Tuttle et al v. Sky Bell Asset Management LLC et al

Filing 232

AMENDED ORDER RE MOTION TO DISMISS FOR LACK OF VENUE re 229 Order. Signed by Judge Alsup on September 13, 2011. (whalc2, COURT STAFF) (Filed on 9/13/2011)

1
2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7
FOR THE NORTHERN DISTRICT OF CALIFORNIA

8
9
United States District Court
For the Northern District of California

10
11

EDGAR W. TUTTLE, ERIC BRAUN, THE
BRAUN FAMILY TRUST, and WENDY MEG
SIEGEL, on behalf of themselves and all others
similarly situated,
No. C 10-03588 WHA

12
Plaintiffs,
13
v.
14
15
16

SKY BELL ASSET MANAGEMENT, LLC, et
al.,

AMENDED ORDER RE
MOTION TO DISMISS
FOR LACK OF VENUE

Defendants.
/

17
INTRODUCTION

18
19
20
21
22

After much motion practice and to the extent stated below, the motion to dismiss for
lack of venue is now GRANTED.
STATEMENT
Plaintiffs bring this proposed class action on behalf of owners of limited partnership

23

units in seven limited partnerships controlled by defendants Sky Bell Asset Management, LLC,

24

and Gary Marks, along with co-general partners in certain of the limited partnerships.

25

There is a host of defendants. Defendants have appeared in the following groups, which

26

is relevant to explain which groups brought the joint motion to dismiss. The “auditor

27

defendants” are Rothstein Kass (represented by counsel from Blecher & Collins and Hodgson

28

Russ), McGladrey & Pullen (represented by counsel from Keker & Van Nest and Williams &
Connolly), and Ernst & Young. All of the other defendants have been referred to as “fund

1

defendants,” most of which are represented by counsel from Thomas Alexander & Forrester.

2

Defendants Eden Rock Finance Fund, LP, Solid Rock Management Limited, and Eden Rock

3

Capital Management LLP are collectively called the “Eden Rock defendants.” They are

4

represented separately by Paul Hastings. Defendant Neal Greenberg is represented separately

5

by Attorneys Julian Baum and Steven Feder.
This order follows a hearing on the defendants’ joint motion to dismiss back on April 7,

7

2011, that resulted in the order dated April 11 partially granting the motion and allowing further

8

discovery on other aspects now addressed. At the hearing, “plaintiffs’ counsel raised questions

9

as to the propriety of finding the forum-selection clauses binding when the completeness of the

10
United States District Court
For the Northern District of California

6

record as to these documents and process of execution is thin” (Dkt. No. 118 at 8). With similar

11

concern, the order dated April 11 stated: “Plaintiffs will be allowed to conduct discovery into

12

the facts concerning these forum-selection clauses and execution of the agreements in which

13

they are found.” Thus, the order held in abeyance the fund defendants’ and the Eden Rock

14

defendants’ motion to dismiss for lack of venue, stating: “In four months from the date of this

15

order, ie., on August 11, 2011, both sides may file supplemental submissions concerning the

16

matters that are being held in abeyance by this order, namely personal jurisdiction and the

17

execution process of the limited partnership agreements (the forum-selection issue)” (Dkt No.

18

118 at 11–12).

19

Four months passed. No supplemental evidence or briefing was submitted by anyone.

20

Upon inquiry, the Court was told that the immediately affected parties were working on a

21

settlement. An order advised that the Court would proceed to resolve the long-standing motion.

22

More time passed. Still no additional submissions were made raising new points or at least any

23

new substantial point unaddressed by this order. The instant ruling now resolves the forum-

24

selection clause questions.

25
26

ANALYSIS
A.

FUND DEFENDANTS’ MOTION TO DISMISS

27

Plaintiffs invested in seven Delaware limited partnerships pursuant to seven limited

28

partnership agreements. The fund defendants’ motion is brought by the majority of general
2

1

partners in the seven fund groups targeted by the complaint, represented by counsel from

2

Thomas Alexander & Forrester.

3

In their respective limited partnership agreements, plaintiffs agreed to forum-selection

4

clauses requiring that for “any action arising out of this Agreement,” they consent “to exclusive

5

jurisdiction and venue” in either Florida or Delaware, as follows:

6

•

Sky Bell Select Agreement ¶ 8.5

“The parties hereby consent to exclusive
jurisdiction and venue for any action
arising out of this Agreement in the State of
Florida.”

•

Wailea Partners Agreement ¶ 8.5

“The parties hereby consent to exclusive
jurisdiction and venue for any action
arising out of this Agreement in
Hillsborough County, Florida.”

•

Night Watch Partners Agreement ¶ 8.5

“The parties hereby consent to exclusive
jurisdiction and venue for any action
arising out of this Agreement in the State of
Florida.”

•

Eden Rock Finance Fund Agreement ¶ 8.5 “The parties hereby consent to exclusive
jurisdiction and venue for any action
arising out of this Agreement in the State of
Delaware.”

•

Pipeline Investors Agreement ¶ 8.5

“The parties hereby consent to exclusive
jurisdiction and venue for any action
arising out of this Agreement in the State of
Florida.”

•

Agile Sky Alliance Fund Agreement ¶ 8.5

“The parties hereby consent to exclusive
jurisdiction and venue for any action
arising out of this Agreement in the State of
Delaware.”

7
8
9
United States District Court
For the Northern District of California

10
11
12
13
14
15
16
17
18
19
20
21

These clauses are properly considered in the context of a motion to dismiss. Argueta v. Banco

22

Mexicano, S.A., 87 F.3d 320, 324 (9th Cir. 1996).

23

Although the fund defendants make their forum-selection clause argument on behalf of

24

all fund defendants, the Sky Bell Offshore Partners agreement — the last of seven of the fund

25

groups — in fact did not have a forum-selection clause.

26

The six forum-selection clauses that do exist, however, apply to the claims plaintiffs

27

make against the fund defendants, as the claims “aris[e] out of th[e limited partnership]

28

Agreement[s].” Plaintiffs’ complaint concerns the limited partnerships, which are governed by
3

1

the agreements (Compl. ¶ 56); claims violation of the duties created by the agreements (id. ¶¶

2

95–96, 103, 110); and seeks recovery of management fees prescribed in the agreements (id. ¶¶

3

116–18). The fund defendants cite a number of decisions finding claims such as those made

4

here to qualify as claims that arise out of a contract, and plaintiffs do not contest that the six

5

forum-selection clauses apply to their claims.

6

When a forum-selection clause is the result of arm’s-length negotiations by experienced

7

persons, the clause should be enforced unless “the party seeking to escape his contract []

8

show[s] that trial in the contractual forum will be so gravely difficult and inconvenient that he

9

will for all practical purposes be deprived of his day in court.” M/S Bremen v. Zapata

United States District Court
For the Northern District of California

10

Off-Shore Co., 407 U.S. 1, 18 (1972). The forum-selection clauses in the limited partnership

11

agreements apply to this action, and plaintiffs have not carried the heavy burden of showing that

12

enforcing the clauses would be manifestly unfair, unjust, or unreasonable. See also Hendricks

13

v. Bank of Am., N.A., 408 F.3d 1127, 1137 (9th Cir. 2005). Accordingly, the forum-selection

14

clauses will be enforced.

15

Plaintiffs solely argue that the fund defendants are forum shopping because they

16

removed this action without raising an issue of venue, but are now “chang[ing] their tune”

17

(Opp. 20). Plaintiffs characterize the fund defendants’ motion to dismiss for lack of venue as

18

“belated.” Not so. Plaintiffs cite no law in support of their contention, which is contrary to law.

19

See, e.g., Soil Shield Intern., Inc. v. Lilly Indus., Inc., No. C 98-1353 SC, 1998 WL 283580, at

20

*2 (N.D. Cal. May 29, 1998) (“The law is clear. Defendants have not waived any objection to

21

venue by removing this action to federal court.”).

22

Plaintiffs will be held to the terms of the six forum-selection clauses in their agreements

23

with all of the fund defendants except for the Sky Bell Offshore Partners defendants, because

24

that entity’s agreement did not have a forum-selection clause. Otherwise, the forum-selection

25

clauses provide for “exclusive jurisdiction and venue” in either Florida or Delaware, so venue

26

in California is improper. Plaintiffs do not request transfer as an alternative to dismissal. The

27

fund defendants’ motion to dismiss this action against them (except as to the Sky Bell Offshore

28

Partners defendants) is therefore GRANTED.
4

1
2

B.

EDEN ROCK DEFENDANTS’ MOTION TO DISMISS
Defendants Eden Rock Finance Fund, LP, Solid Rock Management Limited, and Eden

3

Rock Capital Management LLP, move to dismiss as well. The applicable limited partnership

4

agreement stated: “The parties hereby consent to exclusive jurisdiction and venue for any action

5

arising out of this Agreement in the State of Delaware” (Eden Rock Finance Fund Agreement

6

¶ 8.5). The Eden Rock defendants are in the same boat as the other fund defendants, they just

7

happen to have different counsel. For the reasons stated above, the claims against the Eden

8

Rock defendants must also be dismissed for lack of venue.

9

Plaintiffs argue that this order should not enforce the forum-selection clause because

United States District Court
For the Northern District of California

10

“the claims of the case do not entirely arise from, and are thus broader than, the underlying

11

agreements which contain the clauses” (Opp. 8). Notably, plaintiffs do not cite portions of the

12

limited partnership agreement or the complaint to demonstrate why this is so. Moreover, as

13

demonstrated above in the context of the main fund defendants’ motion, such an analysis shows

14

that plaintiffs’ claims do arise under the agreements.

15

Plaintiffs also argue that this order should not enforce the forum-selection clause

16

because this case “involves multiple defendants, claims, agreements, and disparate

17

forum[-]selection clauses” (Opp. 8). Plaintiffs therefore argue that the forum-selection clause

18

should be ignored for the sake of judicial economy. As an initial matter, we are here discussing

19

whether the forum-selection clause should be enforced as to the Eden Rock defendants only, and

20

as such are discussing only one agreement and one set of defendants, and so no such disparate

21

forum-selection clauses apply. Judicial economy will not be served by abandoning the Eden

22

Rock agreement forum-selection clause.

23

Moreover, the notion that enforcing the forum-selection clauses generally in this action

24

would “require plaintiffs to file nearly identical cases and claims in multiple state courts against

25

nearly identical groups of defendants for conduct arising from the same facts and

26

circumstances” (Opp. 12), fails to recognize that even the instant complaint is segmented

27

concerning seven different groups of fund defendants. There is some overlap, but enforcing the

28

forum-selection clauses will not require plaintiffs to file seven identical suits in seven places.
5

1

Rather, pursuant to the seven agreements, instead of having one behemoth case like we have

2

here, each suit will concern each of the partnerships, which is both logical and at least as

3

efficient as the one now pending here.

4

Plaintiffs also argue that this order should not enforce the forum-selection clause

5

because “three of the four named plaintiffs are California residents.” Plaintiffs argue that they

6

must be allowed to litigate here because otherwise “the strong public policy of California in

7

protecting individuals from breaches of fiduciary duty would be likely eviscerated” (Opp. 8–9).

8

Yet that has nothing to do with the standards for whether to enforce a forum-selection clause,

9

which were outlined above. The inquiry concerns whether “trial in the contractual forum will

United States District Court
For the Northern District of California

10

be so gravely difficult and inconvenient that [a plaintiff] will for all practical purposes be

11

deprived of his day in court.” M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 18 (1972).

12

Wanting to enforce state policy is irrelevant.

13

Plaintiffs next argue that this order should not enforce the forum-selection clause

14

because “[m]any of the defendants, such as the Auditor Defendants, are not even party to any

15

agreement selecting a particular forum” (Opp. 8). The short answer is that a party having such a

16

clause is entitled to its benefit whereas a different party without such a clause must defend in

17

other ways without the benefit of a forum-selection clause.

18

Finally, plaintiffs argue that this order should not enforce the forum-selection clause

19

because “the partnership agreements relied on by the [Eden Rock] Defendants which contain

20

the forum[-]selection clauses were not negotiated between sophisticated business entities with

21

equal bargaining power but rather constitute adhesion contracts presented on a take it or leave it

22

basis” (Opp. 8). Plaintiffs cite no support for this statement whatsoever. They have thus not

23

carried their burden to show it to be true or supportive of their cause to have this order ignore

24

the forum-selection clause to which they agreed.

25

Therefore, plaintiffs will be held to the terms of their agreement with the Eden Rock

26

defendants. The forum-selection clause provides for “exclusive jurisdiction and venue” in

27

Delaware, so venue in California is improper. Plaintiffs do not request transfer as an alternative

28

to dismissal. Pursuant to 28 U.S.C. 1406(a), dismissal of this action for lack of venue is
6

1

appropriate. The Eden Rock defendants, like the other fund defendants, make additional

2

arguments in support of dismissal, but those will not be discussed as the foregoing analysis is

3

dispositive. The Eden Rock defendants’ motion to dismiss this action against them is

4

GRANTED.

5

CONCLUSION

6

For the foregoing reasons, fund defendants and Eden Rock defendants’ motion to

7

dismiss for lack of venue, except as to the Sky Bell Offshore Partners defendants, is GRANTED.

8
9

IT IS SO ORDERED.

United States District Court
For the Northern District of California

10
11

Dated: September 13, 2011.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
7