Federal Deposit Insurance Corporation v. Paragon Mortgage Services, Inc.

Filing 20

Memorandum of Opinion and Order: Defendant's Motion to Transfer Venue is granted. Judge Patricia A. Gaughan on 5/10/16. (LC,S) re 11

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

Federal Deposit Insurance Corporation, )
as Receiver of Amtrust Bank,
)
Plaintiff,
)
)
Vs.
)
)
Paragon Mortgage Services, Inc.
)
Defendant.
)

CASE NO. 1:15 CV 2485
JUDGE PATRICIA A. GAUGHAN

Memorandum of Opinion and Order

Introduction
This matter is before the Court upon defendant’s Motion to Transfer Venue (Doc. 11).
For the following reasons, the motion is GRANTED.
Facts
Plaintiff Federal Deposit Insurance Corporation as Receiver for AmTrust Bank brought
this Complaint against defendant Paragon Mortgage Services alleging one claim for breach of
contract. The Complaint alleges that AmTrust, a failed federally chartered bank which had its
principal place of business in Cleveland, Ohio, and Paragon, a Colorado corporation, entered
into a Master Correspondent Loan Purchase Agreement (the Agreement) in 2006. Pursuant to

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the Agreement, defendant sold or transferred mortgage loans to AmTrust. Plaintiff is the
appointed receiver for AmTrust. Defendant breached the Agreement by providing incomplete,
inaccurate, false, or misleading information to AmTrust regarding three mortgage loans sold or
transferred to AmTrust, i.e., the Haeffner Loans. Under the Agreement, AmTrust purchased
and/or funded two loans to borrower Haeffner, secured by property in Orlando, Florida. The
information contained in the Haeffner loan package, among other things, misrepresented the
borrower’s credit obligations. The Haeffner Loans defaulted. Defendant refused to indemnify
plaintiff for the losses relating to these loans or otherwise perform under the Agreement.
The Agreement was entered into by AmTrust and defendant in this district. The
Agreement provides that the “parties hereby consent and submit themselves to the jurisdiction
and venue in any State or Federal court located in the City of Cleveland, Ohio... (Doc. 11 Ex. A
at 8.15) Additionally, “This Agreement shall be construed and enforced in accordance with the
laws of the State of Ohio.” (Id. 8.18)
This matter is now before the Court upon defendant’s Motion to Transfer Venue.
Discussion
Defendant moves to transfer this action to the District of Colorado pursuant to 28 U.S.C.
§ 1404(a). Under § 1404(a), “[f]or 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.”
Section 1404(a) entails a two-step process. First, defendant’s proposed alternative forum
must be a district “where [the action] might have been brought.” 28 U.S.C. § 1404(a). Second,
the court then “considers the private interests of the parties, including their convenience and the

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convenience of potential witnesses, as well as other public-interest concerns, such as systemic
integrity and fairness, which come under the rubric of ‘interests of justice.’” Moses v.
BusinessCard Express, Inc., 929 F.2d 1131, 1137 (6th Cir. 1991). The party seeking transfer has
the burden to prove that the balance of convenience is strongly in favor of transfer. Jamhour v.
Scottsdale Ins. Co., 211 F. Supp. 2d 941, 947 (S.D. Ohio 2002); Bacik v. Peek, 888 F.Supp.1405,
1414 (N.D. Ohio 1993). “The court is also called upon to weigh a number of other case specific
factors.” Cherokee Export Co. v. Chrysler International Corp., 142 F.3d 432 at *2 (6th Cir.
Feb.2 1998). These factors include:
the relative ease of access to sources of proof; the availability of process to compel
attendance of unwilling witnesses; the cost of obtaining willing witnesses; [and] the
practical problems associated with trying the case most expeditiously and inexpensively.
In short, the Court may consider any factor that may make any eventual trial easy,
expeditious, and inexpensive.
Id.
As set forth above, the Agreement contains a forum selection clause. The United States
Supreme Court has stated:
In the typical case not involving a forum-selection clause, a district court considering a §
1404(a) motion (or a forum non conveniens motion) must evaluate both the convenience
of the parties and various public-interest considerations. Ordinarily, the district court
would weigh the relevant factors and decide whether, on balance, a transfer would serve
the convenience of parties and witnesses... and otherwise promote the interest of justice.
§ 1404(a). The calculus changes, however, when the parties' contract contains a valid
forum-selection clause, which represents the parties' agreement as to the most proper
forum. The enforcement of valid forum-selection clauses, bargained for by the parties,
protects their legitimate expectations and furthers vital interests of the justice system. For
that reason, and because the overarching consideration under § 1404(a) is whether a
transfer would promote the interest of justice, a valid forum-selection clause [should be]
given controlling weight in all but the most exceptional cases.
Atlantic Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 581 (2013)
(internal citations and quotations omitted). The Supreme Court further stated that when the
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agreement contains a valid forum-selection clause, a district court must change the usual §
1404(a) analysis in three ways. Id. First, “the plaintiff's choice of forum merits no weight”
because the forum-selection clause represents plaintiff's preemptive exercise of “venue
privilege.” Id. at 581-82. Rather, the burden shifts to the plaintiff to show why the court should
not transfer the case to the agreed upon forum. Id. at 582. Second, “a court evaluating a
defendant's § 1404(a) motion to transfer based on a forum-selection clause should not consider
arguments about the parties’ private interests.” Id. at 582. When parties agree to a forumselection clause, they waive the right to challenge the forum as inconvenient or less convenient
for themselves or their witnesses. Id. And third, when a party bound by a forum-selection clause
“flouts its contractual obligation” and files suit in a different forum, the court in the contractually
selected venue should not apply the law of the transferor venue. Id.
As an initial matter, it is not disputed that this Complaint “might have been brought” in
Colorado. Next, the Court must decide whether Atlantic Marine, supra, applies so that the usual
§ 1404(a) analysis should be altered as discussed in that case.
Defendant argues that because the forum selection clause in the Agreement is merely
permissive, and not mandatory, it is not controlling and Atlantic Marine is inapposite.
First, the Court finds that the clause at issue is permissive.1 “A forum selection clause is
mandatory if it clearly indicates that jurisdiction is proper only in the selected forum. By
contrast, a permissive forum selection clause merely authorizes jurisdiction in the specified
forum, but does not require that forum to be the exclusive venue for litigation.” Braman v. The
Quizno’s Franchise Company, 2008 WL 611607 (N.D.Ohio 2008) (citing K & V Scientific Co. v.
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Defendant asserts that the clause is permissive. Plaintiff does not address whether
the clause is permissive or mandatory.
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Bayerische Motoren Werke Aktiengesellschaft, 314 F.3d 494, 498 (10th Cir. 2002)). In that case,
the court determined that the parties’ use of the word “exclusive” meant that the forum selection
clause was “explicitly mandatory, not permissive.” Here, the parties did not agree that
Cleveland, Ohio was the exclusive venue and the Court finds the clause is permissive.2 See also
Kendle v. Whig Enterprises, LLC, 2016 WL 354876 (S.D.Ohio January 29, 2016) (The court
found a forum selection clause stating that the “parties hereby consent to jurisdiction in Florida
for the purposes of any litigation relating to this Agreement” to be permissive.) Citing Hitachi
Med. Sys. Am., Inc. v. Bay Harbor MRI, Inc., 2009 WL 2252875 (N.D.Ohio July 28, 2009)
(Where the forum selection clause does not mandate a singular forum but simply states that the
parties consent to the jurisdiction of courts located in a particular state, the clause is permissive.)
Second, the Court must then determine whether Atlantic Marine applies. The forum
selection clause at issue in Atlantic Marine was mandatory. Some courts which have addressed
the issue have found that Atlantic Marine does not apply where the forum selection clause is
permissive and, therefore, a court performs the typical § 1404 analysis. See FDIC v. Nova
Financial and Investment Corporation, supra (The court found that because the forum selection
clause at issue, unlike that in Atlantic Marine, was permissive, Atlantic Marine did not apply and
plaintiff did not waive its right to challenge the clause on grounds of inconvenience.),
Residential Finance Corporation v. Jacobs, 2014 WL 1233089 (S.D.Ohio March 25, 2014) (The
court determined that in contrast to the mandatory clause in Atlantic Marine, the one at issue was
permissive and, therefore, the court weighed the § 1404(a) factors.), Relco Locomotives v.

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Additionally, the Court notes that in FDIC v. Nova Financial and Investment
Corporation, 2015 WL 2195062 (N.D.Ohio May 11, 2015), Judge Wells found
the same forum selection clause as the one herein to be permissive.
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Allrail, Inc., 4 Fed.Supp.3d 1073 (S.D.Iowa 2014) (The court concluded that Atlantic Marine
“contemplated only mandatory forum selection clauses when assessing their effect on forum non
conveniens analysis” and because the clause at issue was permissive, the court proceeded “with
the traditional forum non conveniens analysis, and not the modified Atlantic Marine analysis.”),
and Waste Management of Louisiana v. Jefferson Parish, 48 F.Supp.3d 894 (E.D.Louisiana
2014)(“Although Atlantic Marine never addressed the ‘permissive’ versus ‘mandatory’
distinction, district courts across the country have generally limited the Atlantic Marine
framework to situations where the forum selection clause is mandatory.” The court recognized
that some courts concluded otherwise, but found persuasive those decisions which took into
consideration whether the clause was mandatory or permissive.)
Other courts have concluded that Atlantic Marine applies whether the clause is
permissive or mandatory. See FDIC v. Primelending, 2016 WL 125652 (N.D.Ohio March 31,
2016) (The court found that “Atlantic Marine applies to this case regardless of whether the
forum selection clause is mandatory or permissive. It is true that the forum selection clause the
Supreme Court analyzed in Atlantic Marine was mandatory. However, the language of the
Court’s discussion seems to reach all valid forum selection clauses, regardless of their
permissiveness.”), Enkema v. FTI Consulting, Inc., 2016 WL 951012 (M.D.Tenn. March 14,
2016) (“[T]he broad language of the Atlantic Marine Court does not indicate that there is any
distinction in analysis between a mandatory clause and a permissive clause.”),and United
American Healthcare Corp. v. Backs, 997 F.Supp.2d 741 (E.D.Mich 2014)(Defendants argued
that Atlantic Marine did not apply because the clause at issue was permissive. The court rejected
the argument: “[D]efendants have cited no authority showing that this distinction is even

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relevant in this jurisdiction, nor any authority showing that such a distinction would change this
court’s analysis of a § 1404 issue.” However, the clause at issue in that case expressly waived
any claim of improper venue or inconvenient forum.)
The Court finds that Atlantic Marine applies only to mandatory forum selection clauses.3
The Supreme Court stated, “The calculus changes, however, when the parties' contract contains a
valid forum-selection clause, which represents the parties' agreement as to the most proper
forum.” Atlantic Marine, 134 S.Ct. at 581 (quoting Stewart Organizatin, Inc. v. Ricoh Corp.,
487 U.S. 22 (1988), which also involved a mandatory forum selection clause). By indicating
“the most proper forum,” the Supreme Court could only be referring to mandatory clauses as
permissive clauses only authorize jurisdiction in a forum but do not require it. A mandatory
clause, on the other hand, indicates that jurisdiction is proper only in the selected forum.
Additionally, the Supreme Court stated in discussing the first way that the usual § 1404(a)
analysis did not apply (i.e., plaintiff’s choice of forum merits no weight when plaintiff is defying
the clause and filing suit other than where indicated in the clause):
But when a plaintiff agrees by contract to bring suit only in a specified forumpresumably in exchange for other binding promises by the defendant- the plaintiff has
effectively exercised its ‘venue privilege’ before a dispute arises. Only that initial choice
deserves deference, and the plaintiff must bear the burden of showing why the court
should not transfer the case to the forum to which the parties agreed.

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The Court also notes that Atlantic Marine was in a different posture than the case
herein. There, the plaintiff filed suit in a district different from the one designated
in the forum selection clause. Defendant moved to transfer the case to the venue
agreed upon in the parties’ forum selection clause. In the present case, plaintiff
filed suit in the district identified in the forum selection clause and defendant
seeks to transfer to another district. This different posture renders at least the first
and third Atlantic Marine guidelines inapplicable. As to the first, plaintiff has not
“defied” the forum selection clause. As to the third, plaintiff has not “flouted its
contractual obligation and filed suit in a different forum.”
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Id. at 582. The Supreme Court’s use of the phrase “only in a specified forum” again seems to
indicate application to mandatory forum selection clauses as permissive clauses do not provide
that a suit may be brought “only” in a specified forum.
For these reasons, the Court concludes that Atlantic Marine is limited to cases involving
mandatory forum selection clauses and, therefore, the usual § 1404 analysis applies.
Accordingly, the Court now proceeds to consideration of the private interest factors of the
parties.
The presence of a forum selection clause is a significant but not dispositive factor in
deciding a transfer motion. See, e.g., Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29
(1988). “District courts in the Sixth Circuit generally assign permissive forum selection clauses
little weight in deciding whether to transfer venue.” Kendle v. Whig Enterprises, supra, (quoting
Flight Sols., Inc. v. Club Air, Inc., 2010 WL 276094 (M.D.Tenn. Jan. 14, 2010) (collecting
cases)). Additionally, while plaintiff’s choice of forum is not dispositive, it is given substantial
weight unless the private and public interest factors clearly point toward trial in the alternative
forum. Id. “The ‘most important’ or ‘prime’ factor in deciding a motion to transfer is the
convenience of witnesses. In considering the convenience of witnesses, the Court must focus on
the substance and importance of the potential testimony as opposed to the number of witnesses.”
Federal Trade Commission v. Mazzoni & Son, Inc., 2006 WL 3716808 (N.D.Ohio Dec. 14,
2006) (citations omitted).
Defendant asserts that the District of Colorado is the most convenient venue and Ohio
has no substantial relationship or connection to this case. Defendant maintains that all the key
witnesses reside in Colorado. Defendant submits the affidavit of Susan Oberbillig, its president.

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She avers as follows. Plaintiff’s Complaint arises from a residential mortgage loan brokered by
defendant on AmTrust’s behalf. Defendant will necessarily present witnesses who reside in
Colorado including current and former Paragon employees involved in the origination of the
subject loan, the borrower of the loan, the underwriter of the loan, and AmTrust’s Account
Executive who oversaw the originating, underwriting, funding, and transfer of the subject loan.
The borrower of the residential mortgage loan at issue, Elbert Haeffner, resides in Colorado. He
is a long-time employee of a Colorado based company. Paragon did not perform the
underwriting of the loan. The underwriter, Diane Gendelman, resides in Colorado. She was
responsible for verification of the borrower’s income and debts (which plaintiff alleges were
inaccurate). Azaela Bernier Menely, who resides in Colorado, was AmTrust’s representative
(Account Executive) in connection with the loan. She was defendant’s point of contact for all
issues relating to the agreement and business relationship between defendant and AmTrust. She
oversaw and managed all loans Paragon brokered for AmTrust, worked with Paragon to make
sure the loans complied with applicable guidelines, and managed the “onboarding” and training
of Paragon’s loan officers and processers. (Oberbillig aff.) Defendant states in its brief that
Haeffner’s employer would testify regarding Haeffner’s income which is relevant to his
qualifying debt-to-income ratio. Defendant also asserts that one or more Paragon employees
involved in the origination of the subject loan would be witnesses as well. Compulsory process
would be necessary to obtain these witnesses’ testimony given their distance from Ohio. Even if
they are willing to testify, traveling to Ohio would result in a significant expense.
Plaintiff argues that the District of Colorado is not more convenient than the Northern
District of Ohio or any number of other potential venues because the properties at issue are

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located in Florida and Arizona and potentially relevant witnesses are located throughout the
country. Plaintiff submits its attorney’s declaration who states the following. To the extent that
former AmTrust Bank employees could offer discoverable testimony, most are likely to reside in
Ohio. Plaintiff’s claim is based on a credit misrepresentation due to the fact that Haeffner’s loan
documentation submitted by Paragon failed to disclose his 2006 purchase of another property in
Scottsdale, Arizona upon which he had obtained two mortgages from Countrywide Bank.
Individuals connected to Haeffner’s purchase of the Scottsdale property (e.g., the escrow
officer/settlement agent for the transaction) might provide relevant testimony regarding his
ownership of and liens on that property. Public records indicate that Haeffner purchased the
Scottsdale property from a seller named MCZ which was located in Illinois. After purchasing the
Haeffner loans from Paragon, AmTrust sold them in the secondary mortgage market and the
loans were purchased by Fannie Mae. Fannie Mae later demanded repurchase of the loans due to
a breach of representation and warranty in the loan documentation submitted by Paragon, and
AmTrust complied. Fannie Mae’s underwriting consultant, Ellen M. Bratton, lives in Texas and
underwriting director, Maria B. Brewster, lives in Illinois. The Fannie Mae Repurchase
Notification was sent to AmTrust by Wells Fargo. The Wells Fargo Repurchase Analyst
identified in the letter was an individual named Katie Peters who appears to reside in Iowa. The
Orlando property upon which Haeffner obtained the loans was located in the Orlando Cay Club
Resort and Academy in Orlando, Florida. Public records indicate that the former Cay Clubs
Resorts and Marinas executives Barry J. Graham and Ricky Lynn Stokes are currently
incarcerated in the Federal Detention Center in Miami, Florida.4 The seller of the Orlando
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Plaintiff states in its brief that The Orlando Cay Club Resort and Academy was a
condominium complex managed by the entity called Cay Clubs Resorts and
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property was a Florida limited liability company located in Clearwater, Florida. The settlement
agent for Haeffner’s purchase of the Orlando property was located in Orlando, Florida and its
principal resides there. (Holtz aff.) Plaintiff asserts that the various individuals identified in
connection with the Fannie Mae repurchase may provide testimony relevant to the breach of
representations and warranties at issue and that the individuals identified in connection with the
Orlando property may have relevant information regarding the potentially fraudulent nature of
Haeffner’s purchase of that property. The settlement agent for the Orlando property may have
relevant information regarding the potentially fraudulent nature of the subject transaction. In
sum, plaintiff contends, relevant witnesses are located throughout the country, including in Ohio,
Arizona, Illinois, Texas, Iowa, and Florida.
Plaintiff argues that the District of Colorado is not a more convenient forum to the parties
and merely shifts the inconvenience from defendant to plaintiff because witnesses are located all
over the country. Plaintiff asserts that some of the purported Colorado witnesses are irrelevant
such as Haeffner’s employer who had nothing to do with the breach alleged in the Complaint.
Plaintiff also asserts that to the extent the testimony of former AmTrust employee witnesses or
other witnesses regarding the underwriting of the loans is relevant, “any number of other former
AmTrust employees or underwriting agents located in Ohio or elsewhere may have relevant
testimony as well.” (Id.)
For the following reasons, the Court agrees with defendant that the private interests
weigh in favor of the District of Colorado and that venue is more convenient for the parties and
witnesses.
Marinas and the executives were sentenced for their participation in a Ponzi
scheme involving the sale of vacation rental units.
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Defendant’s principal place of business is in Denver, Colorado. AmTrust no longer
exists as an Ohio financial institution and plaintiff is a corporation created by federal statute
which has no overriding connection to any state in particular and no greater connection to Ohio
than to Colorado.
Defendant has demonstrated that witnesses to the subject transaction reside in Colorado,
including the borrower, the underwriter of the loan, and AmTrust’s Account Executive who
oversaw the originating, underwriting, funding, and transfer of the loan. Plaintiff asserts that
these witnesses, other than Haeffner, “have no possible relevance” to this case and that “to the
extent the testimony of these witnesses is even relevant, any number of AmTrust employees or
underwriting agents located in Ohio or elsewhere may have relevant testimony as well.” (Doc.
13 at 10) Plaintiff states in a footnote that it disputes that the conduct of former AmTrust
employees is relevant but if so, “most are likely to reside within the state of Ohio.” (Id. footnote
1) But, defendant shows that plaintiff did not disclose any former AmTrust employees in its Rule
26 disclosures. (Chandler Kelley decl.) Nor does plaintiff offer any support for its assertion that
the employees “are likely” to reside in Ohio. Defendant points out that while AmTrust may have
been located in Ohio, it no longer existed as of 2009. Indeed, plaintiff does not identify any
witnesses who reside in Ohio.
Rather, plaintiff presents a confusing list of purported witnesses who live outside Ohio.
First, plaintiff fails to demonstrate how these witnesses are relevant to its breach of contract
claim. None of the events concerning Wells Fargo or Fannie Mae are alleged in the Complaint
and do not appear to have a connection to it. Furthermore, as defendant points out, it appears that
Wells Fargo claimed the loan was ineligible under an agreement it had with AmTrust. Defendant

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is not a party to that agreement. Nor does the Complaint make reference to the Cay Clubs
Resorts Florida property or the Ponzi scheme there. Plaintiff does not show how the individuals
connected to the Florida property are relevant. Second, even if these witnesses are relevant,
plaintiff attempts to show how they are scattered across the country but does not establish that
Ohio would be more convenient to them. In sum, plaintiff fails to establish that the Northern
District of Ohio is convenient or that the District of Colorado is inconvenient. For these reasons,
the Court finds that the convenience of witnesses weighs in favor of defendant.
Plaintiff contends that the interests of justice would not be served by a transfer because
the Agreement contains an Ohio choice of law provision and this Court is more familiar with
Ohio state laws than a district judge in Colorado. On balance, however, this factor is not
determinative where plaintiff has not shown that it will be inconvenienced by the requested
transfer.
Conclusion
For the foregoing reasons, defendant’s Motion to Transfer Venue is granted.
IT IS SO ORDERED.

/s/ Patricia A. Gaughan
PATRICIA A. GAUGHAN
United States District Judge
Dated: 5/10/16

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