Wojtunik v. Kealy

Full title: HENRY J. WOJTUNIK, Plaintiff, v. JOSEPH P. KEALY, JOHN F. KEALY, JERRY A…

Court: United States District Court, E.D. Pennsylvania

Date published: Aug 26, 2003

CIVIL ACTION NO. 02-8410 (E.D. Pa. Aug. 26, 2003)

Opinion

CIVIL ACTION NO. 02-8410

August 26, 2003

MEMORANDUM

ROBERT KELLY, Senior District Judge

I. INTRODUCTION

On November 12, 2002, Plaintiff Henry J. Wojtunik ("Wojtunik") filed suit against Joseph P. Kealy ("Joseph Kealy"), John F. Kealy ("John Kealy"), Jerry A. Kelven ("Kleven"), Richard J. Seminoff ("Seminoff"), V. Thomson Brown, Jr. ("Brown"), John P. Stephens ("Stephens"), C. James Jensen ("Jensen"), John P. Morbeck ("Morbeck"), Terry W. Beiriger ("Beiriger") and Anthony T. Baumann ("Baumann") (collectively the "Defendants"). The ten named Defendants were at one time directors and/or officers of International FiberCom, Inc. ("IFC"), an Arizona based company. In 2001, Wojtunik was the only holder of outstanding shares of a New Jersey company, Anacom. On February 9, 2001, Wojtunik transferred his shares of Anacom to a wholly owned subsidiary of IFC in return for $8 million dollars worth of IFC stock to be paid in three installments. In his Complaint, Wojtunik alleges that the Defendants are liable to him under the federal securities laws as well as Arizona state statutes concerning misrepresentations that helped to effectuate the merger. Moreover, Wojtunik asserts a common law fraud claim as well a negligent misrepresentation claim against Joseph Kealy. Finally, Wojtunik asserts a civil conspiracy claim against Defendants Joseph Kealy, John Kealy, Kleven, Beiriger and Baumann.

Presently pending before this Court are the following motions: 1) Defendant Joseph Kealy's and Beiriger's Motion to Dismiss Wojtunik's Complaint, or in the Alternative, Transfer the case;¹ 2) Defendant John Kealy's Motion to Dismiss or Transfer the case; 3) Defendant Kleven's Motion to Dismiss or Transfer the case; and 4) Defendant Baumann's Motion to Dismiss or Transfer the case. The aforementioned Motions contain various grounds for dismissing Wojtunik's Complaint including failure to state a claim and improper venue. Additionally, Baumann's Motion includes a Motion to Dismiss for Lack of Personal Jurisdiction against him. In the alternative, Defendants' Motions ask the court to Transfer this Action to a Proper Venue, namely the United States District Court for the District of Arizona. For the following reasons, the Court will transfer this action to the United States District Court for the District of Arizona.²

1 Defendants' Seminoff, Stephens, Jensen and Morbeck filed a Notice of Joinder in Support of the Motion filed by Defendants' Joseph Kealy and Beiriger. (Defs. Seminoff, Stephens, Jensen and Morbeck's Notice Joinder Supp. Mot. Dismiss or Transfer Filed by Defs. Joseph Kealy and Beiriger).

2 Since this Court will transfer the entire case, all of the current motions will remain outstanding and will be transferred along with the rest of the case file to the United States District Court for the District of Arizona for resolution by that court.

II. FACTUAL BACKGROUND

Wojtunik is a citizen and resident of New Jersey. (Compl., ¶ 10). Defendants are ten individuals who were either directors and/or officers of IFC, an Arizona company that is currently in bankruptcy. (Compl., ¶¶ 13-22, 32).³ Wojtunik's action involves claims arising under the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b) and 78t(a),17 C.F.R. § 240.10-b(5) and various Arizona state law claims of fraud, aiding and abetting securities fraud, negligent misrepresentation, common law fraud and civil conspiracy.

A merger agreement ("Agreement") between Wojtunik and IFC was formed whereby Wojtunik tendered all of his capital stock in Anacom to a wholly owned subsidiary of IFC. In return, Wojtunik received $8 million dollars worth of IFC stock. The IFC stock was delivered to Wojtunik by the following three separate installments: $4 million of IFC stock on February 9, 2001 ("the closing date"); $2 million of IFC stock on May 10, 2001; and a final $2 million of IFC stock on August 8, 2001. Pursuant to the Agreement between Wojtunik and IFC, since the IFC stock on May 10, 2001 and August 8, 2001 was lower than the average stock price on the closing date, Wojtunik received the number of shares of IFC stock equal to $2 million dollars based on the IFC average stock price on the closing date. Subsequently, barely a year after the closing date, on February 13, 2002, IFC filed for Chapter 11 bankruptcy in Arizona.

Wojtunik's action focuses on the lead up to the actual agreement to merge Anacom with IFC. The start of negotiations for the merger of Anacom into IFC took place almost a year before the closing date, on May 5, 2000. Over the course of the next several months, while merger negotiations took place, Defendants furnished Wojtunik with IFC's publicly filed financial statements. These statements included IFC's 10-K's and 10-Q's filed with the SEC. In his Complaint, Wojtunik alleges that he relied on these publicly filed financial documents in agreeing to the merger between Anacom and IFC. Of particular note, he alleges that the Defendants, as directors and officers of IFC violated generally accepted accounting principles in their SEC filings and that such misleading and false statements caused IFC's stock to trade at an inflated price. Wojtunik then alleges that such an inflated stock price caused damage to him in the stock for stock merger transaction. Additionally, Wojtunik alleges Defendants made misrepresentations and omissions so as to induce him to misjudge the value of IFC stock. Furthermore, he argues that Defendants fraudulently concealed key financial information regarding IFC's financial status so as to induce the merger between Anacom with IFC. Finally, Wojtunik alleges that Defendants committed a fraud on the market through their misrepresentations and omissions, thereby causing investors to misjudge the value of IFC stock.

III. DISCUSSION A. SUBJECT MATTER AND PERSONAL JURISDICTION

This Court must have subject matter jurisdiction, personal jurisdiction over the parties and the action must be brought in a proper venue for the court to properly rule. See Madatto v. Rosman, No. CIV. A 98-3221, 1998 WL 961390, at *2 (E.D.Pa. Dec. 10, 1998) (citations omitted). The Court has subject matter jurisdiction over the federal securities law claims pursuant to federal question jurisdiction. 15 U.S.C. § 78aa; 28 U.S.C. § 1331. Plaintiff has also raised various state law claims based on Arizona law.⁴

4 The decision of whether to exercise pendant subject matter jurisdiction over the state law claims is left to the sound discretion of the District Judge in the District of Arizona.

Next, "while the question of personal jurisdiction is typically decided in advance of venue, a court may proceed to the consideration of venue whenever there is a sound justification for doing so." S.D. Warren Co. v. Engelman, Civ. A. No. 87-8339, 1988 WL 97661, at *4 (E.D.Pa. Sept. 21, 1988) (citing Leroy v. Great W. United Corp., 443 U.S. 173, 180 (1979)). The two venue statutes which control a transfer of venue in the federal courts are 28 U.S.C. § 1406(a) and 28 U.S.C. § 1404(a). A court has the power to transfer a case pursuant to Section 1406(a) without personal jurisdiction over the defendants. See Goldlawr v. Heiman, 369 U.S. 463, 466 (1962) (stating language of Section 1406(a) is broad enough to allow transfer of case whether transferring court has personal jurisdiction over defendants or not). Furthermore, a court also has the power to transfer a case pursuant to Section 1404(a) without personal jurisdiction over the defendants. See U.S. v. Berkowitz, 328 F.2d 358, 361 (3d Cir. 1964) (citing Goldlawr for proposition that court has power to transfer case pursuant to Section 1404(a) as well as Section 1406(a) even though court does not have personal jurisdiction over defendants). Therefore, even though Defendant Baumann has motioned this Court to dismiss Plaintiff's case against him for lack of personal jurisdiction, the Court declines to answer this issue since "the resolution of the venue issue `resolves' the case before this Court."Leech v. First Commodity Corp. of Boston, 553 F. Supp. 688, 689 (W.D. Pa. 1982),⁵ and a court need not have personal jurisdiction over the defendants to transfer a case under either Section 1406(a) or Section 1404(a).

5 Where "defendants have challenged a court's power over their persons and, at the same time, have moved alternatively for transfer, the interests of judicial economy are best served by initial address of the transfer issue." Teleprompter Corp. v. Polinsky, 447 F. Supp. 53, 54-55 (S.D.N.Y. 1977). By declining to answer the personal jurisdiction question, the court avoids having to decide the constitutional questions that follow an argument for dismissal on grounds of lack of personal jurisdiction. See Sparks Tune-Up Centers, Inc. v. Walter, CIV. A. No. 88-7191, 1989 WL 11745, at *1 (E.D.Pa. Feb. 14, 1989) (citing Leroy, 443 U.S. at 180-81) (declining to comment on motion to dismiss for lack of personal jurisdiction and moving directly to venue issues since doing so avoids having to decide constitutional questions).

B. VENUE

In federal court, a change in venue is governed either by 28 U.S.C. § 1406(a) or 28 U.S.C. § 1404(a). Under Section 1406(a), "the district court of a district in which is filed a case laying venue in the wrong division or district shall dismiss, or in the interest of justice, transfer such case to any district or division in which it could have been brought." 28 U.S.C. § 1406(a). Whereas, 28 U.S.C. § 1404(a) states that "for the convenience of the 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." Id. Under a Section 1406(a) motion to transfer, "the defendant `moving to dismiss . . . bears the burden of establishing affirmatively that venue is improper.'" Tucker v. Interscope Records, Inc., No. 98-4288, 1999 WL 80363 at *3 (E.D.Pa. Feb. 17, 1999) (quotingBorn v. Iannacone, No. Civ.A. 97-5607, 1998 WL 297621, at *3 (E.D.Pa. June 3, 1998)). Similarly, under a Section 1404(a) motion to transfer, "the burden is on the moving party to establish that a balancing of proper interests weigh in favor of the transfer." Connors v. R S Parts Servs., Inc., 248 F. Supp.2d 394, 396 (E.D.Pa. 2003) (citations omitted).

While the burden to transfer is therefore on the Defendants in this case, the Court must also determine which transfer statute applies, since different factors apply to each statute. To decide this question, the Court must decide whether venue is proper in the Eastern District of Pennsylvania. See Jumara, 55 F.2d 873, 878 (3d Cir. 1995); Stamford Holding Co. v. Clark, No. CIV. A. 02-269, 2002 WL 1040474, at *3 (E.D.Pa. May 23, 2002). If venue is not proper within this District, then Section 1406(a) applies and the Court can transfer the case to a proper forum if in the interests of justice. See Tucker, 1999 WL 80363, at *3. Therefore, the first inquiry will be whether venue is properly laid within this District, then the Court will move to the second step of applying the factors of the applicable transfer of venue statute. See Stamford Holding Co., 2002 WL 1040474, at *3.

1. Is Venue Within the Eastern District of Pennsylvania Proper?

Wojtunik asserts two federal statutes supporting his position that venue is proper within this District, namely 28 U.S.C. § 1391 and 15 U.S.C. § 78aa.⁶ Since Wojtunik's action is based on federal question jurisdiction, Section 1391(b) is the controlling general venue statute. Section 1391(b) states that

6 In his Response to Defendants' various Motions to Dismiss or Transfer, Wojtunik only asserts proper venue pursuant to Section 78aa, however, in his Complaint, he asserts proper venue pursuant to Section 1391 as well as 78aa. Therefore, this Court will analyze whether venue is proper in this District using either of these statutes.

a civil action wherein jurisdiction is not founded solely 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 may be found, if there is no district in which the action may otherwise be brought.

28 U.S.C. § 1391(b). Wojtunik also relies on Section 78aa to try and establish that venue is proper in this District. (Compl., ¶¶ 7-8). Section 78aa states "any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder, or to enjoin any violation of such chapter or rules and regulations, may be brought in [any district wherein any act or transaction constituting violation occurred] or in the district wherein the defendant is found or is an inhabitant or transacts business." 15 U.S.C. § 78aa.

a. Venue and Section 1391

Since none of the ten Defendants reside in Pennsylvania, Section 1391(b)(1) will not apply and proper venue cannot be established within this District using that provision. Furthermore, since no Defendant can be found within this district, Section 1391(b)(3) does not allow for proper venue to be asserted within this District. Therefore, proper venue under Section 1391 can only be established pursuant to Section 1391(b)(2).

"The test for determining venue under § 1391(b)(2) `is not the defendant's contacts with a particular district, but rather the location of those events or omissions giving rise to the claim[.]'" Reliance Standard Life Ins., Co. v. Aurora Fast Freight, Inc., No. CIV. A. 96-7488, 1997 WL 83769 at *2 (E.D.Pa. Feb. 27, 1997) (quoting Cottman Transmission Sys., Inc. v. Martino, 36 F.3d 291, 294 (3d Cir. 1994)). As the Third Circuit has explained, Section 1391(b)

favors defendant in a venue dispute by requiring that the events or omissions supporting a claim be "substantial." Events or omissions that might only have some tangential connection with the dispute in litigation are not enough. Substantiality is intended to preserve the element of fairness so that a defendant is not haled into a remote district having no real relationship to the dispute.

Cottman Transmission Sys., 36 F.3d at 294. "Accordingly, `in assessing whether events or omissions giving rise to the claims are substantial, it is necessary to look at the nature of the dispute.'" Reliance Standard Life Ins. Co., 1997 WL 83769, at *2 (quoting Cottman Transmission Sys., 36 F.3d at 295). Therefore, it is necessary to examine Wojtunik's specific claims against the defendants.

Wojtunik's claims focus on the representations the Defendants made to him so as to induce the merger. Wojtunik asserts he suffered an injury when IFC filed for bankruptcy and his IFC stock became worthless. (Compl., ¶¶ 79-88). Particularly, Wojtunik alleges that Defendants', acting as directors and officers of IFC, did not follow generally accepted accounting practices in filing their public financial documents with the SEC. (Compl., ¶¶ 79-81). Also, he asserts that Defendants committed a fraud on the market so as to allow the stock price of IFC to be overvalued. (Compl., ¶¶ 82-84). Additionally, Wojtunik alleges that the Defendants fraudulently concealed certain information from him so as to induce the merger. (Compl., ¶ 88). Therefore, the thrust of the Complaint focuses on the representations that Defendants, former directors and officers of an Arizona based corporation, made to Wojtunik through IFC's publicly filed financial documents as well as oral representations about the state of IFC's business. Such representations were made from Arizona, and the fact that IFC conducted some business in the Eastern District of Pennsylvania, or that tangentially some financial documents were transmitted to customers of IFC in the Eastern District of Pennsylvania is not substantially relevant to establishing proper venue under Section 1391(b)(2).⁷ This is particularly true when Wojtunik, a New Jersey resident, himself never received such documents within this District. In a similar case, the United States District Court for the District of Delaware held that Section 1391(b)(2) did not confer proper venue in that district even where the plaintiff was suing the individual directors of a Delaware corporation. FS Photo, Inc. v. Picturevision, Inc., 48 F. Supp.2d 442, 447 (D.Del. 1999). In that case, none of the individually named directors resided in Delaware. Although the corporation for which they were directors was incorporated in Delaware, the court found that Virginia and not Delaware was where a substantial part of the events giving rise to the action occurred under Section 1391(b)(2). Id.

7 Both sides affirm that IFC conducted at least some business in the Eastern District of Pennsylvania. (Def. Baumann Aff., ¶ 12; Plf.'s Mem. Law Opp'n Defs. Mot. Dismiss or in the Alternative Transfer at 10-11). IFC maintained an engineering office with between fifty to seventy-five employees in Philadelphia. (Plf.'s Mem. Law Opp'n Defs. Mot. Dismiss or in the Alternative Transfer at 10-11). In response to Defendants' various motions to dismiss or transfer, Wojtunik alleges that IFC inflated the revenues and earnings of said engineering group. (Id. at 11). By so arguing however, Wojtunik does not illustrate that the ten individually named defendants' committed fraud to Wojtunik within this District. Contrarily, what this essentially illustrates is that the nature of the action occurred in Arizona, where IFC was based, since the misrepresentations and fraud would have occurred at IFC's headquarters in Arizona, not where the engineering group was located. Furthermore, as will be explained in the venue analysis under Section 78aa, the fact that IFC conducted business in the Eastern District of Pennsylvania is not particularly relevant to deciding whether venue is proper for the ten Defendants named as individuals due to the fact they were directors and officers of IFC, an Arizona based company. See FS Photo, Inc. v. Picturevision, Inc., 48 F. Supp.2d 442, 447 (D.Del. 1999) (holding proper venue for alleged 10b-5 violation towards individually named directors of Delaware corporation is not in Delaware, but rather is in Virginia since such misrepresentations and material omissions arise from settlement agreement made by director in Virginia).

The nature of Wojtunik's action is that the Defendants violated generally accepted accounting principles and committed fraud in inducing Anacom to merge with IFC. Such alleged actions or omissions on the part of the Defendants would not have occurred in the Eastern District of Pennsylvania, where IFC merely maintained an engineering office and conducted some business. Rather, such misrepresentations or omissions in the financial documents and oral statements would have occurred in the district where IFC was based, namely Arizona. Therefore, proper venue under Section 1391(b) cannot be established in the Eastern District of Pennsylvania.

b. Venue and Section 78aa

While Wojtunik argues for proper venue in his Complaint under Section 1391, he also principally relies on 15 U.S.C. § 78aa in trying to establish that the Eastern District of Pennsylvania is the proper venue for this action. As with any motion to dismiss or transfer due to improper venue, the burden is on the movant to prove improper venue. See Myers v. Am. Dental Ass'n, 695 F.2d 716, 724 (3d Cir. 1982). Under Section 78aa, venue is proper where "[1] any act or transaction constituting violation occurred . . . or [2] in the district wherein the defendant is found or [3] is an inhabitant or [4] transacts business."

On the present facts, clearly none of the Defendants reside in this district nor can any Defendants be found within this district. Therefore, proper venue under Section 78aa can only be established if the Defendants transacted business or if any act or transaction constituting the violation occurred within this District. Wojtunik argues in his response to Defendants' Motion to Transfer or Dismiss that the Defendants, acting as officers and/or directors of IFC, conducted business in the Eastern District of Pennsylvania since IFC conducted business in Pennsylvania. (Plf.s Mem. Law Opp'n Defs.' Mot. Dismiss or in the Alternative Transfer at 10). In a similar case however, the District of Delaware held that directors of a bankrupt Delaware corporation did not transact business in Delaware merely because they were directors of the Delaware corporation. Am. High-Income Trust v. AlliedSignal, Inc., No. CIV. A. 00-690 GMS, 2002 WL 373473, at * 2 (D.Del. Mar. 7, 2002). Particularly, that court stated that the mere fact the defendants were directors of a Delaware corporation was not enough to establish that they themselves as individuals transacted any business in Delaware. Id. (emphasis added). Similarly, Wojtunik cannot utilize the business dealings of IFC, a non-party Arizona based company, to impute venue upon individually named Defendants where such Defendants are the former directors and/or officers of IFC.

Whether any alleged act or transaction constituting a violation occurred within the Eastern District of Pennsylvania requires a greater depth of analysis. Within Wojtunik's Response to Defendants' Motions, he alludes to the fact that IFC's annual reports as well as its 10-Q's were transmitted to the Eastern District of Pennsylvania through mail and wire communications. (Plf.'s Mem. Law Opp'n Defs.' Mot. Dismiss or in the Alternative Transfer at 11). Defendants appear to agree that IFC's SEC filings were disseminated within the Eastern District of Pennsylvania. (Defs.' Joseph Kealy and Beiriger's Reply Mem. Supp. Mot. Dismiss or Transfer at 4). In his Complaint, Wojtunik argues that these public financial filings were fraudulent and misleading, thereby causing an alleged fraud on the market by causing the reasonable investor to misjudge the value of IFC's securities. (Compl., ¶¶ 59, 82-84). Wojtunik alleges this fraud caused IFC's stock to become inflated and thereby caused him injury in the subsequent stock for stock merger by inflating the worth of the IFC stock he received. Additionally, Wojtunik asserts that Defendants stood to gain by the inflated price as evidenced by their sale of IFC stock in 2000 at this alleged inflated price.

Defendants' counter by relying on Am. High-Income Trust in arguing that the mere dissemination of IFC's SEC reports in the Eastern District of Pennsylvania cannot by itself create venue. See Am. High-Income Trust, 2002 WL 373473, at *2. In Am. High-Income Trust, the District of Delaware found that venue within that district, against three directors of a non-party bankrupt Delaware corporation, was improper. Id. at *3. In that case, the plaintiffs argued that since the Delaware corporation disseminated its SEC filings and press releases in Delaware, that was enough to establish venue. Id. However, the court rejected that argument by stating that none of the director defendants "received or read anything related to the alleged fraud in Delaware." Id. The court continued by stating that the plaintiffs did not "allege that the director defendants took any other action in relation to the alleged fraud in Delaware." Id. At first glance therefore, Defendants' argument that venue is improper in the Eastern District of Pennsylvania is on firm ground. However, a recent Virginia District Court case interpreting Am. High-Income Trust, places doubt on Defendants' arguments. The Court believes that Wojtunik has at least alleged that the Defendants took some action within the Eastern District of Pennsylvania in relation to the alleged fraud. In addition to arguing that by inflating the IFC stock price, Defendants caused the merger with Anacom to go through more smoothly, Wojtunik also asserts that many of the Defendants took advantage of the artificially high stock price of IFC by selling their IFC stock in 2000. (Compl., ¶ 87).

In In re AES Corp. Sec. Litig., 240 F. Supp.2d 557, 560 (E.D.Va. 2003), the District Court analyzed the holding of Am. High-Trust Income. In that case, the Eastern District of Virginia stated that there mere dissemination of materials in Delaware in Am. High-Income Trust was not enough to establish venue since the Delaware corporation "was not a defendant in the action and that significantly, there was no alleged connection between the misleading materials and the defendants." In re AES Corp. Sec. Litig., 240 F. Supp.2d at 560 (citing Am. High-Income Trust, 2002 WL 373473, at *2-3) (emphasis added). While Wojtunik has not included IFC as a Defendant in his action, Wojtunik has asserted a possible link between the allegedly misleading materials disseminated within the Eastern District of Pennsylvania and the Defendants.⁸

8 Since the Court finds proper venue in the Eastern District of Pennsylvania pursuant to the dissemination of allegedly misleading materials within the District causing an alleged fraud on the market, the Court declines to analyze Wojtunik's argument that venue is proper pursuant to the co-conspirator theory of Section 78aa.

Wojtunik alleges that Defendants perpetrated a fraud on the market through their allegedly misleading financial filings. In In re AES Corp. Sec. Litig., the court explained that since plaintiffs had asserted a fraud on the market theory, and it was clear from the record that the allegedly misleading materials had entered the Southern District of Indiana, proper venue could therefore be laid in the Southern District of Indiana. Id. at 561. In sum, the court found that in order to establish venue under Section 78aa of the Exchange Act, the party needed to only show that allegedly false or misleading information was transmitted into the district.⁹ Id. at 561-62. Similarly, Wojtunik asserts a fraud on the market theory and states, albeit briefly, that the allegedly misleading SEC filings were disseminated into the Eastern District of Pennsylvania. (Plf.'s Mem. Law Opp'n Defs.' Mot. Dismiss or in the Alternative Transfer at 11). Defendants also appear to acknowledge that IFC's publicly filed financial statements were transmitted into the Eastern District of Pennsylvania. (Def. Joseph Kealy and Beiriger's Reply Mem. Supp. Mot. Dismiss or Transfer at 4). Therefore, the Court believes that venue can be properly laid in the Eastern District of Pennsylvania.¹⁰

9 The Eastern District of Virginia court recognized that construing Section 78aa to establishing venue is proper where any alleged misleading information is disseminated means venue could be proper nationwide in many circumstances. In re AES Corp. Sec. Litig., 240 F. Supp.2d at 561 n. 10. However, the court went onto explain that defendants still would have the protections under Section 1404(a) to transfer the litigation to another forum in the interests of justice. Id.

10 The court recognizes in In re AES Corp. Sec. Litig., plaintiffs sued both the corporation and three individuals who were officers of AES, whereas Wojtunik has only sued the former individual directors and/or officers of IFC. However, the court in In re AES Corp. Sec. Litig. appeared to make no distinction in holding that under Section 78aa, venue was proper as to both the corporation and the three officers of AES, where allegedly misleading materials were disseminated within the district and where plaintiffs asserted a fraud on the market theory as to those materials. Id. at 561. The court in that case found venue would be proper as to both the officers and the corporation itself within a district where allegedly misleading materials were disseminated. Id. Furthermore, the court stated that in establishing proper venue using Section 78aa under a fraud on the market theory, plaintiff did not actually have to rely on such materials within the district. Id.
Additionally, whether or not venue is proper in the Eastern District of Pennsylvania in Wojtunik's action only affects the threshold question of whether this Court should decide to transfer using Section 1404(a) or Section 1406(a). Since, as will be explained, the Court believes such a transfer of this action to the District of Arizona is warranted under either 1404(a) or 1406(a), determining whether venue is proper here does not affect the overall outcome of the decision to transfer this case to the District of Arizona. Rather, such a determination only affects whether the Court will apply Section 1404(a) or Section 1406(a) in deciding to transfer.

C. TRANSFER

Section 1404(a) states that "for the convenience of the 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). Section 1404(a)'s purpose "is `to prevent the waste of time, energy and money and to protect litigants, witnesses and the public against unnecessary inconvenience and expense.'"Pro Spice, Inc. v. Omni Trade Group, Inc., 173 F. Supp.2d 336, 339 (E.D.Pa. 2001) (quoting Van Dusen v. Barrack, 376 U.S. 612, 616 (1964);Cont'l Grain Co. v. Barge FBL-585, 364 U.S. 19, 26-27 (1960)). The Third Circuit has stated that

[i]n ruling on 1404(a) motions, courts have not limited their consideration to the three enumerated factors in 1404(a) (convenience of parties, convenience of witnesses, or interests of justice), and indeed, commentators have called on the courts to `consider all relevant factors to determine whether on balance the litigation would more conveniently proceed and the interests of justice be better served by transfer to a different forum.

Jumara, 55 F.3d at 879 (citations omitted). The additional factors this Court must consider in determining whether a 1404(a) transfer is appropriate include various private and public factors. See id. The list of private factors include plaintiff's forum preference, defendants' forum preference, whether the claim arose elsewhere, the convenience of the parties, the convenience of the witnesses and the location of books and records. See id. (citations omitted). The list of public factors this Court must consider include the enforceability of judgment, the practical considerations that could make the trial easy, expeditious, or inexpensive, the relative administrative difficulty in the two fora resulting from court congestion, the local interest in determining local controversies at home, the public polices of the fora and the familiarity of the trial judge with the applicable state law. See id. at 879-80 (citations omitted).

A court must properly weigh and balance all of the factors in deciding whether to transfer a case under this statute. The Court recognizes that while Section 1404(a) "gives the district courts discretion to decide a motion to transfer based on an individualized, case-by-case consideration of convenience and fairness, such motions are not to be liberally granted." Dinterman v. Nationwide Mut. Ins. Co., 26 F. Supp.2d 747, 749 (E.D. Pa. 1998) (citing Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988); Shutte v. Armco Steel Corp., 431 F.2d 22, 25 (3d Cir. 1970)). Additionally, where a party seeks to transfer a case pursuant to 1404(a), it is that party which has the burden of showing the existing forum is inconvenient. See Dinterman, 26 F. Supp.2d at 749 (citations omitted). The Court believes such a showing has been made in the Wojtunik action.

Before engaging in a balancing of the factors, the Court must first determine whether venue could be properly laid in another district so as to permit a transfer under 1404(a). For the reasons previously stated, the Court believes venue is proper within the District of Arizona.¹¹

11 The Court believes that venue would be proper in the District of Arizona pursuant to Section 1391(b) since a substantial amount of the events giving rise to Wojtunik's claims occurred there. Additionally, the Court believes venue is proper in the District of Arizona under Section 78aa since five out of the ten named Defendants reside in Arizona and the alleged accounting violations occurred in Arizona. Furthermore, many of the Defendants transact business in Arizona.

1. The Private Factors

The first factor the Court must examine under Section 1404(a) is Plaintiff's choice of forum. In this case, Wojtunik's forum preference is the Eastern District of Pennsylvania. Usually, a Plaintiff's choice of forum is given significant deference under Section 1404(a) analysis and the Plaintiff's preference should not be disturbed lightly. See Pro Spice, Inc., 173 F. Supp.2d at 341 (citing First Union Nat'l Bank v. United States, 55 F. Supp.2d 331, 332 (E.D.Pa. 1999); Weber v. Basic Comfort, Inc., 155 F. Supp.2d 283, 284-85)). However, "when a plaintiff chooses a forum other than [his] home forum, that choice receives less deference." Am. Littoral Soc'y v. United States Envtl. Prot. Agency, 943 F. Supp. 548, 551 (E.D.Pa. 1996) (citing Kielczynski v. Consol. Rail Corp., 837 F. Supp. 687, 689 (E.D.Pa. 1993)). Wojtunik is a resident of the state of New Jersey, yet has filed this action in the Eastern District of Pennsylvania. Therefore, since Wojtunik has filed suit outside of his home state, the Court will accord his choice of forum less weight.

As to Defendants' preference, the Defendants appear to be in agreement that the District of Arizona is the proper venue for this action. Through their affidavits and memorandum of law, Defendants illustrate that five of the ten named Defendants are residents and/or are employed in the state of Arizona. Therefore, this factor balances towards Arizona.

The next private factor the Court must consider is where the claim arose. As has been previously mentioned, the thrust of Wojtunik's action relates to the alleged fraudulent accounting practices and representations that the ten named Defendants made pursuant to their positions with IFC, an Arizona based company. While the Court has stated that the Eastern District of Pennsylvania might be a proper venue pursuant to the fraud on the market theory and the fact that the alleged misleading SEC filings were disseminated within this District, there can be no question that this claim arose in Arizona since such SEC filings and alleged misrepresentations were made from there. Therefore, this factor balances in favor of Arizona as being a more convenient forum rather than the Eastern District of Pennsylvania.

The next factor the Court must consider is the convenience to the parties. The Court recognizes that it cannot simply transfer the inconvenience of the Defendants' having to litigate in the Eastern District of Pennsylvania onto Wojtunik to litigate in the District of Arizona. See Dinterman, 26 F. Supp.2d at 749-50 (stating that a "court should not grant a transfer simply because the transferee court is more convenient for the defendants and therefore if the transfer would merely switch the inconvenience from defendant to plaintiff, the transfer should not be allowed"). Wojtunik asserts that continuing this action in the District of Arizona would be inconvenient for him. (Wojtunik's Aff., at 2). However, such an argument by Wojtunik will be given less weight in light of the facts in the record.

In the Agreement between IFC and Wojtunik, both agreed to a choice of forum and jurisdiction clause which stated the following:

This agreement shall be governed by, construed, interpreted and enforced according to the laws of the State of Arizona. Each party to this Agreement hereby irrevocably agrees that any legal action or proceeding arising out of or relating to this Agreement or any agreements or transactions contemplated hereby may be brought in the courts of the State of Arizona or of the United States of America for the District of Arizona and hereby expressly submits to personal jurisdiction and venue of such courts for the purposes thereof and expressly waives any claim of improper venue and any claim that such courts are an inconvenient forum.

(Agreement, 25-26). Wojtunik is technically correct in his assertion that the clause is not binding in the present action since the Agreement was between IFC and Wojtunik, not the ten individuals named as Defendants. Nevertheless, in analyzing the clause, had IFC brought suit against Wojtunik in Arizona, Wojtunik probably would have been prevented from arguing such a venue was inconvenient due to the forum clause he signed. Therefore, Wojtunik cannot now effectively argue that Arizona would be an inconvenient venue in his action against the ten individual directors and/or officers of IFC. By agreeing to the clause in the agreement, Wojtunik allowed Arizona to be considered a proper venue should a suit have arose between IFC and Wojtunik. Therefore, the argument that such a forum is inconvenient as to a suit brought by Wojtunik against the former directors and/or officers of IFC is given less weight.

Compare Wojtunik's convenience arguments to Defendants and one can see that this factor balances more towards Arizona rather than the Eastern District of Pennsylvania. Five of the ten named Defendants reside in Arizona, with four out of the remaining five also living on the West coast. Clearly, having this case transferred to the District of Arizona would be more convenient for the Defendants. Again, the court recognizes it cannot merely shift the inconvenience from Defendants to plaintiff in a Section 1404(a) transfer. However, in light of the fact that Wojtunik affirmatively signed off on a provision that would have allowed Arizona to be a proper forum in an action between IFC and Wojtunik, Wojtunik cannot now as effectively state that such a forum would be inconvenient in the present action.

The next private factor the Court must consider is the convenience of the witnesses. Both sides have provided the Court with a list of potential witnesses in arguing that a transfer should or should not be allowed; therefore, a closer examination of the witnesses listed is necessary. Wojtunik's list of witnesses includes mostly customers of IFC or other witnesses which Wojtunik asserts received similar representations regarding IFC's business affairs.¹² However, as defendants correctly state, the key witnesses in Wojtunik's action will be those with knowledge of IFC's accounting practices and those who assisted in completing the allegedly misleading financial statements upon which Wojtunik relied. (Def. Joseph Kealy and Beiriger's Reply Mem. Supp. Mot. Dismiss or Transfer at 6). The witnesses Wojtunik provides the Court probably have little to no information regarding the allegations of fraud and misrepresentations the Defendants made to Wojtunik. On the other hand, the list of witnesses that the Defendants have provided would possess such accounting information and information relating to the representations made to Wojtunik.

12 Wojtunik asserts ten potential witnesses in his Memorandum of Law in Opposition to Defendants' Motions to Dismiss or in the Alternative Transfer. Among the list of witnesses Wojtunik's list, the only witnesses which would appear to have any information regarding the representations IFC made to Wojtunik is Lee Masoain ("Masoain"), who is a resident of New Jersey. From the record, however, it appears as if Masoain was present for only one of the numerous merger negotiations taking place between Wojtunik and IFC representatives leading up to the merger. (Compl., ¶ 9). Most of the other witnesses were merely customers of IFC or were involved in similar acquisitions by IFC as was Wojtunik. These witnesses would therefore provide little to no information as to the representations made to Wojtunik by IFC representatives. Also, these witnesses would not know the intricate details of the accounting practices of IFC which Wojtunik asserts were fraudulent. (Plf.'s Mem. Law Opp'n Defs. Mot. Dismiss or in the Alternative Transfer at 19-20).

Wojtunik's primary contact with IFC leading up to the merger was Douglas N. Kimball ("Kimball"), a non-party in the current action. Kimball is most likely the best witness regarding the representations and information translated from IFC to Wojtunik in the months leading up to the merger. Again, he was Wojtunik's primary contact with IFC. Since Arizona is Kimball's state of resident, Arizona would be a more convenient forum for this key non-party witness. (Joseph Kealy Aff., ¶ 8(a)).

As previously stated, one of Wojtunik's claims asserts that the Defendants violated generally accepted accounting principles in formulating their various publicly filed financial documents. While Wojtunik's witnesses will have knowledge as to the effects that the alleged violations of generally accepted accounting practices and misleading information had on them, they lack the details of IFC's accounting practices. Alternatively, Defendants have provided the Court with non-party witnesses who were intricately involved in the accounting and auditing of IFC in the preparation of its publicly filed financial statements. (Joseph Kealy Aff., ¶ 8(b); Beiriger Aff., ¶¶ 4-5). These witnesses are located in Arizona and California, thereby making Arizona a much more convenient forum for these witnesses rather than the Eastern District of Pennsylvania.¹³

13 IFC used two auditing firms, Semple Cooper based in Phoenix, Arizona, and BDO Seidman, which staffed its audits of IFC with personnel from BDO's Los Angeles, California office. Therefore, as to these two important non-party witnesses, it would be more convenient for them if this case was transferred to the District of Arizona rather than remain in the Eastern District of Pennsylvania.

While neither party has affirmatively stated they intend to call experts, "expert witnesses or witnesses who are retained by a party to testify carry little weight in determining where the balance of convenience lies because they are usually selected [on the basis] of their reputation and special knowledge without regard to their residences and are presumably well compensated for their attendance, labor and inconvenience." Am. High-Income Trust, 2002 WL 373473, at *5. Finally, the Defendants assert that they themselves are key witnesses as directors and/or officers of IFC, and therefore will be key witnesses as to the representations and accounting practices of IFC. (Defs. Joseph Kealy and Beirigers' Reply Mem. Supp. Mot. Dismiss or Transfer at 7). However, "party witnesses such as these carry no weight in the balance of convenience analysis." Am. High-Income Trust, 2002 WL 373473 at *5 (emphasis added) (internal quotations and citations omitted). Given all of these witnesses, the Court believes that this factor balances more towards Arizona being the more convenient forum for the witnesses, or at best for Wojtunik, this factor remains neutral towards both parties.

The final private factor the Court must consider is the location of records and other documents. IFC filed for Chapter 11 bankruptcy in Arizona, however, the books and records of IFC are now owned by General Fiber, which is located within the Eastern District of Pennsylvania in Conshohocken, Pennsylvania. (Plf.'s Mem. Law Opp'n Defs.' Mot. Dismiss or in the Alternative Transfer at 21). In relation to the location of the books and records being a significant factor, "the technological advances of recent years have significantly reduced the weight of this factor in the balance of convenience analysis." Am. High-Income Trust, 2002 WL 373473, at *5 (citing Affymetrix, Inc. v. Synteni, Inc., 28 F. Supp.2d 192, 205 (D.Del. 1998)). Since there is no indication that either defendants or Wojtunik would be unable to produce the relevant records, the Court finds this factor is neutral towards both parties. See id. (asserting where neither party indicates they would be unable to produce records in transferee forum, factor as to location of original records remains neutral towards both parties).

2. The Public Factors

The first public factor the Court must consider is the enforceability of judgment. Clearly, the District of Arizona will be able to enforce its judgment against the Defendants should it decide to do so since five of the ten Defendants reside in the state of Arizona. Comparing this with the fact that none of the parties even reside in the Eastern District of Pennsylvania and this factor weighs in favor of transferring the case to Arizona.

Regarding the practical considerations that could make the trial easy, expeditious or inexpensive, Arizona is the better forum since five of the ten Defendants reside in Arizona with a remaining four out of five residing in nearby West coast states. No party is located within the Eastern District of Pennsylvania. Furthermore, as was previously discussed, a number of the key non-party witnesses to this case either are located in Arizona or in other West coast states. Thus, the practical considerations tip in favor of transferring this case to Arizona.

Wojtunik asserts that this case should not be transferred to Arizona since the District of Arizona's court is more congested than the court in the Eastern District of Pennsylvania's.¹⁴ The Court recognizes that the District of Arizona is more congested than the Eastern District of Pennsylvania. Therefore, this factor supports not transferring the case to Arizona, but is only one of many factors the Court must consider under Section 1404(a).

14 Based upon statistics from the Administrative Office of the United States Courts for the twelve month period ending September 30, 2002, Wojtunik correctly states that the District of Arizona ranks seventy-fifth in the nation for the median time from filing to disposition of civil cases whereas the Eastern District of Pennsylvania ranks second. (Plf.'s Mem. Law Opp'n Defs.' Mot. Dismiss or in the Alternative Transfer at 22).

Next, the Court must consider the public factor in having local controversies decided at home. This controversy between Wojtunik and the ten named Defendants has little to no connection with the Eastern District of Pennsylvania. As Defendants correctly point out, this controversy arises from alleged misrepresentations and fraud by directors and/or officers of an Arizona based company based in part on allegedly misleading public financial filings. Such a claim shows that the local interests within the state of Arizona far outweigh any connection to the Eastern District of Pennsylvania. IFC was an Arizona based company, and Wojtunik has sued its directors and officers, alleging they committed fraud and prepared misleading documents. Arizona has a far greater interest in this case based upon the fact that Wojtunik's claims focus on Defendants actions and transactions within Arizona in the representations Defendants made, both written and oral.

Finally, this Court's familiarity with Arizona state law must be considered. Wojtunik has asserted various Arizona state law claims in addition to his federal securities claims. Certainly, the District Court Judge for the District of Arizona would be more familiar with the Arizona state law claims Wojtunik asserts. Therefore, this factor tips in favor of transferring the case to Arizona.

After engaging in a balancing of the various Section 1404(a) factors, the Court has concluded that the Defendants have met their burden of showing that the balance tips in favor of transferring this case to Arizona.¹⁵ Thus, transfer of this action to the District of Arizona will best serve the interests of convenience and justice under 28 U.S.C. § 1404(a).¹⁶

15 Perhaps sensing that the Eastern District of Pennsylvania's connection to this action is attenuated at best, Wojtunik argues that if the Court does decide to transfer the case, such a transfer should be to the United States District Court for the District of New Jersey. (Plf.'s Mem. Law Opp'n Defs.' Mot. Dismiss or in the Alternative Transfer at 18 n. 19). However, even upon a balancing of the factors between Arizona and New Jersey, the Court believes the factors would tip towards transferring the case to Arizona. The Court does recognize that New Jersey certainly gives Wojtunik a stronger case towards establishing that it is the proper venue under Section 1404(a) since New Jersey is his residence. Additionally, it appears as if some merger negotiations took place within New Jersey (Compl., at ¶¶ 12, 38-40). Nevertheless, the Court believes that the other Section 1404(a) factors balance more towards transferring the case to Arizona rather than New Jersey. The Court recognizes however, that it is a closer call in deciding between New Jersey and Arizona rather than deciding between the Eastern District of Pennsylvania and Arizona. The factors the Court believes are important in determining that Arizona is the more proper forum include the fact that Wojtunik's claims arose out of the accounting actions of an Arizona based company and its publicly filed financial statements prepared in Arizona; the convenience of the non-party witnesses; practical considerations; having the Arizona courts decide a case involving alleged fraud by directors and officers of an Arizona based company; and the fact that the District Judge for the District of Arizona would be more familiar with the Arizona state law claims than would the District Judge for the District of New Jersey. Furthermore, as was explained in the Arizona versus Eastern District of Pennsylvania discussion, Wojtunik, through agreeing to a forum selection clause within the agreement, even though it is not binding in the current action, illustrates that Arizona would be considered a convenient forum for Wojtunik. Therefore, it follows that Arizona is a convenient forum for Wojtunik in his present action against the ten former officers and/or directors of IFC.

16 If venue was improper within the Eastern District of Pennsylvania, the court would reach the same conclusion to transfer the case to the District of Arizona using 28 U.S.C. § 1406(a). Under Section 1406(a), the District court has the discretion to dismiss or transfer a case where original venue is improper. Even if the Court determined that original venue within the Eastern District of Pennsylvania was improper, the Court would use the discretion given to it under Section 1406(a) to transfer this case to a proper venue. For the reasons that have previously stated, Arizona is a venue in which the original action could have been brought, and the court would use its discretion not to dismiss the action, but rather to transfer the case to the District of Arizona pursuant to 28 U.S.C. § 1406(a).

IV. CONCLUSION

The Court has properly weighed and balanced all of the relevant Section 1404(a) factors and has concluded that this action should be transferred to Arizona. The interests of justice as well as convenience are better served in the District of Arizona than in this District. In accordance with 28 U.S.C. § 1404(a), Defendants' requests for transfer will be granted.

An appropriate order follows.

ORDER

AND NOW, this 26th day of August, 2003, upon consideration of Defendants Joseph P. Kealy and Terry W. Beirigers' Motion to Dismiss or in the Alternative Transfer (Dkt. No. 5), Defendant Anthony T. Baumann's Motion to Dismiss or in the Alternative Transfer (Dkt. No. 6) Defendant John F. Kealy's Motion to Dismiss or in the Alternative Transfer (Dkt. No. 9), and Defenant Jerry A. Kleven's Motion to Dismiss or in the Alternative Transfer (Dkt. No. 14), together with the memoranda, supporting materials and the responses and replies thereto, it is hereby ORDERED that:

1. this matter is TRANSFERRED to the United States District Court for the District of Arizona. 28 U.S.C. § 1404(a); 28 U.S.C. § 1406(a).

2. The Clerk of the Court is directed to TRANSFER the entire file to the Clerk of the United States District Court for the District of Arizona.

3. Defendants' Motions to Dismiss will remain outstanding, pending resolution by the United States District Court for the District of Arizona.