Opinion
Case No. 2:01-CV-746
June 3, 2002
OPINION AND ORDER
Plaintiffs bring this action pursuant to the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq., and the laws of Ohio. Plaintiffs seek injunctive and monetary relief in connection with the alleged seizure of management and control of plaintiff Tactive, Inc. This matter is before the Court on the motion, filed on behalf of defendants National Association of Wholesaler-Distributors ["NAW"], NAW Service Corp. ["NAWSC"] and Dirk Van Dongen, to dismiss certain claims against them for improper venue or, in the alternative, to transfer venue, as well as these defendants' motion to strike portions of an affidavit submitted by plaintiffs in opposition to the motion to dismiss or to transfer.
I. Background
Plaintiff Tactive Inc. ["Tactive"], is a California corporation with its principal place of business located in Columbus, Ohio. Complaint, ¶ 3. Plaintiff Frederick W. Rice, the largest shareholder and chief executive officer of Tactive, resides in Westerville, Ohio. Id., ¶ 4. Defendant Zefer Corporation is a Delaware corporation. Id., ¶ 5. Defendants NAW and NAWSC are not-for-profit corporations with their principal offices located in Washington, D.C. Id., ¶ 6, 7. Defendant Anita Ward, the senior vice-president of Zefer and president and vice-president of sales for Tactive, resides in Columbus, Ohio. Id., ¶ 8. Defendant Doug Kra, president and member of the executive committee of Zefer, resides in Boston, Massachusetts. Id., ¶ 9. Defendant John Colby, former chief information officer of Zefer and vice president of operations for Tactive, resides in West Barnstable, Massachusetts. Id., ¶ 12. Defendant Dirk Van Dongen, president of NAW and NAWSC, resides in New York, New York. Id., ¶ 13. Defendant David Balangee, a former employee of Zefer and creative director of Tactive, resides in Columbus, Ohio. Id., ¶ 11.
Charles Kennedy was originally named as another defendant in this action; however, plaintiffs voluntarily dismissed Kennedy without prejudice pursuant to Fed.R.Civ.P. 41(a)(1)(I). Notice of Dismissal (Dec. 28, 2001).
Tactive is an application service provider engaged in the business of "renting" software to the wholesale distribution industry in the United States. Id., ¶ 3. Zefer is engaged in the business of providing consulting and related software application development and technology implementation services to enable companies to effectively use the internet in their businesses. Id., ¶ 5. NAW is a national trade association engaged in the business of providing services to and promoting the interests of the wholesale distribution industry in the United States. Id., ¶ 6. NAWSC is a wholly-owned subsidiary of NAW and, allegedly, NAW's alter ego. Id., ¶ 7.
At the time of its formation, Tactive intended to offer small-to-medium sized companies an integrated internet-based manner of conducting business ["Tactive Solution"]. Id., ¶ 14. Tactive initially raised $5.8 million in capital ["Round 1"], Id., and intended to raise an additional $8 million by July 2000 ["Round 2"]. Id., ¶ 15.
Due to a shortage of qualified executive and technical employees in the marketplace, Tactive sought an outsourcing partner. Id., ¶ 16. Zefer represented to Tactive that its incubation program" could provide the necessary executive and technical personnel to build Tactive's business. Id., ¶ 17. Zefer's management selected Tactive to participate in Zefer's incubation program, Id., ¶ 18, and allegedly represented that Zefer intended to not only invest in Tactive's Round 2 funding but also to approach private equity funds and venture capitalists for additional funding. Id., ¶ 19.
Tactive chose Zefer as its outsourcing partner. Id., ¶ 20. In September 1999, Zefer signed a Mutual Confidentiality and Nondisclosure Agreement. Id. In November 1999, Zefer and Tactive executed a Client Services Agreement and the first Work Order Agreement, which they twice later modified. Id. Furthermore, in November 1999, Zefer chose defendant Ward to manage the Tactive project and assigned defendants Kennedy, Balangee and Colby [collectively "the Zefer Team"] to the project. Id., ¶ 21. The Zefer Team worked out of Zefer' s Chicago offices until February 2000. Id., ¶ 22. Tactive began occupying office space in downtown Columbus, Ohio, in March 2000; the Zefer Team also began working from that location. Id.
In November 1999, Tactive and NAW entered into a Confidentiality and Nondisclosure Agreement. Id., ¶ 29. In April 2000, they executed two separate contracts the terms of which required NAW to "use its best efforts" to immediately promote the Tactive Solution and, thus, to procure customers from its membership base. Id., ¶ 30. Tactive was required to create, at its own expense, an internet portal for NAW. Id., ¶ 31. The contracts also included a provision for venue and choice of law:
This Agreement is entered into in the State of Illinois and shall be governed by and construed in accordance with the laws of the State of Illinois without application of any choice of laws principles and excluding the United Nations Convention for the international sale of goods. The parties agree that the appropriate forum and venue for all other claims, controversies or other disputes arising out of or in connection with this agreement shall be in the State or Federal courts located in Chicago, Illinois, and the parties consent to the exclusive jurisdiction of such courts.
Exhibit D attached to Complaint, at 8; Exhibit E attached to Complaint, at 1. NAW allegedly represented to Tactive that one of the agreements would be assigned to NAWSC. Id.
Plaintiffs assert that, during the development of the NAW portal, Ward and Van Dongen began building a strong business and personal relationship. Id., ¶ 40. Van Dongen insisted that Ward become more integrally involved in Tactive's affairs. Id. NAW allegedly announced by e-mail the October 2000 launch of the NAW portal, promoting Zefer as the creator of the portal and misrepresenting that it had hired Zefer to create the portal, that it had paid for the creation of the portal and that it owned the portal. Id., ¶ 34.
In November 2000, Tactive was about to secure Round 2 funding, which defendants, according to plaintiffs, subverted to ensure Tactive's monetary vulnerability. Id., ¶ 56, 57. Defendant Van Dongen then allegedly threatened to terminate the NAW Agreements due to Tactive's inability to secure Round 2 funding unless Tactive's management ceded control to the Zefer Team and plaintiff Rice transferred a controlling ownership interest in Tactive to the Zefer Team. Id., ¶ 58, 65. Only one week after Tactive's management and shareholders acquiesced to Van Dongen's demands, he and Ward requested full funding of Tactive from the funding source that had previously been prepared to invest in Tactive. Id., ¶ 74. The source declined to fund Tactive. Id., ¶ 73. Defendants' inability to obtain funding from other sources resulted in Tactive's demise. Id., ¶ 86.
II. Motion to Strike Portions of the Rice Affidavit
In opposition to the motion to dismiss or to transfer, plaintiffs submitted the affidavit of plaintiff Rice, which states in pertinent part:
2. That the forum selection clauses at issue in Movants' Motion to Dismiss or in the Alternative to Transfer Venue were contained in template form contracts supplied by the Movants and presumably drafted by Movants' attorney.
3. At no time did Tactive or Rice bring to the table their own versions of agreements for consideration. Instead, the Movants' agreements were utilized in the contract negotiations between Plaintiffs and Movants.
Affidavit of Frederick W. Rice, ¶ 2-3. Defendants have filed a motion to strike these paragraphs from the affidavit of Frederick Rice on the ground that these paragraphs contain "blatant falsehoods." Defendants Motion to Strike, at 1. Defendants have also proffered the affidavit of Dirk Van Dongen, in which he states that the language of the forum selection clause was provided by plaintiffs, specifically by plaintiff Rice, who is an attorney. Affidavit of Dirk Van Dongen, ¶ 8-12.
The motion to strike would require resolution of a conflict in the evidence regarding an issue of fact. The Court declines to resolve that conflict within the context of a motion to strike.
III. Motion to Dismiss or Transfer for Improper Venue
Defendants seek dismissal or transfer of venue of certain claims against them to the United States District Court for the Northern District of Illinois pursuant to 28 U.S.C. § 1406 (a). Section 1406(a) provides:
Defendants NAW, NAWSC and Van Dongen seek dismissal or transfer of plaintiffs' Counts I-V, VII-IX, XI, XIV, and XVII-XIX filed against them. Defendants "Motion to Dismiss or Transfer, at 1.
Defendants originally sought dismissal of these counts for improper venue pursuant to Fed.R.Civ.P. 12(b)(3) or transfer pursuant to 28 U.S.C. § 1404 (a). In response to plaintiffs' argument, defendants now amend their argument to request dismissal or transfer pursuant to 28 U.S.C. § 1406.
The district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.
Dismissal or transfer pursuant to § 1406 is appropriate in a situation when venue is improper. Van Dusen v. Barrack, 376 U.S. 612, 634 (1964). Venue may be improper when the requirements of 28 U.S.C. § 1391 are not satisfied. See Stewart Organization v. Ricoh Corp., 487 U.S. 22, 29 n. 8 (1988); Jumara v. State Farm Insurance Co., 55 F.3d 873, 877-79 (3rd Cir. 1995). Defendant argues that venue is rendered improper in this district by the forum selection clauses contained in the NAW agreements.
A district court has the authority to transfer venue pursuant to either 28 U.S.C § 1406(a) or § 1404(a). Although the United States Court of Appeals for the Sixth Circuit has held that § 1406 provides the basis for transfer when the defect alleged is improper venue, Martin v. Stokes, 623 F.2d 469, 474 (6th Cir. 1980), the issue of transfer in cases involving forum selection clauses are commonly resolved pursuant to § 1404. See Stewart Organization, supra, 487 U.S. 22.
It does not appear under [Stewart Organization v.] Ricoh that a forum selection clause makes the venue "wrong" for § 1406 purposes when the action is filed in a district other than that specified in the clause. Ricoh suggests that § 1406(a) applies mainly to those situations when the action is initially brought in a division or district where the statutory requirements for venue . . . have not been met.
Blue Ash Development, Inc. v. Polan, No. 94-6324, 1996 WL 18228, at * 1 n. 1 (6th Cir. Jan. 2, 1996). Therefore, the Court concludes that defendants' motion to dismiss under 28 U.S.C. § 1406 (a) for improper venue lacks merit.
A district court is also vested with authority to transfer an action to a more convenient forum. 28 U.S.C. § 1404. The moving defendants ask that the claims against them be transferred to the Northern District of Illinois. 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." The threshold consideration under § 1404(a) is whether venue would be proper in the Northern District of Illinois. An action "might have been brought" in a transferee court if:
A. The court has jurisdiction over the subject matter of the action
B. Venue is proper there, and
C. The defendant is amenable to process issuing out of the transferee court.
Continental Grain Co. v. Barge F.B.L. 585, 364 U.S. 19 (1960); Neff Athletic Lettering Co. v. Walters, 524 F. Supp. 268, 271 (S.D. Ohio 1981). Plaintiffs contend that this action could not have been brought in the Northern District of Illinois.
The statute governing venue for federal RICO claims, 18 U.S.C. § 1865 (a), provides in pertinent part:
Any civil action or proceeding under this chapter against any person may be instituted in the district court of the United States for any district in which such person resides, is found, has an agent, or transacts his affairs.
Furthermore, the general venue statute, 28 U.S.C. § 1391, provides in pertinent part:
A civil action wherein jurisdiction is not founded solely on diversity of citizenship may, except as otherwise provided by law, be brought 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 may be found, if there is no district in which the action may otherwise be brought.28 U.S.C. § 1391 (b). For purposes of this statute, a corporate defendant is deemed to reside "in any judicial district in which it is subject to personal jurisdiction at the time the action is commenced." 28 U.S.C. § 1391 (c).
Plaintiffs argue that venue in the Northern District of Illinois is not proper under § 1391(b) and that this action could not have been brought in that court under the federal RICO statute. In support of their argument, plaintiffs present evidence that "neither NAW nor NAWSC has an office in Chicago, Illinois; neither NAW nor NAWSC is incorporated in Illinois; and neither NAW nor NAWSC has a license to transact business in Illinois." Affidavit of Frederick W. Rice attached to Plaintiffs' "Memorandum in Opposition to Defendants "Motion to Dismiss or Transfer, ¶ 4. Defendants, however, offer evidence that NAWSC is an Illinois corporation with its registered office in Chicago, Illinois. Affidavit of Dirk Van Dongen, ¶ 7, submitted in support of Defendants Motion to Dismiss for Improper Venue. Given this conflicting evidence concerning whether NAWSC is an Illinois corporation with offices located in Chicago, Illinois, the Court cannot determine in this regard whether venue would be proper in the Northern District of Illinois or whether this action could have been brought in that court.
Plaintiffs argue that, even assuming that this action could have been brought in the Northern District of Illinois and that the forum selection clauses underlying the moving defendants' argument in favor of transfer are valid, those clauses should not be enforced because the Court would retain before it the claims against the remaining defendants who were not parties to the NAW agreements. The United States Court of Appeals for the Third Circuit has considered the possibility of transfer of some, but not all, claims:
In the situation where venue is proper for one defendant but not for another and dismissal is inappropriate, the district court has a choice. One option is to transfer the entire case to another district that is proper for both defendants. Another alternative is to sever the claims, retaining jurisdiction over one defendant and transferring the case as to the other defendant to an appropriate district.
Cottman Transmission Sys., Inc. v. Martino, 36 F.3d 291, 296 (3d Cir. 1994). See also Carver v. Knox County, Tenn., 887 F.2d 1287, 1293 (6th Cir. 1989). However, severance is not appropriate
if the defendant over whom jurisdiction is retained is so involved in the controversy to be transferred that partial transfer would require the same issues to be litigated in two places. When the conduct of a co-defendant as to whom venue is proper is central to the issues raised by the plaintiff against those subject to transfer, the grant of a severance would not ordinarily be consistent with the sound exercise of discretion.
Cottman, 36 F.3d at 296 (quoting Sunbelt Corp. v. Noble, Denton Assocs., Inc., 5 F.3d 28, 33-34 (3d Cir. 1993). See also Rappoport v. Steven Spielberg, Inc., 16 F. Supp.2d 481, 496 (D.N.J. 1998) (quoting Wyndham Assocs. v. Binthff 398 F.2d 614, 618-19 (2d Cir.), cert. denied, 393 U.S. 977 (1968)) ("Where the administration of justice would be materially advanced by severance and transfer, a district court may properly sever the claims against the other defendants, at least in cases where, as here, the defendants as to whom venue would not be proper in the transferee district are alleged to be only indirectly connected to the manipulations which form the main subject matter of the action.").
The alleged conduct of Zefer and that of the individual defendants comprising the Zefer Team are directly related to plaintiffs' claims against the moving defendants. Therefore, the Court concludes that severance of plaintiffs' claims against defendants Zefer, Ward, Kra, Colby and Balangee from those asserted against the moving defendants, and transfer of the latter claims, would require the litigation of the same or similar issues in two separate forums. The inefficient use of judicial resources that would flow from a severance and transfer under these circumstances militates against that course of action.
Plaintiffs allege that the Zefer Team worked from Zefer's Chicago office until February 2000. Complaint, ¶ 22. Under this circumstance, it may be appropriate to transfer the entire action to the Northern District of Illinois. However, neither plaintiffs nor the moving defendants have addressed this possibility and the non-moving defendants have never addressed the prospect of transfer of the claims asserted against them. Under these circumstances, the Court declines at this juncture to consider this option.
IV. Conclusion
Defendants' motion to strike portions of the affidavit of Frederick Rice is DENIED.
The motion to dismiss or transfer venue of this action is DENIED, without prejudice, however, to the filing of a motion to transfer the entire action.