Rentea v. Janes
Filing
16
REPORT AND RECOMMENDATIONS recommending granting in part and denying in part 6 Motion to Dismiss, Motion to Change Venue filed by Dean Janes; deny the motion to dismiss, and grant the motion to transfer this case to the Central District of California. Signed by Judge Andrew W. Austin. (mc2, ) (Mailed to pro se plaintiff via regular and CMRRR.) Modified on 7/22/2011 to add text (mc2, ).
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
BOGDAN RENTEA
§
§
§
§
§
v.
DEAN JANES
CAUSE NO. A-11-CV-031 LY
REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
TO:
THE HONORABLE LEE YEAKEL
UNITED STATES DISTRICT JUDGE
Before the Court are: Defendant’s Motion to Dismiss and Motion to Change Venue (Clerk’s
Doc. No. 6); Plaintiff’s Response (Clerk’s Doc. No. 7); Defendant’s Reply (Clerk’s Docket No.
10); Defendant’s Supplement to Motion to Change Venue (Clerk’s Doc. No. 13); and Plaintiff’s
Response (Clerk’s Docket No. 14). The District Court referred the above-motion to the undersigned
Magistrate Judge for a Report and Recommendation pursuant to 28 U.S.C. § 636(b)(1)(B), Federal
Rule of Civil Procedure 72, and Rule 1(d) of Appendix C of the Local Rules of the United States
District Court for the Western District of Texas, Local Rules for the Assignment of Duties to United
States Magistrate Judges. After reviewing the parties’ briefs, relevant case law, as well as the entire
case file, the undersigned issues the following Report and Recommendation to the District Court.
I. GENERAL BACKGROUND
Plaintiff Bogdan Rentea (“Plaintiff”), a Texas resident, is a shareholder in Imaging3, Inc.,
a California company that develops 3D medical imaging devices. Plaintiff alleges that the Chairman
and Chief Executive Officer of Imaging3, Dean Janes (“Defendant”), made false and misleading
statements to his shareholders regarding his ability to obtain approval from the FDA for the sale of
the Dominion VI Scanner, a 3D medical imaging device being developed by his company. Plaintiff
claims that Defendant repeatedly misled public investors about his ability to obtain FDA approval
through “market communication mechanisms, including, but not limited to conference calls, press
releases and personal appearances by Defendant on Money TV,” and via public filings. Plaintiff’s
Second Amended Complaint at ¶ 11. Plaintiff contends that these false statements caused Imaging3's
stock to artificially rise until the day the FDA rejected approval of the device which caused the stock
to plummet. Plaintiff claims that he detrimentally relied on Defendant’s false statements by
purchasing stock in the company and suffering economic losses.
Plaintiff filed this lawsuit against Defendant on January 11, 2011, and alleges claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as SEC Rule 10-b-5. In
response to Plaintiff’s Complaint, Defendant filed the instant Motion to Dismiss, or in the alternative
to dismiss or transfer venue to the Central District of California. Defendant argues that Plaintiff’s
Complaint should be dismissed because it does not meet the pleading requirements of Federal Rules
of Civil Procedure 9(b) and 12(b)(6). Alternatively, Defendant requests that the case be dismissed
or transferred to Californian for improper venue under 28 U.S.C. § 1406(a), or transferred under 28
U.S.C. § 1404(a) for the convenience of the parties and witnesses.
II. ANALYSIS
A.
Improper Venue under § 1406(a)
Defendant argues that the Court should either dismiss this case under Federal Rule of Civil
Procedure 12(b)(3) and 28 U.S.C. § 1406(a) for improper venue, or transfer the case to the Central
District of California. Plaintiff contends that venue is proper in this District because “the Defendant
directed his statements to all shareholders wherever located” and “Defendant should have anticipated
that his statements could be directed to a shareholder in this District.” Amended Complaint at ¶ 6.
2
Under § 1406(a), if a case has been filed in the “wrong division or district,” the district court
has the authority to either dismiss the case or transfer the case “to any district or division in which
it could have been brought.” 28 U.S.C. § 1406(a). Although the federal courts are divided on which
party bears the burden of proof on a motion to dismiss for improper venue,1 ‘the better view” is that
once a proper venue objection has been raised, the burden is on the plaintiff to establish that the
district she has chosen is a proper venue since it is the plaintiff’s general duty to prove that a case
is properly before a particular tribunal. 14D CHARLES ALAN WRIGHT , ARTHUR MILLER & EDWARD
COOPER, FEDERAL PRACTICE & PROCEDURE § 3826 (3rd ed. 2007). Thus, for the purposes of this
Motion, the Court will assume that the burden of proof is on the Plaintiff to prove venue is proper
in the instant District.
Defendant argues that Plaintiff has not satisfied the specific venue provision contained in the
Securities Exchange Act of 1934 (“Exchange Act”). This venue provision provides that civil actions
to enforce any liability or duty under that Act may be brought in the district “wherein the defendant
is found or is an inhabitant or transacts business” or “wherein any act or transaction constituting the
violation occurred.” 15 U.S.C. § 78aa. See also, 14D CHARLES ALAN WRIGHT , ARTHUR MILLER &
EDWARD COOPER, FEDERAL PRACTICE & PROCEDURE § 3824 (3rd ed. 2007).2
1
Compare Roach v. Bloom, 2009 WL 667218, at *p. 2 (N.D. Tex. March 16, 2009);
Bounty-Full Entm’t, Inc. v. Forever Blue Entm’t Group, Inc., 923 F. Supp. 950, 957 (S.D. Tex.1996)
(placing burden on defendant) with Uviado, LLC v. USA, 755 F. Supp.2d 767 (S.D. Tex. 2010);
Norsworthy v. Mystik Transp. Inc., 430 F. Supp.2d 631, 633 (E.D. Tex. 2003); Langton v. Cbeyond
Comm’n, LLC, 282 F. Supp.2d 504, 508 (E.D. Tex. 2003) (placing burden on plaintiff).
2
The plaintiff also bears the burden of showing that the defendant falls withing the special
venue provisions of the Exchange Act. See SEC v. Rizvi, 2010 WL 2949311, at *2 (E.D. Tex. July
2, 2010).
3
It is undisputed that Defendant – a resident of California – is not an inhabitant of this district
and has never owned any property or maintained any business offices in Texas. See Exhibit A to
Defendant’s Motion. Defendant’s company, Imaging3, is located in Burbank, California and does
not maintain any business offices outside of California. Thus, for venue to be proper within this
District, Plaintiff must demonstrate that “any act or transaction constituting the violation occurred”
in the Western District of Texas. 15 U.S.C. § 78aa.
The “act” or “transaction” contemplated by the statute “need not be crucial, nor must ‘the
fraudulent scheme be hatched in the forum district.’” Hilgeman v. Nat’l Ins. Co. of Am., 547 F.2d
298, 301 (5th Cir. 1977) (quoting Hooper v. Mountain State Sec. Corp., 282 F.2d 195, 204 (5th Cir.
1960), cert. denied, 365 U.S. 814 (1961)). Nonetheless, the act must be “of material importance to
the consummation of the scheme.” Id.3 However, “the defendant need not be physically present in
the forum district nor need he commit more than a single act in the district if that act is important
to the consummation of the scheme.” Id. at 302 n. 11.
Janes argues that no materially important part of the alleged fraud occurred in this district.
He argues that the only act “identified with any particularity” by Plaintiff in his Complaint is the
Form 10-K filed with the SEC and available on the SEC’s website. Defendant’s Motion at p. 5.
3
The Fifth Circuit found the following acts to be of “material importance:” Luallen v. Higgs,
277 Fed. Appx. 402 (5th Cir. 2008) (soliciting sales in Texas was of material importance to the
consummation of the defendants’ scheme involving the fraudulent sales of the Nevada mineral leases
and thus was sufficient to satisfy the requirements of § 78aa); Busch v. Buchman, Buchman &
O’Brien, 11 F.3d 1255, 1257(5th Cir. 1994) (finding that defendant was subject to suit where
prospectus was mailed even though it was drafted in New York, where defendant knew it would be
distributed nationwide); Hilgeman, 547 F.2d at 302 (holding that sending a premium payment notice
to Alabama was sufficient to establish venue in Alabama where the notice was part of a scheme
designed to extract ongoing annual payments from a plaintiff who had been fraudulently induced to
purchase a security)
4
Janes relies on case law finding that venue is lacking where the only contact with the Plaintiff’s
forum is the availability of a passive website. E.g., Equidyne Corp. v. Does 1-21, 279 F. Supp.2d
481, 488-89 (D. Del. 2003); Miller v. Asensio, 101 F. Supp.2d 395, 405 (D.S.C. 2000). These cases,
however, can be easily distinguished from the instant case. First, Equidyne and Miller’s holdings
were based on the fact that the only connection between the defendant and the requested forum was
a posting of allegedly misleading material on a passive website accessed by the plaintiff. See Miller,
101 F. Supp.2d at 406 (distinguishing its ruling from other cases based upon the fact that the
Defendant merely posted information on a passive site and no information could be exchanged with
the host computer); Equidyne, 279 F. Supp.2d at 488-89 (finding venue improper where only act
was posting of information on a website which was not highly interactive). This is not the situation
in the case at bar. Although Janes did not send any communications directly to Plaintiff, Plaintiff
alleges that Janes did much more than maintain a passive website; specifically, Plaintiff alleges that
Janes made false and misleading statements during advertised conference calls and announced
appearances on Money TV “to which Plaintiff was invited to attend and view” and that reached into
this district. Plaintiff’s Response at 3. In addition, Plaintiff contends that Janes was an “active
participant” on Investors Hub and posted over 262 messages beginning on April 28, 2006. Id. These
alleged “acts” are sufficient to demonstrate that this Court has venue over this action. See Texas
Gulf Sulphur Co. v. Ritter, 371 F.2d 145, 149 (10th Cir. 1967) (holding that press releases and acts
incident to the sale of the stock were enough to lay venue there); SEC v. Rizvi, 2010 WL 2949311
at * 4-6 (E.D. Tex. July 2, 2010) (holding that misleading statements made through the offering
5
circular, press release, telephone calls, website, oral presentation and e-mails were sufficient to show
venue under § 78aa).4
Based upon the foregoing, the Court finds that Plaintiff has alleged sufficient facts to show
that Defendant’s allegedly false and misleading statements were transmitted into this district.
Accordingly, venue is proper in this district under 15 U.S.C. § 78 aa and Defendant’s Motion to
Dismiss for improper venue should be denied.5
B.
Should the case be transferred under § 1404(a)?
28 U.S.C. § 1404(a) provides that “[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.” 28 U.S.C. § 1404(a) (emphasis added). It is well-settled that the party
seeking the transfer of venue bears the burden of demonstrating that the case should be transferred.
Time, Inc. v. Manning, 366 F.2d 690, 698 (5th Cir. 1966) (“plaintiff's privilege of choosing venue
places the burden on the defendant to demonstrate why the forum should be changed”). The decision
whether to transfer a case under § 1404(a) is a matter within the district court’s sound discretion.
4
See also, Wojtunik v. Kealy, 2003 WL 22006240 at * 5-6 (E.D. Pa. Aug. 26, 2003) (finding
venue proper where defendant sent annual reports and sent SEC filings to the Eastern District of
Pennsylvania through mail and wire communications); In re AES Corp. Sec. Litig., 240 F. Supp.2d
557, 560 (E.D. Va. 2003) (holding that press releases and business journal articles containing
information disseminated by defendant which reached a nationwide audience and were disseminated
in forum district were sufficient to show venue in that district even where there was no showing that
a class member read and relied on that information); In re Triton Sec. Litig., 70 F. Supp.2d 678, 6867 (E.D. Tex. 1999) (holding that press releases, public statements and printed Reuters news stories
sent into district were sufficient to show venue in that district under § 78aa).
5
Defendant has recently notified the Court that it has used an auditing firm located in
Houston, Texas to conduct the audits of its financial statements during the time periods at issue in
this litigation. See Defendant’s Supplement to Motion to Change Venue (Clerk’s Docket No. 130).
This additional fact does not change the Court’s analysis.
6
In re Volkswagen of America, Inc., 545 F.3d 304, 311 (5th Cir. 2008) (en banc), cert. denied, 129
S.Ct. 1336 (2009); Jarvis Christian College v. Exxon Corp., 845 F.2d 523, 528 (5th Cir. 1988).
The preliminary question under § 1404 is whether the lawsuit “might have been brought” in
the destination venue. In re Volkswagen, 545 F.3d at 312. As discussed above, the Court finds that
this case “might have been brought” in this district. The Court must next determine whether the
Defendant has shown “good cause” for transferring the case to California. In re Volkswagen, 545
F.3d at 315 (citing Humble Oil & Ref. Co. v. Bell Marine Serv., Inc., 321 F.2d 53, 56 (5th Cir.
1963)). This requires the party moving for transfer to “clearly demonstrate that a transfer is ‘[f]or
the convenience of parties and witnesses, and in the interest of justice.’ ” Id. (quoting 28 U.S.C. §
1404(a)).
1.
Factors to be considered
When deciding whether to transfer venue, courts balance the private interests of the litigants
with the public’s interest in the fair and efficient administration of justice. In re Volkswagen, 545
F.3d at 315. The private interest factors include: “(1) the relative ease of access to sources of proof;
(2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of
attendance for willing witnesses; and (4) all other practical problems that make trial of a case easy,
expeditious, and inexpensive.” Id. The public interest factors include: “(1) the administrative
difficulties flowing from court congestion; (2) the local interest in having localized interests decided
at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance
of unnecessary problems of conflict of laws in the application of foreign law.” Id. The Fifth Circuit
has clarified that these factors are not exhaustive or exclusive and none are dispositive. Id.
7
a.
The Relative Ease of Access to Sources of Proof
Defendant contends that all of the physical evidence and documents relevant to Plaintiff’s
claims in the case are located in the Central District of California, where Imaging3 maintains its
offices. Defendant emphasizes that the Dominion VI Scanner, at issue in this lawsuit, was invented,
developed and built in the Central District of California. In addition, all the alleged false statements
made by Defendant were made from that District. Plaintiff does not dispute the foregoing and has
failed to identify any documents or evidence which are located in the Western District of Texas.
Accordingly, this factor weighs in favor of transfer.
b. Compulsory process to secure the attendance of witnesses
All of the potential witnesses (both party and non-party) identified by Janes are residents of
the Central District of California.6 Defendant also contends that these witnesses are within the
subpoena power of the Central District of California. Plaintiff has failed to identify any non-party
witnesses who reside in the Western District of Texas. The Court finds that this factor weighs in
favor of transfer.
c.
The cost of attendance for willing witnesses
Defendant argues that requiring a substantial number of Imaging3's employees to attend trial
in Texas for a prolonged period of time would cause it to suffer a serious financial hardship. As
noted, Plaintiff has failed to identify any witnesses other than himself who would have to travel to
California for the trial. Because all of the witnesses (except for Plaintiff) in this case reside in
California, it would clearly be more convenient for the majority of the witnesses in this case to
6
While courts give witnesses who are employees of a party less weight, courts will still
consider them in their analysis. See ExpressJet Airlines, Inc. v. RBC Capital Markets Corp., 2009
WL 2244468 at * 8 (S.D. Tex. July 27, 2009).
8
litigate the case in California rather than in Texas. See In re Greentech, Inc., 566 F.3d 1338, 1344
(Fed. Cir. 2009) (holding that convenience of parties and witnesses required transfer where a
substantial number of witnesses with material and relevant information resided in transferee venue
or transferee state). Thus, the Court finds this factor weighs in favor of transfer.
d.
Local interest
The only public interest factor addressed by either party is the local interest in having
localized interests decided at home. Janes argues that the this factor favors transfer because “the
district where the defendant is located usually has the greater localized interest in securities cases.”
Defendant’s Reply at p. 1. While the Western District of Texas clearly has a vested interest in
ensuring that its residents are not the targets of fraudulent stock schemes, the Central District of
Californian has more of an interest in this particular case since “it has a substantial interest in
policing the conduct of businesses that operate within its jurisdiction.” Rizvi, 2010 WL 2949311 at
* 12.
After consideration of the above-factors, the Court finds that Defendant has shown good
cause to transfer this case to the Central District of California pursuant to 28 U.S.C. § 1404(a).
III. RECOMMENDATION
The Magistrate Judge RECOMMENDS that Defendant’s Motion to Dismiss and/or Motion
to Change Venue (Clerk’s Doc. No. 6) should be GRANTED in PART and DENIED in PART.
The Magistrate Judge RECOMMENDS that the District Court DENY the Motion to Dismiss under
28 U.S.C. § 1406(a) for improper venue. However, the Court RECOMMENDS that the District
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Court GRANT Defendant’s Motion to Transfer Venue and TRANSFER this case to the Central
District of California pursuant to 28 U.S.C. § 1404(a).7
IV. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing
objections must specifically identify those findings or recommendations to which objections are
being made. The District Court need not consider frivolous, conclusive, or general objections. See
Battle v. United States Parole Comm’n, 834 F.2d 419, 421 (5th Cir. 1987).
A party's failure to file written objections to the proposed findings and recommendations
contained in this Report within fourteen (14) days after the party is served with a copy of the Report
shall bar that party from de novo review by the District Court of the proposed findings and
recommendations in the Report and, except upon grounds of plain error, shall bar the party from
appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the
District Court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53, 106 S. Ct. 466,
472-74 (1985); Douglass v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en
banc).
To the extent that a party has not been served by the Clerk with this Report &
Recommendation electronically pursuant to the CM/ECF procedures of this District, the Clerk is
directed to mail such party a copy of this Report and Recommendation by certified mail, return
receipt requested.
7
Because the Court is recommending that the case be transferred to the Central District of
California, the Court has withheld from making recommendations on the substantive portions of
Defendant’s Motion to Dismiss based on Rule 9(b) and 12(b)(6), so that the Central District of
California can rule on these matters once the case is transferred.
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SIGNED this 22nd day of July, 2011.
_____________________________________
ANDREW W. AUSTIN
UNITED STATES MAGISTRATE JUDGE
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