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REED v. BRAE RAILCAR MGMT.

July 5, 1989

HARRY W. REED, VINCE GAVIN, ALLEN W. PROUDFOOT and EDWARD NEUMAN, as Co-executors of the Estate of Arthur Rubloff, Plaintiffs,
v.
BRAE RAILCAR MANAGEMENT, INC., Defendant



The opinion of the court was delivered by: ASPEN

 MARVIN E. ASPEN, UNITED STATES DISTRICT JUDGE

 The defendant has moved under Rule 12(b)(3) to dismiss for improper venue or in the alternative under 28 U.S.C. § 1404(a) to transfer this action to the Northern District of California "for the convenience of parties and witnesses [and] in the interests of justice." For the reasons set forth below, the motion to dismiss is denied and the motion to transfer is granted.

 I. Background *fn1"

 The plaintiffs are the co-executors of the estate of Arthur Rubloff, a successful Chicago real estate developer. In October 1979, Rubloff purchased eighty-three covered hopper railcars from Braecar, Inc., a subsidiary of the Brae Corporation. Brae Corporation is now known as Brae Transportation, Inc. and will be referred to in this opinion as BTI. On the same day that Rubloff purchased the railcars from BTI, he entered into a five-year management agreement for the railcars with Brae Railcar Management, Inc. ("BRM"), another subsidiary of BTI and the defendant in this case. BRM is a Delaware corporation with its principal place of business in San Francisco. BRM's business is managing railcars, and as part of that business it monitors car movements, collects railcar rentals, contracts out for repair and maintenance and performs marketing services. Pursuant to its management agreement with Rubloff, BRM agreed to manage and operate Rubloff's railcars, enforce his rights with respect to the leases entered into by BRM, perform maintenance and repairs, and collect all sums due Rubloff.

 BRM's parent BTI arranged for Rubloff's cars to be leased for a five-year term to the Warrenton Railroad, a short line railroad located in Warrenton, North Carolina. BTI also signed a shipping agreement with CF Industries, Inc. ("CF"), which provided for CF's use of the cars during the term of the Warrenton lease. CF, a fertilizer producer, intended to use the Rubloff cars for shipping phosphate fertilizer products from CF's phosphate plants in central Florida.

 At the end of the management agreement between Rubloff and BRM, problems arose between the two parties. The source of the problems is not completely clear from the complaint or the subsequently filed materials, but it is not important to the resolution of the motion before us. At any rate, on January 27, 1989, the plaintiffs, who now stand in Rubloff's shoes, brought suit against BRM. Count I asserts that BRM breached its management agreement with Rubloff by failing to enforce Rubloff's rights as to leased railcars; to return the railcars to Rubloff in a clean condition; to return the railcars to Rubloff in a good condition; to perform normal maintenance; to notify Rubloff of necessary repairs; and to use its best efforts to collect all sums that Rubloff was due. Count II raises essentially the same claims, but clothes them in the garb of breach of fiduciary duty. Jurisdiction over both counts is based on diversity.

 The complaint asserts that venue is proper in the Northern District of Illinois under 28 U.S.C. § 1391(a), because the claim "arose" here. In their response to BRM's motion to dismiss, the plaintiffs also assert that venue is proper under 28 U.S.C. § 1391(c), because BRM is doing business here. BRM does not object to the plaintiffs belatedly raising the doing business argument, so we will consider that argument in this opinion. Because we conclude that BRM is "doing business" in the Northern District of Illinois we will not consider whether the plaintiffs' claim arose here.

 II. Section 1391(c) - Doing Business

 Under section 1391(a),

 
A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in the judicial district where all plaintiffs or all defendants reside, or in which the claim arose.

 In its reply, the plaintiffs contend that BRM "resides" in this district. The residence of a corporation such as BRM is determined by 28 U.S.C. § 1391(c), but in the present case, there are two versions of section 1391(c) that might be applied. As noted previously, this case was brought on January 27, 1989; at that time, section 1391(c) read as follows:

 
A corporation may be sued in any judicial district in which it is incorporated or licensed to do business or is doing business, and such judicial district shall be regarded as the ...

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