Opinion
Civil Action No. 01-0685, Section "K" (1)
November 15, 2001
Before the Court is a Motion to Transfer Pursuant to 28 U.S.C. § 1404 (a) filed by defendants MicroStrategy Inc. ("MicroStrategy" or the "Company"), Michael J. Saylor, Sanju K. Bansal, Mark S. Lynch, Stephen S. Trundle, Ralph S. Terkowitz and Frank A. Ingari (collectively, the "MicroStrategy Defendants") and Pricewaterhouse Coopers, LLP ("PwC") (Doc. 24). Defendants seek to have this matter transferred to the Eastern District of Virginia. Having reviewed the pleadings, memoranda and applicable law, the Court finds as follows.
BACKGROUND
Plaintiffs, Evan F. Trestman and Evan F. Trestman, A Professional Law Corporation (collectively, "Trestman" or "Plaintiffs"), brought this suit alleging violations of federal securities law. Louisiana securities laws, and Louisiana Civil Code provisions, against (i) MicroStrategy, (ii) several of its officers and directors, and (iii) PwC, MicroStrategy's auditor. Plaintiff Evan F. Trestman is a resident and domiciliary of Louisiana, and plaintiff Evan F. Trestman, A Professional Law Corporation, is a professional law organization organized under the laws of Louisiana with its principal place of business in New Orleans, Louisiana. MicroStrategy is a Delaware corporation headquartered in Vienna, Virginia. MicroStrategy is engaged in the business of developing and selling electronic commerce applications and other e-business products. The MicroStrategy Defendants are various individual officers and directors of MicroStrategy. Defendant PwC is an international public accounting firm, with an office in McLean, Virginia and was the independent auditor for MicroStrategy at all relevant times. (Complaint (Doc. 1)).
PwC was formed in 1998 from the merger of Price Waterhouse LLP and Coopers Lybrand LLP. Coopers Lybrand served as MicroStrategy's auditor for the year ending December 31, 1997. Defendant PwC was the Company's auditor for the years ending December 31, 1998 and 1999. PwC is defined to include its predecessors Coopers Lybrand LLP and Price Waterhouse LLP.
Plaintiffs were investors in MicroStrategy, and collectively purchased 1,650 shares, for a total cost of approximately $252,825 on March 6, 2000. At the time of these stock purchases MicroStrategy's stock price was trading well above its June 1998 initial public offering price of $12 per share at prices over $150 per share. Allegedly, much of this rise was attributed to MicroStrategy's quarterly and yearly reports of the continued increase in its revenues and profits quarter-after-quarter. The stock price continued to rise. However, following a March 6th Forbes article that raised questions concerning MicroStrategy's accounting methods, the Company issued a press release on March 20th announcing that it had significantly overstated its revenues and operating results for the years 1998 and 1999 and would have to restate these previously reported financials. MicroStrategy initially stated that the restatement of its financials was to conform with Securities and Exchange Commission ("SEC") Staff Accounting Bulletin 101, in advance of its implementation by March 31, 2000, and to conform with recent GAPP interpretations concerning revenue recognition in the software industry. However, the next day MicroStrategy issued a press release revealing that the primary reason for the revisions was not to conform with the SEC Staff Accounting Bulletin 101, but to comply with existing accounting principles articulated in the American institute of Certified Public Accountants' Statement of Position 97-2, which had been in effect since 1997.
In its Report on Form 10-K for the year ended December 31, 1999, filed April 13, 2000, MicroStrategy formally restated previously reported revenues and earnings for the years ended December 31, 1998 and 1999. Additionally, MicroStrategy disclosed that the SEC had issued an order of formal investigation regarding the Company's financial statements.
The March 20, 2000 MicroStrategy press release disclosing the need to restate the financial statements for 1998 and 1999 precipitated a dramatic collapse in the MicroStrategy stock price. The stock price fell from its Friday, March 17, 2000 closing price of $226.75 per share to $86.75 per share by the close on Monday, March 20, 2000. This represented a one day loss in value of 61.7%. Plaintiffs later sold their shares at a loss of approximately $217,285.
On May 26, 2000, plaintiff Evan F. Trestman sold his 1,500 shares for $21.875 per share, for proceeds of approximately $32,813 and a $197,028 loss. Plaintiff Evan F. Trestman, APLC sold its 150 shares on November 20, 2000 for $18.1875 per share, for proceeds of approximately and a loss of $20,257.
In the aftermath of these events, twenty-six class action complaints were filed against MicroStrategy, the MicroStrategy Defendants, and PwC. All but one of the complaints were filed in the Eastern District of Virginia. The remaining suit was later transferred from the United States District Court for the Southern District of New York to the Eastern District of Virginia. The United States District Court for the Eastern District of Virginia ordered the consolidation of these complaints. On July 7, 2000 the Consolidated Complaint was filed. The Consolidated Complaint contained two central claims: (1) that the defendants had intentionally or recklessly misrepresented material facts with respect to MicroStrategy's revenues and financial success, in violation of § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, and (2) that certain individual defendants are liable as "controlling persons" pursuant to § 20(a) of the Act, 15 U.S.C. § 78t(a). On or about January 26, 2001 the District Court for the Eastern District of Virginia notified members of the plaintiff class of a proposed settlement of the claims against MicroStrategy and the MicroStrategy Defendants. The District Court permitted class members to opt out of the settlement. By filing a notice of exclusion with the counsel for the class action plaintiffs, Trestman opted out of the class.
On March 15, 2001, Trestman filed in this Court a complaint containing the same factual allegations as those in the Consolidated Complaint. Specifically, in Counts I and VI plaintiffs assert claims under § 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 promulgated thereunder against all the defendants, in Count II plaintiffs assert claims under § 20(a) of the Exchange Act against the MicroStrategy Defendants, in Counts TV and V all of the defendants are alleged to have committed fraud and negligent misrepresentation under Louisiana Civil Code articles 1953-58 and 2315-16, and finally in the Additional Count, plaintiffs allege violations by MicroStrategy and the MicroStrategy Defendants of the Louisiana Blue Sky Laws, La. R.S. 51:712, 714. (Complaint (Doc. 1) and Amended Complaint (Doc. 13)). Defendants now move to transfer this case to the United States District Court for the Eastern District of Virginia pursuant to 28 U.S.C. § 1404 (a) for the convenience of the parties and witnesses and in the interests of justice.
Plaintiffs filed an Amended Complaint on June 1, 2001 (Doc. 13). The Complaint (Doc. 1) skips from Count II to Count IV, omitting Count III. The Amended Complaint (Doc. 13) attempts to remedy this by redesignating the counts. Additionally, the Amended Complaint adds Count VI, even though a Count VI was in the Complaint. For purposes of this decision, counts will be referred to as they were originally designated in the Complaint and the added by the Amended Complaint shall be referred to as "Additional Count."
Count I alleges violation of the § 10(b) of Exchange Act and Rule 10b-5 by all defendants other than PwC, while Count IV only concerns PwC with respect to the same Exchange Act provisions.
DISCUSSION
Pursuant to 28 U.S.C. § 1404 (a) a district court may transfer a civil action to any other district where the action may have been brought "for the convenience of parties and witnesses, in the interest of justice." This decision is a discretionary one. See Peteet v. Dow Chem. Co., 868 F.2d 1428, 1436 (5th Cir.), cert. denied sub nom., 493 U.S. 935, 110 S.Ct. 328 (1989). The trial court must consider "all relevant factors to determine whether or not on balance the litigation would more conveniently proceed and the interests of justice be better served by transfer to a different forum." Id. (quoting 15 Charles Alan Wright, Arthur R. Miller Edward H. Cooper, Federal Practice and Procedure § 3847 at 370 (2d ed. 1986).
Section 1404(a) was enacted in 1948 and is derived from and is a revision of the old common law doctrine of forum non conveniens. See Norwood v. Kirkpatrick, 349 U.S. 29, 33, 75 S.Ct. 544, 547 (1955). Following the 1948 enactment, § 1404(a) replaced forum non conveniens unless the transfer sought is to another country, a state court, or when there is no alternative federal forum. Piper Aircraft Co. v. Reyno, 454 U.S. 235, 253, 102 S.Ct. 252, 264 (1981). Nevertheless, pre-1948 case law discussing the application of forum non conveniens is instructive in outlining factors to be considered by courts when ruling on a § 1404(a) motion to transfer. 5A Charles Alan Wright, Arthur R. Miller, Federal Practice and Procedure § 1352 at 268-70 (2d ed. 1990) (citing Norwood v. Kirkpatrick, 349 U.S. 29, 75 S.Ct. 544 (1955)). As previously articulated by this Court:
The doctrine of forum non conveniens was "crystalized in Gulf Oil Corporation v. Gilbert, 330 U.S. 501, 67 S.Ct. 839, 91 L.Ed. 1055 (1947) and its companion case Koster v. (American) Lumbermens Mutual Casualty Company, 330 U.S. 518, 67 S.Ct. 828, 91 L.Ed. 1067 (1947). . . . The general principle of the doctrine "is simply that a court may resist imposition upon its jurisdiction even when jurisdiction is authorized." Gilbert, 330 U.S. at 507, 67 S.Ct. at 842. The doctrine of forum non conveniens presupposes at least two forums where the defendant is amenable to process and simply furnishes criteria for choice between them. Id. 330 U.S. at 506, 67 S.Ct. at 842. Therefore, once an adequate and available alternate forum is identified, several "private" and "public" interest factors must be balanced in order to determine if dismissal is warranted. Id., 330 U.S. at 508, 67 S.Ct. 843.Endotech USA v. Biocompatibles Int'l Plc, No. Civ. A. 00-0957, 2000 WL 1594086, at *4 (E.D. La. Oct. 24. 2000) (Duval, J.) (quoting Dickson Marine Inc. v. Panalpina, Inc., 179 F.3d 331, 342 (5th Cir. 1999).
In addition to the factors articulated in § 1404(a), the Supreme Court has set forth a detailed list of the private and public factors to be considered in resolving forum non conveniens in Piper Aircraft Company v. Reyno, 454 U.S. 235, 241 n. 6, 102 S.Ct. 252, 258 n. 6 (1981). The private and public concerns that are balanced in determining whether transfer is appropriate where an alternative forum is available include:
Private Factors
(1) the relative ease of access to sources of proof;
(2) the availability of compulsory process to secure the attendance of witnesses;
(3) the cost of attendance for willing witnesses;
(4) all other practical problems that make trial of a case easy, expeditious and inexpensive.
Public Factors
(1) the administrative difficulties flowing from court congestion;
(2) the local interest in having localized controversies decided at home;
(3) the familiarity of the forum with the law that will govern the case;
(4) the avoidance of unnecessary problems of conflict of laws of the application of foreign law.Syndicate 420 at Lloyd's London v. Early Am. Ins. Co., 796 F.2d 821, 831 (5th Cir. 1986) (citing Reyno, 454 U.S. at 241 n. 6, 102 S.Ct. at 258 n. 6).
A defendant bears the burden of persuasion as to all elements of the forum non conveniens analysis. See In re Air Crash Disaster Near New Orleans, La., 821 F.2d 1147, 1164-65 (5th Cir. 1987) (en banc), vacated on other grounds sub nom., Pan Am. World Airways, Inc. v. Lopez, 490 U.S. 1032, 109 S.Ct. 1928 (1989), opinion reinstated on other grounds, 883 F.3d 17 (5th Cir. 1989) (en banc); Endotech, 2000 WL 1594086, at *4. Therefore, the moving defendant must establish that an adequate and available forum exists as to all defendants. See In re Air Crash Disaster Near New Orleans, 821 F.2d at 1164-65; Endotech, 2000 WL 1594086, at *4. Upon carrying this initial burden, "the moving defendant must also establish that the private and public interests weigh heavily on the side of trial in the foreign forum." In re Air Crash Disaster Near New Orleans, 821 F.2d at 1164. This requires the moving party to "provide enough information to enable the district court to balance the parties [sic] interest." Id. at 1165 (quoting Reyno, 454 U.S. at 258, 102 S.Ct. at 267).
Search For An Alternative Forum
The first step in forum non conveniens analysis is to determine whether an available and adequate alternative forum for the resolution of this dispute exists. This is a two-part inquiry, first examining the availability and then the adequacy of an alternative forum. See id. It is well established that an alternate forum is adequate and available when the entire case and all of the parties come within the jurisdiction of that forum. See Dickson, 179 F.3d at 342 (citing Syndicate 420, 796 F.2d at 828-30). The defendants contend that the United States District Court for the Eastern District of Virginia is such a forum. (Defendants' Memorandum of Law (Doc. 24)). Prior to this lawsuit, the defendants were subject to twenty-six securities class action complaints. See In re MicroStrategy Inc. Sec. Litig., 110 F. Supp.2d 427, 429 n. 1 (E.D. Va. 2000). Twenty-five of the complaints were filed by plaintiffs in the United States District Court for the Eastern District of Virginia; while the remaining complaint was later transferred from the Southern District of New York to the Eastern District of Virginia. See id. These complaints were later consolidated into a single class action in the United States District Court for the Eastern District of Virginia. See id. at 430-32. Accordingly, the Eastern District of Virginia is an "available" forum as all of the parties could appear before that district court. The Eastern District of Virginia also meets the adequacy requirement, as plaintiffs can pursue the same claims within that district court. See Piper Aircraft, 454 U.S. at 255, 102 S.Ct. at 265 (alternative forum is adequate when the parties "will not be deprived of all remedies or treated unfairly").
On April 2, 2001 the United States District Court for the Eastern District of Virginia approved a settlement of all claims against the MicroStrategy Defendants arising from the facts alleged in the Consolidated Complaint. The class reached a settlement of its claims against PwC a few weeks before the scheduled trial date, and this settlement was approved on July 24, 2001.
Venue is proper in the Eastern District of Virginia pursuant to the venue provision of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1391 (b). MicroStrategy's principal place of business is in the Eastern District of Virginia, several of the MicroStrategy Defendants reside there. and the false statements alleged in the Complaint took place there. See Bolton v. Tesoro Petroleum Corp., 549 F. Supp. 1312, 1313 (E.D. Pa. 1982).
Balancing The Public And Private Interests
The second step of the analysis requires that the Court balance both private and public factors listed above. Considering all of the relevant factors, it is clear that on balance the litigation would proceed more conveniently and the interests of justice would be better served if this matter were transferred to the Eastern District of Virginia. The Eastern District of Virginia is more convenient forum for the parties and the witnesses, and the factors articulated in Syndicate 420 weigh heavily towards transfer. The Court will examine these factors individually.
Private Factors
(1) Relative Ease of Access to Sources of Proof
Included in assessing the relative ease of access to sources are considerations concerning the location of parties, witnesses and documents. From the information presented to the Court, this factor balances in favor of the Eastern District of Virginia. MicroStrategy is headquartered in Virginia, and the PwC office responsible for auditing MicroStrategy's financial statements is likewise located in Virginia. Accordingly, most of the corporate documents that will be at issue for discovery purposes will be in Virginia. The MicroStrategy Defendants and the majority of the witnesses identified by the both parties live and/or work in Virginia. Twenty-two of the thirty-one fact witnesses identified by the Defendants live in or near Virginia. (Defendants' Reply Brief at 2 (Doc. 29)). Many of the witnesses the plaintiffs intend to call live in or near Virginia as well. (Plaintiffs' Sur-Reply Memorandum at 3 (Doc. 31)). Furthermore, the alleged misconduct took place in Virginia, providing easier access to sources of proof in Virginia than in Louisiana. Continental Ins. Co. v. I.T.O. Corp., No. Civ. A. 99-3835, 2000 WL 777909, at *3 (E.D. La. June 14, 2000) (Sear, J.).
(2) Availability of compulsory Service
The Court recognizes that many witnesses identified by the plaintiffs and the defendants in their pleadings are employees of the MicroStrategy and PwC who can be compelled to testify in Louisiana based on their employment status, 15 Charles Alan Wright, Arthur R. Miller Edward H. Cooper, Federal Practice and Procedure § 3851 at 422-23 (2d ed. 1986). Accordingly, these witnesses' will appear regardless of whether the trial proceeds in Louisiana or is transferred to Virginia. There are, however, other witnesses identified that would not be amendable to process in either Virginia or in Louisiana. Based of the foregoing, the availability of compulsory process to secure the attendance of witnesses is a neutral factor.
(3) Cost of Attendance for Willing Witnesses
This factor examines "what are the costs of transporting Defendants' witnesses to this Court versus transporting Plaintiffs' witnesses to the forum in [Virginia]." Prevision Integral de Servicios Funerarios, S.A. de C.V. v. Kraft, 94 F. Supp.2d 771, 779 (W.D. Tex. 2000). The defendants have identified thirty-four fact witnesses. They are the same witnesses that the defendants identified in the final pretrial disclosures in the class action lawsuit. (Declaration of Randall K. Miller ("Miller Decl.") at Ex. 7 (Doc. 24)). As previously mentioned, twenty-two of the witnesses live in or near Virginia, while another seven live in the Northeast and closer to Virginia than to Louisiana. (Defendants' Reply Brief at 2 (Doc. 29)).
Plaintiffs, on the other hand, have not specifically identified who they intend to call as witnesses other than that they will be "a handful of MicroStrategy's and Pricewaterhouse Cooper's key personnel, experts on SEC reporting requirements and accounting regulations, an expert on damages, Mr. Trestman and a representative of his brokerage firm (from New Orleans)." (Plaintiffs' Sur-Reply Memorandum at 3 (Doc. 31)). Although plaintiffs argue that this is a "different case" from the class action, Trestman's claims are based on the same factual allegations as the Consolidated Complaint. Additionally, the federal securities claims found in the Complaint are identical to those found in the Consolidated Complaint. The difference is that Trestman's Complaint and Amended Complaint include Louisiana state law claims; however, the state law claims are based on the same factual allegations as those in the Consolidated Complaint. Compare Complaint (Doc. 1) with Consolidated Complaint (Miller Decl. at Ex. 2). Furthermore, the only witnesses that plaintiffs have identified that are different from those identified by the defendants are Mr. Trestman and his stock broker. That Trestman plans on hiring experts from Louisiana does not influence the analysis of the convenience factor. McDonough Marine Serv. v. Royal Ins. Co., No. Civ. A. 00-3134, 2001 WL 576190, at *5 (E.D. La. May 25, 2001) (Barbier, J.) ("the witness convenience factor applies only to fact witnesses, and theconvenience of expert witnesses is not to be considered as part of the analysis") (emphasis added); Promuto v. Waste Mgmt., Inc. 44 F. Supp.2d 628, 640 (S.D.N.Y. 1999) ("the convenience of expert witnesses is entitled to little weight, if any"). Both parties draw the Court's attention to the inconvenience and potential disruption to their respective businesses this litigation may have, and while the Court recognizes that the relative bargaining power and financial positions of the parties can be a significant factor in a transfer decision, this factor alone cannot prevent a transfer. See Bolton, 549 F. Supp. at 1317. Accordingly, the cost of attendance of willing witnesses factor tips in favor of transfer.
(4) All Other Practical Problems that Make Trial of a Case Easy, Expeditious and Inexpensive
As no particular evidence with respect to this factor was presented this factor is a non-issue. The Court "will now turn to the specific public factors.
Public Factors
(1) Administrative Difficulties Flowing from Court Congestion
There is no indication that the case will proceed to trial at a quicker pace in the Eastern District of Louisiana rather than in the Eastern District of Virginia. Accordingly, this element is neutral for purposes of determining whether to transfer.
(2) Local Interest in Having Localized Controversies Decided at Home
While plaintiffs' are from New Orleans, the local interest in having localized controversies decided at home factor does not weigh in favor of plaintiffs. Because MicroStrategy is headquartered in Virginia, the PwC office involved in this matter is located there, the MicroStrategy Defendants reside there, and the alleged federal securities and state law violations occurred there, the Court concludes that Virginia has the greater interest in hearing this case than a Louisiana court.
(3) Familiarity of the Forum with the Law that Will Govern the Case
The bulk of this action involves the application of federal securities law, accordingly, both courts are familiar with such law. Additionally, the District Court for the Eastern District of Virginia is familiar with both the factual allegations set forth in the Complaint and the application of the securities law to those allegations through its handling of the class action lawsuit. Although defendants do bring three Louisiana state law claims, as mentioned above, they are predicated upon the same factual allegations as the federal securities law claims. Two of the three Louisiana claims are for fraud (Count IV) and negligent misrepresentation (Count V). (Complaint (Doc. 1)). The elements of these claims under Louisiana law are the same elements as fraud and negligent misrepresentation claims under common law. Thus, the district court in Virginia would be able to rule easily on the Louisiana fraud and negligent representation claims. As for the remaining Louisiana Blue Sky claim (Additional Count), it does not weigh substantially against transfer, because district courts "must guard against excessive reluctance to undertake the task of deciding foreign law." Schexnider v. McDermott Int'l. Corp., 817 F.2d 1159, 1164 (5th Cir. 1987) (quoting Manu Int'l. S.A. v. Avon Prods., Inc., 641 F.2d 62, 68 (2d Cir. 1981)).
The general elements under Louisiana law for fraudulent misrepresentation are as follows: (1) a misrepresentation of a material fact, (2) made with an intent to deceive, and (3) causing justifiable reliance with resulting injury." Kendall Co. v. Southern Med. Supplies, Inc., 913 F. Supp. 483. 487 (E.D. La. 1996). In Virginia, the elements of fraud are quite similar: "(1) a false representation, (2) of a material fact, (3) made intentionally and knowingly, (4) with intent to mislead. (5) reliance by the party mislead, and (6) resulting in damage to the party misled." Evaluation Research Corp. v. Alequin, 439 S.E.2d 387, 390 (Va. 1994). Louisiana courts have adopted the definition of negligent misrepresentation set forth in the Second Restatement of Torts. See Dousson v. South Cent. Bell, 429 So.2d 466, 468 (La.App. 4th Cir.),writ not considered, 437 So.2d 1135 (La. 1983). See also Silver v. Nelson, 610 F. Supp. 505, 521 (E.D. La. 1985).
(4) Avoidance of Unnecessary Problems of Conflict of Laws or in the Application of Foreign Law
The analysis that was applied to the familiarity of the forum with the governing law factor applies here. The Court believes that neither problems of conflict of laws nor of application of foreign law will arise in this matter, so that this factor does not weigh against transfer.
Considering the totality of circumstances of this case, the Court finds that the balancing of the interests indicated that transfer is the best course. Accordingly for the above and foregoing reasons,
IT IS ORDERED that the defendants' Motion to Transfer the instant case is GRANTED and this matter is TRANSFERRED to the United States District Court for the Eastern District of Virginia.