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Pence v. Gee Group, Inc.

United States District Court, S.D. New York

February 16, 2017

STEPHEN B. PENCE, Plaintiff,



         In this lawsuit, plaintiff Stephen B. Pence has brought claims against defendant GEE Group, Inc. (“GEE”), for which Pence formerly served as chairman, seeking indemnification for attorney's fees and other expenses. GEE has moved to dismiss under the doctrine of forum non conveniens, or, in the alternative, to transfer the case to the Northern District of Illinois under 28 U.S.C. §§ 1404(a) or 1406(a).[1] For the reasons stated below, the motion to transfer the case pursuant to 28 U.S.C. § 1404(a) is granted.

         I. BACKGROUND

         A. Pence's Connection to GEE

         Pence is an attorney who has worked in private practice in Louisville, Kentucky since late 2007. Pence Aff. ¶¶ 2-3. During 2009, Pence worked for W. Anthony Huff and regularly traveled with Mr. Huff to New York City in connection with his work. Id. ¶ 4. During one of these trips, Pence met with representatives of GEE, including Dennis W. Baker, a former director of the company. Id. ¶¶ 5-6; Baker Decl. ¶ 8.

         GEE is a temporary staffing agency, providing “direct hire, contract, and contract-to-hire services.” Stuckey Decl. ¶ 3. Although GEE is incorporated in Illinois, “senior management runs the company from Jacksonville, Florida and Tampa, Florida.”[2] Id. ¶ 2. In 2009, GEE sought an outside investor, a role that Pence eventually filled by purchasing a majority of GEE's shares using a company he controlled called PSQ. Baker Decl. ¶¶ 7, 14-15; Pence Decl. ¶ 8. Pence was then elected as GEE's Chairman of the Board, serving from July 2009 to November 2010. Stuckey Decl. ¶ 7.

         B. The Indemnification Agreement

         As of June 30, 2009, GEE's bylaws provided that it would indemnify all of its directors and officers who are sued in connection with their positions at GEE. See By Laws of General Employment Enterprises, Inc., As Amended Effective June 30, 2009 (attached as Ex. A. to Stuckey Decl.) (“Bylaws”) Art. VIII § 1. The Bylaws provide:

The corporation shall, to the fullest extent to which it is empowered to do so by The Illinois Business Corporation Act of 1983 or any other applicable laws . . . indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending[, ] or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was a director or officer of the corporation . . . against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding.

Id. The Bylaws also declare that this provision is “a contract between the corporation and each director or officer who serves in any such capacity at any time while this article is in effect.” Id. Art. VIII § 2.

         On July 9, 2009, Pence signed an Indemnity Agreement with GEE. Pence Aff. ¶ 14; Minutes, dated July 9, 2009 (attached as Ex. B to Stuckey Decl.); Indemnity Agreement, dated July 9, 2009 (attached as Ex. 2 to Amended Complaint for Declaratory Relief and Damages, filed Oct. 14, 2016 (Docket # 25) (“Am. Compl.”)) (“Indemnity”). Pence was attending a board meeting in Oakbrook Terrace, Illinois at the time. Pence Aff. ¶ 14; Minutes. The Indemnity states that GEE will “attempt” to maintain liability insurance for those serving it and its subsidiaries, and that although GEE's Charter and Bylaws and Illinois law provide for indemnification rights, these rights are “not exclusive.” See Indemnity at Recitals; accord id. ¶ 17(a) (“The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter, the Company's Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise.”). The Indemnity recites that “[Pence] does not regard the protection available under [GEE's] Charter, Bylaws, and insurance as adequate . . . and may not be willing to serve as an officer or director without adequate protection.” Id. at Recitals. The Indemnity promises indemnification for Pence for expenses incurred in legal proceedings in which he is “a party or participant.” Id. ¶¶ 3-6. The Indemnity also includes the following choice of law and forum selection clause:

This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the Stale of Illinois, without regard to its conflict of laws rules. . . . [GEE] and [Pence] hereby irrevocably and unconditionally: (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in an Illinois Court; (b) consent to submit to the jurisdiction of an Illinois Court for purposes of any action or proceeding arising out of or in connection with this Agreement; (c) waive any objection to the laying of venue of any such action or proceeding in an Illinois Court; and (d) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in an Illinois Court has been brought in an improper or inconvenient forum, or is subject (in whole or in part) to a jury trial.

Id. ¶ 23. The Indemnity defines “Illinois Court” as “the Circuit Court of the Eighteenth Judicial District of the State of Illinois or another federal or state court of competent jurisdiction.” Id. ¶ 2(e). Oakbrook Terrace, where the Indemnity was signed, is located in Dupage County. Dupage County is in the Eighteenth Judicial Circuit. See 705 Ill. Comp. Stat. 35/1.

         C. Pence's Costs Incurred and Indemnity Requests

         At some point thereafter, the United States Attorney's Office for the Southern District of New York began a criminal investigation that resulted in the filing of a criminal complaint in 2010 against the president of a bank where GEE had an account. Pence Decl. ¶ 17; Letter from Gregory Bartko, Esq., dated Apr. 26, 2010 (attached as Ex. 3 to Am. Compl.) (“Bartko Letter”). In an April 26, 2010, letter from GEE's General Counsel to an insurer, GEE's General Counsel stated that Pence incurred expenses during that investigation for which he claimed indemnification. See Bartko Letter. That letter stated: “pursuant to GEE's Bylaws, as amended November 19, 2007, GEE has an obligation under Article VII of those Bylaws to indemnify Mr. Pence for the costs of his defense, including the advancement of attorneys' fees necessary to engage counsel to represent him.” Id. The letter was sent from Atlanta, Georgia, to Rolling Meadows, Illinois, with a copy sent to Pence by email. See id. Pence's complaint alleges that he relied on the Bartko Letter when he hired counsel to represent him in connection with a criminal investigation. Am. Compl. ¶ 70. However, GEE has not indemnified Pence for any of these expenses. Id. ¶ 71.

         On September 9, 2015, the Securities and Exchange Commission (“SEC”) filed a civil complaint against Pence. See Complaint and Jury Demand, filed Sept. 9, 2015 (Docket # 1), in SEC v. Pence, No. 15 Civ. 07077 (GBD) (GWG) (S.D.N.Y.) (“SEC Compl.”). The complaint concerns some of Pence's actions during his service as chairman of GEE, and includes charges of fraudulent conduct in violation of Exchange Act § 10(b), 15 U.S.C. § 48j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, and making materially false or misleading statements to an accountant in violation of Exchange Act Rule 13b2-2, 17 C.F.R. § 240.13b2-2. SEC Compl. ¶¶ 70-71, 73-75. Although Pence sought indemnification from GEE to defend these charges, Am Compl. ¶¶ 38-55; Pence Decl. ¶ 17, GEE refused to indemnify him or provide advancements of costs, Am. Compl. ¶ 55; Stuckey Decl. ¶ 11.

         D. Procedural History

         Pence's original complaint in this action was filed on August 19, 2016. It contained a claim seeking a declaratory judgment that GEE is legally obligated to indemnify Pence and a claim for damages resulting from GEE's alleged breach of the Indemnity. See Complaint for Declaratory Relief and Damages, filed Aug. 19, 2016 (Docket # 1) ¶¶ 52-58. GEE then filed a motion to dismiss the complaint, arguing that this Court lacked personal jurisdiction, that venue was improper, and that the complaint failed to state a claim.[3] At the same time, it filed a separate motion to dismiss the case pursuant to the forum non conveniens doctrine or, in the alternative, for an order transferring the case to the Northern District of Illinois under 28 U.S.C. § 1404(a).[4]In response, Pence filed an amended complaint. See Am. Compl. The claims in the amended complaint consist of a claim for a declaratory judgment that Pence is entitled to be indemnified under GEE's bylaws, id. ¶¶ 57-60; a breach of contract claim for breach of the Indemnity, id. ¶¶ 62-67; and a claim for promissory estoppel based on the Bartko Letter, id. ¶¶ 69-72.[5] GEE then filed the instant motion seeking dismissal or transfer of Pence's amended complaint.


         GEE moves for transfer under 28 U.S.C. §§ 1404(a) or 1406(a) to the United States District Court for the Northern District of Illinois, or, in the alternative, for dismissal or transfer under the common law doctrine of forum non conveniens.

         28 U.S.C. § 1404(a) provides: “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 or to any district or division to which all parties have consented.” In Atlantic Marine Construction Co. v. United States District Court for the Western District of Texas, 134 S.Ct. 568 (2013), the Supreme Court held that

Section 1404(a) is merely a codification of the doctrine of forum non conveniens for the subset of cases in which the transferee forum is within the federal court system; in such cases, Congress has replaced the traditional remedy of outright dismissal with transfer.

Id. at 580 (citations omitted). Here, GEE seeks transfer to the United States District Court for the Northern District of Illinois, which is “within the federal court system.” See id. Thus, Atlantic Marine mandates that we analyze GEE's application exclusively under 28 U.S.C. § 1404(a).

         GEE contends that the forum non conveniens doctrine - rather than section 1404(a) - applies because the contract at issue permits suit to be brought either in federal court or in state court and, according to GEE, in such circumstances, the rule quoted above from Atlantic Marine does not apply. Def. Mem. at 6. To support this argument, GEE points to a passage from Atlantic Marine stating that “the appropriate way to enforce a forum-selection clause pointing to a state or foreign forum is through the doctrine of forum non conveniens.” 134 S.Ct. at 580 (emphasis added). We disagree with GEE's analysis. Here, the forum selection clause does not require that suit be brought in a state forum; rather it requires that it be brought in either a state or federal forum. See Indemnity ¶¶ 2(e), 23 (requiring suit in “the Circuit Court of the Eighteenth Judicial District of the State of Illinois or another federal or state court of competent jurisdiction.”). Whatever ambiguity might be discerned in Atlantic Marine's phrasing of its rule is dispelled by the facts of Atlantic Marine itself. The forum selection clause construed in Atlantic Marine, like the clause at issue here, permitted suit to be brought either in state or federal court. See 134 S.Ct. at 575 (“[A]ll disputes between the parties shall be litigated in the Circuit Court for the City of Norfolk, Virginia, or the United States District Court for the Eastern District of Virginia, Norfolk Division.”) (citation and internal quotation marks omitted). Nonetheless, Atlantic Marine analyzed the propriety of the transfer exclusively under 28 U.S.C. § 1404(a) rather than the common law doctrine of forum non conveniens. Other courts have similarly applied section 1404(a) to situations where a forum selection clause allows suit to be brought in either a federal or state court, and where, as here, the party seeks a transfer to a federal court. See, e.g., Food Mktg. Merch., Inc. v. Cal. Milk Processor Bd., 2015 WL 3893508, at *1, *3 (S.D.N.Y. May 7, 2015); Bny Mellon, N.A. v. Lyell Wealth Mgmt., LLC, 2016 WL 7377235, at *2-3 (S.D.N.Y. Dec. 8, 2016). Accordingly, we analyze GEE's motion only under section 1404(a) and not under the doctrine of forum non conveniens.

         A. Law Governing Motions to Transfer to Another Judicial District Under § 1404(a)

         In deciding whether to transfer a case from one judicial district to another, a court first examines whether the case could have been brought in the other district. See, e.g., ICICI Bank Ltd. v. Essar Glob. Fund Ltd., 2017 WL 122994, at *6 (S.D.N.Y. Jan. 12, 2017); Herbert Ltd. P'ship v. Elec. Arts Inc., 325 F.Supp.2d 282, 285 (S.D.N.Y. 2004); In re Nematron Corp. Sec. Litig., 30 F.Supp.2d 397, 400 (S.D.N.Y. 1998). Pence does not contest ...

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