American Chemicals & Equipment Inc 401(K) Retirement Plan v. Principal Management Corporation et al
MEMORANDUM OPINION. Signed by Judge Abdul K Kallon on 1/24/2014. (PSM)
2014 Jan-24 PM 02:31
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
AMERICAN CHEMICALS &
EQUIPMENT INC. 401(K)
Civil Action Number
Plaintiff American Chemicals & Equipment, Inc. 401(k) Retirement Plan
(“Plaintiff”), a retirement plan of an Alabama corporation, filed this action on
behalf of the shareholders of six mutual funds (the “LifeTime Funds”). Plaintiff
alleges that the LifeTime Funds’ investment advisors, Defendants Principal
Management Corporation (“PMC”) and Principal Global Investors, LLC (“PGI”)
(collectively, “Defendants”), breached their statutory fiduciary duty under Section
36(b) of the Investment Company Act of 1940 (“ICA”), 15 U.S.C. § 80a-35(b), by
charging unfair and excessive fees for their advisory services and retaining excess
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profits derived from economies of scale.1 Doc. 1 ¶¶ 92–99. Before the court is
Defendants’ motion to transfer this case to the Southern District of Iowa pursuant
to 28 U.S.C. § 1404. Doc. 11. The motion is fully briefed.2 See docs. 12, 15, 20.
For the reasons outlined below, Defendants’ motion is due to be GRANTED.
The LifeTime Funds are diversified portfolios of Principal Funds, Inc.
(“PFI”), an investment company headquartered in Des Moines, Iowa. Doc. 12-1 ¶
3. The LifeTime Funds’ only holdings consist of other PFI mutual funds (a socalled “fund of funds”), and those holdings change over time as the date of an
investor’s expected retirement approaches (a “target-date” fund). Doc. 1 ¶¶ 2–3.
The ICA provides:
For the purposes of this subsection, the investment adviser of a registered investment
company shall be deemed to have a fiduciary duty with respect to the receipt of
compensation for services, or of payments of a material nature, paid by such
registered investment company, or by the security holders thereof, to such investment
adviser or any affiliated person of such investment adviser. An action may be brought
under this subsection by the Commission, or by a security holder of such registered
investment company on behalf of such company, against such investment adviser, or
any affiliated person of such investment adviser, or any other person enumerated in
[15 U.S.C. § 80a-35(a)] who has a fiduciary duty concerning such compensation or
payments, for breach of fiduciary duty in respect of such compensation or payments
paid by such registered investment company or by the security holders thereof to such
investment adviser or person.
15 U.S.C. § 80a-35(b).
Defendants’ brief in support of their motion to transfer exceeds the ten page limit. See
doc. 12. The court will construe this submission as a motion to enlarge the page limit. So
construed, and upon due consideration, the motion is GRANTED.
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PMC and PGI, Iowa-based companies with their principal places of business in
Des Moines, Iowa, serve as the investment advisor and sub-advisor, respectively,
of the LifeTime Funds. Id. ¶¶ 29–30. PMC provides extensive services to the
LifeTime Funds, including, inter alia, monitoring PGI in its role as sub-advisor,
providing portfolio management services, and providing substantial accounting,
regulatory, compliance, and transfer agency services. Doc. 12-1 ¶¶ 5, 7. PGI
provides portfolio management services to the LifeTime Funds. Id. ¶ 7.
Every year, PMC and PGI make a proposal to the PFI Board of Directors
(the “Board”) regarding the fees they intend to charge the LifeTime Funds. After
considering and evaluating the proposal, the Board makes a final decision about
the proposed fees at its September Board meeting in Des Moines, Iowa. Id. ¶ 9. If
the Board approves the fees, Defendants enter into contracts with PFI that govern
the terms of Defendants’ relationship with the LifeTime Funds and set forth the
fees that Defendants can charge the LifeTime Funds. Id. The fees charged are the
basis for this lawsuit.
A district court may transfer a civil action to any other district in which the
action may have been filed “for the convenience of the parties and witnesses, in
the interest of justice.” 28 U.S.C. § 1404(a). In addressing a motion under §
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1404(a), the court must establish first that the plaintiff could have originally filed
the case in the venue to which it seeks to transfer the case, and, second, weigh a
number of factors to determine if transfer is justified. Stiefel Labs., Inc. v.
Galderma Labs., Inc., 588 F. Supp. 2d 1336, 1338 (S.D. Fla. 2008). Significantly,
the burden is on the movant to show that the suggested forum is more convenient
or that litigation there would be in the interest of justice. In re Ricoh Corp., 870
F.2d 570, 573 (11th Cir. 1989). Ultimately, “[t]he decision to transfer a case to
another district is left to the sound discretion of the trial court.” Brown v. Conn.
Gen. Life Ins. Co., 934 F.2d 1193, 1197 (11th Cir. 1991).
The parties do not dispute, and this court agrees, that venue would be proper
in the Southern District of Iowa because Defendants are Iowa corporations with
their principal places of business in Des Moines, Iowa. Doc. 1 ¶¶ 29–30; see also
15 U.S.C. § 80a-43 (“Any suit or action to enforce any liability or duty created by,
or to enjoin any violation of, [the ICA], may be brought in any such district or in
the district wherein the defendant is an inhabitant or transacts business.”); 28
U.S.C. § 1391(b)(1) (venue is proper in “a judicial district in which any defendant
resides, if all defendants are residents of the State in which the district is
located.”). Consequently, the only issue here is whether the balance of factors
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justifies a transfer in this case. To reach this determination, the court must utilize
and weigh the following factors:
(1) the convenience of the witnesses; (2) the location of relevant
documents and the relative ease of access to sources of proof; (3) the
convenience of the parties; (4) the locus of operative fact; (5) the
availability of process to compel the attendance of unwilling witnesses;
(6) the relative means of the parties; (7) a forum’s familiarity with the
governing law; (8) the weight accorded a plaintiff’s choice of forum;
and (9) trial efficiency and the interests of justice, based on the totality
of the circumstances.
Manuel v. Convergys Corp., 430 F.3d 1132, 1135 n.1 (11th Cir. 2005). As shown
below, these factors militate in favor of the transfer of venue.
Weight Accorded Plaintiff’s Choice of Forum
Generally, the plaintiff’s choice of forum receives considerable deference.
Piper Aircraft Co. v. Reyno, 454 U.S. 235, 255 (1981) (“a plaintiff’s choice of
forum is entitled to greater deference when the plaintiff has chosen the home
forum”); see also Robinson v. Giarmarco Et Bill, P.C., 74 F.3d 253, 260 (11th Cir.
1996) (plaintiff’s choice of forum should not be disturbed unless it is clearly
outweighed by other considerations). However, in derivative actions, “the plaintiff
may . . . be a mere phantom plaintiff with interest enough to enable him to institute
the action and little more.” Koster v. (Am.) Lumbermens Mut. Cas. Co., 330 U.S.
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518, 525 (1947).3 In such cases, the “high significance” of the plaintiff’s choice of
forum is diminished. Id. Further, “where the operative facts underlying the cause
of action did not occur within the forum chosen by the Plaintiff, the choice of
forum is entitled to less consideration.” Windmere Corp. v. Remington Products,
Inc., 617 F. Supp. 8, 10 (S.D. Fla. 1985); see also Amazon.com v. Cendant Corp.,
404 F. Supp. 2d 1256, 1260 (W.D. Wash. 2005) (“Where the action has little
connection with the chosen forum, less deference is accorded plaintiff’s choice,
even if plaintiff is a resident of the forum.”).
In this case, Plaintiff has not “taken some active part in the corporate affairs,
[does not] have personal knowledge of them, [and has not] had dealings in course
of protest and objection which make it requisite or at least expedient for [it]
personally to be present at the trial.” Koster, 330 U.S. at 525. Further, even though
Plaintiff resides in this judicial district, Plaintiff’s claims have little connection
with this district. See infra Part III.D. Accordingly, the court accords this factor
Koster, applying the doctrine of forum non conveniens, dealt with an alternative forum in
Illinois prior to the passage of 28 U.S.C. § 1404. 330 U.S. at 520. 28 U.S.C. §§ 1404 and 1406
supplanted the common law doctrine of forum non conveniens. American Dredging Co. v. Miller,
510 U.S. 443, 449 n.2 (1994). However, the doctrine still applies in cases where the alternative
forum is abroad or possibly a state or territorial court. Sinochem Intern. Co. Ltd. v. Malaysia
Intern. Shipping Corp., 549 U.S. 422, 430 (2007).
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Convenience of the Parties and Witnesses
The convenience of the parties and witnesses is often considered the single
most important factor in the transfer analysis. Stiefel Labs., Inc., 588 F. Supp. 2d at
1339. Based on the unrefuted evidence, four of the five portfolio managers for the
LifeTime Funds are located in Des Moines, Iowa, and the fifth is in New York.
Doc. 12-1 ¶ 7. All employees at PMC who provide accounting and compliance
services for the LifeTime Funds are located in Des Moines, Iowa. Id. ¶ 5. All of
the Defendants’ executive officers are located in Des Moines, Iowa. Id. ¶ 6. Of the
eleven PFI Board members, four are in the Southern District of Iowa; two are in
the Chicago, Illinois area; two are in Spokane, Washington; one is in California;
one is in both California and New York; and one is in the Washington, D.C. area.
Id. ¶ 10. In other words, a majority of the witnesses who participated in the fee
negotiations reside in the Southern District of Iowa, and no witness with material
testimony resides in Alabama. See doc. 12-1 ¶¶ 5–7, 10; see also Herbert Ltd.
P’ship v. Elec. Arts, Inc., 325 F. Supp. 2d 282, 286 (S.D.N.Y. 2004) (“When
assessing the convenience of witnesses, . . . the court must qualitatively evaluate
the materiality of the testimony that the witnesses may provide.”).
Plaintiff argues that these facts do not favor a transfer because it is unlikely
that Plaintiff will require any witness to travel to Alabama for pretrial discovery.
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Doc. 20 at 3. While this may be the case, these witnesses may nonetheless have to
attend the trial and any pretrial hearing that requires their testimony. This fact
makes this district an inconvenient forum for a majority of the witnesses. In
contrast, although Plaintiff resides in Alabama, doc. 1 ¶ 28, transferring this matter
will create no hardships for Plaintiff because this is a derivative action in which
Plaintiff will “make no showing of any knowledge by which [its] presence would
help to make whatever case can be made [on] behalf of the [shareholders].”
Koster, 330 U.S. at 525. Additionally, any concern by Plaintiff regarding the
inconvenience of a transfer to Iowa for its counsel would prove minor at best
because Plaintiff is represented by counsel from Arizona, Florida, Illinois, and
California. In other words, contrary to Plaintiff’s contention, a transfer would not
“merely shift the inconvenience from one party to another.” Eye Care
International, Inc. v. Underhill, 119 F. Supp. 2d 1313, 1319 (M.D. Fla. 2000).
Accordingly, the convenience of the parties and witnesses weighs heavily in favor
Location of Relevant Documents and Ease of Access to Sources of Proof
Defendants’ documents relating to the LifeTime Funds are located primarily
in Des Moines, albeit in electronic format. See doc. 12-1 ¶ 12. While this factor
favors transfer, it carries less weight “in the current world of expedited transfer of
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information.” Stiefel, 588 F. Supp. 2d at 1340; see also Watson v. Earthbound
Holding, LLC, 2012 WL 3775760, *3 (N.D. Ala. Aug. 27, 2012) (citing Dendy v.
Decker Truck Line, Inc., 2010 WL 3398987, *3 (M.D. Ala. Aug. 26, 2010)). Thus,
the court affords this factor little weight.
The Locus of Operative Fact
Defendants contend that all material events related to Plaintiff’s claims
transpired in the Southern District of Iowa. Doc. 12 at 13. Indeed, all decisions
regarding the amount of fees paid by the LifeTime Funds were made in Des
Moines, Iowa. See doc. 12-1 ¶ 4, 9. Although Plaintiff asserts that the Northern
District of Alabama “has significant connections to the litigation,”4 doc. 15 at 7,
the connections Plaintiff enumerates had little or no affect on the amount of fees
negotiated by Defendants and PFI, which lies at the heart of Plaintiff’s claims.
Accordingly, this factor weighs in favor of transfer.
Availability of Process to Compel the Attendance of Unwilling
There are no witnesses to the allegedly wrongful conduct that reside in
Plaintiff notes that it “resides here, negotiated and executed the Agreement that led to the
mutual fund share purchases in question and related fee overcharges by Defendants here,
received quarterly and annual statements concerning the fees in question here, purchased the
mutual fund shares in question here, and paid the alleged excessive fees to Defendants from here.
In addition, Defendants disseminated documents relevant to this case in this District, marketed
the mutual funds at issue in this District and operate offices in the District.” Doc. 15 at 7.
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Alabama. See doc. 12-1 ¶¶ 5–7, 10. On the other hand, several non-party witnesses
reside in the Southern District of Iowa—specifically, the members of the PFI
Board of Directors. Id. ¶ 10. Moreover, former employees of Defendants who
potentially witnessed any wrongful conduct related to fee decisions occurring in
Des Moines, Iowa are far more likely to reside in the Southern District of Iowa.
Consequently, this court would lack the ability to compel non-party witnesses to
appear at trial if any party wants these individuals to testify at trial. Accordingly,
this factor weighs heavily in favor of transfer.
Relative Means of the Parties
Although Defendants are corporations and perhaps have greater resources
than Plaintiff, there is no evidence that Plaintiff would endure substantially greater
hardship by traveling to Iowa. In fact, as Plaintiff admits, “the vast majority of
pretrial depositions in this action will take place at Defendants’ headquarters or
where the deponent is located.” Doc. 15 at 8. Moreover, there are no witnesses
with material testimony in Alabama, and a majority of Plaintiff’s counsel are from
outside Alabama. Accordingly, the court affords this factor little weight.
Forum’s Familiarity with the Governing Law
The court affords this factor no weight because all federal courts are equally
capable of properly applying federal law.
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Trial Efficiency and the Interests of Justice
This factor weighs in favor of transfer because the majority of the witnesses
are located in the Southern District of Iowa, none are located in the Northern
District of Alabama, and holding a trial in the Southern District of Iowa provides
better efficiencies for the parties.
The court finds, in its discretion and based on the totality of the
circumstances, that the balance of factors weighs heavily in favor of transferring
this case to the Southern District of Iowa. Accordingly, Defendants’ motion to
transfer, doc. 11, is due to be GRANTED.
A separate order consistent with this Memorandum Opinion will be entered
DONE the 24th day of January, 2014.
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE
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