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United States District Court, Northern District of Illinois, E.D

November 29, 1984


The opinion of the court was delivered by: Shadur, District Judge.


This Court's September 10, 1984 memorandum opinion and order (the "Opinion," 594 F. Supp. 341) (1) denied as untimely the motion of defendants Jack Zukerman ("Zukerman"), William Feldstein, Jr. and Murray Scheer to transfer venue under Fed.R.Civ.P. ("Rule") 12(b)(3) and (2) granted in part and denied in part defendants' Rule 12(b)(2) motion to dismiss the various counts of the Complaint.*fn1 Now defendants move under 28 U.S.C. § 1404(a) ("Section 1404(a)") for transfer to the Central District of California. For the reasons stated briefly in this memorandum opinion and order, the motion is granted.

Nature of the Case*fn2

Defendants are officers and directors of Delaware Genesis, Inc. ("Genesis"), a Los Angeles-based company "in the business of warehousing, marketing, and selling weight control products, diets, food packages, behavior modification programs, and other health related plans and items" (Complaint ¶ 6). On May 27, 1983 Genesis, acting through defendants, entered into an agreement (the "Contract") with Club Assistance Program, Inc. ("CAP") for marketing-consultant services to help promote sales of Genesis' products in Illinois. Since that time Genesis has not paid CAP all money due, or delivered any of the Genesis stock to which CAP is entitled, under the Contract. On February 29, 1984 Genesis filed a petition for Chapter 11 bankruptcy reorganization in the Central District of California.

CAP claims defendants are responsible for Genesis' incomplete performance of the Contract because they looted, and generally took unreasonable profits from, Genesis. CAP asserts defendants acted against it specifically in an effort to hide their wrongdoing by deliberately misinterpreting the Contract, then by lulling CAP into a false sense of security by misrepresenting to CAP that Genesis would be able to pay its debts.

After the Opinion, CAP remains with three surviving claims. They charge defendants with having:

    1. violated the Racketeer Influenced and Corrupt
  Organizations Act ("RICO"), 18 U.S.C. § 1961-1968 (Count I);

    2. tortiously interfered with the Contract by inducing
  Genesis to breach it (Count II); and

    3. committed fraud by (a) looting Genesis and (b)
  misrepresenting its financial condition to CAP (Count III).

Section 1404(a) Transfer

Section 1404(a) permits transfer "[f]or the convenience of parties and witnesses, in the interest of justice," to any district where an action "might have been brought." Because defendants are California domiciliaries, this action could unquestionably have been brought in the Central District of California (28 U.S.C. § 1391(a)). There is similarly no doubt the action should be transferred there.

Section 1404(a) calls for a balancing exercise, with the burden on defendants to show a significant tipping in their favor. Among the relevant factors are those described in Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 67 S.Ct. 839, 843, 91 L.Ed. 1055 (1947) for deciding forum non conveniens cases. But (despite CAP's erroneous assertion to the contrary*fn3) this Court may grant transfers more freely under Section 1404(a) than under the older forum non conveniens doctrine. Piper Aircraft Co. v. Reyno, 454 U.S. 235, 253, 102 S.Ct. 252, 264, 70 L.Ed.2d 419 (1981); Norwood v. Kirkpatrick, 349 U.S. 29, 30-32, 95 S.Ct. 544, 545-46, 99 L.Ed. 789 (1955).

Only one factor weighs in CAP's favor here: its choice of an Illinois forum. As this Court reconfirmed in Associated Mills, Inc. v. Rush Hampton Industries, Inc., 588 F. Supp. 1164, 1165-66 (N.D.Ill. 1984), that choice is simply one factor among many to be considered. Associated Mills, however, went on to echo the teaching of Norwood, 349 U.S. at 32, 75 S.Ct. at 546 that plaintiff's forum selection is significantly less weighty under Section 1404(a) than under forum non conveniens.

Here CAP's choice of forum is heavily outweighed by considerations of the convenience of witnesses*fn4 and (less importantly) the location of relevant documents. CAP's case is based entirely on actions that took place in California in the context of Genesis' business operations. Genesis' sole office is in California and all of its employees and outside accountants reside there (Zukerman Aff. ¶¶ 2-8). If defendants in fact looted Genesis, they did so in California before California witnesses. They took California assets and concealed their looting from California accountants by means of California documents. Their asserted misrepresentations of Genesis' financial condition took place during two long-distance calls (with Zukerman on one end of the telephone line — in California), and their alleged inducement of Genesis' breach of its contract took place there. California sources of proof are obviously the key (if not indeed the sole) elements of CAP's case on liability.*fn5

According to Zukerman Aff. ¶ 5, Genesis has 146 California employees (this does not take into account its outside accountants). Among the likely witnesses as to Genesis' finances — all California residents — are the three defendants, the outside accountants, Genesis' Vice — President of Finance and at least some of the 14 employees of Genesis' Finance/Accounting Division. Moreover, a great number of Genesis' business records may be relevant, because CAP charges an elaborate scheme involving millions of dollars and covering seven or eight months.*fn6

On the Illinois side of the balance, CAP can suggest only five potential Illinois witnesses (Weiner Aff. ¶¶ 7-8). Even at that, it fails to explain the importance or relevance of the testimony of three of those witnesses — Art Shay, David Parsons and Chuck Leve (Weiner Aff. ¶¶ 7-8) — or even to identify them.*fn7 This Court can only assume their testimony (even if presumed relevant) is less significant than the testimony of the numerous essential California witnesses. Even on a different assumption, however, the balance remains substantially in defendants' favor. Finally, CAP also says it will introduce its Illinois business records to prove damages, but it gives no indication those records are voluminous or would be difficult to transport.

Clearly, then, convenience of witnesses weighs heavily in favor of California. And that balance is tipped even more strongly in the same direction by the location of most of the relevant documents.

CAP's various untenable arguments*fn8 contest among themselves for the label of "least persuasive." At least a strong contender is its suggestion that the interest of justice militates against transfer because Hokama v. E.F. Hutton & Co., 566 F. Supp. 636, 643-44 (C.D.Cal. 1983) indicates "the Central District of California" is misinterpreting RICO and might thus force CAP into a wasteful appeal of an adverse ruling. That contention has two certain flaws and the intriguing possibility of a third:

    1. To construe a single decision by a single judge as the
  position of an entire court of 22 judges*fn9 is of course
  nonsense. Absent a Ninth Circuit decision on point, judges
  there are no different from judges here in feeling free to
  reach their own decisions independently. In fact Hokama
  reflects very much a minority view of a still-unsettled area
  in civil RICO, though some aspects of the Second Circuit's
  recent opinion in Sedima, S.P.R.L. v. Imrex Co.,
  741 F.2d 482 (2d Cir. 1984) come close to espousing the Hokama
  result.*fn10 Simply in terms of probability, CAP would
  appear no more or less likely to encounter an adverse
  decision on the legal issue in California than here (and who
  is to say at this point, with any degree of certainty, how
  the issue will ultimately be resolved by the Supreme Court?).

    2. CAP would have this Court engage in two entirely
  impermissible actions:

      (a) predict this Court's findings on the legal sufficiency
    of CAP's RICO

    claim without the benefit of argument, and

      (b) render an advisory opinion as to another court's
    hypothetical disposition of the same claim.

  Article III constraints, as well as other jurisprudential
  considerations, compel rejection of that proposal.

    3. Van Dusen v. Barrack, 376 U.S. 612, 84 S.Ct. 805, 11
  L.Ed.2d 945 (1964) held a Section 1404(a) transfer should not
  trigger a change in the applicable substantive law.*fn11
  As the Court said (id. at 635-37, 84 S.Ct. at 818-19,
  footnotes omitted):

    The legislative history of § 1404(a) certainly does not
    justify the rather startling conclusion that one might "get a
    change of law as a bonus for a change of venue." Indeed, an
    interpretation accepting such a rule would go far to
    frustrate the remedial purposes of § 1404(a). If a change of
    law were in the offing, the parties might well regard the
    section primarily as a forum-shopping instrument. And, more
    importantly, courts would at least be reluctant to grant
    transfers, despite considerations of convenience, if to do so
    might conceivably prejudice the claim of a plaintiff who had
    initially selected a permissible forum. We believe,
    therefore, that both the history and purposes of § 1404(a)
    indicate that it should be regarded as a federal judicial
    housekeeping measure, dealing with the placement of
    litigation in the federal courts and generally intended, on
    the basis of convenience and fairness, simply to authorize a
    change of courtrooms.

  Though Van Dusen addressed the question in the context of a
  diversity case (and thus made the choice between potentially
  applicable state laws), it is a neat question whether the same
  reasoning would govern a federal-question claim, so as to carry
  with the case the transferor court's law on that subject. Given
  the overwhelming balance in favor of transfer in this case,
  that potential question (and all others) will be left to the
  transferee court.*fn12


This Court's observation in the Opinion, 594 F. Supp. at 351 bears repeating:

  Any business person — indeed anyone other than lawyers trained
  in spinning out the legal fictions that dominate so much of
  legal "reasoning" — would unquestionably view this as a
  California case. Defendants' asserted Illinois contacts
  allegedly resulted only from their desire to preserve the
  ill-gotten gains they had already appropriated. And if in fact
  defendants did not loot Genesis, but only presided over a
  failed business, it is even more anomalous they would have to
  defend this action in Illinois.

CAP's choice of an Illinois forum is heavily outweighed by the location of the majority of the key witnesses and key documents in California. Defendants' Section 1404(a) motion to transfer to the Central District of California is therefore granted.

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