Hutt v. Erbey et al

Filing 42

ORDER that the Moving Defendants' Motion to Transfer Venue 27 is GRANTED IN PART and DENIED IN PART. It is GRANTED with respect to the Moving Defendants' request to transfer this case. It is DENIED with respect to the Moving Defendants� 39; request for attorneys' fees. IT IS FURTHER ORDERED that this action is TRANSFERRED to the United States District Court for the Southern District of Florida. IT IS FURTHER ORDERED that the Motion to Stay Discovery and Pretrial Deadlines Pending Ruling on Motion to Transfer Venue 30 and the Motion for Oral Argument 37 are DENIED. Signed by Judge William S. Duffey, Jr on 12/14/2015. (anc) Modified on 12/15/2015 in order to correct file date (anc).

Ruling on Motion to Transfer Venue [30] and Plaintiff Helene Hutt’s (“Hutt”)
Motion for Oral Argument [37] on the Moving Defendants’ Motion to Transfer
Venue.
I.

INTRODUCTION
This matter involves two separate lawsuits. The first, Sokolowski v. Erbey,

et al., Case No. 9:14-cv-81604 (S.D. Fla. 2014) (the “Sokolowski Action”), is a
shareholder derivative action filed in the United States District Court for the
Southern District of Florida on December 24, 2014. The second is the shareholder
derivative action filed by Hutt on March 27, 2015, in this Court (the “Hutt Action,”
the Sokolowski and Hutt Actions will sometimes be referred to as the “Actions”).
The Sokolowski Action and the Hutt Action are both shareholder derivative actions
brought on behalf of Ocwen against the Company, and against Ocwen’s Board of
Directors and certain of its executive officers (the “Individual Defendants”).2
The Moving Defendants argue that the Actions involve substantially similar
issues, and that the first-filed rule requires the transfer of the Hutt Action to the
Southern District of Florida.

2

The Individual Defendants are: (1) William C. Erbey; (2) Ronald M. Faris;
(3) Ronald J. Korn; (4) William H. Lacy; (5) Robert A. Salcetti; (6) Barry N. Wish;
(7) Wilbur R. Ross; and (8) John V. Britti.
2

II.

BACKGROUND
A.

Sokolowski Action

The Sokolowski Action is a shareholder derivative action brought on behalf
of Defendant Ocwen against the Company and the Individual Defendants.
(Sokolowski Action Am. Compl. [25] at 1). Sokolowski also names Altisource
Portfolio Solutions, S.A., Altisource Residential Corporation, Altisource Asset
Management Corporation, and Home Loan Servicing Solutions as “Aider and
Abettor Defendants.” (Id. ¶¶ 51-69). The Sokolowski Action was filed in the
Southern District of Florida on December 24, 2014. (Sokolowski Action at [1]).
The derivative claims in the Sokolowski Action are based on the allegations
that: (1) the Individual Defendants engaged in self-serving transactions between
Ocwen and the Aider and Abettor Defendants;3 (2) the Individual Defendants
failed to implement internal controls to prevent home mortgage servicing abuses;4
(3) the Individual Defendants caused Ocwen to make false and misleading
statements concerning its financial conditions, internal controls, and regulatory
compliance;5 (4) the Individual Defendants violated internal Ocwen policies;6 and

3

(Sokolowski Action Am. Compl. ¶¶ 5-8, 12, 15, 19-20, 22, 51-69, 74-76,
109, 114, 258-65).
4
(Id. ¶¶ 1, 13, 15, 23, 85, 91-82, 97, 99-101, 109-10, 123-27).
5
((Id. ¶¶ 10-14, 18-19, 93-96, 118, 121-26, 141-42, 221-33, 245-54).
6
((Id. ¶¶ 148-85).
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(5) when Ocwen’s wrongful conduct was revealed, Ocwen’s value and share price
was adversely affected.7
Sokolowski asserts claims against the Individual Defendants for:
(1) violations of Section 14(a) of the Exchange Act; (2) violations of Section 20 of
the Exchange Act; (3) breach of fiduciary duty, waste of corporate assets, and
breach of duty of loyalty; (4) unjust enrichment; and (5) beach of the duty of
candor. (Sokolowski Action Am. Compl. ¶¶ 245-273).
B.

Hutt Action

The Hutt Action was filed in this Court on March 27, 2015. The Hutt Action
is also a shareholder derivative action brought on behalf of Defendant Ocwen
against the Company and the Individual Defendants. (Compl. [1] ¶ 1).8
The derivative claims in this case are, like the Sokolowski Action, based on
allegations that: (1) the Individual Defendants engaged in self-serving transactions
between Ocwen and the Aider and Abettor Defendants;9 (2) the Individual
Defendants failed to implement internal controls to prevent home mortgage
7

(Sokolowski Action Am. Compl. ¶¶ 25, 111, 132-33, 234-44).
Before this action was filed, Hutt, on March 25, 2015, filed the identical
complaint in the United States District Court for the Southern District of Florida.
Hutt v. Erbey, et al., Case No. 9:15-cv-80392 (S.D. Fla. 2015). Two days later, on
March 27, 2015, Hutt voluntarily dismissed the complaint filed in Florida, and
refiled the same complaint in this Court.
9
(Compl. ¶¶ 3, 11, 55-81, 102-04, 160, 115-17, 125, 137, 179-85, 188,
208-10).
8

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servicing abuses;10 (3) the Individual Defendants caused Ocwen to make false and
misleading statements;11 (4) the Individual Defendants violated internal Ocwen
policies;12 and (5) Ocwen’s wrongful conduct reduced Ocwen’s value and share
price.13
Like the Sokolowski Action, Hutt asserts claims in this case against the
Individual Defendants for: (1) violations of Section 14(a) of the Exchange Act;14
(2) breach of fiduciary duty; (3) waste of corporate assets; (4) gross
mismanagement; (5) unjust enrichment (against only Defendant Erbey); and
(6) aiding and abetting fiduciary violations. (Id. ¶¶ 253-285).
C.

Venue

Hutt alleges that venue in the Northern District of Georgia is appropriate
under 28 U.S.C. § 1391 because (i) one or more of the Defendants either resides or
maintains executives offices in the Northern District of Georgia; (ii) a substantial
portion of the transactions and wrongs complained of herein occurred in the
Northern District of Georgia; and (iii) Defendants received substantial
compensation and other transfers of money in the Northern District of Georgia by
10

(Id. ¶¶ 3, 95-99, 157-62, 196, 12, 216-19).
(Id. ¶¶ 3, 109-229).
12
(Id. ¶¶ 25-37, 112-13).
13
(Id. ¶¶ 167, 200, 205, 213, 230-32).
14
The subset of the Individual Defendants against whom the Section 14(a)
claim is asserted is Defendants Erbey, Faris, Korn, Lacy, Ross, Salcetti, and Wish.
11

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doing business and engaging in activities having an effect in the Northern District
of Georgia. (Compl. ¶ 8). Hutt alleges that Ocwen is a corporation organized and
existing under the laws of Florida, with its principal executive office located in
Atlanta, Georgia. (Id. ¶ 10). The Individual Defendants are citizens of Florida,
Wisconsin, Texas, Georgia, and the U.S. Virgin Islands. (Id. ¶¶ 11-18).
The Motion to Transfer Venue was filed on June 23, 2015. The Moving
Defendants argue the Sokolowski Action, which was pending when the Hutt
Action was filed, is “virtually identical” to the Hutt Action. (Mot. at 2). They
argue the first-filed rule requires the Hutt Action to be transferred to the Southern
District of Florida, where the Sokolowski Action is pending. (Id.).15
III.

DISCUSSION
A.

Legal Framework

“Where two actions involving overlapping issues and parties are pending in
two federal courts, there is a strong presumption across the federal circuits that
favors the forum of the first-filed suit under the first-filed rule.” Manuel v.
Convergys Corp., 430 F.3d 1132, 1135 (11th Cir. 2005) (citations omitted). Under
the first-filed rule, “when parties have instituted competing or parallel litigation in
separate courts,” the court that “initially seized the controversy” should hear the
15

The Moving Defendants also seek their attorneys’ fees under 28 U.S.C.
§ 1927. (Mot. at 3).
6

case. See Collegiate Licensing Co. v. Am. Cas. Co., 713 F.3d 71, 78 (11th Cir.
2013) (citations omitted). Where a case involves overlapping issues and parties,
the court that “initially seized the controversy” generally is entitled to decide
whether the second-filed action should be dismissed, stayed, or consolidated with
the first-filed action. Id. The first-filed rule is intended “to avoid interference”
with the jurisdiction of another federal court. It seeks “to avoid the waste of
duplication, to avoid rulings which may trench upon the authority of sister courts,
and to avoid piecemeal resolution of issues that call for a uniform result.” See Int’l
Fid. Ins. Co. v. Sweet Little Mexico Corp, 665 F.3d 671, 678 (5th Cir. 2011).
To determine whether two actions pending in different federal courts involve
“overlapping issues,” the court examines whether (1) “the core issue” is the same
in both actions, (2) the proof required would likely be identical, and (3) if the two
actions overlap “on the substantive issues.” Id.; Save Power Ltd. v. Syntek Fin.
Corp., 121 F.3d 947, 951 (5th Cir. 1997). If the district court finds a likelihood of
substantial overlap “the proper course of action [is] for the court to transfer the
case to the [first-filed] court to determine which case should, in the interests of
sound judicial administration and judicial economy, proceed.” See
Cadle Co. v. Whataburger of Alice, Inc., 174 F.3d 599, 606 (5th Cir. 1999). A
party must show “compelling circumstances” to convince a court to depart from

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the first-filed rule. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu,
675 F.3d 1169, 1174 (11th Cir. 1982).
B.

Analysis

The Sokolowski Action and the Hutt Action are both shareholder derivative
actions brought on behalf of Ocwen against the Company and the Individual
Defendants. The Sokolowski Action also names the Aider and Abettor Defendants
as defendants.16 The Aider and Abettor Defendants’ conduct appears to be
intertwined with the core claims Hutt alleges against the Individual Defendants.
The Sokolowski Action, thus, includes all of the defendants in the Hutt Action.
Sokolowski and Hutt base their claims on allegations that: (1) the Individual
Defendants engaged in self-serving transactions between Ocwen and the Aider and
Abettor Defendants; (2) the Individual Defendants failed to implement internal
controls to prevent home mortgage servicing abuses; (3) the Individual Defendants
caused Ocwen to make false and misleading statements concerning its financial
conditions, internal controls, and regulatory compliance; (4) the Individual
Defendants violated internal Ocwen policies; and (5) when Ocwen’s wrongful
conduct, caused by the Individual Defendants, was revealed, Ocwen’s value and
share price was adversely affected.
16

The Aider and Abettor Defendants are four Ocwen-affiliated spin-off
companies controlled by Mr. Erbey. (Compl. ¶ 11).
8

Finally, both Sokolowski and Hutt assert claims against the Individual
Defendants for: (1) violations of Section 14(a) of the Exchange Act; (2) breach of
fiduciary duty; (3) waste of corporate assets; and (4) unjust enrichment.
Sokolowski asserts the same claims Hutt asserts, with the exception of claims for
gross mismanagement and aiding and abetting fiduciary violations, which are
based on the same allegations as those asserted in the Sokolowski Action. In short,
the claims asserted in the Sokolowski Action and the Hutt Action are virtually
identical.
The complaints in the Sokolowski Action and the Hutt Action on their face
show that these “two actions involv[e] overlapping issues and parties,” creating a
“strong presumption” that the Hutt Action should be transferred to the
United States District Court for the Southern District of Florida. See Manuel,
430 F.3d at 1135. The core issues of the Individual Defendants’ breach of their
fiduciary duties, self-dealing, and the harm that their actions, and the actions they
compelled Ocwen to take, are the same in both the Sokolowski Action and the Hutt
Action. See Int’l Fid, 665 F.3d at 678. The proof Sokolowski and Hutt need to
succeed on these claims is nearly identical, and these two actions overlap on the
substantive issues. See id. It is undisputed that the Sokolowski Action was the

9

first-filed action. Hutt has not shown “compelling circumstances” to convince the
Court to ignore the first-filed rule. See Merrill Lynch, 675 F.3d at 1174.
Hutt asserts several shallow, unpersuasive arguments to avoid transfer. Hutt
claims that only the Special Litigation Committee (“SLC”), appointed by Ocwen’s
Board of Directors (the “Board”) has the authority to make decisions regarding this
litigation. (Resp. [29] at 12-13). Hutt does not offer any authority to support that
the appointment of the SLC precludes the Individual Defendants from seeking a
court to enforce the first-filed rule.
Hutt next argues that Sokolowski’s original complaint only named Messrs.
Erbey, Faris, Korn, Lacy, Wish, and Salcetti as defendants. (Id. at 15). Only after
Sokolowski became aware of Hutt’s September 2, 2014, demand letter to the
Board, did Sokolowski file his Amended Complaint, adding Mr. Britti and Mr.
Ross as defendants. (Id). Hutt does not offer any authority to support that an
initial failure to name two directors as defendants precludes application of the firstfiled rule where, at the time transfer was requested, all of the parties in the second
case are parties in the first-filed case. Hutt’s arguments are unconvincing.17
17

Hutt argues that her Complaint contains additional details and allegations,
noting that her Complaint is 187-pages long, compared with the 107-page
Amended Complaint in the Sokolowski Action. (Id. at 16). Hutt argues further
that the relevant period for her allegations commences on March 1, 2013, as
opposed to May 2, 2013 in the Sokolowski Action, and includes allegations
10

Hutt finally argues that Sokolowski initiated the Sokolowski Action despite
having an outstanding litigation demand to which the Board had not yet responded.
(Resp. at 16-17) (citing Fla. Stat. Ann. § 607.07401). Hutt asserts that Sokolowski
“raced to the courthouse” in order to file his action first. (Resp. at 16-20).
The facts do not support this litigation position. Sokolowski alleges that he
made his initial demand on the Board on February 11, 2014, and further alleges
that the Board failed to respond to the demand in the ninety days allowed by
Section 607.07401. (Sokolowski Action Am. Compl. at 1). Sokolowski filed his
derivative over ninety days after his February 11, 2014, demand. (Sokolowski
Action at [1]). Sokolowski’s conduct can hardly be viewed as “racing” to the
courthouse.
Sokolowski made his demand on the Board approximately four months
before Hutt made her demand on the Board, and he initiated the Sokolowski
regarding two additional Securities and Exchange Commission filings as a result.
(Id.).
Hutt’s identical complaint, when initially filed in the Southern District of
Florida, totaled 128 pages due to the spacing and formatting requirements of that
district. Comparing apples to apples, Hutt’s Complaint is 21 pages longer than the
Amended Complaint in the Sokolowski Action. The length of Hutt’s Complaint,
however, does not establish that her allegations or claims are substantially different
from those in the Amended Complaint in the Sokolowski Action. The Court has
reviewed both complaints, and concludes that both Actions involve overlapping
issues and parties. The first-filed rule does not require identical claims, but only
that the two actions contain overlapping issues and parties. See Int’l Fid., 665 F.3d
at 678.
11

Action approximately three months before the Hutt Action was filed. Hutt’s
argument that Sokolowski “raced” to the courthouse is unsupported and
inconsistent with the evidence.18, 19
Hutt has not met her burden to show “compelling circumstances” to support
that the Court should depart from the first-filed rule.20 The Hutt Action is required

18

The Court notes that it has previously applied the first-filed rule even where
the first-filed complaint may have been the result of a race to the courthouse. See
Travel Spike, LLC v. Travel Ad Network, Inc., No. 1:11-CV-3199-RWS, 2012
WL 887591, at *2 (N.D. Ga. Mar. 15, 2012). To the extent that Hutt asserts that
her Complaint is superior to the Amended Complaint in the Sokolowski Action, it
is up to the United States District Court for the Southern District of Florida to
decide whether to stay one of these actions, consolidate them, or dismiss one of
them. See Cadle, 174 F.3d at 606.
19
Hutt moves the Court to allow oral argument on the Motion, arguing that the
Moving Defendants’ Reply “attempts to gloss over [the] fact” that the Sokolowski
Action was filed in contravention to Florida law. The Court has considered this
argument and concludes, including based on its own research, that the Sokolowski
Action complied with the requirements of Section 607.07401 of the Florida
Business Corporation Act and that, even if it did not, the first-filed rule still
applies. Oral argument on this issue is denied.
20
Hutt suggests that the Section 1404(a) factors do not favor transferring the
Hutt Action to the Southern District of Florida. See Manuel, 430 F.3d at
1135 & n.1; (Resp. at 20-22). The Court is not transferring venue based on
28 U.S.C. § 1404(a), but rather under the first-filed rule. The Court notes,
however, that several factors, including trial efficiency and the interest of justice,
would warrant transfer of this action under the more common Section 1404(a)
transfer factors.
12

to be transferred to the United States District Court for the Southern District of
Florida.21
C.

Request for Attorneys’ Fees

The Moving Defendants argue that Hutt’s counsel’s conduct in filing the
Hutt Action, and refusing to consent to its transfer to the Southern District of
Florida, warrants an award of attorneys’ fees under 28 U.S.C. § 1927. Section
1927 states:
Any attorney or other person admitted to conduct cases in any court of
the United States or any Territory thereof who so multiplies the
proceedings in any case unreasonably and vexatiously may be
required by the court to satisfy personally the excess costs, expenses,
and attorneys' fees reasonably incurred because of such conduct.
28 U.S.C. § 1927. Section 1927 allows a district court to “assess attorney’s fees
against litigants, counsel, and law firms who willfully abuse judicial process by

21

The Court notes that another action against Ocwen, Mr. Erbey, and Mr. Faris
is pending in the United States District Court for the Southern District of Florida
See In re Ocwen Financial Corporation Securities Litigation, Case No. 9:14-cv81057 (S.D. Fla. 2014). That action is based on allegations that Ocwen,
Mr. Erbey, and Mr. Faris violated federal securities laws by making false and
misleading statements to the public. That conduct is, in part, the same conduct at
issue in the Sokolowski Action and the Hutt Action, and the action is pending
before the same Southern District of Florida judge that is adjudicating the
Sokolowski Action. Transferring the Hutt Action to the Southern District of
Florida will preserve judicial resources by allowing the same district court to
adjudicate these cases with the same factual allegations.
13

conduct tantamount to bad faith.” Avirgan v. Hull, 932 F.2d 1572, 1582 (11th Cir.
1991).
While the filing of the Hutt Action in this Court shows suspect professional
judgment and has burdened the parties and the Court, the record here is insufficient
for the Court to find that Hutt’s counsel “unreasonably and vexatiously” multiplied
the proceedings, or acted in bad faith, by filing the Hutt Action. Venue in the
Northern District of Georgia is proper under 28 U.S.C. § 1391, because Ocwen’s
principal executive office is in this district, and Hutt alleges that certain
transactions and wrongs of which Hutt complained occurred in this district. 28
U.S.C. § 1391(b)(2); (Compl. ¶ 8). There also is no evidence that Hutt’s counsel
knew the Sokolowski Action was pending in the Southern District of Florida when
the Hutt Action was filed. The Court concludes that Hutt’s counsel’s decision to
file the Hutt Action does not rise to the level of bad faith, and attorneys’ fees are
not awarded under 28 U.S.C. § 1927.
IV.

CONCLUSION
For the foregoing reasons,
IT IS HEREBY ORDERED that the Moving Defendants’ Motion to

Transfer Venue [27] is GRANTED IN PART and DENIED IN PART. It is

14

GRANTED with respect to the Moving Defendants’ request to transfer this case.
It is DENIED with respect to the Moving Defendants’ request for attorneys’ fees.
IT IS FURTHER ORDERED that this action is TRANSFERRED to the
United States District Court for the Southern District of Florida.
IT IS FURTHER ORDERED that the Motion to Stay Discovery and
Pretrial Deadlines Pending Ruling on Motion to Transfer Venue [30] and the
Motion for Oral Argument [37] are DENIED.

SO ORDERED this 14th day of December, 2015.

_______________________________
WILLIAM S. DUFFEY, JR.
UNITED STATES DISTRICT JUDGE

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