Global Fitness Holdings, LLC v. Federal Recovery Acceptance, Inc.

Filing 34

MEMORANDUM OPINION & ORDER: 1) Dft's #18 Motion to Dismiss is DENIED; 2) Dft's #18 alternative motion to transfer venue to the USDC for the District of Utah is GRANTED; 3) Clerk is DIRECTED to TRANSFER this action to the USDC for the District of Utah; and 4) Dft's #19 "Motion to Hold Initial Meeting and Report Deadlines in Abeyance" and Pla's #27 "Motion for a Hearing on Paramount's Motion to Hold Initial Meeting and Report Deadlines in Abeyance" are DENIED as moot. Signed by Judge Karen K. Caldwell on 3/20/2013. (KLB) cc: COR [Transferred from Kentucky Eastern on 3/21/2013.]

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION AT LEXINGTON

GLOBAL FITNESS HOLDINGS, LLC,
PLAINTIFF
v.

FEDERAL RECOVERY ACCEPTANCE, INC.,
DEFENDANT

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CIVIL ACTION NO. 5:12-314

MEMORANDUM OPINION
AND ORDER

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This matter is before the Court on three related motions, all based on whether this is the
proper venue for the action. Defendant has filed a “Motion to Dismiss For Improper Venue or
Alternatively to Transfer Venue” (DE 18) and a “Motion to Hold Initial Meeting and Report
Deadlines in Abeyance” (DE 19) pending resolution of its venue motion. Plaintiff, in turn, has
filed a “Motion for a Hearing on Paramount’s Motion to Hold Initial Meetings and Report
Deadlines in Abeyance.” (DE 27). Because the Court is prepared to rule on Defendant’s venue
motion (DE 18), the others are moot.

For the reasons stated below, the Court DENIES

Defendant’s motion to dismiss but GRANTS its alternative motion to transfer venue.
I. BACKGROUND
At the time this case began, Plaintiff Global Fitness Holdings, LLC (d/b/a Urban
Active)(“Global Fitness”), a Kentucky limited-liability company with its principal place of
business in Lexington, Kentucky, owned and operated thirty-six fitness centers in seven states.1
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When considering a Rule 12(b)(3) motion such as this one, “[t]he Court may examine facts outside the complaint
but must draw all reasonable inferences and resolve factual conflicts in favor of the plaintiff.” Audi AG &
Volkswagen of America, Inc. v. Izumi, 204 F.Supp.2d 1014, 1017 (E.D. Mich. 2002) (citations omitted). As a result,
this background is based largely on the facts as alleged in the Complaint. (DE 1).

Ten of those locations were in Kentucky. (DE 23-2). In September of 2009, Global Fitness
contracted

with

Defendant

Federal

Recovery

Acceptance,

Inc.

(d/b/a

Paramount

Acceptance)(“Federal Recovery”) to process monthly fees from some of its fitness center
members. Federal Recovery is a Utah corporation with its principal place of business in Salt
Lake City, Utah.

Under the agreement, Global Fitness gathered billing information from

customers and then uploaded this member data to Federal Recovery’s encrypted website. Using
the member data, Federal Recovery electronically withdrew the necessary funds from member
accounts and deposited the funds collected with Global Fitness’s bank, Fifth Third, in Lexington,
Kentucky. (DE 23-2). The business relationship required Global Fitness and Federal Recovery
to be in close contact. There were weekly scheduled calls in addition to other as-needed
communications between the businesses. (DE 23-2).
In September 2012, Global Fitness sought to end that relationship after agreeing to sell its
fitness centers to L.A. Fitness International, LLC. The asset purchase agreement had a closing
date of October 15, 2012, with the price being reduced should closing be delayed beyond that
date. On September 10 and 11, 2012, Global Fitness communicated its desire to terminate the
agreement with Federal Recovery. (DE 23-3). The agreement between Global Fitness and
Federal Recovery included a 45-day prior notice termination clause.

By October, Federal

Recovery had not transmitted all the member data or all the member funds to Global Fitness.
With the closing date with L.A. Fitness looming, Global Fitness filed this instant action (DE 1)
and also sought a preliminary injunction. (DE 5). Although Federal Recovery did not appear,
the Court granted the preliminary injunction. (DE 11). The parties state that Federal Recovery
complied with the injunction and produced the member data on October 11, 2012. Global
Fitness, however, still missed its closing date of October 15, 2012, with L.A. Fitness, and so the

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eventual purchase price was reduced. In its Complaint, Global Fitness has brought multiple
claims against Federal Recovery including causes of action for conversion, tortious interference,
injunctive relief, and breach of contract. (DE 1).
Before those issues can be addressed, the Court must resolve the procedural question
regarding venue. Federal Recovery has challenged Global Fitness’s choice of venue by arguing
that it does not reside in this district and that a substantial part of the events or omissions under
the contract did not take place in the district. Federal Recovery moves for an order of dismissal
for improper venue, citing specifically Federal Rule of Civil Procedure 12(b)(3) (providing for
motion to dismiss for improper venue), 28 U.S.C. § 1406(a) (requiring court to dismiss or
transfer an action for improper venue), and 28 U.S.C. § 1391(b) (stating which district is proper
venue in civil actions). (DE 18). Alternatively, Federal Recovery seeks an order of transfer
pursuant to 28 U.S.C. §1404(a) (allowing court to transfer a civil action when venue is proper
but inconvenient).
II. ANALYSIS
a. Motion to Dismiss for Improper Venue
A motion to dismiss for improper venue pursuant to Rule 12(b)(3) will only be granted if
the case was not filed in a venue prescribed by 28 U.S.C. § 1391. Kerobo v. Sw. Clean Fuels,
Corp., 285 F.3d 531, 536 (6th Cir. 2002). “[W]hether to dismiss or transfer is within the district
court’s sound discretion....” First of Mich. Corp. v. Bramlet, 141 F.3d 260, 262 (6th Cir. 1998).
Because venue is proper in the Eastern District of Kentucky, the motion to dismiss will be
denied.
The defendant has the burden of proving that the forum chosen by the plaintiff is
improper. See Long John Silver’s, Inc. v. DIWA III, Inc., 650 F. Supp. 2d 612, 631 (E.D. Ky.

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2009) (distinguishing between challenges to personal jurisdiction and challenges to venue, and
gathering cases in support of that distinction). When considering venue on a Rule 12(b)(3)
motion, “[t]he Court may look beyond the allegations of the Complaint but must draw all
reasonable inferences and resolve factual conflicts in favor of the plaintiff.”

Audi AG &

Volkswagen of America, Inc. v. Izumi, 204 F. Supp. 2d 1014, 1017 (E.D. Mich. 2002) (citations
omitted). See also 5B Charles Alan Wright et al., Federal Practice and Procedure § 1352 (3d
ed. 2004).
Venue is proper in the Eastern District of Kentucky if this action satisfies the
requirements of the general venue statute, 28 U.S.C. § 1391.

This statute provides three

possibilities for proper venue: (1) a judicial district in which the defendant “resides,” (2) a
judicial district in which “a substantial part of the events or omissions giving rise to the claim
occurred,” or (3) if the first two possibilities fail, “any judicial district in which any defendant is
subject to the court’s personal jurisdiction with respect to such action.” 28 U.S.C. § 1391(b). In
this case, Global Fitness alleged2 that venue was proper “because a substantial part of the events
or omissions giving rise to the claims asserted in this Complaint occurred in the Central Division
of this Court.” (DE 1). The issue is not which forum is the “best” venue, but whether the district
has a “substantial connection” to Global Fitness’s claims, even if other districts have greater
contacts. First of Mich. Corp., 141 F.3d at 263. Federal Recovery has the burden of proving this
is not the proper venue. Because the Eastern District has a substantial connection to these

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It is not necessary, however, to plead the basis of venue. See Fed. R. Civ. P. 8(a). Because venue is subject to
waiver – unlike subject matter jurisdiction – statements related to venue are not required in a complaint. 2 James
Wm. Moore et al., Moore’s Federal Practice § 8.03(1)(3d ed. 2012)(“A defending party must make a timely
objection to improper venue to have the defense considered.”)

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claims, Federal Recovery has not met this burden, and the Eastern District of Kentucky is a
proper venue.3
Here, Global Fitness and Federal Recovery entered into an ongoing commercial
relationship based on activity involving Global Fitness’s Kentucky headquarters, Kentucky
fitness centers, and Kentucky customers. While Federal Recovery engaged in this activity from
Utah, there remains a substantial connection to Kentucky, including, at the very least, the fees
processed from Kentucky customers and deposited with Global Fitness’ Kentucky bank.
Furthermore, there was contact between Federal Recovery and Global Fitness throughout this
commercial relationship. The connections are not overwhelming, but there is a substantial
connection sufficient for venue. Because venue is proper in the Eastern District of Kentucky, the
motion to dismiss will be denied.
b. Motion to Transfer for Inconvenient Venue
Alternatively, Federal Recovery asks the Court to transfer this matter to the District of
Utah pursuant to 28 U.S.C. § 1404(a), which 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.” It is undisputed that the action could have
originally been brought in the District of Utah where Federal Recovery resides. Accordingly, it
is an appropriate forum to which this action might be transferred. Deciding a motion to transfer
venue requires an “individualized, case-by-case consideration of convenience and fairness,” Van
Dusen v. Barrack, 376 U.S. 612, 622 (1964), and the Court has broad discretion in deciding
whether or not to transfer a case. Phelps v. McClellan, 30 F.3d 658, 663 (6th Cir. 1994).

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Alternatively, Global Fitness now argues that venue is proper because Federal Recovery resides in the Eastern
District of Kentucky pursuant to § 1391(b)(1) and § 1391(c)(2). While a persuasive argument, the Court need not
address it because venue is proper under § 1391(b)(2) as alleged in the Complaint.

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Courts within the Sixth Circuit have identified nine factors which should be considered
when ruling upon a motion to transfer venue under section 1404(a):
(1) the convenience of witnesses; (2) the location of relevant documents and
relative ease of access to sources of proof; (3) the convenience of the parties; (4)
the locus of the operative facts; (5) the availability of process to compel the
attendance of unwilling witnesses; (6) the relative means of the parties; (7) the
forum’s familiarity with the governing law; (8) the weight accorded the plaintiff's
choice of forum; and (9) trial efficiency and the interests of justice, based on the
totality of the circumstances.
Perceptron, Inc. v. Silicon Video, Inc., 423 F. Supp. 2d 722, 729 (E.D. Mich. 2006).
The burden is generally placed on the party seeking transfer, and a plaintiff’s choice of
forum is ordinarily entitled to considerable weight. MSDG Mobile, LLC v. Am. Fed., Inc., 2006
U.S. Dist. LEXIS 7787, 2006 WL 515531, at *6 (W.D. Ky. Feb. 28, 2006). As a result, “[u]nless
the balance is strongly in favor of the defendant, the plaintiff’s choice of forum should rarely be
disturbed.” Nicol v. Koscinski, 188 F.2d 537 (6th Cir. 1951) (citations omitted). Further, a
motion to transfer venue under § 1404(a) cannot simply be an attempt to shift the inconvenience
of litigation from the defendant to the plaintiff. Copeland Corp. v. Choice Fabricators, Inc., 492
F.Supp.2d 783, 789 (S.D. Ohio 2005).
In considering the factors identified by the Sixth Circuit in Perceptron, the Court will
first consider the convenience of witnesses. The Court finds that this factor strongly favors
transfer. “Witnesses’ convenience is one of the most important factors in determining whether to
grant a motion to change venue under § 1404(a).” Valvoline Instant Oil Change Franchising,
Inc. v. RFG Oil, Inc., No. 12-CV-39-KSF, 2012 WL 3613300, at *7 (E.D. Ky. Aug. 22,
2012)(quoting Thomas v. Home Depot, U.S.A., Inc., 131 F.Supp.2d 934, 937 (E.D. Mich. 2001)).
The parties likely will produce witnesses from their respective headquarters in Kentucky and
Utah, so neither forum will be convenient for all party witnesses. Utah, however, is the more

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convenient forum for third-party witnesses. Given the preference of courts for live testimony
over depositions, this is a critical consideration. See, e.g., Smith v. Kyphon, Inc., 578 F. Supp. 2d
954, 963 (M.D. Tenn. 2008) (“Convenience of non-party witnesses, as opposed to employee
witnesses, is one of the most important factors in the transfer analysis”). Here, Federal Recovery
has identified several third-party witnesses who would find it inconvenient to travel to this Court.
These witnesses include contractors involved in the handling and processing of the data and fees
at the heart of this case. These witnesses are not employed by Federal Recovery and do not
reside in Kentucky. Instead, these witnesses, who would have knowledge relevant to the issues
in this case, reside in Utah. If the case proceeded in this Court, the parties could not compel the
attendance of these witnesses. See Fed. R. Civ. P. 45(b)(2). Moreover, L.A. Fitness, a California
entity, is another third-party witness who would find Utah to be a more convenient forum.
The factor related to governing law also weighs in favor of transfer. The parties agree
that Utah law will govern Global Fitness’s breach of contract claim because the parties’ contract
contains a choice of law provision declaring Utah law will apply. (DE 1-2). It is not clear to
what extent Utah law may apply, if at all, to the remaining claims for conversion and tortuous
interference. While this Court certainly can apply non-forum law to the facts of a particular case,
this factor nevertheless favors transfer to a Utah court with greater familiarity with Utah case
law.
In addition, the location of relevant documents, the relative ease of access to sources of
proof, and the locus of the operating facts favor transfer. These related factors weigh in favor of
Utah. Even according to Global Fitness’s allegations, the events underlying the Complaint
largely occurred in Utah. The actors behind these events were and are in Utah. The documents
generated in performance of this contract were created and maintained in Utah. The advent of

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electronic discovery has reduced the importance of the actual location of documentary evidence,
but if this factor favors either forum, it favors Utah. Utah is where Global Fitness has alleged
Federal Recovery wrongfully retained more than $500,000 in member fees. As a result, Utah is
the locus of more operative facts and the location of more relevant documents.
Of the factors, only the plaintiff’s choice of forum truly favors keeping the case in
Kentucky. In cases where the forum has little connection with the matter in controversy, that
choice is given less weight. Valvoline, 2012 WL 3613300, at *5. Here, the claims are connected
with Kentucky, but that connection is not strong. As such, Global Fitness’s forum selection is
not entitled to completed deference.

Regardless, the remaining factors favor transfer.

Considering all the factors, and in the interest of justice and convenience, especially to thirdparty witnesses, the motion to transfer will be granted.
III. CONCLUSION
For the above stated reasons, IT IS HEREBY ORDERED as follows:
(1) Defendant’s motion to dismiss (DE 18) is DENIED;
(2) Defendant’s alternative motion to transfer venue to the United States District Court
for the District of Utah (DE 18) is GRANTED;
(3) The Clerk of the Court is DIRECTED to TRANSFER this action to the United States
District Court for the District of Utah; and
(4) Defendant’s “Motion to Hold Initial Meeting and Report Deadlines in Abeyance”
(DE 19) and Plaintiff’s “Motion for a Hearing on Paramount’s Motion to Hold Initial
Meetings and Report Deadlines in Abeyance” (DE 27) are DENIED as moot.
This 20th day of March, 2013.

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