"the defendant is found or is an inhabitant or transacts
business, or in the district where the offer or sale took
place, if defendant participated therein, . . ." 15 U.S.C. § 77v.
Venue is proper under § 78aa where "the defendant is
found or is an inhabitant or transacts business, . . ."
15 U.S.C. § 78aa.
In the present case, participation in the alleged fraudulent
tax shelter scheme was sold in Chicago; two defendants reside
in Chicago; and eighteen defendants reside in the Eastern
District of New York. Thus, venue is proper in both transferor
and transferee districts.
B. Plaintiffs' Choice of Forum
Plaintiffs' choice of forum is entitled to substantial
weight unless that forum lacks any significant contact with
the underlying cause of action. Hotel Constructors, Inc. v.
Seagrave Corp., 543 F. Supp. 1048, 1050 (N.D.Ill. 1982). In the
present case, the only relationship to this district is the
sale of the tax shelter and the fact that defendants Touche and
Flanagan reside here. Plaintiffs make no showing that any
activities by Touche and Flanagan in Chicago contributed to the
underlying tax fraud scheme. Whether the defendant promoters
and manufacturers are liable for misrepresenting the value of
their tax shelters and, if so, the amount of that liability are
issues which have no relationship to this district. The alleged
fraudulent tax shelter scheme arose out of the promoters'
activities in the Eastern District of New York and some of the
energy management systems were manufactured there. Since the
plaintiffs' choice of forum lacks any significant contact with
the underlying cause of action, their choice of forum will not
be given substantial weight, but rather will be given "equal
consideration along with other factors which must be considered
under § 1404." Id. at 1051.
C. Convenience of the Parties and Witnesses
Plaintiffs' complaint alleges that the defendants, in the
course of offering and selling the tax shelter, made
fraudulent misrepresentations in overvaluing the energy
management systems. According to the New York Attorney
General's investigation, some of the units were manufactured
in New York and some in Florida. However, all of the promoters
reside in and around the Eastern District of New York. In
addition, the Touche Report came out of the New York office of
Touche Ross. Many of the individual defendants are officers
and employees of the promoters, manufacturers and suppliers.
The greatest geographic dispersion among defendants is in
the group of service companies, which are spread throughout
the country. However, the testimony of officers and employees
of the service companies will not be nearly as important as
the testimony of the officers and employees of the promoters,
manufacturers and suppliers, most of which are located in the
Eastern District of New York. Plaintiffs argue that they will
contribute important testimony to this case and the fraud
allegations. However, there is no indication that any of the
investors had knowledge of the scheme to overvalue the systems
before or at the time of the alleged fraudulent offering and
In considering the convenience of potential witnesses, the
court must consider not only the number of witnesses located
in the respective districts, but also the nature and quality
of their testimony in relationship to the issues in the case.
Central States, Southeast and Southwest Areas Pension Fund v.
Brown, supra, 587 F. Supp. at 1070. The principal witnesses are
those material to the court's decision on a motion to transfer
under § 1404(a). SEC v. First Nat. Finance Corp., 392 F. Supp.
239, 241 (N.D.Ill. 1975). In the present case, it is clear that
the number of important material witnesses is greatest by far
in the Eastern District of New York and therefore the
convenience of the witnesses favors transfer there.
Regarding the convenience of the parties, eighteen
defendants reside in the Eastern District of New York: two of
the three promoters, nine of twenty-two individual
defendants, two of three suppliers, one of three
manufacturers, and three of eleven service companies. Seven
other key defendants are located in New York City, adjacent to
the Eastern District of New York, and seven more defendants
are located in Pennsylvania, predominantly in Philadelphia.
Ten defendants are located in Florida. The remaining thirteen
defendants are spread over Texas (3), California (2), Illinois
(2), and one each in New Jersey, Ohio, Washington, Maryland,
Connecticut, and Massachusetts. On balance, therefore, it is
reasonable to conclude that the Eastern District of New York,
where more key defendants are located than any other district,
is a more convenient forum for the defendants and the
principal witnesses. SEC v. First Nat. Finance Corp., supra,
392 F. Supp. at 241.
D. Interests of Justice
As a general rule, cases should be transferred to districts
where related actions are pending. Id. While these are not
cases which can be consolidated with cases pending in the
transferee district, id., the pendency of a dissimilar action
is a factor favoring transfer when duplication of discovery
efforts could be avoided by proper judicial coordination.
Impervious Paint Indus. Ltd. v. Ashland Oil, 444 F. Supp. 465,
468 (E.D.Pa. 1978). In the present case, it is likely that the
civil tax fraud action brought by the government in the Eastern
District of New York will yield discovery on the issue of
overvaluation of the energy management systems — an issue
which is relevant to the allegations of fraud and
misrepresentation in these cases. Therefore, the presence of
the related discovery in U.S. v. OEC Leasing Corp., et al.,
supra, favors the transfer of this action to the Eastern
District of New York.
In addition, most of the documentary evidence will likely be
located in the Eastern District of New York where the
promoters and creators of the alleged fraudulent tax shelter
scheme reside. The location of documentary evidence, including
corporate books and records, is a proper factor in considering
the interest of justice. Hess v. Gray, 85 F.R.D. 15, 26
(N.D.Ill. 1979); SEC v. First Nat. Finance Corp., supra, 392
F. Supp. at 241, 242. Therefore, the presence of most of the
documentary evidence relevant to these cases in the Eastern
District of New York favors the transfer of these actions
The presence in the Eastern District of New York of most
defendants, principal witnesses, documentary evidence, and a
related action establishes a "clear balance of inconvenience"
compelling this Court to transfer these cases. Therefore, the
defendants' motion to transfer these actions to the Eastern
District of New York is granted.
IT IS SO ORDERED.
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