer of venue under § 1404, because § 1409 is not an
exclusive venue provision. See Kalamazoo Realty Venture Ltd.
P'ship v. Blockbuster Entm't Corp., 249 B.R. 879, 888 (N.D. Ill.
2000) (section 1409 is not an exclusive venue provision). Thus,
an action related to a pending bankruptcy proceeding need not be
commenced in the district court in which such proceeding is
pending, and may be brought and heard in another district. See
Brock v. American Messenger Serv. Inc., 65 B.R. 670 (D.N.H.
1986) (allowing a "related" action to continue in a forum other
than the district court for district in which the title 11
bankruptcy action was proceeding).
The plaintiffs contend that in this case a transfer is not
permissible under § 1404(a) because this action could not have
been brought originally in the Middle District of Tennessee. The
plaintiffs argue that jurisdiction over their claim was
established pursuant to 28 U.S.C. § 1334, and thus § 1334(e)
should control in this action. Section 1334(e) provides that:
"The district court in which a case under title 11 is commenced or pending shall have exclusive jurisdiction of all the property,
wherever located, of the debtor as of the commencement of such
case, and of property of the estate. "The plaintiffs argue that
their claim for money damages is "property . . . of the debtor,"
and thus the United States District Court for the Southern
District of New York, as the court in the district in which their
case under Title 11 was commenced, has "exclusive" jurisdiction
over their claim, barring any transfer to Tennessee. However,
unliquidated claims are not "property" for the purposes of §
1334(e). See Tultex Corp. v. Freeze Kids, L.L.C.,
252 B.R. 32, 40-41 (S.D.N.Y. 2000). This action was properly commenced not
under § 1334(e), but under § 1334(b), which provides for original
but not exclusive jurisdiction in district courts over cases
"arising in or related to cases under title 11."*fn1
28 U.S.C. § 1334(b); First Am. Compl. ¶ 10. This action was related
to Saltire's bankruptcy proceeding, which is pending in the
Bankruptcy Court in this district.
This cause of action originally could have been brought in the
United States District Court for the Middle District of
Tennessee, because venue would have been proper there. The defendant is located there, and the plaintiffs contend that the
alleged fraud occurred in that District in papers presented by
Waller Lansden in the District Court in the Middle District of
Tennessee. Therefore, venue was proper under 28 U.S.C. §§ 1391
(b) (1) and (b) (2).
Because the first requirement of § 1404(a) is satisfied and it
is established that the plaintiffs' action could have been
brought in the Middle District of Tennessee, it is next necessary
to determine whether a transfer to the Middle District should be
ordered "for the convenience of the parties and witnesses, and in
the interest of justice."
In ruling on a motion to transfer, courts should consider both
the interest of the litigants and the public interest. See
Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1947); see also
Ainbinder v. Potter, 282 F. Supp. 2d 180, 191 (S.D.N.Y. 2003);
Jasol Carpet, Inc. v. Patcraft Commercial Carpet, Inc., No. 96
Civ. 3064, 1997 WL 97831, at *3 (S.D.N.Y. Mar. 6, 1997). The
interest of the litigants includes the plaintiffs' initial choice
of forum, the convenience of the parties and the witnesses, the
relative ease of access to sources of proof, the availability of
compulsory process for the attendance of witnesses, the location
of relevant documents and other tangible evidence, questions as
to the enforceability of a judgment if one is obtained, and "all other practical problems
that make trial of a case easy, expeditious and inexpensive."
Gulf Oil, 330 U.S. at 508; Jasol Carpet, 1997 WL 97831, at
*3; see also Lyon v. Cornell Univ., No. 97 Civ. 7070, 1998 WL
226193, at *1 (S.D.N.Y. May 4, 1998). The public interest
includes administrative difficulties that follow from court
congestion, an interest in having localized controversies decided
at home, and the appropriateness of having the trial of an action
in a forum that is at home with the state law that must govern
the action. See Gulf Oil, 330 U.S. at 508-09; Ainbinder,
282 F. Supp. 2d at 191.
In determining whether to transfer venue, the Court has "broad
discretion" to "consider notions of convenience and fairness on a
case-by-case basis," and the burden of establishing the propriety
of a change of forum rests on the moving party. In re Cuyahoga
Equip. Corp., 980 F.2d 110, 117 (2d Cir. 1992); see
Ainbinder, 282 F. Supp. 2d at 191; Elite Parfums, Ltd. v.
Rivera, 872 F.Supp. 1269, 1271 (S.D.N.Y. 1995). In allowing
courts to transfer venue in the interest of justice, the statute
uses "a term broad enough to cover the particular circumstances
of each case, which in sum indicate that the administration of
justice will be advanced by a transfer." Schneider v. H.A.
Sears, 265 F.Supp. 257, 263 (S.D.N.Y. 1967); see also Harve Benard, Ltd. v. Rothschild, No. 02 Civ. 4033,
2003 WL 367859, at *6 (S.D.N.Y. Feb. 19, 2003).
The defendant urges the Court to transfer this action to the
Middle District of Tennessee in the interest of justice and for
the convenience of the parties and witnesses, because the alleged
fraud occurred in Tennessee against a Tennessee court, and the
key witnesses and any relevant documents are in Tennessee. The
location of witnesses and physical evidence is a major factor to
be considered when evaluating a transfer motion. 800-Flowers,
Inc. v. Intercontinental Florist, Inc., 860 F. Supp. 128, 134
(S.D.N.Y. 1994). "The convenience of both party and non-party
witnesses may be the single most important factor in the analysis
of whether one forum is more appropriate than a competing forum."
The defendant Waller Lansden is located in Nashville,
Tennessee, as is Allan Kerns, the attorney for IDB alleged to
have participated in the fraudulent joinder. Moreover, the
plaintiffs have subpoenaed for depositions Mr. Kerns as well as
William Farmer, a former Waller Lansden attorney involved in the
Tennessee Action in 1994 who also resides in Tennessee. This
identification of possible non-party witnesses in this case is
particularly important, because these witnesses are subject to subpoena for trial in the Middle District of Tennessee, but could
not be subpoenaed to appear at trial in this Court. Also, to the
extent that there are any relevant documents in this case, they
too would be found in Tennessee.
The plaintiffs concede that pertinent witnesses and documents
are found in Tennessee, but argue that this case is not so
fact-intensive as to require a significant amount of discovery,
and as such, no significant benefits are gained by transferring
the case to the Middle District of Tennessee. The plaintiffs,
however, effectively concede that almost all of the prospective
witnesses are located in Tennessee. Moreover, when the gravamen
of the case is fraud, the fact finder should have the opportunity
to assess the credibility of the witnesses at trial. The
plaintiffs fail to point to any witnesses in the Southern
District of New York with direct knowledge of the relevant facts
in this case. Therefore, this factor weighs heavily in favor of
The location of the operative facts in Tennessee is also a
compelling reason in favor of transfer. See 800-Flowers,
860 F. Supp. at 134 ("The location of the operative facts is
traditionally an important factor to be considered in deciding
where a case should be tried."). The plaintiffs argue that the alleged fraud was perpetrated by a Tennessee firm in a Tennessee
court. Thus, the Tennessee court should have the opportunity to
determine whether it was a victim of such fraud. Plaintiffs also
allege as a measure of damages the higher costs due to the
Tennessee Action proceeding inefficiently by being tried in the
state court rather than the federal court. Plainly, these issues
are more reasonably determined in a Tennessee court.
The plaintiffs also argue against transfer to the Middle
District of Tennessee on the basis that plaintiffs' choice of
forum should be given considerable deference. The defendants
counter that the plaintiffs' choice of forum in this case should
not be accorded much significance because the forum chosen is not
the locus of operative facts. While the plaintiffs' choice of
forum is normally entitled to great weight, that factor has been
given less weight when none of the operative facts occur in the
district. See Renaissance Cosmetics, Inc. v. Dev. Specialists
Inc., 277 B.R. 5, 18 (S.D.N.Y. 2002) (citing Iragorri v. United
Tech. Corp., 274 F.3d 65, 70 (2d Cir. 2001)); 800-Flowers,
860 F. Supp. at 135. Even though plaintiff Saltire's claim for
Chapter 11 protection was filed in the Southern District of New
York, and this action is filed in the Southern District under §
1334(b) as "related to" the bankruptcy proceeding, the weight accorded to Saltire's choice of forum in
this action is diminished because the operative facts have little
connection to New York. See MBCP Peerlogic LLC v. Critical
Path, Inc., 02 Civ. 3310, 2002 WL 31729626, at *5 (S.D.N.Y. Dec.
5, 2002); Ocean Walk Mall LLC v. Kornitzer, 01 Civ. 213, 2001
WL 640847, at *2 (S.D.N.Y. June 11, 2001); 800-Flowers,
860 F. Supp. at 135. Therefore, the plaintiffs' choice of forum is not
dispositive, although it is given some weight against transfer.
A consideration of the public interest factors also counsels in
favor of granting the defendant's motion for transfer. Court
congestion is not a factor in the determination because there is
no showing of congestion in either court. The choice of law is
also not significant because either court could adjudicate issues
of fraud. There is, however, a far stronger local interest in
having this case proceed in Tennessee than in New York. The only
local interest for New York in this matter is the plaintiff's
bankruptcy proceeding in the Southern District Bankruptcy Court.
In contrast, Tennessee has a more significant local interest, as
the district court in Tennessee should itself decide the
controversy of whether it was the victim of the fraud allegedly
perpetrated by the defendants. Therefore, given the many factors supporting transfer, the
defendant's motion to transfer venue to the Middle District of
Tennessee pursuant to 28 U.S.C. § 1404(a) is granted.
The defendant had also moved to dismiss the complaint pursuant
to Fed.R.Civ.P. 12(b)(6) for failure to state a claim and
Fed.R.Civ.P. 9(b) for failure to plead fraud with particularity.
Alternatively, the defendant had moved for summary judgment
pursuant to Fed.R.Civ.P. 56.
It is appropriate for the transferee court to consider the
merits of a motion to dismiss and a motion for summary judgment.
That court should decide the critical issues on those motions,
including whether there are any disputed issues of material fact.
See Lyon, 1998 WL 226193 at *2 (collecting cases transferring
venue and withholding decision on pending dispositive motions).
The defendant's remaining motions are critical to the disposition
of this case. The transferee court in the Middle District of
Tennessee should rule on these motions in the first instance.
For the reasons explained above, the defendant's motion to
transfer venue to the Middle District of Tennessee is granted. The defendant's motions to dismiss or, alternatively, for summary
judgment are reserved for consideration by the transferee court
in that District. The Clerk of the Court is directed to transfer
this case to the Middle District of Tennessee and to close the
case on the docket of this Court.
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