LOUISE W. FLANAGAN, District Judge.
This matter is before the court on defendants' motions denominated as follows:
1) Motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) by defendant Graceland Properties, LLC ("Graceland") (DE 15);
2) Motion to dismiss in part for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) by defendants USA Service Finance, LLC, ("USASF"); Heartland Capital Investments, LLC, ("Heartland"); Christopher E. Burnett ("Christopher Burnett"); Daniel T. Burnett ("Daniel Burnett"); and CEB Investments, LLC ("CEB") (DE 24);
3) Motion to dismiss for lack of personal jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(2), by defendants USASF, Christopher Burnett, Daniel Burnett, and CEB (DE 24);
4) Motion to dismiss or, in the alternative, motion to transfer venue to the Western District of Kentucky by defendants USASF, Christopher Burnett, Daniel Burnett, and CEB (DE 26);
5) Motions to quash filed by defendant Graceland (DE 51, 54).
These motions have been briefed fully, and in this posture, the issues raised are ripe for ruling. For the following reasons, the court grants the alternative motion to transfer venue to the Western District of Kentucky and denies the remaining motions.
This action arises out of a failed business relationship between plaintiffs and defendants, who are allegedly closely affiliated entities and individuals. Plaintiffs commenced this action against defendants in Craven County Superior Court on August 7, 2018, asserting the following claims:
1) Seven breach of contract claims arising out of alleged breaches of agreements governing the parties' business relationships (counts 1-5, 9-10);
2) Fraud in the inducement against defendant Christopher Burnett and Daniel Burnett (count 4);
3) Unfair and deceptive trade practices against defendant Christopher Burnett and Daniel Burnett (count 5);
4) Conversion (in the alternative to fraud in the inducement) against defendant USASF (count 8);
5) Promissory estoppel/quantum meruit/unjust enrichment (in the alternative to breach of contract) (count 11);
6) Piercing the corporate veil and alter ego liability, against defendants USASF, Heartland, Christopher Burnett, Daniel Burnett, CEB, and Graceland (count 12).
Plaintiffs seek compensatory damages, treble damages, punitive damages, attorneys' fees, costs, interest, and jury trial.
Defendants removed to this court on September 7, 2018, on the basis of diversity jurisdiction.
On October 5, 2018, all defendants except Graceland filed the instant motion to dismiss in part for failure to state a claim, which motion seeks dismissal of plaintiffs' claim piercing the corporate veil (count 12). Defendants Christopher Burnett and Daniel Burnett also seek dismissal of plaintiffs' claim against them for fraud in the inducement (count 7). At the same time, all defendants except Graceland and Heartland filed the instant motion to dismiss for lack of personal jurisdiction. In support thereof, these defendants rely upon declarations of Christopher Burnett and Daniel Burnett. Heartland also filed an answer to the complaint.
On the same date, all defendants except Graceland and Heartland filed the instant motion to dismiss or, in the alternative, to transfer the case to the United States District Court for the Western District of Kentucky, arguing that dismissal or transfer is warranted due to the "First-Filed Rule" and 28 U.S.C. §§ 1404, 1406, and 1631. In support thereof, they rely upon a complaint filed in the Western District of Kentucky, in Paducah, Kentucky, on July 19, 2018, in the case captioned
On October 19, 2018, plaintiffs filed a response in opposition to defendant Graceland's motion to dismiss. On October 26, 2018, plaintiffs filed a response in opposition to the remaining motions to dismiss and the alternative motion to transfer. In opposition to the motion to dismiss for lack of personal jurisdiction, plaintiffs rely upon a declaration by plaintiff Cathrine Barrett ("Barrett"). In opposition to the motion to dismiss or transfer, plaintiffs rely upon the same as well as documents filed in the Kentucky case.
Defendant Graceland replied in support of its motion on November 2, 2018. The remaining defendants replied in support of their motion to dismiss for lack of personal jurisdiction and in part for failure to state a claim on November 16, 2018, relying upon a second declaration of defendants Christopher Burnett and Daniel Burnett. These defendants, except for Graceland and Heartland, filed a reply in support of the venue motion, relying upon the same second set of declarations.
Upon leave of court, plaintiffs filed a sur-reply in opposition to the venue motion, relying upon emails between plaintiff Barrett and defendants Christopher Burnett and Daniel Burnett.
On February 13, 2019, defendant Graceland filed a motion to quash subpoenas served upon John H. Stevens, IberiaBank, We sb anco Bank, Inc., and Robert S. Wainwright, on the basis that they seek information irrelevant to the claims against Graceland, and on the basis that an additional protective order is required. On February 26, 2019, defendant Graceland filed a motion to quash subpoenas served on John Carr; Jonathan Kennemore; Clayton, Byrd, & Meeks LLP; and Citizens Deposit Bank of Arlington, Inc., on the same grounds. Plaintiffs have responded in opposition to the motions to quash.
Plaintiff Barrett is a citizen of Craven County, North Carolina, and the President and sole owner of plaintiff Valor Capital Holdings, LLC ("Valor"), a Virginia company with principal place of operations in Craven County, which "offers travel planning, booking, and financing for military members and other government personnel." (Compl. ¶ 22). Plaintiff Valor does business as United Military Travel. Plaintiff Freddy Jreisat is a citizen of Craven county and an employee of Valor.
Defendant Christopher Burnett is a citizen and resident of Graves County, Kentucky. He holds a 50% ownership stake in defendant USASF, a company with principal place of business in Mayfield, Kentucky, which "purchases loans offered to military, retired military, and government employees to pay for travel and accommodations." (
Defendant Christopher Burnett also owns defendant Heartland, a company with principal place of business in Mayfield, Kentucky, and registered to do business in North Carolina, which "manages lending leases for multiple investors, manages military travel contracts, and also pays payroll for employees of affiliated entities, including USASF." (
Defendant Daniel Burnett is a citizen and resident of Carlisle County, Kentucky. He holds a 50% ownership stake in USASF, and he owns defendant Graceland, a company with principal place of business in Carlisle County, Kentucky.
Plaintiffs summarize the core operative facts in the complaint as follows:
(Compl. ¶¶ 2-3). Plaintiffs summarize the work plaintiff Barrett was asked to perform as follows:
(Compl ¶ 5).
Plaintiffs summarize key agreements and contracts bearing on the relationships between the parties as follows:
(Compl. ¶ 6).
Plaintiffs summarize key alleged conduct of the parties as follows:
(Compl. ¶¶ 7-9).
Additional factual allegations and assertions in the complaint will be set forth in the court's
In the Kentucky case, on July 19, 2018, USASF filed complaint against Barrett, Jreisat, and Valor (hereinafter, also, the "Kentucky defendants") also arising out of the failed business relationship between the parties. USASF asserts claims for defamation, unlawful access to a computer, misuse of computer information, conversion, breach of fiduciary duty, respondeat superior liability, and unjust enrichment. The facts alleged in the complaint in the Kentucky case cover the relationship between the parties, beginning with discussions in 2015, for Barrett "to assist USASF with lowering the delinquency rate to below 9% of loans"; entry into the "Master Agreement"; and an agreement to pay Barrett an hourly rate for her work. (Kentucky Compl. ¶¶ 12-19).
The Kentucky complaint alleges that "USASF . . . entrusted [Barrett] to handle a portion of the finances within USASF" and "[d]ue to [Barrett's] mismanagement, lack of supervision, and failure to properly train employees, USASF became out of compliance with the terms of its line of credit." (
The Kentucky complaint alleges that Barrett "sought to buy out Daniel Burnett's interest in USASF," but "[a]fter learning she would be unable to purchase Daniel Burnett's interest in USASF, [plaintiff] Barrett launched an attack on USASF." (
In the Kentucky case, the Kentucky defendants Barrett, Jreisat, and Valor, filed a motion to dismiss for lack of jurisdiction and improper venue and for failure to state a claim, on September 10, 2018. (Kentucky case DE 6). They also filed on the same date a motion to transfer the case to this court, (
Additional facts and assertions regarding the parties' interactions and litigation history as it relates to venue will be set forth in the court's discussion herein.
In light of the pendency of the Kentucky case, which was filed before the instant case, the court begins with discussion of venue and the motion to dismiss, or in the alternative, to transfer to the Western District of Kentucky.
"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." 28 U.S.C. § 1404(a). Venue is proper in—
28 U.S.C. § 1391(b).
A transfer of venue under § 1404(a) is "a matter resting in the sound discretion of the District Judge."
The first-filed rule applies in cases where "a prior suit [is] pending in which all issues could be tried with equal facility."
Provided the first-filed rule applies, the court then must determine whether there is a "balance of convenience in favor of the second action."
In this case, the first-filed rule applies. The chronology of the filings favors application of the rule, where the instant complaint was filed in Craven County, North Carolina on August 7, 2018, whereas the first-filed complaint was filed in the Western District of Kentucky on July 19, 2018. The similarity of the parties favors application of the rule, where all plaintiffs in the instant case are defendants in the Kentucky case, where the primary defendant USASF is the plaintiff in the Kentucky case, and where additional defendants in the instant case are all alleged to be alter egos of or closely affiliated entities of defendant USASF. Finally, the similarity of issues also favors application of the rule, where the claims in each case arise out of the same failed business relationship between the parties.
Plaintiffs argue nonetheless that the first-filed rule does not apply under the circumstances of this case. With respect to chronology, plaintiffs argue that a 19 day time difference is too short to give rise to the rule. Plaintiffs cite to
Plaintiffs also argue that the differences between the parties and the issues raised by the claims preclude application of the first-filed rule. With respect to the parties, however, all defendant individuals and entities present in the instant case allegedly share an identity, as a matter of law, with defendant USASF, in turn allowing USASF to commit wrongs against plaintiffs. For example, plaintiffs assert: "Christopher and Daniel Burnett exercise such complete domination and control over USASF and Heartland that the companies have no independent identity, mind, will, or existence." (Compl. ¶ 185). The few stand-alone claims against Heartland, Christopher Burnett, and Daniel Burnett also directly implicate USASF as asserted "third-party beneficiary" and as recipient of fraudulently induced transfers. (
With respect to the issues, although the instant case raises more claims and allegations as to conduct by defendants that wronged plaintiffs, all the claims and issues arise out of the same failed business relationship. While plaintiffs contend that the Kentucky case "centers on a few discrete actions Ms. Barrett and Mr. Jreisat allegedly took in the few days after the parties had parted ways," the alleged conduct took place in mid-2018, immediately after Barrett transferred loans to USASF and sought unsuccessfully "to buy out Daniel Burnett's interest in USASF," (Kentucky Case, Compl. ¶ 27), which is a key course of conduct in the instant action pertinent to multiple claims. (
Plaintiffs also argue that an exception to the first-filed applies because the Kentucky case is an "anticipatory" suit. (Pls' Mem. (DE 32) at 16).
Plaintiffs reference cases with "concrete indications that a suit by the [second-filing party] was imminent," or "about to file."
In sum, while the court recognizes there are differences in the structure and procedural posture of the instant case and the Kentucky case, these differences are not sufficient to overcome application of the first-filed rule. As such, it "should have priority, absent the showing of balance of convenience in favor of the second action."
Considering all the circumstances of the Kentucky case and the instant case, plaintiffs have not demonstrated a balance of convenience in favor of the instant case.
Regarding plaintiffs' choice of venue, because both cases are ongoing, the interests of the plaintiffs in both cases in their chosen venue are balanced neutrally, at best. It is also notable in this regard that there are a greater number of parties favoring venue in Kentucky.
Regarding witness convenience and access, it is significant that Kentucky is the location of all of the defendants in the instant case and their principal place of operations. (Compl. ¶¶ 13-18). In addition, Kentucky is the location where a significant portion of the work subject of the claims took place. Indeed, the complaint alleges the following:
The complaint further emphasizes the extensive work plaintiff Barrett performed in a wide range of capacities for defendants: "rebuild USASF's loan documents, reconcile USASF's accounting, hire an IT team, generate HR documentation, make schedules, file for lending licenses, meet with investors, purchase equipment, pursue refunds for legal expenses, and collect debts for other companies." (Compl. ¶ 50). The complaint in the Kentucky case further emphasizes the breadth of plaintiff Barrett's responsibilities: "USASF entrusted Mrs. Barrett with vital operations within the business of USASF, including collecting monthly and bi-monthly payments from customers, training staff, and holding discussions with USASF's bank for making payments on USASF's line of credit." (Kentucky case Compl. ¶ 85).
Moreover, many of the issues raised in the instant case regarding breach and injury turn on defendants' Kentucky business operations. For example, plaintiffs assert that plaintiff Barrett's compensation was "contingent on the delinquency rate" of loans processed by USASF, (
The combination of all these allegations confirm that, for witness convenience and access, including practical considerations of obtaining witness attendance and gathering evidence, the balance favors Kentucky. The same considerations weigh in favor of convenience of the parties in Kentucky versus North Carolina.
Plaintiffs contend, nonetheless, that a significant amount of plaintiff Barrett's work took place in North Carolina on behalf of defendants, and that witnesses and evidence related to plaintiffs' work are located in North Carolina. Plaintiffs note, for example, the North Carolina residency of several current and former employees of Valor, and they contend that such witnesses "can only be compelled to testify at trial at trial in the Eastern District of North Carolina." (Pls' Mem. (DE 32) at 17). The court does not discount the substantial amount of evidence and witnesses with locus in North Carolina. But, the court considers this fact at best neutral for venue analysis because 1) the witnesses cited are plaintiffs' own current and former employees (
With respect to other convenience and access issues, it is significant that personal jurisdiction over the parties in Kentucky is not an issue, whereas it presents a substantial problem raising complex issues regarding certain defendants in North Carolina. Particularly regarding defendants Graceland, CEB, and Daniel Burnett, who are not alleged to have engaged in any conduct in North Carolina, personal jurisdiction turns on piercing the corporate veil and alter ego theories, which are difficult and exceptional grounds upon which to base liability and personal jurisdiction.
Plaintiffs argue that forum selection clauses in the alleged Independent Consulting Agreement (Compl., Ex. C) and Employee Lease Agreement (
Here, the Independent Consulting Agreement that is attached to the complaint includes a governing law and venue provision that states: "This Agreement shall be construed and enforced under and in accordance with the laws of the State of North Carolina. Venue for any action, whether at law or in equity, shall be in Craven County, North Carolina." (Compl. Ex. C (DE 1-1) at 61). However, this document is not executed by any party. The complaint twice expressly alleges that "Christopher and Daniel Burnett refused to sign the Independent Consulting Agreement." (
Evidence submitted in conjunction with the venue motion confirms there was no meeting of the minds regarding the venue provision in the Independent Consulting Agreement. Indeed Christopher and Daniel Burnett expressly state that there was not a meeting of the minds on this term, but rather that they specifically proposed a contrary provision stating that any dispute arising out of the agreement would have venue "in Graves County, Kentucky." (E.g., Christopher Burnett Decl. ¶ 5; Ex 1). This is remarkable not only in showing a lack of meeting of the minds, but also in showing that defendants expressly intended at the time of the alleged contract to have any disputes resolved in Kentucky, thus further supporting a balance of convenience in favor of Kentucky.
In sur-reply, plaintiffs introduce further evidence of the parties' negotiations over a consulting agreement that only further calls into question a meeting of the minds over the venue provision. In a December 12, 2016, email, defendant Chris Burnett states to plaintiff Barrett that they "are more than happy to pay [Barrett] the $37,000 on a quarterly basis," but that Daniel Burnett "believes the situation is becoming complicated and
Second, although the Employee Lease Agreement is an executed contract that contains a provision for venue in Craven County, North Carolina, the Employee Lease Agreement is limited in scope and it does not cover all the parties and issues presented in the instant case. Indeed, the Employee Lease Agreement provides for the lease of one Valor employee, Crystal Cox, to Heartland Capital at an hourly rate of $14.00 per hour. (
Finally, the language in the venue provision in the asserted Independent Consulting Agreement (Compl. Ex. C) and the Employee Lease Agreement (Compl. Ex. D) does not demonstrate an intent of the parties to require exclusive venue for their disputes in Craven County, North Carolina. "A forum selection clause is permissive unless it contains specific language of exclusion."
Here, the asserted forum selection clauses do not contain words such as "exclusive," "sole," or "only" to indicate that the parties intended to make venue exclusive in Craven County, North Carolina. As noted, the alleged Independent Consulting Agreement forum clause states: "Venue for any action, whether at law or in equity, shall be in Craven County, North Carolina." (Compl. Ex. C (DE 1-1) at 61). The Employee Lease Agreement forum clause states: "All controversies arising from this Agreement shall be resolved in Craven County, North Carolina." (Compl. Ex. D (DE 1-1) at 65). Because they do not contain words such as "exclusive" "sole" or "only," they are permissive of venue in Craven County, North Carolina, but they do not preclude venue in Kentucky.
Plaintiffs suggest that use of the words "shall be" are sufficient to render the language of the clauses mandatory rather than permissive. However, "the use of shall' in the clause does not render it mandatory; . . . the use of shall' in a forum selection clause is not di spositive, because, in context, the clause may still permit jurisdiction in one court but not prohibit jurisdiction in another."
Thus, the asserted forum selection clauses are not enforceable to require or create a presumption in favor of litigation in this district. In any event, even if the venue provision in the Employee Lease Agreement is enforceable as an exclusive venue provision for the disputes covered by that agreement, it is not sufficient to overcome the first-filed rule and balance of factors in favor of venue in Kentucky, due to all the remaining circumstances set forth herein.
Finally, the court considers remaining public interest factors bearing upon venue. The court finds the court congestion factor to be neutral. Choice of law also is neutral, where some claims in the two lawsuits now pending may be resolved with Kentucky law and some claims may be resolved with North Carolina law. There is no indication that choice of law for common law claims, such as breach of contract, fraud, or unjust enrichment, will make a material difference in the outcome of analysis of the claims. The "local interest in having localized controversies decided at home"
In sum, plaintiffs have not satisfied a "showing of balance of convenience in favor of the second action."
In light of the court's venue determination, defendants' motion to dismiss for lack of personal jurisdiction is denied as moot. The motions to quash and motions to dismiss for failure to state a claim brought by defendant Graceland and defendants USASF, Heartland, Christopher Burnett, Daniel Burnett, and CEB, are denied without prejudice to reassertion in the Western District of Kentucky, which will be in a better position to take up the issues raised by those motions in the context of the overall litigation in that court.
Based on the foregoing, the court orders as follows:
1) The motion (DE 26) to dismiss or, in the alternative, motion to transfer venue to the Western District of Kentucky by defendants USASF, Christopher Burnett, Daniel Burnett, and CEB is GRANTED.
2) This case is hereby TRANSFERRED to the United States District Court for the Western District of Kentucky in accordance with the court's rulings herein and 28 U.S.C. § 1404(a).
3) In light of the court's venue determinations, the motion (DE 24) to dismiss for lack of personal jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(2), by defendants USASF, Christopher Burnett, Daniel Burnett, and CEB is DENIED AS MOOT.
4) The remaining motions to dismiss (DE 15, 24) and motions to quash (DE 51, 54) are DENIED WITHOUT PREJUDICE.
5) The clerk is DIRECTED to transmit a certified copy of this order and the case file to the Clerk of the Court for the United States District Court for the Western District of Kentucky, in Paducah, Kentucky.
SO ORDERED.