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)

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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

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