Intelligent Discovery Management, LLC et al v. Omnivere Holding Company, LLC et al

Filing 27

MEMORANDUM OPINION re 10 Motion to Dismiss for Failure to State a Claim or Transfer Venue. Signed by Judge Gregory M. Sleet on 7/15/2016. (asw)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

INTELLIGENT DISCOVERY
MANAGEMENT, LLC and BALINT BROWN
& BASRI, LLC,
Plaintiffs,
v.
OMNNERE HOLDING COMPANY, LLC,
OMNIVERE, LLC, and ERIK S. POST,
Defendants.

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C.A. No. 1:15-cv-01134-GMS

MEMORANDUM
I.

INTRODUCTION
Plaintiffs Intelligent Discovery Management, LLC ("IDM") and Balint Brown & Basri,

LLC ("B3") (together, "Plairitiffs") filed a Complaint on December 8, 2015 alleging claims of
violations of Sections lO(b) and 20(a) of the Securities Exchange Act of 1934, common law fraud,
negligent misrepresentation and breaches of contract relating to an Asset Purchase Agreement and
Operating Agreement. (D .I. 1.) On February 4, 2016, Defendants OmniVere Holding Company,
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LLC ("OmniVere Holding"), OmniVere, LLC, and Erik S. Post ("Post") (together, "Defendants")
filed a Motion to Dismiss for Failure to State a Claim or Transfer Venue ("Motion to Transfer") .
. (D.1. 10.) Presently before the court are the Defendants' Motion to Transfer to the Southern
District of New York pursuant to 28 U.S.C. § 1404(a), and the Plaintiffs' Cross-Motion for Leave
to File an Amended Complaint. (D.I. 10; D.I. 17.)
For. the reasons that follow, the court will grant the Defendants' Motion to Transfer Venue
and consequently will not rule on any other motions at this time.

II.

BACKGROUND
Plaintiffs IDM and B3 are New York Limited Liability Companies, headquartered in New

York.

(D.I. 1 at

ifif 6-7.)

Defendant OmniVere Holding is a Limited Liability Company

headquartered in Chicago, Illinois and incorporated in Delaware. Defendant OmniVere, LLC, is
a wholly-owned subsidiary of OmniVere Holding, and is a Delaware Limited Liability Company
also located in Chicago, Illinois. (Id. at iii! 8-9.) Defendant Erik S. Post is a citizen of Illinois who
during the relevant period was the CEO of OmniVere Holding as well as President of OmniVere,
LLC. (Id. at if 10.)
In April and May of 2014, the Defendants began purchasing the assets of multiple ediscovery vendors, including the Plaintiffs. Pursuant to the purchase, the parties negotiated and
signed an Asset Purchase Agreement ("the AP A"), which listed the particular units among the
Plaintiffs' assets for sale and described the terms of sale to the Defendants. (D.I. 1 at·irir 15, 24.)
The Plaintiffs' complaint alleges that the Defendants fraudulently induced them to invest in certain
units of preferred equity when they entered into the _AP A. (Jd. at iii! 63-67.) These investments,
like the AP A itself, were negotiated and conducted in New York, and the Defendants used a New
York accounting firm to perform due diligence services that were also conducted in New York.
(D.I. at if 9; D.I. 12, Ex. 3 at 'ti 8.) No part of the complaint alleges that any negotiations over the
AP A or any activity related to the transactions took place in Delaware.
The AP A contains a forum selection clause that reads in pertinent part:
· Any legal action or proceeding with respect to this Agreement shall be brought in the courts
of the State ofN ew York or the federal courts ... ofN ew Y o:rk, and ... [t]he Parties hereto
hereby irrevocably waive any objection, including any objection to the laying of venue or
based on the grounds of forum non conveniens, which any of them may now or hereafter
have to the bringing of any such action or proceeding in such respective jurisdictions.

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(D.I. 12-2, Ex. 2 at 32....,.33.) The Plaintiffs also negotiated and signed an Operating Agreement
("the OA") between themselves and Defendant OmniVere Holding in New York.

The OA

contains a clause entitled "Consent to Jurisdiction and Service of Process" and states that "[t]he
parties irrevocably consent to the jurisdiction and venue of the state and federal courts located in
Delaware in connection with any action relating to this agreement." (D.I. 19, Ex.Bat§ 18.4.)
As a result of the AP A, several complicated and intertwined cases have arisen in the
Commercial Division of the New York State Supreme Court before the Honorable Shirley W.
Kornreich ("the New York court"). The two currently pending cases involve Plaintiffs IDM and
B3 as defendants in one case ("the Balint action"), and .Defendants OmniVere, LLC and Post as
defendants in the other case (''the RCLLC Case"). The RCLLC Case includes claims of breach of
contract, fraud, and wrongful termination against the Defendants. As a defense against the RCLLC
plaintiff, the OmniVere, LLC and Post alleged that IDM and B3 committed fraud in negotiating
theAP A. (D.I. 12atifif12-15.) On November 19, 2015, Judge Kornreich held a status conference
in which OmniV ere, LLC disclosed its intent to bring those same fraud allegations as affirmative
claims against IDM and B3. (Id. at if 17.) The New York court stalled the filing of such an
amended complaint until the parties completed court-ordered mediations involving other claims.
(Id. at if 18.) On December 8, 2015, IDM and B3 commenced this action alleging fraud against

the Defendants. On December 17, 2015, the New York court was made aware of the filing ofthis
case, and on the following day issued sua sponte an order that any action for fraud brought by the
Defendants against the Plaintiffs in New York would not be dismissed on the basis ofthere being
a prior filed case in Delaware. (D.I. 12-1.)
The Defendants now move to transfer these proceedings to the Southern District of New

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York. They contend that the court should transfer the case in light of the operative facts taking
place in New York, the New York forum-selection clause, the location of key witnesses, and the
ongoing litigation in the State of New York. (D .I. 20 at 17.) In response, the Plaintiffs contend
(1) that the OA' s Delaware consent clause is actually mandatory, not permissive, and that under
the precedent of both the Third Circuit and this court the AP A's clause should be disregarded due
to the conflict; and (2) the factors that the court must balance in evaluating§ 1404(a) ultimately
favor denying the motion. (D.I. 18 at 19-20.) For the foregoing reasons, the court grants the
Defendants' motion.

III.

ST AND ARD 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(a). Under this
provision, a district court may exercise "broad discretion to determine, on an individualized, caseby-case basis, whether convenience and fairness considerations weigh in favor of transfer."
Jumara v. State Farm Ins. Co., 55 F.3d 873, 883 (3d Cir. 1995). The purpose of transfer is to

protect litigants, witnesses, and the public from the unnecessary waste of time, energy, and money.
See Virgin Wireless, Inc. v. Virgin Enters. Ltd., 201 F. Supp. 2d. 294, 299 (D. Del. 2002) (citing
Van Dusen v. Barrack, 376 U.S. 612, 616 (1964)).

The court undertakes a two-step inquiry in order to resolve a motion to transfer. "The court
first asks whether the action could have been brought in the proposed transferee venue and then
determines whether transfer to a different forum would best serve the interests of justice and
convenience." Smart Audio Techs., L.L.C. v. Apple, Inc., 910 F. Supp. 2d 718, 724 (D. Del. 2012).

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At each step, the defendant has the burden to demonstrate that a transfer is appropriate, Jumara,
55 F.3d at 879-80, and "unless the balance of convenience of the parties is strongly in favor of the
defendant, the plaintiffs choice of forum should prevail." Shutte v. Armco Steel Corp., 431 F.2d
22, 25 (3d Cir. 1970).

IV.

DISCUSSION
A. The Competing Forum Selection Clauses
The Plaintiffs contend that the court should decline to enforce both the AP A New York

forum clause and the OA Delaware forum clause. (D.I. 18 at 20.) First, they assert that courts in
the Third Circuit construe the language similar to the OA's Consent Clause as mandatory rather
than permissive. (D.I. 18 at 15 n.16.) See, e.g., Wall Street Aubrey Golf, LLC v. Aubrey,

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Fed.

App'x 82, 84 (3d Cir. 2006) (holding mandatory a clause which read that the lease "shall be
construed in accordance" with Pennsylvania law and "with venue laid in Butler County,
Pennsylvania.") Second, they point out that in the case of two conflicting forum selection ~lauses,
federal courts "often decline to enforce both clauses out of concern for wasting judicial and party
resources." See Jones v. Custom Truck & Equip., LLC, No. 3:10-cv-611, 2011WL250997, at *4
(E.D. Va. Jan. 25, 2011). The court views this as a wise approach. Rather than parse which clause
should control in this case, the court disregards both and proceeds with the traditional § 1404(a)
analysis.
B. The Propriety of the Transferee Forum
The court may only transfer an action to a "district or division where it might have been
brought." 28 U.S.C. § 1404(a). Accordingly, the court may only transfer the case to the Southern
District of New York if venue would have been proper there and if that district court could have

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exercised personal and subject matter jurisdiction over this action. The Plaintiffs assert that "it is
by no means clear that OmniVere Holding is subject or willing to subject itself to jurisdiction in
New York in the absence of the securities fraud claim," thus making the Southern District of New
York an improper venue under the first Jumara prong. (D .I. 18 at 21.) This overlooks the fact
that under New York State law, "a court may exercise personal jurisdiction over any nondomiciliary ... who in person or through an agent ... transacts any business within the state or
contracts anywhere to supply goods or services in the state." N.Y. Civil Practice Law and Rules,
§ 302(a)(l). The Defendants note that OmniVere Holding entered into its OA with the Plaintiffs
in New York. (D.I. 20 at 15.) Accordingly, the Southern District of New York is a proper forum
for transfer.

C. The Jumara Analysis
The court next must consider whether transfer to the Southern District of New York would
serve the interests of convenience and justice. In the Third Circuit, this requires an individualized
analysis, accounting for the various private and public interests guarded by§ 1404(a). See Jumara,
55 F.3d at 879. The court, rather than applying any "definitive formula," considers each of these
"Jumara factors" on a case-by-case basis. See id. The private interests may include:

plaintiffs forum preference as manifested 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. (citations omitted). And the public interests may include:

the enforceability of the judgment: practical considerations that
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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 with the applicable state law in diversity cases.

Id. at 879-80 (citations omitted). Importantly, the Jumara analysis is not limited to these explicitly
enumerated factors, and no one factor is dispositive. See id. at 879.

a. Private interest factors
i. Plaintiffs' forum preference
The first private interest factor is the "plaintiff's forum preference as manifested in the
original choice." Jumara, 55 F.3d at 879. But "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 consideration." Linex Techs., Inc. v. Hewlett-Packard Co., No. 11-400-GMS, 2013
WL 105323, at *3 (D. Del. Jan. 7, 2013). To earn deference for its decision to file in a forum
besides its "home turf," a plaintiff must have "rational and legitimate reasons." Smart Audio, 910
F. Supp. 2d 718 at 727. The Plaintiffs were aware of OmniVere, LLC's plans to file an amended
complaint against them in the New York court. (D .I. 12 at if 17.) Their decision to file in Delaware
before OmniVere, LLC could amend its complaint in New York hints at gamesmanship. See In

Re Microsoft Corp., 630 F.3d 1361, 1364 (Fed. Cir. 2011) ("The Supreme Court has long urged
courts to ensure that the purposes of jurisdictional and venue laws are not frustrated by a party's
attempt at manipulation.").

Therefore, the court declines to defer to the Plaintiff's forum

preference. This factor does not weigh against transfer to New York.

ii. Defendants' forum preference
The second private interest factor is the Defendants' choice of forum. Jumara, 55 F.3d at

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879. The Defendants prefer the Southern District of New York because "the operative facts
occurred in New York, the AP A applies New York law, and all material witnesses are located in
and will be required to give testimony in New York." (D.I. 11 at 14.) Accordingly, this factor
weighs in favor of transfer to New York.
iii. Location of operative events

The third private interest factor is "whether the claims arose elsewhere." Jumara, 55 F.3d
at 879. The parties agree that the operative facts unfolded in New York State. (D.I. 11 at 15; D.I.
18 at 22.) This factor weighs in favor of transfer to New York.
iv. Convenience of the parties

In evaluating the convenience of the parties, the court considers: "(1) the parties' physical
location; (2) the associated logistical and operational costs to the parties' employees in traveling
to Delaware (as opposed to the proposed transferee district) for litigation purposes; and (3) the
relative ability of each party to bear these costs in light of its size and financial wherewithal."
Smart Audio, 910 F. Supp. 2d at 731 (citation omitted).

Here, the Plaintiffs are New York companies owned by New York residents. Although
they are Delaware LLCs, OmniVere Holding and OmniVere, LLC have their principal places of
business in Illinois. Post is also an Illinois resident. If the case is transferred to New York, the
Defendants will still be required to travel, but the Plaintiffs will not. Moreover, OmniVere, LLC
and Post are already litigating in New York, and leaving this suit to proceed in Delaware would
therefore result in additional expense. (See D.I. 11 at 16.) The court finds the increased cost to
both parties weighs slightly in favor of transfer.

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v. Convenience of Witnesses
The third Jumara private interest factor is "the convenience of the witnesses-but only to
the extent that the witnesses may actually be unavailable for trial in one of the fora." Jumara, 55
F.3d at 879. The Defendants argue that because New York is more than 100 miles away from
Wilmington, Delaware, potential non-party witnesses residing therein "are outside the subpoena
power of this Court:" (D.I. 11 at 16.) Nevertheless, the Plaintiffs correctly note that "this factor
is only given weight when there is some reason to believe that a witness actually will refuse to
testify absent a subpoena." Smart Audio, 910 F. Supp. 2d at 731. The Defendants produce no
evidence that the witnesses will be unavailable for trial. This factor therefore counts neither for
nor against transfer.

vi. Location of Books and Records
All parties agree this is a neutral factor because all of the documents relevant to litigation
are available electronically. (D .I. 11 at 17; D .I. 18 at 22-23.)

b. Public interest factors
i. Practical considerations
Jumara instructs the court to assess "practical considerations that could make the trial easy,
expeditious, or inexpensive." Jumara, 55 F.3d at 879. Practical considerations favor transfer
where the relevant evidence, likely third-party witnesses, or company's headquarters and
operations are located in the proposed district. See Mite! Networks Corp. v. Facebook, Inc., 943
F.Supp.2d 463, 475 (D. Del. 2013). Here, the Defendants note (and the Plaintiffs do not dispute)
that the operative facts occurred in New York and the Plaintiffs as well as material witnesses are
all located in New York. Therefore, assembling witnesses and evidence for trial would be less

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expensive in that jurisdiction. The Plaintiffs object only by noting that "this is the only federal
case relating to this matter" without explaining how this fact makes the District of Delaware an
easier, expeditious, or more inexpensive forum for litigating these issues than the Southern District
of New York. (D.I. 18 at 23.) As a result, this factor also weighs in favor of transfer.
ii. Relative administrative difficulty
The court also considers the "relative administrative difficulty in the two fora resulting
from court congestion." Jumara, 55 F.3d at 879. To prove that this factor weighs against transfer,
the Plaintiffs produce statistics demonstrating that in 2015, District Court Judges in the Second
Circuit had over twice the number of civil cases pending per judge than in the Third Circuit. (D.I.
18 at 23.) But this does not show the full picture. Examination of the relevant districts

reve~ls

that the District of Delaware had over 400 civil cases pending per District Court Judge from March
31, 2014 to March 31, 2015, whereas the Southern District of New York had approximately 317
civil cases per District Court Judge for the same period. See US. District Courts-Civil Case;s

Commenced, Terminated, and Pending During the 12-Month Period Ending March 31, 2015, FEB.
JUDICIAL CASELOAD STATISTICS (March 2015), http://www.uscourts.gov/statistics/table/c1/federal-judicial-caseload-statistics/2015/03/31. To the extent that such a ratio reflects court
congestion, this factor weighs slightly in favor of transfer.
iii. Local Interests in the Litigation
The Defendants assert that because the Plaintiffs are New Yorkers, the related parties are
New Yorkers, the principal operative agreement is governed by New York law, and the majority
of operative events occurred in New York, that New York courts have a strong interest in
adjudicating this matter. (D .I. 11 at 18.) In response, the Plaintiffs point to a provision of Delaware

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law that grants the Delaware Court of Chancery exclusive jurisdiction over requests for
information from LLCs by members. See 6 Del. Code§ 18-305(f). Because the Plaintiffs allege
that they received fraudulent answers to their requests for disclosure, Delaware courts have an
. interest in hearing the case. (D .I. 18 at 23.) The Plaintiffs also note that as the site of incorporation,
Delaware's interest

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of at least "minimal importance." See VideoShare. LLC, v. Google Inc.,

Nos. 13-990-92-GMS, 2014 WL 1338713, at *6 (D. Del. Apr. 1, 2014). This factor appears to be
neutral with respect to transfer.
iv. Enforceability of Judgment

All parties agree this factor is neutral, as judgment would be equally enforceable in both
the current and proposed venues. (D.I. 11 at 19; D.I. 18 at 23.)
v. Familiarity with Relevant State law
Both the Southern District of New York and the District of Delaware are capable of
competently applying the other state's laws. See Nottenkamper v: Modany, No. 14-672-GMS,
2015WL1951571, at *5 (D. Del. Apr. 29, 2015). Accordingly, this factor is neutral in theJumara
analysis.
c. Transfer Analysis Summary

Considering the Jumara factors as a whole, the court finds the Defendants have met their
burden of demonstrating that the interests of justice and convenience strongly favor transfer.
The Defendants' forum preference, the location of the operative events, the convenience to the
parties, the practical considerations and the relative administrative difficulty all weigh in favor of
transfer to the Southern District of New York. All remaining factors are at most neutral with
respect to transfer.

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V.

CONCLUSION
For the reasons stated above, the court will grant the Defendants' Motion to Transfer Venue

pursuant to 28 U.S.C. § 1404(a).

Dated:

July~. 2016

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