Graham v. Huffman et al
Filing
75
REPORT AND RECOMMENDATIONS re 29 Motion to Dismiss filed by Hemptech Corp., 30 Motion to Dismiss filed by Saeed "Sam" Talari, 36 Motion to Dismiss filed by Craig A. Huffman, RECOMMENDING that the District Court TRANSFER this case to the Tampa Division of the Middle District of Florida. Signed by Judge Andrew W. Austin. (lt)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
JOHN F. GRAHAM, SR.
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V.
CRAIG A. HUFFMAN, et al.
Case No. A-17-CV-536 LY
REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
TO:
THE HONORABLE LEE YEAKEL
UNITED STATES DISTRICT JUDGE
The District Court has referred Defendants’ Motions to Dismiss (Dkt. Nos. 29, 30, & 36) to
the undersigned for 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. The Court held a hearing on
the issue of whether to transfer this case pursuant to 28 U.S.C. § 1404(a) on February 21, 2017 at
10:00 a.m.
I. GENERAL BACKGROUND
Plaintiff John Graham, Sr. sues Defendants Craig Huffman, HempTech Corporation, and its
Chief Executive Officer Sam Talari. Graham, an Austin resident, contends that he reached out to
Huffman—a Florida attorney with whom he had previous dealings—to find a buyer for his company
Building Turbines, Inc. Huffman eventually introduced Graham to HempTech as a potential buyer.
HempTech and its CEO, Talari, are both residents of St. Petersburg, Florida. The parties, after
telephone and email negotiations, concluded an Exchange Agreement by which Graham would be
given shares in HempTech in exchange for his interest in Building Turbines. Graham maintains that
he was informed that he would be permitted to transfer his shares in HempTech after six months;
after this period passed, he was told he could transfer after twelve months. This period again passed,
and Graham alleges he was told that the shares could not be sold at that time. Graham also alleges
that during the negotiations for the purchase of Building Turbines, Talari and Huffman
misrepresented HempTech’s financial health. Finally, Graham asserts that Huffman, acting as
counsel for both HempTech and Graham, failed to disclose a conflict of interest. Though he waived
the “known” conflict in the Agreement, he argues that he was unaware of Huffman’s prior
representation of HempTech in other matters. Graham therefore brings claims for: (1) violation of
the Exchange Act § 10(b) and Rule 10b-5; (2) violation of the Texas Securities Act; (3) common law
fraud and fraud by non-disclosure; (4) negligent misrepresentation; (5) conversion; (6) legal
malpractice; (7) breach of fiduciary duty; (8) breach of contract; (9) tortious interference with
existing contract; (10) violation of Nev. Rev. Stats. §§ 104.8407, 14.8401; and (11) declaratory
judgement.
The Defendants moved to dismiss based on Rule 12(b)(2), 12(b)(3), and 12(b)(6). Huffman
and Talari alternatively moved to dismiss or transfer venue under § 1406. After reviewing the
motions and responses, the Court sua sponte scheduled a hearing to discuss whether transfer under
§ 1404 to the Tampa Division, Middle District of Florida would be appropriate in this case.
II. ANALYSIS
A.
Standard of Review
“For the convenience of the 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). Section 1404(a) “is intended to place discretion in the district court to adjudicate
motions for transfer according to an ‘individualized, case-by-case consideration of convenience and
fairness.’” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988) (quoting Van Dusen v. Barrack,
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376 U.S. 612, 622 (1964)). “There can be no question but that the district courts have broad
discretion in deciding whether to order a transfer” under § 1404(a). In re Volkswagen of Am., Inc.
(“Volkswagen II”), 545 F.3d 304, 313–15 (5th Cir. 2008) (internal quotation marks omitted), cert.
denied, 555 U.S. 1172 (2009).
The starting point on a motion for transfer of venue is determining whether the suit could
have originally been filed in the destination venue. Id. at 312. If it could have, the focus shifts to
whether the party requesting the transfer has demonstrated the “convenience of parties and
witnesses” requires transfer of the action, considering various private and public interests. See Gulf
Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1974). The private interest factors are: “(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.” In re Volkswagen AG (“Volkswagen I”),
371 F.3d 201, 203 (5th Cir. 2004) (citing Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241 n. 6
(1981)). The public interest factors are: “(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 [or in] the application of foreign law.” Id. Although the Gilbert factors are
“appropriate for most transfer cases, they are not necessarily exhaustive or exclusive.” Volkswagen
II, 545 F.3d at 315. In fact, the Fifth Circuit has noted that “none . . . can be said to be of dispositive
weight.” Id. at 313–15 (internal quotations omitted). Despite the wide array of private and public
concerns, a court must engage in a “flexible and individualized analysis” in ruling on a motion to
transfer venue. Stewart, 487 U.S. at 29.
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The plaintiff's choice of venue is not a factor in this analysis, but rather contributes to the
defendant’s burden to show good cause for the transfer. Volkswagen II, 545 F.3d at 313 & 314 n.10
(“[W]hile a plaintiff has the privilege of filing his claims in any judicial division appropriate under
the general venue statute, § 1404(a) tempers the effects of the exercise of this privilege.”). However,
“when the transferee venue is not clearly more convenient than the venue chosen by the plaintiff, the
plaintiff's choice should be respected.” Id. at 315. Moreover, “when a plaintiff is not a resident of
the chosen forum, or the operative facts underlying the case did not occur in the chosen forum, the
court will not give as much deference to a plaintiff’s choice.” Apparel Prod. Servs. Inc. v.
Transportes De Carga Fema, S.A., 546 F. Supp.2d 451, 453 (S.D. Tex. 2008). Transfer under
§ 1404(a) requires a lesser showing of inconvenience than transfer based on forum non conveniens.
Volkswagen II, 545 F.3d at 314. The movant need not show the Gilbert factors substantially
outweigh the plaintiff's choice of venue—it is enough to show the new venue is clearly more
convenient than the original one.
B.
Application
The first question the Court must address when considering a motion to transfer venue under
28 U.S.C. § 1404(a) is whether the suit originally could have been filed in the destination venue,
here, the Tampa Division, Middle District of Florida. Venue is governed by 28 U.S.C. § 1391(b),
which provides that venue is proper in a judicial district: (1) where any defendant resides; (2) where
a substantial part of the events or omissions giving rise to the claim occurred; or (3) if there is no
district where the action may otherwise be brought, in any judicial district in which any defendant
is subject to personal jurisdiction. 28 U.S.C. § 1391(b). All of the Defendants reside in, and a
substantial part of events occurred in, the Middle District of Florida. This case clearly could have
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been brought in the Middle District of Florida. Thus, the Court must now address the private and
public factors to determine if transfer to the Tampa Division, Middle District of Florida is warranted.
1.
Private Interest Factors
The first private interest factor is the relative ease of access to sources of proof. Volkswagen
II, 545 F.3d at 315. Here, the Defendants are all located in the Middle District of Florida, and the
closing of the Exchange Agreement—which Graham traveled to Florida to participate in—occurred
in that district. Similarly, all records from the companies that Huffman has cited as potential
witnesses (aside from LegalZoom, Inc.) are located in St. Petersburg. On the other hand, Graham
contends that his documents relating to the dispute are located in Austin, Texas, and that a CPA he
plans to call to testify regarding the financial health of HempTech resides in Houston, Texas. He
also identifies numerous witnesses from Texas that he claims will corroborate the alleged
misrepresentations. These witnesses, however, are minor witnesses at best. They are apparently
other shareholders of HempTech, and will corroborate some of the facts alleged by Graham. They
are not witnesses to any of the events Graham bases his case on.1 Dkt. No. 73-1 at 3-5. Graham has
added twenty potential witnesses located in Texas, nine of whom provided Declarations for the
hearing.2 Id. Of the nine Declarations from Texas residents, only two mentioned any direct
knowledge of the facts of Graham’s claims, one of whom appears to have traveled to Florida with
1
Indeed, the declarations provided by these potential witnesses read more as support for their
own claims against the Defendants than as declarations about any inconvenience they might
experience in testifying in Tampa, Florida.
2
Two of the Declarations were from Colorado residents. Though both contend that travel to
Austin is easier than travel to Tampa, both will be coming from out-of-state.
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Graham.3 Id. The other witnesses have similar disputes with the Defendants, and are identified for
the sole purpose of corroborating statements made by Talari and Huffman to Graham. This is, at
best, a minor issue, and can be proven without live testimony, if necessary—either by deposition or
records, such as the emails provided at the hearing. Given that the vast majority of the
communications occurred over phone and email, and the corporate records are all located in St.
Petersburg, the ease of access to proof weighs in favor of transferring the case to the Middle District
of Florida.
The second and the third factors, the availability of compulsory process and cost of
transportation for witnesses also weigh in favor of transfer. As noted, all of the Defendants in this
case reside within the Tampa Division, Middle District of Florida. Defendants further identify
several employees, also located within the Tampa Division, that might be called to testify regarding
the closing of the Exchange Agreement. Similarly, Graham has identified the Chief Operation
Officer of HempTech and three entities related to HempTech as potential witnesses, all of which are
located in St. Petersburg, Florida. The only witnesses listed on his initial disclosures from Austin,
Texas are a representative of Legal Zoom, Inc.—which incorporated Tinkerer’s Obsession Labs,
LLC—and Darin Siefkes—Graham’s attorney. On the other hand, Graham has identified a number
of witnesses that he wishes to call to corroborate his claims; two are located in Colorado, but the
majority are located in Texas. See Dkt. No.73-1 at 3–5. As the Tampa Division is more than 100
miles from Texas and Colorado, each of these witnesses would be outside the subpoena power of
3
Of the two witnesses that participated in conversations with Huffman and/or Talari, one
witness actually identified an in-person meeting with Graham, Talari, and Huffman. Dkt. No. 73-3
at 2. As Talari stated in his Declaration that the only in-person meeting that occurred with Graham
took place in St. Petersburg, Florida for the closing of the Exchange Agreement at issue (Dkt. No.
71 at 1), the Court assumes this person witnessed the conversation in Florida.
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the Tampa Division for depositions and hearings. See FED. R. CIV P. 45(c). As the Fifth Circuit
explained in Volkswagen I, 371 F.3d at 205, if the distance between the proposed venue and the
current venue is more than 100 miles, the factor of inconvenience increases in direct relationship to
the distance traveled. As the Court reasoned:
Additional distance means additional travel time; additional travel time increases the
probability for meal and lodging expenses; and additional travel time with overnight
stays increases the time which these fact witnesses must be away from their regular
employment. Furthermore, the task of scheduling fact witnesses so as to minimize
the time when they are removed from their regular work or home responsibilities gets
increasingly difficult and complicated when the travel time from their home or work
site to the court facility is five or six hours one-way as opposed to 30 minutes or an
hour.
Id.
As noted above, the relevance of this testimony is questionable given the lack of direct
knowledge of Graham’s communications. Moreover, even assuming the testimony is relevant and
probative, it is not entirely clear that any of the witnesses would need to be subpoenaed to appear.
Though it is relevant to the venue consideration whether Graham would like to call certain witnesses,
it seems likely that the witnesses would still participate if the trial were to occur in Tampa, Florida,
as most are family and friends of Graham and volunteered the Declarations provided at the hearing.
Additionally, Graham would clearly have the opportunity to depose the witnesses in Austin, and any
of the witnesses that wished to travel to Tampa, Florida may do so. Finally, the Court notes that the
witnesses were not added to Graham’s initial disclosures until after the Court indicated it was
considering transfer of the case. Thus, the second and third factors weigh in favor of transfer.
Finally, the Court is to examine “all other practical problems that make trial of a case easy,
expeditious and inexpensive.” Volkswagen I, 371 F.3d at 203. All of the Defendants and most of
the relevant witnesses reside in the Tampa Division. Much of the conduct at issue in this case
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occurred in the Tampa Division, though Plaintiff received the calls and emails in the Austin
Division. There does not appear to be anything about trying the case in the Austin Division that
would make it any easier, more expeditious or less expensive than if it were tried in Tampa.
Accordingly, this factor also supports transfer.
3.
Public Interest Factors
The public interest factors also counsel in favor or transfer. The first factor, administrative
difficulties arising from court congestion is neutral. As presented at the hearing, both the Middle
District of Florida and Western District of Texas have relatively equal time periods from filing to
trial. Dkt. No. 73-2 at 21–22. Though, as the Court noted at the hearing, the Austin Division is
currently operating at reduced strength, and is one of the busiest of divisions in the Western District,
there are no clear statistics on the Tampa Division of the Middle District of Florida to make a
comparison. Thus, this factor neither weighs in favor nor against transfer.
The local interest factor clearly favors transfer. Graham argues that this factor, in particular,
weighs in favor of retaining the case. In support, Graham cited to a number of cases finding a
significant local interest in attorney-client disputes as well as claims for misrepresentations made to
citizens of that district. Dkt. No. 74-1 at 54–57. However, the facts of this case tell a different story.
The dispute arose when Graham reached out to Huffman in Florida. See Volkswagen I, 371 F.3d at
206 (finding that “the ‘local interest in having localized interests decided at home,’ weighs heavily
in favor of the Western District of Texas.”); Spiegelberg v. Collegiate Licensing Co., 402 F. Supp.
2d 786, 792 (S.D. Tex. 2005) (“Moreover, Lubbock has a strong interest in this case because the case
arises out of events occurring in Lubbock.”). Graham contacted a Florida attorney to find a buyer
for Building Turbines; Huffman provided as buyer a corporation whose principal place of business
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is in Florida; the parties closed the Exchange Agreement in Florida, and the Exchange Agreement
is governed by Florida law; and both Talari and Huffman contacted Graham solely by email and
phone from Florida. Thus, this appears to be a case with significant local interests in Tampa,
Florida. And to the extent Graham contends that Texas law will govern the malpractice claims
against Huffman, that is less than clear to the undersigned. As noted, Huffman did all of his work
in Florida, after being contacted by Graham in Florida.
The deal closed there.
In these
circumstances, Florida would appear to have a greater local interest in regulating the behavior of
Huffman, an attorney licensed in Florida, than Texas does. Indeed, the only factor weighing in favor
of Austin, Texas is the fact that Graham resides here. Accordingly, this factor also favors transfer.
Finally, the last two public interest factors are neutral. Graham’s claims are not confined
solely to either Texas or Florida law, and one claim is based on a Nevada statute. Moreover, transfer
will not cause unnecessary issues with conflict of laws or in the application of foreign law.
Weighing all of the private and public factors, the Court concludes that the Tampa Division
of the Middle District of Florida is a more convenient venue for this case than this Court.
Accordingly, this case should be transferred pursuant to 28 U.S.C. § 1404(a).
III. RECOMMENDATION
Accordingly, the undersigned RECOMMENDS that the District Court TRANSFER this
case to the Tampa Division of the Middle District of Florida, and leave all other motions pending
for resolution in the transferee court.
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.
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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 (1985); Douglass
v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).
SIGNED this 24th day of February, 2018.
_____________________________________
ANDREW W. AUSTIN
UNITED STATES MAGISTRATE JUDGE
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