Cooper Financial, LLC v. Frost National Bank
ORDER granting 8 Motion to Change Venue in the alternative; this case is TRANSFERRED to the United States District Court for the Northern District of Texas, Fort Worth Division. Signed by Judge Herman J. Weber on 11/26/12. (lk)[Transferred from Ohio Southern on 11/27/2012.]
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
COOPER FINANCIAL, LLC,
Case No. 1:12-cvB295-HJW
THE FROST NATIONAL BANK,
Jurisdiction, or Alternatively, to Transfer Venue@ (doc. no. 8) by
defendant Frost National Bank (“Frost NB”). Plaintiff Cooper Financial,
LLC (“Cooper”) opposes the motion and suggests a third alternative,
namely, limited discovery followed by a hearing on personal jurisdiction.
Having fully considered the pleadings, the parties’ briefs (doc. nos. 8, 12,
13, 16, 17), and applicable authority, the Court will grant the defendant’s
alternative request to transfer this case to the United States District
Court for the Northern District of Texas for the following reasons:
This dispute concerns the parties’ interests in over $340 million
dollars worth of aged or delinquent credit card debts purchased from
credit card issuers for a small percentage of face value. According to
the complaint, on December 13, 2006, a Texas limited partnership King
Fisher, Ltd. (“King Fisher”) obtained a $10 million revolving line of credit
from Frost NB in Texas in order to buy delinquent credit card account
receivables, subject to a security interest held by the bank (¶¶ 8-10).
King Fisher consolidated its loans in 2008 and, in Texas, entered a new
loan agreement (“Frost Loan”) with Frost NB, secured by the same
collateral as the 2006 loan agreement (¶ 12). 1
On October 1, 2008, King Fisher, under the name LP Investments,
Ltd. (“LPI”) resold 170,000 account receivables for $9.3 million to
subsidiary of Ohio-based Cooper Financial, LLC (“Cooper”) (¶ 14). 2 On
October 14, 2008, in Texas, a Sale Agreement and Bill of Sale were
executed by LPI for those receivables (doc. no. 8-2 at 38). In December
of 2008, Elmhurst assigned its rights to Cooper, which in turn, collected
or resold those account receivables to third parties (¶¶ 16, 21). Cooper
Plaintiff spells it “King Fisher,” while Frost spells it “King Fischer.”
The Court, for now, will use the former.
The purchase contract for the receivables lists a Rochester N.Y.
address for Elmhurst.
resold approximately 145,000 of the accounts to third parties, some of
whom again resold the accounts (doc. no. 12 at 6). Cooper indicates it
still possesses approximately 20,000 of the accounts.
Under this arrangement, the purchaser (Elmhurst, or later, its
assignee Cooper) would remit money to LPI toward the $9.3 million
purchase price as accounts were collected. Per LPI’s instructions,
Cooper deposited any collected money into a lock box at Frost NB
(“Frost Lock Box”), which LPI managed and the bank monitored in
Texas. Cooper contends that LPI credited Cooper with approximately
$2.2 million on its collections deposited in the Frost Lock Box.
LPI also instructed Cooper to wire certain collection funds
totaling $973,636.71 into LPI’s bank account at Frost NB (the “Frost
Account”) (¶¶ 19-21). Between December 24, 2008 and July 31, 2009,
Cooper wired 15 separate payments from Cooper’s account at JP
Morgan Chase Bank, N.A. in Ohio to LPI’s Frost Account in Texas,
totaling $1,000,574.00 (doc. no. 12 at 6). As payments were received in
the Frost Lock Box or Frost Account, LPI sent reports to Cooper,
tracking payments applied toward the purchase price, including
payments that had been made, or were to be made, to Frost NB. Cooper
asserts that under the “Lockbox Agreement,” LPI could only withdraw
or disburse funds from the Frost Lock Box if it credited the money to
Cooper for the purchase price of the receivables (doc. no. 8-2 at 52, ¶
3). Any remaining funds were supposed to be held in trust for
Elmhurst/Cooper (Id.). The Lock Box Agreement was between LPI and
Elmhurst (doc. no. 8-2 at 52). Frost NB was not a party to it.
Nonetheless, Cooper asserts that Frost NB “created the Frost Lock Box
to monitor activities (sales and collections of receivables) and
requested reports from [King Fisher/LPI] on its activities in Ohio and
elsewhere to ensure repayment of the loans (doc. no. 17 at 4).
In June of 2009, LPI ceased all communications with Cooper (doc.
no. 12 at 6). King Fisher/LPI defaulted on its bank loan with Frost NB.
According to Cooper, LPI or Frost NB withdrew funds from the Frost
Lock Box and misapplied the funds to pay off King Fisher/LPI’s loan with
Frost NB. Cooper suggests that Frost NB either required King Fisher/LPI
to do so, or alternatively, simply accessed the funds as payment toward
the Frost Loan. Cooper indicates it does not know the exact
arrangement between King Fisher/LPI and Frost NB (doc. no. 12 at 5).
After King Fisher/LPI defaulted on the Frost Loan, Frost NB filed
suit on October 5, 2011, against King Fisher/LPI in state court in Texas,
i.e. the 342nd Judicial District Court for Tarrant County, Texas (doc. no. 8
at 4, ¶7). The state court appointed a receiver to identify and sell any
collateral (doc. no. 8-2 at 23). King Fisher/LPI contended that the sale to
Elmhurst “never occurred” because Elmhurst had not paid the full
purchase price. In the state case, Elmhurst/Cooper filed a “limited
objection” (doc. no. 8-2 at 34) contending that it had purchased the
rights to 170,000 accounts from LPI in the ordinary course of business,
that no “liens” were attached to those receivables, and that it had paid
King Fisher/LPI “in full” (Id. at ¶¶ 3-4). Cooper indicates it had found no
security interest under the name LPI, whereas Frost NB indicates that
its security interest was based on the Frost Loan to King Fisher (which
did business as “LPI” when dealing with Elmhurst).
In its “Order of March 28, 2012,” the Texas state court held that
King Fisher/LPI could not convey title to the account receivables
because Frost National Bank “never released its security interest in the
disputed accounts, nor was it paid the $9 million contemplated by the
alleged sale” (doc. no. 8-2 at 63, ¶¶ 9-10). The state court considered
and overruled the “limited objection” of Elmhurst/Cooper (doc. no. 8-2 at
63, ¶ 6). The state court rejected Elmhurst/Cooper’s argument that it
was a “buyer in the ordinary course of business” because the Texas law
pertaining to “buyers in the ordinary course of business” applied to
goods, not accounts receivables (Id. at ¶ 11). The state court ordered
the receiver to sell the accounts claimed by Elmhurst/Cooper, except for
the portion that Cooper had resold to a third party “RAB Performance
Recoveries, LLC” (Id. at ¶¶ 7, 14, 15).
Several weeks later on April 12, 2012, Cooper filed the present
federal declaratory action against Frost NB in the Southern District of
Ohio. Cooper seeks a declaration that it was “a bona fide purchaser of
the receivables and/or a purchaser in the ordinary course,” that Frost NB
authorized or acquiesced in King Fisher/LPI’s sale of the account
receivables to Elmhurst/Cooper, that Frost NB thereby relinquished its
security interest in those receivables, and that Cooper has priority over
any security interest that Frost NB may posses (¶¶ 26-34). Cooper asks
this Court to determine “who, as between Cooper and Frost, has rightful
title to all the receivables, despite a receivership proceeding (in which
Cooper was not a party) having taken place in Texas” (doc. no. 12 at 1).
Cooper asserts that “no security agreement had been filed by Frost NB
naming LPI” and that Elmhurst/Cooper was unaware of any security
agreement between Frost NB and King Fisher (doc. no. 12 at 4).
Defendant Frost NB has filed a Rule 12(b)(2) motion to dismiss for
lack of personal jurisdiction, or alternatively, to transfer. Cooper
opposes dismissal and/or transfer, and suggests that limited discovery
be allowed, followed by an evidentiary hearing on personal jurisdiction.
Standard of Review
Federal Rule of Civil Procedure 12(b)(2) provides for dismissal of a
claim for lack of jurisdiction over the person. Plaintiff bears the burden
of establishing that such jurisdiction exists. Fed.R.Civ.P. 12(b)(2); Youn
v. Track, Inc., 324 F.3d 409, 417 (6th Cir. 2003). When a district court
rules on a motion to dismiss for lack of personal jurisdiction without a
hearing, the court considers the pleadings and affidavits in the light
most favorable to plaintiff. CompuServe, Inc. v. Patterson, 89 F.3d 1257,
1262 (6th Cir. 1996).
The parties agree that specific jurisdiction is at issue here.
Specific jurisdiction exists where the subject matter of the lawsuit
arises out of or is related to the defendant's contacts with the forum
state. Air Products and Controls, Inc. v. Safetech Intern., Inc., 503 F.3d
544, 549 (6th Cir. 2007). In analyzing personal jurisdiction in diversity
actions, federal courts look to the law of the forum state to determine
whether the district court has personal jurisdiction over a party, subject
to constitutional due process requirements. Id.
Ohio's long-arm statute provides nine grounds to exercise specific
personal jurisdiction. Ohio R.C. § 2307.382(A)(1-9). As to whether the
exercise of specific jurisdiction meets constitutional due process
requirements, the pertinent inquiry is whether minimum contacts are
satisfied so as not to offend Atraditional notions of fair play and
substantial justice.@ Calphalon Corp. v. Rowlette, 228 F.3d 718, 721 (6th
Cir. 2000) (citing Cole v. Mileti, 133 F.3d 433, 436 (6th Cir. 1998)). Ohio’s
long-arm statute does not extend to the constitutional limits of the Due
Process Clause. Conn v. Zakharov, 667 F.3d 705, 712 (6th Cir. 2012).
In considering whether specific personal jurisdiction may be
exercised consistent with due process, relevant factors to consider
include whether: 1) the defendant purposefully availed itself of the
privilege of acting in Ohio or causing a consequence in Ohio; 2) the
cause of action arises from the defendant's activities there, and 3) the
acts of the defendant or consequences caused by the defendant have a
substantial enough connection with Ohio to make the exercise of
jurisdiction over the defendant reasonable. Id. at 550. All three factors
must be met to satisfy due process. LAK, Inc. v. Deer Creek Enterprises,
885 F.2d 1293, 1303 (6th Cir. 1989), cert. denied, 494 U.S. 1056 (1990).
A. Personal Jurisdiction
Frost NB argues that this Court lacks personal jurisdiction over it,
and alternatively, that venue is proper in Texas, not Ohio. Frost NB has
alluded to res judicata and/or claim preclusion (i.e. the ownership of the
receivables has already been litigated in the state action in Texas), but
has not moved to dismiss on such basis. Although Cooper argues that
“many of the receivables are in Ohio,” the Texas state court held that
LPI could not sell them to Cooper and that Frost NB retained a security
interest in them. The state court in Texas rejected Elmhurst/Cooper’s
“limited objection” based in part on Texas law. Cooper is essentially
asking this Court to declare that Cooper owns the receivables, a result
that appears inconsistent with the prior order of the Texas state court.
Frost NB points out that its principal place of business is in Texas,
that all of its branches are in Texas, and that the initial loan
agreements and other bank documents were executed in Texas with a
connection to Ohio is the fact that Cooper is located there” (doc. no. 8
at 9). Frost NB indicates it was not aware of the sale to Elmhurst or the
assignment to Cooper (doc. no. 8 at 8), an assertion that Cooper
disputes. Cooper points to the “Frost Lock Box” as evidence that Frost
NB was aware of and acquiesced in the assignment to Cooper and
actively monitored the funds to ensure payment of the Frost Loan.
Cooper argues that: 1) many of the receivables at issue are
currently located in Ohio; 2) Frost NB “purposely availed itself in Ohio
by making a claim to the Ohio Receivables;” 3) Frost NB was aware (or
should have been aware) that King Fisher/LPI sold the receivables
nationwide; 4) Frost NB received and benefitted from Cooper’s
payments into King Fisher/LPI’s accounts at Frost NB; and 5) Frost NB
and King Fisher/LPI directed “numerous communications” to Cooper in
Ohio (doc. no. 12 at 2). Essentially, Cooper is arguing that this amounts
to Frost NB “transacting business” in Ohio for purposes of Ohio’s
long-arm statute, Ohio R.C. § 2307.382(A)(1).
Cooper alternatively argues that the Court has in rem jurisdiction
“over property, e.g., the Ohio Receivables” (doc. no. 12 at 11-12).
Cooper asserts that the remaining “20,000 receivables” are in Ohio
because Cooper owns them and is located there (doc. no. 12 at 11).
Cooper cites Johnson v. Long Beach Mortgage Loan Trust 2001-4, 451
F.Supp.2d 16 (D.D.C. 2006) for the proposition that “where a party
claims a security interest in property located in another state . . . it is
subject to personal jurisdiction in the state where the property is
located” (doc. no. 17 at 3, fn. 2). Reliance on such case in misplaced, as
Johnson involved a security interest in real estate, and the long-arm
statute at issue in that non-Ohio case specifically referred to interests
in real estate.
Frost NB responds that, as held by the Texas state court, Cooper
does not “own” the receivables, and moreover, Cooper’s location is
irrelevant to “in rem” jurisdiction over the receivables (doc. no. 16 at 1).
Frost NB suggests that the “res” at issue is actually its Texas-filed
security interest in the receivables (Id. at 10).
Ultimately, these thorny issues regarding personal jurisdiction
need not be resolved here. Even assuming that Frost NB’s dealings with
Cooper would be sufficient under Ohio’s long-arm statute to find
personal jurisdiction over Frost NB here (and further assuming those
defendant’s argument for transferring venue to a more convenient
forum pursuant to 28 U.S.C. § 1404 has merit.
Section 1404(a) provides that [f]or 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 purpose of this provision is to transfer actions brought in
a permissible, yet inconvenient forum. Martin v. Stokes, 623 F.2d 469,
471 (6th Cir. 1980); Pittock v. Otis Elevator Co., 8 F.3d 325, 329 (6th Cir.
1993) (the court must have personal jurisdiction over the defendant to
transfer under § 1404). Relevant factors include: 1) the convenience of
the parties and witnesses, 2) access to evidence; 3) the availability of
process to compel attendance of witnesses; 4) the cost of obtaining
willing witnesses; 6) other practical problems associated with trying
the case most expeditiously and inexpensively; and 7) the interest of
justice. Buckeye Check Cashing of Arizona, Inc. v. Lang, 2007 WL
641824 (S.D.Ohio) (J. Graham) (citing Moses v. Business Card Express,
Inc., 929 F.2d 1131, 1137 (6th Cir.), cert. denied, 502 U.S. 821 (1991)).
These factors strongly favor venue in Texas. The majority of discovery
will necessarily take place in Texas, and the witnesses and proof are
located there. In short, the federal court in Texas is a far more
convenient forum for this dispute.
Even if personal jurisdiction over the defendant is lacking, the
court may transfer a case to another district pursuant to 28 U.S.C. §
1406. Jackson v. L & F Martin Landscape, 421 Fed. Appx. 482, 483 (6th
Cir. 2009) (observing that a court need not have personal jurisdiction
over the defendant before transferring pursuant to § 1406(a)). In other
words, this provision applies to cases brought in an impermissible
forum. Martin, 623 F.2d at 474; see also, Taylor v. Love, 415 F.2d 1118
(6th Cir. 1969) (district court may transfer case to another district even
absent personal jurisdiction over defendant), cert. denied, 397 U.S.
Pursuant to 28 U.S.C. § 1406(a), the court may, in the interests of
justice, transfer the case to a district court in which it could have been
brought. Goldlawr, Inc. v. Heiman, 369 U.S. 463, 466-67 (1962) (holding
that § 1406(a) does not require a district court to have personal
jurisdiction over the defendant before transferring the case). Such
decision is within the district court's sound discretion. First of Mich.
Corp. v. Bramlet, 141 F.3d 260, 262 (6th Cir. 1998). When a plaintiff has
some arguable basis for believing that the action was properly brought
in a particular district, transfer is the usual course rather than
dismissal. 15 Wright & Miller, Fed. Prac. & Proc. § 3827 at 274 (1986);
Stanifer v. Brannan, 564 F.3d 455, 460 (6th Cir. 2009).
Since Frost NB is a Texas bank, this case could “have been
brought” there. See 28 U.S.C. § 1391(a) (providing that in a civil action
based on diversity, venue is proper in the judicial district where the
defendant resides, or where a substantial part of the events giving rise
to the claim occurred). Again, most of the facts strongly favor venue in
Texas. King Fisher/LPI and Frost NB are both located in Texas. The
original deal between LPI and Elmhurst was made in Texas. The bank
accounts and Frost Lock Box are in Texas. The security interest
asserted by Frost NB is in Texas. The witnesses with relevant
knowledge are representatives of Frost NB and King Fisher/LPI in
Texas. The state-appointed receivership for King Fisher/LPI’s collateral
is in Texas. The purchase contract between LPI and Elmhurst specified
that Texas law would apply. Frost NB points out that the only witnesses
in Ohio are Cooper’s witnesses, who lack personal knowledge about the
agreements between Frost NB and King Fisher/LPI (which is one reason
why Cooper wants to do discovery in this action). Notably, any
discovery in the present action would necessarily take place in Texas.
Thus, even absent personal jurisdiction over Frost NB in Ohio, this case,
in the interests of justice, may appropriately be transferred pursuant to
28 U.S.C. § 1406(a). See Stone v. Twiddy & Co. of Duck, Inc., 2012 WL
3064103, *6 (S.D.Ohio) (J. Barrett) (“this Court may sua sponte order
that a case be transferred pursuant to § 1406”).
Accordingly, the defendant’s AMotion to Dismiss For Lack of
Personal Jurisdiction, or Alternatively, to Transfer Venue@ (doc. no. 8) is
GRANTED in the alternative; this case is TRANSFERRED to the United
States District Court for the Northern District of Texas, Fort Worth
IT IS SO ORDERED.
s/Herman J. Weber
Herman J. Weber, Senior Judge
United States District Court