Nottenkamper v. Modany et al

Filing 29

MEMORANDUM OPINION. Signed by Judge Gregory M. Sleet on 4/29/2015. (mdb)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
JANICE NOTTENKAMPER, derivatively
on behalf ofITT EDUCATIONAL
SERVICES, INC.,
Plaintiff,

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Civil Action No. 14-672-GMS

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KEVIN M. MODANY, DANIEL M.
FITZPATRICK, JOHN F. COZZI, JOHN
E. DEAN, JAMES D. FOWLER, JR., JOANNA
T. LAU, THOMAS I. MORGAN, SAMUEL
L. ODLE, VIN WEBER, JOHN A. YENA and
LLOYD G. WATERHOUSE,

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Defendants,
and

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ITT EDUCATIONAL SERVICES, INC.,

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Nominal Defendant.

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MEMORANDUM OPINION
I.

INTRODUCTION
On May 27, 2014, plaintiff Janice Nottenkamper ("Nottenk:amper"), on behalf of ITT

Educational Services, Inc. ("ITT"), filed a derivative action against the above-captioned
defendants, who are certain members of ITT' s Board of Directors and executive officers
(collectively, the "Defendants"). (D.I. 1.) Nottenkamper alleges claims for breach of fiduciary
duty, abuse of control, unjust enrichment, and gross mismanagement. (Id.) On January 13, 2015,
the Defendants filed a motion to transfer this case to the Southern District of New York, pursuant
to 28 U.S.C. § 1404(a). (D.I. 11.) For the reasons that follow, the court will grant the Defendants'
motion.

II.

BACKGROUND
This is the third lawsuit to be filed concerning similar facts and circumstances relating to

corporate management of ITT. Two prior lawsuits, one securities class action (the "Securities
Action") and one derivative action (the "New York Derivative Action"), were filed in the Southern
District of New York in 2013. 1 Both of those cases are currently pending before Judge J. Paul
Oetken.
As described in the Complaint, Nottenkarnper is a current shareholder of ITT and has held
ITT stock since 1994. (D.I. 1,

ii 35.)

She is a citizen of Arkansas. (Id.) ITT is a Delaware

corporation with its principal executive offices located in Indiana. (Id.

ii

36.) ITT provides

accredited, technology-oriented undergraduate and graduate degree programs through ITT
Technical Institutes and Daniel Webster College. (Id.) Nottenkarnper alleges cl!!ims of breach of
fiduciary duty, abuse of control, unjust enrichment, and gross mismanagement against the
Defendants.

III.

STANDARD OF REVIEW

"For 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 or to
any district or division to which all parties have consented." 28 U.S.C. § 1404. This provision
affords district courts "broad discretion to determine, on an individualized, case-by-case basis,
whether convenience and fairness considerations weigh in favor of transfer." Jumara v. State
Farm Ins. Co., 55 F.3d 873, 883 (3rd Cir. 1995). In this assessment, the court undertakes a two-

step inquiry to determine whether a motion to transfer should be granted. First, the court must

1
The Securities Action was later consolidated into the action In re ITT Educational Services, Inc., Securities
Litigation, No. 13-cv-1620-JPO (S.D.N.Y. filed Mar. 11, 2013). The New York Derivative Action is Sasha Wilfred
ex rel. ITT Educational Services, Inc. v. Modany, et al., No. 13-cv-3110-JPO (S.D.N.Y. filed May 8, 2013).

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establish whether the action is one that could have originally been brought in the proposed
transferee forum. See Shutte v. Armco Steel Corp., 431 F.2d 22, 24 (3rd Cir. 1970). Second, the
court must then weigh whether transfer would best serve the interests of convenience and justice.

See Jumara, 55 F.3d at 879. The burden rests on the defendant to show that transfer is appropriate
at each step. Id. (citing Shutte, 431 F .2d at 22). "Unless the balance of convenience of the parties
is strongly in favor of [the] defendant, the plaintiff's choice of forum should prevail." Shutte, 431
F.3d at 25 (citing Owatonna Mfg. Co. v. Melore Co., 301 F. Supp. 1296, 1307 (D. Minn. 1969)).

IV.

DISCUSSION
A. The Propriety of the Transferee Forum
The proposed transferee forum must be one in which the action might have originally been

brought. 28 U.S.C. § 1404(a). Accordingly, the coµrt may only grant the Defendants' motion to
transfer if "the transferee court (1) would have been a proper venue and (2) would have had
personal jurisdiction over the defendant had the case been filed there initially." See 15 Wright and
Miller, Federal Practice and Procedure§ 3841 (4th ed. 2014) (citing Hoffman v. Blaski, 363 U.S.
335 (1960)).

The parties do not appear to dispute that Nottenkamper's lawsuit could have

originally been filed in the Southern District of New York. 2 As such, the court proceeds to the
second step to analyze the relevant interests at stake.

B. The Jumara Analysis
The court must next consider whether transferring this action to the Southern District of
New York would serve the interests of convenience and justice. See Mitel Networks Corp. v.

Facebook, Inc, 943 F. Supp. 2d 463, 468 (D. Del. 2013). The Third Circuit has instructed that
courts should perform a case-by-case analysis, rather than apply a "definitive formula." See

2

Nottenkamper's brief hints that jurisdiction in the Southern District of New York would not be proper, but
fails to elaborate further. (D.I. 26 at 7.) Thus, there is no clear challenge to the propriety of the transferee forum.

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Jumara, 55 F.3d at 879. This assessment should take into account the various public and private
interests protected and defined in§ 1404(a). The private interests may include:
[P]laintiff's forum preference as maintained in the original choice;
the defendant's preference; whether the claim arose elsewhere; the
convenience of the parties as indicated by their relative physical and
financial condition; the convenience of the witnesses-but only to
the extent that the witnesses may actually be unavailable for trial in
one of the fora; and the location of books and records (similarly
limited to the extent that the files could not be produced in the
alternative forum).
Id. (internal citations omitted). The public interests may include:

[T]he enforceability of the judgment; practical considerations that
could make the trial easy, expeditious, or inexpensive; the relative
administrative difficulty in the two fora resulting from court
congestion; the local interest in deciding local controversies at
home; the public policies of the fora; and the familiarity of the trial
judge wi~h the applicable state law in diversity cases.
Id. at 879-80 (internal citations omitted). The Jumara analysis is not limited to these explicitly
enumerated factors, and no one factor is dispositive. See id. at 879. The court addresses each of
these "Jumara factors" in tum.
1. Private Interest Factors

a. Plaintiff's Forum Preference
The first private interest factor is the "plaintiff's forum preference as manifested in the
original choice." Id. at 879. The Defendants argue that Nottenkamper's choice of forum is entitled
to little deference because this is a derivative action. (D.I. 12 at 10.) Conversely, Nottenkamper
contends that the present forum is proper because ITT is incorporated in Delaware, and that her
choice of forum "should not be lightly disturbed." (D.1. 26 at 12 (quoting Jumara, 55 F.3d at
879).)

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The court agrees with the Defendants. It has long been recognized that, in a shareholder's
derivative suit, an individual plaintiffs forum preference is entitled to little weight.
Where there are hundreds of potential plaintiffs, all equally entitled
voluntarily to invest themselves with the corporation's cause of
action and all of whom could with equal show of right go into their
many home courts, the claim of any one plaintiff that a forum is
appropriate ... is considerably weakened....
. . . . [I]n derivative actions, although the plaintiff may have a
substantial interest of his own to protect, he may also be a mere
phantom plaintiff with interest enough to enable him to institute the
action and little more.
Kosterv. (Am.) Lumbermens Mut. Casualty Co., 330 U.S. 518, 524--25 (1947); see also Weislerv.
Barrows, No. 06-362-GMS, 2006 WL 3201882, at *3 (D. Del. Nov. 6, 2006) ("[I]n a shareholder's

derivative suit, a plaintiffs choice of forum is entitled to little weight. ... ); Blender v. Sibley, 396
F. Supp. 300, 302 (E.D. Pa. 197 5) ("Although a plaintiffs choice of forum normally is a paramount
consideration in any determination of a request to transfer, far less weight is accorded that factor
in a derivative suit or class action." (internal citations omitted)). Here, there is no indication that
Nottenkamper has any particular personal interest that would entitle her choice of forum to special
weight.
Moreover, even under a more traditional analysis of plaintiffs choice of forum,
Nottenkamper's preference would not be entitled to "paramount" consideration. See Shutte, 431
F.2d at 25. Nottenkamper's only justification for litigating in Delaware is that ITT is a Delaware
corporation.

But it is a corporate entity's actual, physical location-and not its state of

incorporation-that is the driving factor in the transfer analysis. Linex Techs., Inc. v. HewlettPackard Co., No. 11-400-GMS, 2013 WL 105323, at *3 (D. Del. Jan. 7, 2013) ("The

court ... recognizes that, when a plaintiff chooses to bring an action in a district where it is not
physically located, its forum preference is entitled to something less than . . . paramount

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consideration."). Although ITT is incorporated in Delaware, its principle place of business is in
Indiana. See Mite!, 943 F. Supp. 2d at 469 ("[T]he fact that Delaware is not home to [plaintiffs]
principal place of business reduces somewhat the weight this factor is accorded.").
Consequently, under either analysis, plaintiffs choice of forum-while weighing against
transfer-is not entitled to significant deference.
b. Defendant's Forum Preference
The second private interest factor is the defendant's choice of forum. Jumara, 55 F.3d at
879. When evaluating the defendant's choice of forum, the court examines whether the defendant
can articulate rational, legitimate reasons to support that preference. Pragmatus AV, LLC v.

Yahoo! Inc., No. 11-902-LPS-CJB, 2013 WL4629000, at *8 (D. Del. Aug. 28, 2013). Defendants
have articulated rational reasons for their preferred forum: the two earlier-filed, related actions
currently pending in the Southern District of New York. The Defendants contend that litigating
all of the actions in a single district would save significant time and expense, as well as avoid the
risk of inconsistent judgments.

(Id.) Nonetheless, the Defendants' preference cannot alone

displace Nottenkamper's own choice. See Intellectual Ventures I LLC v. Altera Corp., 842 F.
Supp. 2d 744, 755 (D. Del. 2012) ("Under Third Circuit law, Defendants' preference for an
alternative forum is not given the same weight as Plaintiff's preference.") Thus, this factor weighs
slightly in favor of transfer.
c. Whether the Claim Arose Elsewhere
The third private interest factor the court must consider is "whether the claim arose
elsewhere." Jumara, 55 F.3d at 879. The Defendants are correct that the Third Circuit test
examines the location of those "events or omissions giving rise to the claim" and not "the
defendants contacts with a particular district." See Cottman Transmission Sys. Inc. v. Martino, 36

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F.3d 291, 294 (3d Cir. 1994). The parties agree that the Defendants' alleged misconduct did not
take place in either Delaware or New York. Consequently, this factor is neutral.
d. Convenience of the Parties
The court must also determine whether the proposed transferee forum would be more
convenient for the parties. See Jumara, 55 F.3d at 879. In making this determination, the court is
to consider the relative physical and financial condition of the parties. Id. It is not disputed that
none of the parties are physically located in Delaware or New York. Yet, although the Defendants
do not reside in New York, they are currently litigating there. Thus, the court agrees that the
Southern District of New York is more convenient for them versus the District of Delaware.
Conversely, there is no convenience to Nottenkamper in litigating in Delaware. Consequently,
this factor weighs in favor of transfer.

e. Convenience of Witnesses
The court must also consider the convenience of the witnesses. See Jumara, 55 F.3d at
879. The weight of this factor is limited to the extent that a witness would actually be unavailable
for production in one of the fora-i.e., non-party witnesses beyond the subpoena power of the
district. Id.; see alsoAffemetrix, Inc. v. Synteni, Inc., 28 F. Supp. 2d 192, 203 (D. Del. 1998). The
parties do not specify any non-party witnesses who would be unavailable in one forum versus the
other. Consequently, this factor is neutral.

f. Location ofBooks and Records
Finally, the court must consider the location of books and records. See Jumara, 55 F.3d at
879. The location of books and records is also limited to the extent that documentary evidence
would actually be unavailable for production in one of the fora. Id.

The court is aware, as

Nottenkamper points out, that advances in technology makes production of documents in two

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locations easier than it may have been in the past. This factor, however, still requires consideration.
See Mite/, 943 F. Supp. 2d at 474 ("Though modem technology makes the task of transporting

electronic evidence far less onerous, the court must nevertheless accord at least some weight to
this factor.") Although it does not appear that books and records would be unavailable for
production in Delaware, the fact that many of the documents will already be produced in the
Southern District of New York in the related matters means that transfer would ease the
Defendants' burden of production. Consequently, this factor weighs slightly in favor of transfer.

2. Public Interest Factors
The parties limit their briefing on the public interest factors to practical considerations and
the local interests in resolving the issues. The parties do not address or do not dispute the
remainder of the factors. For simplicity, the court will

~irror

the parties' briefing and limit its

analysis to the factors raised therein.
a. Practical Considerations

Courts should look to "practical considerations that .could make the trial easy, expeditious,
or inexpensive." Jumara, 55 F.3d at 879. Defendants contend that transferring this action to the
Southern District of New York would achieve these benefits because: (1) transfer would avoid
duplicative litigation, since two related issues are already pending in the Southern District of New
York; (2) it would prevent unnecessary expenses and inconsistent rulings; and (3) it is in the best
interests ofITT. (D.I. 12 at 13.) In response, Nottenkamper does not challenge the substance of
the Defendants' efficiency arguments, but argues that such arguments are overstated and stale
because of the Defendants' delay in seeking transfer. (D.I. 26 at 16.)
The court agrees with the Defendants that the co-pending related lawsuits in the Southern
District of New York weigh in favor of transfer. See Cont'/ Grain Co. v. Barge FBL-585, 364

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U.S. 19, 26 (1960) ("To permit a situation in which two cases involving precisely the same issues
are simultaneously pending in different District Courts leads to the wastefulness of time, energy
and money that § 1404(a) was designed to prevent."); see also Mitek Sys., Inc. v. United Servs.
Auto. Ass 'n, No. 12-462-GMS, 2012 WL 3777423, at *7 (D. Del. Aug. 30, 2012); Intellectual
Ventures I, 842 F. Supp. 2d at 759. Here, there are two related lawsuits pending in the Southern
District of New York, including another derivative action. Transferring the case would allow the
related derivative actions to be tried within the same district, in front of the same judge, minimizing
the potential for repetitive litigation and inconsistent judgments. See Weis/er, 2006 WL 3201882
at *3 ("Where related lawsuits exist, it is in the interests of justice to permit suits involving the
same parties and issues to proceed before one court.")
The court is not persu_aded by Nottenkamper's argument that any benefits of efficiency
"are now wasted due to Defendants' own dilatory actions." (D.I. 26 at 16.) Although perhaps the
Defendants could have sought transfer sooner, the court is not convinced that the benefits of
transfer have been lost-interests in efficiency can be attained, even still. See MoneyCat Ltd v.
PayPal Inc., No. 13-1358, 2014 WL 2042699, at *3 (D. Del. May 15, 2014) ("Thus, while the
transfer motion could have been filed earlier, it is not so late that transfer will substantially delay
the litigation of this matter.") The case remains in its infancy: the Defendants have not yet
answered the Complaint, no scheduling order has been entered, and no formal discovery has been
conducted. It cannot be said that the transfer would substantially delay the litigation in this matter.
Therefore, the Defendants' timing in filing the motion to transfer was not improper. Practical
considerations weigh strongly in favor of transfer.
b. Local Interest in the Litigation

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Next, the court considers "the local interest in deciding local controversies at home."
Jumara, 55 F.3d at 879. The parties are in agreement that the Southern District of New York is

capable of applying Delaware law. Nottenkamper, however, argues that Delaware has a great
interest in deciding this case, since it involves "classic principles of Delaware law." (D.I. 26 at
16.) Nottenkamper relies on the fact that ITT is a Delaware corporation and asserts that, as a result,
Delaware has a significant interest in overseeing this action. (Id. at 16-1 7.) The court disagrees.
As the Defendants point out, the Southern District of New York is very capable of applying
Delaware fiduciary law. Moreover, there is no suggestion that this case implicates complex
questions of Delaware law that cannot be properly addressed by the Southern District of New
York. Therefore, Delaware does not have any special interest in this case that would weigh against
a ~ansfer. Thus, the court finds that this factor is neutral.
C. Transfer Analysis Summary

Considering the Jumara factors as a whole, the court concludes that the Defendants have
met their burden of demonstrating that the interests of justice and convenience strongly favor
transfer.

Only Nottenkamper's forum preference weighs against transfer, and, as the court

explained, her preference does not warrant considerable deference.

In contrast, practical

considerations of efficiency strongly favor transfer to the Southern District of New York. All other
factors are neutral or also slightly favor transfer.
V.

Conclusion

For the reasons discussed above, the court will grant Defendants' Motion to Transfer. (D.1.
11.)

This action is transferred to the Southern District of New York, pursuant to 28 U.S.C. §

1404(a). 3

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The court declines to rule on the Defendants' pending motion to dismiss. (D.1. 8.) These arguments can be
raised before the transferee judge.

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Dated: April

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