Opinion
Civil Action NO. 3:02-CV-658-M
September 6, 2002
MEMORANDUM OPINION AND ORDER
Defendants, Arnold James Schulz ("Jim Schulz") and Todd James Schulz, both North Dakota residents, contracted with Plaintiff, H.D. Vest Investment Securities, Inc. ("Vest"), a Delaware corporation which has its principal place of business in Irving, Texas, to act as Vest's sales representatives. Vest sued the Defendants for breach of contract, claiming that they failed to fulfill their contractual obligation to indemnify Vest. Pending before the Court is Defendants' Motion to Dismiss for Improper Venue. Venue is proper in this diversity case only if a substantial part of the events or omissions giving rise to the claim occurred in this district, 28 U.S.C. § 1391(a)(2). Having considered the Motion, Response, briefing and the applicable authorities, the Court DENIES the Motion to Dismiss for Improper Venue.
I. Factual Background
Defendant, Jim Schulz, is the father of co-defendant Todd Schulz. Vest is a securities broker that purchases and sells investment company shares, other securities, and investments.
On January 19, 1991, Vest entered into a Registered Representative Sales Agreement with Jim Schulz. On January 6, 1996, Todd Schulz and Vest entered into a similar Registered Representative Sales Agreement (both are collectively called the "Agreements"). The Agreements expressly obligate the Schulzes to "hold [Vest] harmless from all claims, demands, and suits arising out of performance of [the] Agreement[s] by [the Schulzes]" and both provide that Texas law governs the Agreements. Agreements ¶¶ 5, 15(b). Vest executed the Agreements in Texas. Walton Aff. ¶ 5; Plaintiffs App. at 3. All of the trades made pursuant to the Agreements were completed in Irving, Texas and confirmed from Irving, Texas, where the Schulzes clients' account applications were processed and maintained. Walton Aff. ¶¶ 7-9, 12-13; Plaintiffs App. at 3-4.
On December 6, 2000, Vest was served with three notices from the Securities Commissioner of the State of North Dakota (the "Commissioner"). The Commissioner alleged that the Schulzes engaged in acts, practices and transactions in violation of North Dakota's securities laws while acting as representatives for Vest.
On April 26, 2001, Vest was named as a defendant in a class action complaint brought by Peggy Kauffmann (Peggy Kauffmann et. al vs. H.D. Vest, Todd Schulz, and Arnold [Jim] Schulz, in the State Court of North Dakota, County of Burleigh, Civil No.: 01-C-1658 (the "class action")). The complaint charged the Schulzes with violating various rules and regulations of the National Association of Securities Dealers and the New York Stock Exchange by engaging in unauthorized securities trading.
On December 4, 2001, Vest agreed to settle the Commissioner's claims, without admitting or denying the claims, and later also settled the class action claims, making payments from its corporate offices in Irving, Texas. Walton Aff. ¶¶ 10, 14; Plaintiffs App. at 3-4. Vest filed this diversity action on March 29, 2002, alleging that the Schulzes' refusal to indemnify Vest for the settlements of the Commissioner's claims and the class action is a breach of contract.
II. Venue
Title 28 U.S.C. § 1391 provides in pertinent part:
(a) A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant is subject to personal jurisdiction at the time the action is commenced, if there is no district in which the action may otherwise be brought.
It is undisputed that the second prong of 28 U.S.C. § 1391(a) controls. This being a diversity case, venue in the Northern District of Texas is proper if a substantial part of the events or omissions giving rise to the claim occurred in this district. TIG Ins. Co. v. NAFCO Ins. Co., Ltd., 177 F. Supp.2d 561, 567 (N.D. Tex. 2001). The Court finds that a substantial part of the events or omissions giving rise to Vest's claim occurred in the Northern District of Texas, where the trades in issue were processed, where the account applications were approved and retained, where the settlement checks were issued, and where the contract was executed by Vest. Further, Texas law governs the indemnity obligation. Although a significant number of relevant activities may have occurred in North Dakota, a substantial part of the events or omissions giving rise to the indemnity obligation occurred here and thus venue in the Northern District of Texas is correct under 28 U.S.C. § 1391(a)(2). Defendants' Motion to Dismiss for improper venue is therefore DENIED.
SO ORDERED