Kahn et al v. Davis et al
Filing
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ORDER. On or before 9/26/2011, the parties shall file briefs no longer than five pages addressing whether this matter should be transferred in the interests of justice and, if so, to which district it should be transferred. By Judge Philip A. Brimmer on 9/14/11. (mnf, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 10-cv-01715-PAB-KMT
PATRICE KAHN, individually and on behalf of One Twenty Financial Services, Inc., a
Missouri corporation, and
FARRELL KAHN,
Plaintiffs,
v.
LESLIE DAVIS and
ONE TWENTY FINANCIAL SERVICES, a Missouri corporation,
Defendants.
ORDER
This matter is before the Court on defendants Leslie Davis’ and One Twenty
Financial Services, Inc.’s motions to dismiss [Docket Nos. 16, 30] pursuant to Fed. R.
Civ. P. 12(b)(2) and 12(b)(3). The Court has jurisdiction over this case pursuant to 28
U.S.C. § 1332, based on diversity of citizenship among the parties.
I. BACKGROUND1
This case arises out of a dispute between Patrice and Farrell Kahn, citizens of
Colorado, and Leslie Davis, a citizen of Missouri, over the management of One Twenty
Financial Services, Inc. (“One Twenty”), a Missouri corporation. The amended
complaint [Docket No. 13] alleges that Mr. Kahn and Mr. Davis formed One Twenty with
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The following facts have not been disputed by the parties for purposes of the
motions to dismiss.
Mr. Kahn and Mr. Davis as equal shareholders. According to Mr. Kahn’s affidavit
[Docket No. 27-1], attached in response to Mr. Davis’ motion to dismiss, the company
was formed in the late 1980s after Mr. Davis called Mr. Kahn in Colorado to discuss
business opportunities. The two decided that Mr. Davis would be the company’s chief
operating officer and Mr. Kahn would acquire oil and gas properties for the company as
investments. In the years following the company’s formation, Mr. Kahn acquired
several properties for the company. Although the properties were all located outside
the state of Colorado, Mr. Kahn did much of the work required for the acquisition of the
properties in Colorado. Mr. Kahn and Mr. Davis were in touch by phone about the
company frequently in the first years after its creation. Since One Twenty was formed,
Mr. Davis never visited Colorado, other than for a trip in 1991 to attend Mr. Kahn’s
wedding to Mrs. Kahn. See Affidavit of Leslie Davis, Docket No. 30-1, at 2. Sometime
later, Mr. Kahn requested his interest in the company be transferred to his wife. At all
times, Mr. Davis and One Twenty’s books and accounts were located in Missouri.
Over the years, Mr. Davis sent distribution checks to the Kahns at their home in
Colorado. At some point, Mr. Davis allegedly stopped making distributions, claiming
that the corporation was without funds. The Kahns claim that Mr. Davis lied to them
about the company’s profits. According to plaintiffs, Mr. Davis made improper
distributions from company funds for his personal use and failed to maintain One
Twenty’s books and accounts properly.
II. ANALYSIS
Defendant Davis seeks dismissal on the grounds that the Court does not have
personal jurisdiction over him, plaintiff Farrell Kahn lacks standing, and Colorado is not
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a proper venue for plaintiffs’ lawsuit. Defendant One Twenty also seeks dismissal on
the grounds that the Court does not have personal jurisdiction over it.
“A court has leeway ‘to choose among threshold grounds for denying audience
to a case on the merits.’” Sinochem Int’l Co. Ltd. v. Malaysia Int’l Shipping Corp., 549
U.S. 422, 423 (2007) (quoting Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 584
(1999)). Although personal jurisdiction “is typically decided in advance of venue . . .
neither personal jurisdiction nor venue is fundamentally preliminary . . . Accordingly,
when there is a sound prudential justification for doing so . . . a court may reverse the
normal order of considering personal jurisdiction and venue.” Leroy v. Great Western
United Corp., 443 U.S. 173, 180 (1979). A sound prudential justification exists here.
The defendants’ personal jurisdiction argument raises difficult issues. However, the
Court concludes that the District of Colorado is not the proper venue for this suit. See
id. (avoiding the “more difficult” question of personal jurisdiction where it was “so clear
that venue was improper”). Id. at 181. Moreover, the Court may transfer this case to a
jurisdiction with proper venue pursuant to 28 U.S.C. § 1406(a) regardless of whether or
not defendants are subject to personal jurisdiction in Colorado. See Goldlawr, Inc. v.
Heiman, 369 U.S. 463, 466 (1962) (“The language of § 1406(a) is amply broad enough
to authorize transfer of cases, however wrong the plaintiff may have been in filing his
case as to venue, whether the court in which it was filed had personal jurisdiction over
the defendants or not.”).
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A. Propriety of Venue under 28 U.S.C. § 1391(a)(2)
Plaintiffs allege that venue is proper in the District of Colorado pursuant to 28
U.S.C. § 1391(a)(2) because “a substantial part of the events or omissions giving rise to
the claim occurred” in the District. See Docket No. 13 at 2. Under this provision, which
applies to cases where jurisdiction is based on diversity of citizenship, venue is not
limited to the district where the majority of the events or omissions occurred. Rather,
§ 1391(a)(2) “contemplates that venue can be appropriate in more than one district . . .
[and] permits venue in multiple judicial districts as long as a substantial part of the
underlying events took place in those districts.” Employers Mut. Cas. Co. v. Bartile
Roofs, Inc., 618 F.3d 1153, 1165-66 (10th Cir. 2010) (quoting Gulf Ins. Co. v.
Glasbrenner, 417 F.3d 353, 356 (2d Cir. 2005)). Once venue is challenged, it is the
plaintiff’s burden to show that venue is proper in the forum district. See Gwynn v.
TransCor America, Inc., 26 F. Supp. 2d 1256, 1261 (D. Colo. 1998). A court conducts
a two-part analysis when reviewing challenges to venue under § 1391(a)(2). First, it
“examine[s] the nature of the plaintiff’s claims and the acts or omissions underlying
those claims.” Employers Mut. Cas. Co., 618 F.3d at 1166. Second, it “determine[s]
whether substantial ‘events material to those claims occurred’ in the forum district.” Id.
(quoting Gulf Ins., 417 F.3d at 357). Defendants argue that this analysis should focus
on the actions of defendants rather than plaintiffs; however, the Tenth Circuit has
declined to hold that the venue inquiry is necessarily limited to the defendant’s actions.
See id. at 1166 n.11.
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Plaintiffs bring claims for breach of fiduciary duty, conversion, fraud, accounting,
and inspection of books. Plaintiffs’ claims for breach of fiduciary duty and conversion
are brought alternatively as individual claims and derivative claims. Specifically,
plaintiffs allege that Mr. Davis borrowed money in One Twenty’s name and acquired
assets for the company that were not properly recorded in its books, distributed money
from the company to himself for personal uses, failed to ensure that the company
complied with tax regulations, misled plaintiffs as to the company’s performance, and
failed to make distributions due to plaintiffs as shareholders of the company.
Plaintiffs’ claims are all based on wrongful conduct committed by Mr. Davis in the
state of Missouri. See Fodor v. Hartman, No. 05-CV-02539-PSF-BNB, 2006 WL
1488894 at *4 (D. Colo. May 30, 2006) (venue not proper in Colorado where torts of
fraudulent misrepresentation, concealment, negligent misrepresentation, breach of
fiduciary duty, conversion, and civil theft were allegedly committed out of state). Some
of Mr. Davis’ misrepresentations were allegedly directed at plaintiffs in Colorado.
However, “[w]hen misrepresentations are the underlying events of a litigation, courts
generally look to the place where the misrepresentations were made, not the place
where they were received or relied upon, to determine where the underlying events
occurred.” Gemini Investors III, L.P. v. RSG, Inc., 2009 WL 776740 at *2 (D. Minn. Mar.
20, 2009) (collecting cases). Although the “place where the harms were felt” can also
be relevant to the venue analysis for tort claims, plaintiffs only suffered economic harm
in the state of Colorado and “[m]ost courts have found that the suffering of economic
harm within a district is not sufficient without more to warrant transactional venue in that
district.” Charles Alan Wright et al., Federal Practice & Procedure § 3806.1 (2010).
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Beyond the economic harm suffered by the Kahns in Colorado, the facts central to this
dispute all occurred in Missouri. That Mr. Kahn conducted business on behalf of One
Twenty in Colorado during its early years or that Mr. Davis contacted Mr. Kahn in
Colorado to form the company are facts only tangentially related to plaintiffs’ current
claims and, therefore, insubstantial for purposes of determining proper venue. See
Fodor, 2006 WL 1488894 at *4 (“test for determining venue is not the defendant’s
‘contacts’ with a particular district, but rather the location of those ‘events or omissions
giving rise to the claim’”). Therefore, the Court finds that a substantial part of the
events or omissions giving rise to the claims did not occur in Colorado and, thus, venue
in this District is improper. See 28 U.S.C. § 1391(a)(2).
B. Transfer or Dismissal Under 28 U.S.C. § 1406(a).
Title 28, section 1406(a) provides: “The district court of a district in which is filed
a case laying venue in the wrong division or district shall dismiss, or if it be in the
interest of justice, transfer such case to any district or division in which it could have
been brought.” Factors favoring transfer over dismissal include whether the plaintiff’s
claims would be time-barred if brought in an appropriate forum, whether the claims are
likely to have merit, and whether the plaintiff realized or should have realized that the
forum in which he filed was improper. See Trujillo v. Williams, 465 F.3d 1210, 1223
n.16 (10th Cir. 2006). Although the parties have addressed whether the case should be
transferred to Missouri pursuant to 28 U.S.C. § 1404(a), which allows for transfer based
on the convenience of parties and witnesses, they have not addressed the factors
related to a transfer of venue in the interest of justice under § 1406(a), as outlined in
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Trujillo. See id. Therefore, the Court will order briefing on whether this matter should
be dismissed without prejudice or be transferred.
III. CONCLUSION
For the foregoing reasons, it is
ORDERED that on or before September 26, 2011, the parties shall file briefs no
longer than five pages addressing whether this matter should be transferred in the
interests of justice and, if so, to which district it should be transferred.
DATED September 14, 2011.
BY THE COURT:
s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge
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