United States District Court, Northern District of Illinois, E.D
October 31, 1985
GARY RATNER, DALIA RATNER AND ALL MY MUFFINS, INC., PLAINTIFFS,
STEVEN HECHT AND ALMA HECHT, DEFENDANTS.
The opinion of the court was delivered by: Bua, District Judge.
Before the Court are defendants' motions, pursuant to
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(2), to
dismiss this case for lack of subject matter jurisdiction and
for lack of personal jurisdiction, or in the alternative, to
transfer this case, pursuant to 28 U.S.C. § 1404(a), to the
United States District Court for the Central District of
California. For the reasons stated herein, defendants' motions
to dismiss are denied, and the motion to transfer is granted.
This is an action for a declaratory judgment regarding the
existence of a contract for services, and the value of
services rendered. The action was brought by Gary and Dalia
Ratner, Illinois residents, and All My Muffins, Inc. (AMM), a
Delaware corporation, whose principal place of business is
disputed. The defendants are Steven and Alma Hecht, California
Plaintiffs' claim arises out of the defendants' contested
ownership interest in AMM. The plaintiffs incorporated AMM in
July 1983 for the purpose of selling muffins and other bakery
goods through retail stores. Dalia Ratner is AMM's sole
shareholder, President, and a director. Gary Ratner is AMM's
Chairman. The Ratners initially contemplated that AMM would
establish three retail stores — in California, Illinois, and
New York. When the Ratners decided in 1984 to open AMM's first
store, in Los Angeles, California, they enlisted the services
of defendants Steven and Alma Hecht. The Hechts performed
various services for AMM, both before and after the store
opening in August 1984. The Hechts have asserted that, pursuant
to an oral agreement, they are entitled to an ownership
interest in AMM as compensation for their services.
The plaintiffs seek a declaration that no enforceable
contract for the transfer of AMM stock exists between
themselves and the defendants, and a declaration of the value
of the services performed by defendant Steven Hecht. The
defendants seek to dismiss this action for lack of subject
matter and personal jurisdiction, or alternatively, to
transfer the case to the United States District Court for the
Central District of California.
A. Subject Matter Jurisdiction
Plaintiffs assert the jurisdiction of this Court based on
diversity of citizenship. 28 U.S.C. § 1332. Defendants contend
that AMM is a citizen of California, and therefore jurisdiction
fails for lack of complete diversity. This Court finds that AMM
is not a citizen of California. Thus, the parties to this
controversy are completely diverse and subject matter
jurisdiction is proper.
28 U.S.C. § 1332(c) provides that a corporation, for purposes
of diversity jurisdiction, is a citizen of "any State by which
it has been incorporated and of the State where it has its
principal place of business." Since AMM is incorporated under
the laws of Delaware, whether diversity of citizenship exists
depends upon whether AMM has its principal place of business in
California or in Illinois.
Plaintiffs contend that the appropriate test of AMM's
principal place of business is the "nerve center" test. The
nerve center test considers the following factors: the place
where corporate decisions are made, where the corporation is
funded, where its general counsel, directors, officers and
shareholders are located, where the primary bank account
exists, and the place of its principal office and corporate
headquarters. In contrast, the defendants urge that a
different test be used — the "place of operations" test.
Defendants point to the site of AMM's only retail store, and
emphasize the following factors: the location of AMM's tangible
assets, the distribution
of its employees and payroll, the allocation of gross income,
and the situs of production and other physical activities.
In assessing the place of a corporation's principal place of
business, no single factor or test is determinative. Although
some courts have analyzed a corporation's principal place of
business by reference to a "nerve center" or "place of
operations" test, these tests are not necessarily conclusive.
The tests merely characterize a location which, in certain
circumstances, the balance of corporate activity has favored.
The tests do not limit the inquiry to certain factors or
activities to the exclusion of others. The determination of a
corporation's principal place of business requires
consideration of the corporation's entire scope of activity on
a case-by-case basis.
AMM was incorporated in July 1983, opened its California
retail store in August 1984, and filed this action in December
1984. For the first 13 months of its existence, AMM's
principal and only place of business was in Illinois. In
addition, AMM's headquarters, its only office, its sole
shareholder, officers, directors, and assets are located in
Illinois. All tax returns and corporate filings originate in
Illinois, and the plans for AMM's multi-state bakery franchise
were drawn up in Illinois. When in August 1984, AMM opened its
first retail bakery store in California, AMM acquired a second
place of business. In this location, AMM has its store lease,
a small inventory, tangible equipment and fixtures, all of its
employees, though few, and a small amount of cash in its
operating bank accounts. The California store had operated for
four months prior to the institution of this action.
Considering the insubstantiality of the California operation,
its short operative life, the amount of control and
decision-making still exercised in Illinois, and the purpose
of AMM which goes well beyond a single California store, the
Court finds that AMM's principal place of business is
B. Inter-District Transfer
28 U.S.C. § 1404(a) governs change of venue and provides in
For the convenience of the 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.
In order to meet the requirements of § 1404(a), the movant
must establish "(1) that venue is proper in the transferor
district; (2) that the transferor court has the power to
transfer the case (that is, that the transferee court is in a
district `where it might have been brought'); and (3) that the
transfer is `for the convenience of the parties and witnesses
in the interest of justice.'" Hotel Constructors, Inc. v.
Seagrave Corp., 543 F. Supp. 1048, 1050 (N.D.Ill. 1982).
Requirements (1) and (2) are met in this case. Venue is proper
in this, the transferor district, because this is the district
in which all plaintiffs reside. See 28 U.S.C. § 1391(a).
Moreover, this Court has the power to transfer the case. The
United States District Court for the Central District of
California has subject matter jurisdiction over the controversy
based on diversity of citizenship. Venue is proper in that
district because it is the district in which all defendants
reside. See 28 U.S.C. § 1391(a).
The Court now turns to requirement (3). To support a motion
to transfer, the movant must show a "clear balance of
inconvenience" in this district over the transferee district.
Id. See also SEC v. First National Finance Corp., 392 F. Supp. 239,
240 (N.D.Ill. 1975). In determining whether the movant has
met this burden, the Court must accord weight to the
plaintiffs' choice of forum, and consider the convenience of
the parties, the convenience of the witnesses, and the
interests of justice generally.
1. Plaintiffs' Choice of Forum
Although under the common law doctrine of forum non
conveniens plaintiff's choice of forum was an overriding factor
entitled to considerable weight, the significance of that
choice has diminished since the enactment
of § 1404(a). Norwood v. Kirkpatrick, 349 U.S. 29, 32, 75 S.Ct.
544, 546, 99 L.Ed. 789 (1955); Hotel Constructors, 543 F. Supp.
at 1050. Additionally, plaintiff's choice of forum has reduced
value where the forum lacks any significant contact with the
underlying cause of action. Environmental Services, Inc. v.
Bell Lumber and Pole Co., 607 F. Supp. 851, 853 (N.D.Ill. 1984);
Cunningham v. Cunningham, 477 F. Supp. 632, 634 (N.D.Ill. 1979).
In such a case, it becomes just one of many factors to be
viewed by the Court when making its determination of
convenience. General Signal Corp. v. Western Electric Co.,
362 F. Supp. 878, 880 (N.D.Ill. 1973).
In the instant case, the plaintiffs' choice of an Illinois
forum was based largely, if not exclusively, on the
plaintiffs' own convenience rather than on any significant
connection of the forum to the cause of action. The action
seeks to resolve the existence and breach of an alleged
contract for services, and absent the finding of such a
contract, the value of services actually performed. The
parties dispute the location of the conduct which underlies
the action. The defendants contend that the contract was
created in California, must be performed in California, and
was breached in California. The plaintiffs, on the other hand,
contend that all activity relative to the contract centers in
Illinois. Because it cannot determine where the alleged
contract was in fact to be performed, the court cannot
conclusively find that the underlying cause of action arose
in, or bears any significant relationship to, the plaintiffs'
choice of forum. Illiana Producers Fund 79, Ltd., et al. v.
Huron Resources, Inc., No. 85 C 2182 (N.D.Ill. May 13, 1985)
slip op. at 4. Accordingly, plaintiffs' choice of forum will be
given equal consideration with the other factors which must be
considered under § 1404.
2. Convenience of the Parties and Witnesses
Although § 1404(a) specifically prescribes consideration of
the convenience of both parties and witnesses, in the instant
case only the latter factor need be analyzed by the Court. The
facts presented by this motion indicate that the parties will
be equally inconvenienced, both physically and financially, if
this action is brought in their adversaries' resident district.
The Court will therefore consider the convenience of the
parties as a neutral factor.
In analyzing the convenience of the witnesses, the Court
must consider not only the number of potential witnesses
located in the transferor and transferee districts, but also
the nature and quality of their testimony and whether they can
be compelled to testify. Hotel Constructors, 543 F. Supp. at
1051. In this action, the principal witnesses will testify to
the circumstances surrounding the alleged creation of a
contract, and to the conduct of the parties consistent or
inconsistent with the contract. Most of these witnesses will be
California residents. Witnesses will also testify about the
services performed by the defendant Steven Hecht. These
witnesses will also be California residents. Because a majority
of the prospective principal witnesses reside in California,
the convenience of witnesses favors the California forum.
The propriety of a transfer to California is further
strengthened by the Court's interest in ensuring the live
presence of material nonparty witnesses. It is well settled
that the trier of fact should not be forced to rely on
deposition evidence when the deponent's live testimony can be
procured. Coats Co., Inc. v. Vulcan Equipment Co., Inc.,
459 F. Supp. 654, 657 (N.D.Ill. 1978). Similarly, a litigant should
not be forced to rely largely on deposition evidence when the
deponent's live testimony can be procured. Most of the material
nonparty witnesses in the instant case are California
residents. Furthermore, the defendants' case rests almost
entirely on the testimony of California witnesses. Unlike the
transferee court, this Court has no subpoena power over these
witnesses. A California forum would ensure the live testimony
of material witnesses, and avoid prejudicing the defendants.
The plaintiffs forward the names of 12 witnesses who are
material to the instant case and are not amenable to process
in California. Two of these potential witnesses are
plaintiffs' family members, and four are plaintiffs' past or
present employees. The Court not only questions the
materiality of the proposed testimony of these witnesses to
the underlying cause of action, but notes that these witnesses
are "not the type of witnesses . . . likely to be reluctant to
testify." Cunningham v. Cunningham, 477 F. Supp. at 634.
Regarding the plaintiffs' other potential witnesses, two are
New York residents, two are Washington, D.C. residents, and two
are Montreal, Canada residents. Neither the California nor
Illinois courts have subpoena power over these witnesses, and
no facts before the Court suggest that they would be any more
likely to testify in Illinois than in California. Overall, the
live presence of a majority of nonparty witnesses, whose
testimony is critical to this action, can be best ensured by
trial in California.
C. Interests of Justice
The final factor to be considered under § 1404(a), the
interests of justice, supports transfer of this case to the
Central District of California. Under Illinois conflict of law
principles, if a contract is to be wholly performed in one
jurisdiction, and the place of making and the place of
performance differ, the law of the place of performance governs
the construction and obligations of the contract. P.S. & E.
Inc. v. Selastomer Detroit, Inc., 470 F.2d 125, 127 (7th Cir.
1972), citing Oakes v. Chicago Fire Brick Co., 388 Ill. 474,
58 N.E.2d 460 (1944). The instant contract, whatever its precise
terms, contemplates the defendants' performance of services in
California and the plaintiffs' tendering of compensation to the
defendants in California. Regardless of the jurisdiction in
which the contract was created, performance will likely occur
wholly in California. Therefore, California law will apply.
This fact encourages transfer not because California law is
uncertain, novel or complex, but merely because issues of local
law are best construed by courts most familiar with them. Color
Technique, Inc. v. Don Wallace, Inc., 241 F. Supp. 952, 954
III. PERSONAL JURISDICTION
The defendants ask that this action be dismissed, pursuant
to Federal Rule of Civil Procedure 12(b)(2), for lack of
personal jurisdiction. A finding of personal jurisdiction is
not prerequisite to a grant of a § 1404(a) transfer. Brown v.
Grimm, 483 F. Supp. 40 (N.D.Ill. 1979). In light of the Court's
grant of a transfer, the Court will not consider the personal
For the reasons stated above, defendants' motion to dismiss
this action is denied, and defendants' motion to transfer this
action to the United States District Court for the Central
District of California is granted.
IT IS SO ORDERED.
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