The opinion of the court was delivered by: Denise Cote, District Judge
Four of the six defendants have moved to transfer this action pursuant to 28 U.S.C. § 1404 to the Northern District of Illinois. The two remaining defendants, residents of New York, seek a severance and dismissal of the claims against them. While it is unusual to transfer the claims against only some of the defendants, for the reasons explained below, this is that unusual case.
The complaint filed on June 30, 2009 by three related entities ("Prestwick") asserts against all defendants a claim for (1) violation of Sections 22(a) and 4o of the Commodities Exchange Act, and a second claim for (2) breach of fiduciary duty. According to the complaint, in 2005 to 2006, the Prestwick plaintiffs became limited partners in Maxie Partners L.P., a New York partnership, with an investment of over $7 million.*fn1 In May 2007, Prestwick sought to redeem its entire investment, but $4 million due and owing to Prestwick was never returned. The complaint asserts that its investment funds were lost through high risk trading in naked, out-of-the-money options.
The Prestwick plaintiffs are Canadian companies located in Alberta, Canada. Defendant Peregrine Financial Group, Inc. ("Peregrine") was the clearing broker for the Maxie Partners fund. It is an Iowa corporation with its principal place of business in Chicago, Illinois. Peregrine is registered with the Commodities Futures Trading Commission ("CFTC") as a Futures Commission Merchant and allegedly guaranteed compliance with the Commodities Exchange Act ("CEA") by defendants Acuvest Inc. ("Acuvest") and Acuvest Brokers, LLC ("Brokers").
Acuvest is a Delaware corporation with its principal offices in Temecula, California. It is alleged to have acted as the introducing broker for the Prestwick investments. Defendants John Louis Caiazzo and Philip Francis Grey are residents of California and the President and Vice President of Institutional Sales, respectively, of Acuvest.
Brokers is a New York corporation located in New York. The complaint does not identify any role that Brokers played in the loss of Prestwick's investment, but notes that both Acuvest and Brokers are registered with the CFTC as Guaranteed Introducing Brokers. Defendant Renee Wilson is a New York resident, a principal and employee of Brokers, and a branch manager of Acuvest. It is alleged that she was responsible for executing commodities trades for Maxie Partners; the complaint does not identify when she had those duties or whether she handled any trading related to Prestwick's investments.
Prestwick alleges that in April 2007, it informed Grey at Acuvest that the plaintiffs wished to redeem their investments. Despite assurances that the sums in their capital accounts of over $7 million would be wired to plaintiffs in June or July 2007, only $3.2 million was returned to Prestwick between August and October 2007. Non-defendant Howard Winell advised Prestwick in August 2007 that the remaining funds would become available soon, but no further funds were received after October 2007.
All of the defendants except Brokers and Wilson have moved to transfer this action to the Northern District of Illinois.*fn2
Brokers and Wilson do not oppose the transfer of the claims brought against their co-defendants, but seek a severance if those defendants' motions to transfer are granted. Brokers and Wilson also seek dismissal of the complaint for failure to state a claim against them.
Because it is undisputed that Brokers was not formed until November 29, 2007, and was not registered as an introducing broker until June 13, 2008 -- years after the Prestwick investment in the Maxie fund, and months after Prestwick sought to redeem that investment -- it would appear that Brokers and Wilson (to the extent she is identified in the complaint because of her role in Brokers) have been added to the complaint to provide some plausible connection for the plaintiffs' choice of a New York forum.*fn3 For the reasons set forth below, the claims against Brokers and Wilson are severed, and the claims against the remaining defendants are transferred to the Northern District of Illinois.
The standard for a motion to transfer venue pursuant to 28 U.S.C. § 1404 is well established. Section 1404 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." 28 U.S.C. § 1404(a). A district court has broad discretion to grant or deny motions to transfer and makes its determination based on "notions of convenience and fairness on a case-by-case basis." D.H. Blair & Co., Inc. v. Gottdiener, 462 F.3d 95, 106 (2d Cir. 2006); see also Saccoccio v. Relin, Goldstein & Crane, LLP, No. 06 Civ. 14351(DLC), 2007 WL 1334970, at *1 (S.D.N.Y. May 7, 2007). The movant bears the burden of establishing that transfer is warranted. Saccoccio, 2007 WL 1334970, at *1. If the transferee court also has jurisdiction over the case, the court must determine whether, considering the "convenience of parties and witnesses" and the "interest of justice," a transfer is appropriate. Id. The factors a court considers in making that determination include:
(1) the plaintiff's choice of forum, (2) the convenience of witnesses, (3) the location of relevant documents and relative ease of access to sources of proof, (4) the convenience of parties, (5) the locus of operative facts, (6) the availability of process to compel the ...