Capstone International Inc v. Univentures Inc et al

Filing 23

ORDER ADOPTING REPORT AND RECOMMENDATIONS ; denying 12 Motion to Dismiss for improper venue; granting 21 Report and Recommendations.; granting 22 Motion for Review of Magistrate Judge Decision by a District Judge. Signed by Judge Jon E DeGuilio on 9/27/11. (smp)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
CAPSTONE INTERNATIONAL, INC.
Plaintiff,
v.
UNIVENTURES, INC., et al.
Defendants.

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CAUSE NO. 3:10-CV-416 JD

Order
Capstone International, Inc., objects to Magistrate Judge Christopher
Nuechterlein’s August 4, 2011, Report and Recommendation on Defendants’ November
30, 2010 motion to dismiss the case for improper venue or, alternatively, to transfer the
case. The magistrate judge recommends that the Court deny the motion to dismiss for
improper venue and instead to transfer the case to the District of Arizona, under 28
U.S.C. § 1404. Neither party objects to the recommendation to deny the motion to
dismiss, but Capstone timely filed objections to the transfer on August 15, 2011. For the
following reasons, the Court ADOPTS the Report and Recommendation in part and
DENIES Defendants’ motion to dismiss for improper venue.
Background
On September 3, 2010, Capstone filed a complaint in the St. Joseph Superior
Court against Univentures, Inc., Candace Cox, and Eileen Wendt, alleging causes of
action for breach of contract and disgorgement. See DE 1. The contract claim involved an
alleged February 17, 2010, consulting services contract between it and Univentures. On
October 5, Univentures filed a notice of removal in this Court, under 28

U.S.C. § 1441, on the basis of diversity jurisdiction under 28 U.S.C. § 1332. See DE 2.
On October 25, Capstone filed an amended complaint restating its original claims and
adding a third cause of action for tortuous interference with business relations. See DE 4.
Then, on November 30, Defendants moved to dismiss the case because venue is
improper in the Northern District of Indiana or, alternatively, to transfer the case to the
District of Arizona. See DE 12. Capstone filed a response on December 17. See DE 15.
On June 9, 2011, the undersigned referred the pending motion to dismiss for improper
venue to the magistrate judge for a Report and Recommendation. See DE 17. The
magistrate judge moved quickly. First, he gave the parties two weeks to submit additional
briefing on the propriety of transfer under 28 U.S.C. § 1404. See DE 18, DE 19, DE 20.
Then, two weeks after the parties submitted their briefs, he issued the recommendation
that is now before the Court for review.
In his report, the magistrate judge set out the law governing venue transfers and
considered how a transfer to the District of Arizona would affect the convenience of the
parties and witnesses and the interests of justice. He concluded that the District of
Arizona was the better forum on both counts and recommended that the Court transfer
the case to that district. He also recommended that the Court deny the motion to dismiss
for improper venue.
Analysis
The magistrate judge made two separate recommendations in his report, and the
Court will address each in turn. First, the magistrate judge recommended that the Court
deny the motion to dismiss. A motion to dismiss for improper venue is a dispositive
motion, and therefore the Court’s review is governed by 28 U.S.C. § 636(b)(1)(C) and

Federal Rule of Civil Procedure 72(b). When a magistrate judge issues a report and
recommendation on a dispositive matter, the parties have 14 days to object. If there are
objections, the Court reviews the objected-to portions of the report and recommendation
de novo, taking new evidence if necessary and giving no deference to the magistrate
judge’s decision. If the parties object to only part of the report and recommendation, or
file no objections at all, the Court reviews those aspects to which no objection is made
only to determine whether they are clearly erroneous or contrary to law.
Here, neither party objected to the magistrate judge’s recommendation that the
Court deny the motion to dismiss, and thus the Court’s review is for clear error only. And
although the magistrate judge did not spell out his reasoning, the result is beyond
question: regardless of whether Defendants could establish that this district would be an
improper venue under 28 U.S.C. § 1361, in cases that have been removed from state
court, the removal statute, 28 U.S.C. § 1441, itself governs venue. See Polizzi v. Cowles
Magazines, Inc., 345 U.S. 663, 665 (1953). Under § 1441, venue is proper in the district
and division “embracing the place where [the state court] action is pending,” here the
Northern District of Indiana.
Second, the magistrate judge recommended that the Court transfer the case to the
District of Arizona under 28 U.S.C. § 1404. But a motion for transfer, unlike a motion to
dismiss for improper venue, is a nondispositive pretrial matter and therefore may be
decided by a magistrate judge, subject to a motion for review by the district court judge.
See 28 U.S.C. § 636(b)(1)(A). And when reviewing a magistrate judge’s non-dispositive
decision to transfer a case, the Court asks only whether the order is “clearly erroneous or
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contrary to law.” Id.; see also Fed. R. Civ. P. 72(a). In this case, however, the magistrate
judge did not simply order the transfer, and perhaps for good reason: venue transfer is not
permitted unless venue is proper in both the transferor and transferee district, see Kendall
U.S.A., Inc. v. Central Printing Co., 666 F.Supp. 1264, 1267 (N.D. Ind. 1987), and venue
in the Northern District of Indiana was contested by a motion to dismiss for improper
venue that the Court had not yet ruled upon. What this leaves the Court with, however, is
a recommendation from the magistrate judge on how the Court should resolve a
nondispositive matter.
But the statute and the rule provide only two paths by which the Court reviews
matters referred to a magistrate judge. The first is clear error review of nondispositive
orders, upon a motion for review. 28 U.S.C. § 636(b)(1)(A), Fed.R.Civ.P. 72(a). The
second is the review of recommendations for the resolution of dispositive pretrial
matters, which is either for clear error or, upon objection by one or both parties, de novo.
28 U.S.C. § 636(b)(1)(C), Fed.R.Civ.P. 72(b). Neither contemplate a magistrate judge
making a recommendation on a nondispositive matter. Nor did the order of referral in this
case. Rather, after referencing its authority to refer dispositive matters to a magistrate
judge, the Court “refer[ed] the Defendants’ motions to dismiss . . . for preparation of a
Report and Recommendation.” See DE 17. at 2. This referral contemplated a Report and
Recommendation on two dispositive matters: the motion to dismiss for improper venue,
at issue here, and another motion to dismiss count III of the complaint for failure to state
a claim. See DE 10, DE 12. As the Court reads the statute and the rule, the better
procedure in this case would have been for the magistrate judge to issue a Report and
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Recommendation proposing that the Court deny the dispositive motion to dismiss for
improper venue and then, with that obstacle removed, resolve the nondispositive motion
to transfer under the standing referral of nondispositive matters.
The Court now adopts the recommendation to deny the motion to dismiss for
improper venue having found no clear error, so the way is clear for the magistrate judge
to decide the nondispositive matter of transfer. Rather than reviewing the
recommendation to transfer the case under an uncertain standard of review—that is,
without guidance from statute, rule, or precedent regarding whether review should be de
novo or for clear error only—the Court will treat it as a nullity. This will also save
judicial resources, since it is clear from the magistrate judge’s Report and
Recommendation that he has already dedicated time and thought to the matter under
consideration. The magistrate judge should decide the motion to transfer as he would any
other nondispositive matter in this case, subject to a motion for review by the Court
under 28 U.S.C. § 636(b)(1)(A) and Federal Rule of Civil Procedure 72(a).
Conclusion
For the reasons stated above, the Court ADOPTS the magistrate judge’s Report
and Recommendation to the extent that it concerns Defendants’ motion to dismiss for
improper venue. Because venue is proper in the Northern District of Indiana, the Court,
without objection from the parties, DENIES Defendants’ motion to dismiss for improper
venue. This order does not affect the remaining dispositive or nondispositive motions in
this case, including the nondispositive portion of Defendants’ November 30, 2010,
motion that seeks transfer to the District of Arizona.
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SO ORDERED.
ENTERED:

September 27, 2011

/s/ JON E. DEGUILIO
Judge
United States District Court

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