Mao et al v. US Bank National Association et al
Filing
30
MEMORANDUM DECISION AND ORDER granting 10 Motion to Transfer Venue; and denying 13 Motion to Dismiss for Lack of Jurisdiction. The Clerk of the Court is directed to transfer this case to the Western District of Washington and close this case forthwith. Signed by Judge Ted Stewart on 7/11/2016. (eat)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
CHI CHEN, et al.,
MEMORANDUM DECISION AND
ORDER ON PENDING MOTIONS
Plaintiffs,
v.
U.S. BANK NATIONAL ASSOCIATION,
et al.,
Case No. 2:15-CV-850 TS
Defendants.
RUI MAO, et al.,
Plaintiffs,
v.
Case No. 2:15-CV-851 TS
U.S. BANK NATIONAL ASSOCIATION,
et al.,
Defendants.
This matter is before the Court on Motions to Dismiss for Lack of Personal Jurisdiction
and for Improper Venue filed by Defendants Quartzburg Gold, LP (“Quartzburg”), ISR Capital,
LLC (“ISR”), Idaho State Regional Center, LLC (“ISRC”), and Sima Muroff (collectively, the
“Quartzburg Defendants”). Also before the Court is Defendant U.S. Bank National
Association’s (“U.S. Bank”) Motions to Transfer Venue. 1 For the reasons discussed below, the
Court will deny the Motions to Dismiss for Lack of Personal Jurisdiction and grant the Motions
to Transfer Venue.
1
The Motions from both cases are considered together as they are substantially similar.
U.S. Bank has also filed Motions to Dismiss, which have not been addressed.
1
I. BACKGROUND
The following facts are taken from Plaintiffs’ Complaints and the documents attached
thereto.
Plaintiffs are Chinese investors (“Investors”). Quartzburg (through ISR), U.S. Bank, and
ISRC entered into a Master Escrow Agreement (“Escrow Agreement”). Under the Escrow
Agreement, U.S. Bank was the Escrow Agent.
The Escrow Agreement was intended to facilitate investments by individuals like the
Investors for the purposes of qualifying for the EB-5 U.S. immigration investor program. The
Escrow Agreement contemplated that numerous Investors would execute a Joinder to the Escrow
Agreement (“Escrow Joinder”) and each place at least $500,000 in escrow.
The Escrow Agreement allowed for disbursement of the Investors’ funds only if certain
conditions were met. Specifically, Plaintiffs allege that the escrowed funds were not to be
released prior to the approval of the Investor’s I-526 immigration petition.
Plaintiffs allege that none of the Investors’ I-526 petitions were approved, but Quartzburg
requested and received escrowed funds from U.S. Bank. All of Plaintiffs’ claims arise out of this
alleged improper disbursement of funds. Plaintiffs bring claims for breach of contract and the
covenant of good faith and fair dealing, breach of fiduciary duty, conversion/monies had and
received, and federal and state securities fraud.
II. DISCUSSION
The Quartzburg Defendants argue that the Court lacks personal jurisdiction over them
and that venue in Utah is improper. U.S. Bank seeks a transfer of venue. The Quartzburg
Defendants do not oppose U.S. Bank’s request to transfer.
2
A.
PERSONAL JURISDICTION
Plaintiffs bring both state and federal claims and invoke both federal question and
diversity jurisdiction. The personal jurisdiction analysis varies slightly depending on whether
Plaintiffs’ claims are brought pursuant to federal question jurisdiction or diversity jurisdiction.
The parties fail to recognize this and, as a result, improperly focus their arguments only on
whether the Quartzburg Defendants had sufficient minimum contacts to support specific
jurisdiction. This analysis, while helpful, is incomplete. A plaintiff must establish personal
jurisdiction with respect to each claim he asserts. 2 By addressing only the minimum contacts
analysis, the parties have failed to properly analyze Plaintiffs’ claims based on federal question
jurisdiction.
“Before a federal court can assert personal jurisdiction over a defendant in a federal
question case, the court must determine (1) ‘whether the applicable statute potentially confers
jurisdiction’ by authorizing service of process on the defendant and (2) ‘whether the exercise of
jurisdiction comports with due process.’” 3 Plaintiffs’ Fourth Cause of Action asserts “Federal
Securities Fraud.” While Plaintiffs fail to identify a particular statute, it appears that they are
asserting claims under Section 10(b) of the Securities Exchange Act of 1934. This comports
with the parties briefing related to Defendant U.S. Bank’s Motions to Dismiss. 4 The Securities
Exchange Act authorizes nationwide service of process. 5
2
4A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1069.7 (3d
ed. 2002).
3
Peay v. BellSouth Med. Assistance Plan, 205 F.3d 1206, 1209 (10th Cir. 2000) (quoting
Republic of Pan. v. BCCI Holdings (Luxembourg) S.A., 119 F.3d 935, 942 (11th Cir. 1997)).
4
Docket No. 24 in Case No. 2:15-CV-850 and Docket No. 14 in Case No. 2:15-CV-841.
5
15 U.S.C. § 78aa.
3
Having determined that the Securities Exchange Act provides for nationwide service of
process, the Court must determine whether exercising jurisdiction over the Quartzburg
Defendants comports with due process. “[I]n a federal question case where jurisdiction is
invoked based on nationwide service of process, the Fifth Amendment requires the plaintiff’s
choice of forum to be fair and reasonable to the defendant.” 6 “To establish that jurisdiction does
not comport with Fifth Amendment due process principles, a defendant must first demonstrate
‘that his liberty interests actually have been infringed.’” 7 “The burden is on the defendant to
show that the exercise of jurisdiction in the chosen forum will ‘make litigation so gravely
difficult and inconvenient that [he] unfairly is at a severe disadvantage in comparison to his
opponent.’” 8
In determining whether the Quartzburg Defendants have met this burden, the Court
considers the following factors:
(1) the extent of the defendant’s contacts with the place where the action was
filed; (2) the inconvenience to the defendant of having to defend in a jurisdiction
other than that of his residence or place of business, including (a) the nature and
extent and interstate character of the defendant’s business, (b) the defendant’s
access to counsel, and (c) the distance from the defendant to the place where the
action was brought; (3) judicial economy; (4) the probable situs of the discovery
proceedings and the extent to which the discovery proceedings will take place
outside the state of the defendant's residence or place of business; and (5) the
nature of the regulated activity in question and the extent of impact that the
defendant’s activities have beyond the borders of his state of residence or
business. 9
6
Peay, 205 F.3d at 1212.
7
Id. (quoting Republic of Pan., 119 F.3d at 946).
8
Id. (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 478 (1985)).
9
Id.
4
“‘[I]t is only in highly unusual cases that inconvenience will rise to a level of constitutional
concern.” 10
Having considered these factors, the Court finds that the Quartzburg Defendants cannot
meet their burden of showing that defending this action in Utah rises to a level of constitutional
concern.
First, the Quartzburg Defendants’ contacts with Utah are in dispute. However, to the
extent any contacts exist, they appear to be minimal.
Second, the Quartzburg Defendants have failed to demonstrate any inconvenience in
defending this action in Utah. The Quartzburg Defendants’ business is far reaching and involves
both foreign and domestic activities. The Quartzburg Defendants have been able to access
counsel in this forum. Further, the Quartzburg Defendants are residents of Idaho, a relatively
close distance to Utah. Any inconvenience is lessened by modern methods of communication
and transportation. 11
Third, there is nothing to indicate that judicial economy makes this forum unfair.
Additionally, Plaintiffs argue that a large amount of discovery and discovery proceedings will
take place in Utah. Plaintiffs state that a key witness in this case is a U.S. Bank employee
located in Utah.
Finally, the Quartzburg Defendants’ activities have effects outside the borders of their
home state. As set forth above, this action arises out of Defendants’ activities with Chinese
investors and a national bank. Thus, Defendants “have not met their burden of demonstrating
10
Id. (quoting Republic of Pan., 119 F.3d at 947).
11
Id. at 1213.
5
that the [Court’s] assertion of jurisdiction will make litigation so difficult and inconvenient that
they unfairly will be at a severe disadvantage compared to plaintiffs.” 12
Having determined that the Court may exercise personal jurisdiction over Plaintiffs’
federal securities claim, the Court must now consider whether it may exercise pendent personal
jurisdiction over the remaining state-law claims, even assuming the Court lacks an independent
basis to assert personal jurisdiction over those claims.
Pendent personal jurisdiction often arises where, as here, “one or more federal claims for
which there is nationwide personal jurisdiction are combined in the same suit with one or more
state or federal claims for which there is not nationwide personal jurisdiction.” 13
Pendent personal jurisdiction . . . exists when a court possesses personal
jurisdiction over a defendant for one claim, lacks an independent basis for
personal jurisdiction over the defendant for another claim that arises out of the
same nucleus of operative fact, and then, because it possesses personal
jurisdiction over the first claim, asserts personal jurisdiction over the second
claim. In essence, once a district court has personal jurisdiction over a defendant
for one claim, it may “piggyback” onto that claim other claims over which it lacks
independent personal jurisdiction, provided that all the claims arise from the same
facts as the claim over which it has proper personal jurisdiction. 14
Here, all of Plaintiffs’ claims arise out of the same nucleus of operative fact. Plaintiffs’
claims are based on the alleged improper disbursement of the Investors’ escrowed funds. Thus,
even assuming Court lacks personal jurisdiction over the Quartzburg Defendants for Plaintiffs’
12
Id.
13
Action Embroidery Corp. v. Atl. Embroidery, Inc., 368 F.3d 1174, 1180–81 (9th Cir.
2004); see also IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1056 (2d Cir. 1993)
(“[U]nder the doctrine of pendent personal jurisdiction, where a federal statute authorizes
nationwide service of process, and the federal and state claims derive from a common nucleus of
operative fact, the district court may assert personal jurisdiction over the parties to the related
state law claims even if personal jurisdiction is not otherwise available.”) (quotation marks
omitted).
14
United States v. Botefuhr, 309 F.3d 1263, 1272 (10th Cir. 2002) (citations omitted).
6
state-law claims, the Court will exercise its discretion and will assert jurisdiction over these
claims. 15
B.
VENUE
The Quartzburg Defendants next argue that dismissal is appropriate for improper venue.
U.S. Bank, in turn, argues for transfer of venue. While venue would be proper in Utah, 16 the
Court agrees that transfer of venue is appropriate.
Through its Motions, U.S. Bank seeks enforcement of the forum selection clause
contained in the Escrow Agreement. 17 Such clauses may be enforced through 28 U.S.C. §
1404(a). 18 That provision states: “For 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 or to any district or division to which all parties have consented.”
The analysis of a motion under § 1404(a) differs depending on whether a valid forum
selection clause exists. “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.” 19 However, where a valid
15
Id. at 1273 (stating that “even where a court could legally exercise pendent personal
jurisdiction over a claim, a district court retains discretion”).
16
15 U.S.C. § 78aa(a) provides that venue is proper in a district where (1) the defendant is
an inhabitant; (2) where the defendant is found; (3) where the defendant transacts business; or (4)
where any act or transaction constituting the violation occurred. Even if venue was not proper
under this statute, it would at least be proper under 28 U.S.C. § 1391(b)(3).
17
For the purposes of these Motions, Plaintiffs do not argue that the forum selection
clause is inapplicable or otherwise unenforceable.
18
Atl. Marine Constr. Co., Inc. v. U.S. Dist. Court for the W. Dist. of Tex., ---U.S.---, 134
S.Ct. 568, 579 (2013).
19
Id. at 581.
7
forum selection clause exists, it should be “given controlling weight in all but the most
exceptional cases.” 20 In such cases, “the plaintiff's choice of forum merits no weight” and the
Court “may consider arguments about public-interest factors only.” 21 “As the party acting in
violation of the forum-selection clause, [Plaintiffs] bear the burden of showing that publicinterest factors overwhelmingly disfavor a transfer.” 22 “Because those factors will rarely defeat
a transfer motion, the practical result is that forum-selection clauses should control except in
unusual cases.” 23
Courts, including this court, have generally limited the application of Atlantic Marine to
mandatory forum selection clauses. 24 Therefore, to determine the proper analysis to be applied,
the Court must first determine whether the forum selection clause in the Escrow Agreement is
mandatory or permissive.
Forum selection clauses may be either mandatory or permissive. “Mandatory forum
selection clauses ‘contain[ ] clear language showing that jurisdiction is appropriate only in the
20
Id. (quotation marks omitted).
21
Id. at 581–82. “Public-interest factors may include the administrative difficulties
flowing from court congestion; the local interest in having localized controversies decided at
home; [and] the interest in having the trial of a diversity case in a forum that is at home with the
law.” Id. at 581 n.6 (quotation marks omitted) (alteration in original).
22
Id. at 583.
23
Id. at 582.
24
See Nelson v. Aramark Sports & Entm’t Servs., LLC, No. 2:14-CV-474 DN, 2015 WL
1014579, at *2 (D. Utah Mar. 9, 2015) (“A forum-selection clause is only given controlling
weight, and the Atlantic Marine holding is only applicable, when the clause is ‘mandatory’ rather
than ‘permissive.’”). Because the Court concludes that the forum selection clause is mandatory,
the Court need not consider whether the Atlantic Marine framework should apply to a permissive
forum selection clause.
8
designated forum.’” 25 “In contrast, permissive forum selection clauses authorize jurisdiction in a
designated forum, but do not ‘prohibit litigation elsewhere.’” 26 The Tenth Circuit has adopted
the majority rule that “when venue is specified, such as when the parties designate a particular
county or tribunal, and the designation is accompanied by mandatory or obligatory language, a
forum selection clause will be enforced as mandatory.” 27 “Where only jurisdiction is specified,
we will nonetheless enforce a forum selection clause if there is some additional language
indicating the parties’ intent to make venue exclusive.” 28
The forum selection clause at issue here states:
Consent to Jurisdiction and Venue. In the event that any party hereto commences
a lawsuit or other proceeding relating to or arising from this Master Escrow
Agreement, the parties hereto agree that the federal district court in Seattle,
Washington shall have jurisdiction over any such proceeding. If such court lacks
federal subject matter jurisdiction, the parties agree that the Superior Court of
King County in Seattle, Washington shall have jurisdiction. Any of these courts
shall be proper venue for any such lawsuit or judicial proceeding and the parties
hereto waive any objection to such venue. The parties hereto consent to and agree
to submit to the jurisdiction of any of the courts specified herein and agree to
accept service of process to vest personal jurisdiction over them in any of these
courts. 29
This provision has two parts. The first part—where the parties agree that either the
federal or state court in Seattle, Washington shall have jurisdiction—is permissive. The Tenth
Circuit has held that similar provisions are permissive unless they contain some language
25
Excell, Inc. v. Sterling Boiler & Mech., Inc., 106 F.3d 318, 321 (10th Cir. 1997)
(quoting Thompson v. Founders Grp. Int’l, 886 P.2d 904, 910 (Kan. 1992)) (alteration in
original).
26
Id. (quoting Thompson, 886 P.2d at 910).
27
Am. Soda, LLP v. U.S. Filter Wastewater Grp., Inc., 428 F.3d 921, 927 (10th Cir.
28
Id.
29
Docket No. 2 Ex. A ¶ 13.
2005).
9
indicating that venue is exclusive. 30 If the forum selection clause only contained this provision,
Plaintiffs’ arguments against transfer would be correct. However, the forum selection clause
contains a second part where the parties agree that “these courts shall be proper venue for any
such lawsuit or judicial proceeding.” As stated, “when venue is specified . . . and the designation
is accompanied by mandatory or obligatory language, a forum selection clause will be enforced
as mandatory.” 31
The Tenth Circuit addressed such a clause in Milk ‘N’ More v. Beavert. 32 The forum
selection clause there stated, in pertinent part, that “venue shall be proper under this agreement in
Johnson County, Kansas.” 33 The Tenth Circuit found that the use of the word “shall” was
mandatory and enforced the forum selection clause. 34 In doing so, the Tenth Circuit relied on a
case from the District of Colorado involving a similar clause. That clause stated: “It is agreed for
purposes of this agreement, venue shall be in Adams County, Colorado.” 35 The Tenth Circuit
agreed with the Colorado court that this clause was mandatory.
In Excell, Inc. v. Sterling Boiler & Mechanical, Inc., the Tenth Circuit considered a
clause that stated “[j]urisdiction shall be in the State of Colorado, and venue shall lie in the
County of El Paso, Colorado.” 36 The court concluded that “the clause [was] mandatory and
30
K&V Sci. Co., Inc. v. Bayerische Motoren Werke Aktiengesellschaft, 314 F.3d 494, 499
(10th Cir. 2002).
31
Am. Soda, LLP, 428 F.3d at 927.
32
963 F.2d 1342 (10th Cir. 1992).
33
Id. at 1343.
34
Id. at 1346.
35
Id. (quoting Intermountain Sys., Inc. v. Edsall Constr. Co., 575 F. Supp. 1195, 1198
(D. Colo. 1983)).
36
Excell, Inc., 106 F.3d at 321.
10
require[d] that any breach of contract action be brought and litigated in the District Court of El
Paso County, Colorado.” 37
In an unpublished case, the Tenth Circuit examined a forum selection clause in light of
Milk ‘N’ More and Excell. The forum selection clause at issue contained two subparts. The first
part stated that the agreement “shall be governed under the laws of the State of Colorado” while
the second part stated that “venue is proper in the District Court of Eagle County, Colorado.” 38
The court found that the second subpart language was limiting and mandatory.
While the word “shall” appears expressly in the first part only and not in the
second part, the “is proper” language of the second part, in conjunction with the
designation of a particular tribunal, is functionally equivalent to the “shall be
proper” language considered in Milk ‘N’ More and the “venue shall lie” language
considered in Excell. . . . Indeed, we see little to distinguish the language here
from the forum selection clauses in Excell and Milk ‘N’ More. Hence, we hold
that the clause is mandatory. 39
The same result is dictated here. The relevant portion of the forum selection clause states
that either the state or federal court in Seattle, Washington “shall be proper venue for any such
lawsuit or judicial proceeding.” This language is substantially similar to those clauses the Tenth
Circuit has found to be mandatory—venue shall be proper, venue shall be in, venue shall lie in,
and venue is proper in—and is functionally equivalent to those clauses. There is no question that
if the clause stated “venue shall be proper” instead of “shall be proper venue,” it would be
mandatory. However, the Tenth Circuit does not require a particular set of words in a specific
order. All that is required for a forum selection clause to be considered mandatory is that the
37
Id.
38
Dawson v. Fitzgerald, 189 F.3d 477, at *3 (10th Cir. 1999) (unpublished table
decision).
39
Id.
11
parties’ designated venue be accompanied by mandatory or obligatory language. Thus, the fact
that the word “venue” appears at the end of the phrase, instead of the beginning, is of no
significance. In this case, the parties have designated a particular venue and that designation is
accompanied by the mandatory word “shall.” This is sufficient to render the clause mandatory.
The cases cited by Plaintiffs are inapposite. Mabon Limited v. Afri-Carib Enterprises,
Inc., 40 is inconsistent with the Tenth Circuit case law cited above. First National Bank v. Nanz,
Inc., 41 involved a forum selection clause that only stated that the Supreme Court of New York
shall have jurisdiction. 42 The clause said nothing of venue and is therefore distinguishable from
the forum selection clause contained in the Escrow Agreement. Many of the other cases cited to
by Plaintiffs are distinguishable for this same reason.
The clause in American Soda, LLP v. U.S. Filter Wastewater Group, Inc., stated that “the
Courts of the State of Colorado/Arbitrator shall be the exclusive forum for the resolution of any
disputes related to or arising out of this Term Agreement.” 43 Because the parties designated the
state courts or arbitration as the exclusive forum, the court did not discuss the situation presented
here, where venue is specified and accompanied by mandatory or obligatory language.
Because the Court finds that the forum selection clause is mandatory, Plaintiffs bear the
burden of showing that the public interest factors overwhelmingly disfavor transfer. 44 The
public interest factors include: the administrative difficulties flowing from court congestion; the
40
29 S.W.3d 291, 297 (Tex. Ct. App. 2000).
41
437 F. Supp. 184 (S.D.N.Y. 1975).
42
Id. at 186.
43
Am. Soda, LLP, 428 F.3d at 924.
44
Atl. Marine, 134 S.Ct. at 583.
12
local interest in having localized controversies decided at home; and the interest in having the
trial of a diversity case in a forum that is at home with the law. 45
“When evaluating the administrative difficulties of court congestion, the most relevant
statistics are the median time from filing to disposition, median time from filing to trial, pending
cases per judge, and average weighted filings per judge.” 46 In each of these areas, with the
exception of weighted filings per judge, the Western District of Washington has better statistics
than the District of Utah. Thus, this factor does not weigh against transfer.
Next, “[w]hen the merits of an action are unique to a particular locale, courts favor
adjudication by a court sitting in that locale.” 47 The parties agree that this case is not localized in
any respect. Therefore, this factor does not disfavor transfer.
Finally, “[i]n a diversity action, courts prefer the action to be adjudicated by a court
sitting in the state that provides the governing substantive law.” 48 The parties disagree as to
what law will apply. However, it appears that a combination of state and federal laws will apply
to Plaintiffs’ claims. Given the various law to be applied, there is little interest in trying the case
in Utah, even if Utah law applies to some of Plaintiffs’ state-law claims. The judges in
Washington are well qualified to decide the state law issues. 49 Therefore, this factor also does
not disfavor transfer. Because the public interest factors do not overwhelmingly disfavor
transfer, the Court will enforce the forum selection clause and transfer this case.
45
Id. at 581 n.6.
46
Emp’rs Mut. Cas. Co. v. Bartile Roofs, Inc., 618 F.3d 1153, 1169 (10th Cir. 2010).
47
Id. at 1170.
48
Id. at 1169.
49
Id. at 1170.
13
III. CONCLUSION
It is therefore
ORDERED that the Quartzburg Defendants’ Motions to Dismiss for Lack of Personal
Jurisdiction (Docket No. 23 in Case No. 2:15-CV-850 and Docket No. 13 in Case No. 2:15-CV851) are DENIED. It is further
ORDERED that Defendant U.S. Bank’s Motions to Transfer Venue (Docket No. 20 in
Case No. 2:15-CV-850 and Docket No. 10 in Case No. 2:15-CV-851) are GRANTED.
The Clerk of the Court is directed to transfer these cases to the Western District of
Washington and close these cases forthwith.
DATED this 11th day of July, 2016.
BY THE COURT:
Ted Stewart
United States District Judge
14
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