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Einhaus v. Textmunication Holdings, Inc.

United States District Court, N.D. Illinois, Eastern Division

January 12, 2018



          SARA L. ELLIS United States District Judge

         After Defendant Textmunication Holdings, Inc. (“THI”) failed to honor its obligations arising from a convertible promissory note THI made in favor of Plaintiff Lester Einhaus in September 2015, Einhaus brought this federal securities and state-law breach of contract, fraud, and debt action against THI. THI has filed both a motion to dismiss [10] and a motion to transfer venue to the District of Nevada pursuant to 28 U.S.C. § 1404(a) [11]. Because THI has failed to establish that the balance of private and public interests strongly favors transferring Einhaus' case to the District of Nevada, the Court denies the motion to transfer [11]. Because Einhaus has failed to allege a violation of § 10(b) or common-law fraud with the requisite particularity, the Court grants the motion to dismiss Einhaus' federal securities fraud claim and state-law fraud claims, Counts I and V, respectively. The Court denies the motion with respect to Einhaus' claims in Counts II, III, and IV for debt, breach of promissory note, and breach of contract claims, respectively, because, while they may be duplicative, THI has not stated which of the three counts should be allowed to proceed and duplicativeness is not a valid basis on which to strike all duplicative counts.


         THI is a technology company incorporated in Nevada and headquartered in California that engages in mobile phone advertising. Einhaus is a private investor who lives in Illinois.

         In September 2015, Einhaus loaned THI $25, 000 and the parties executed a promissory note pursuant to which THI was obligated to repay the $25, 000 with 10% annual interest. The note matured on March 23, 2016 and remains unpaid as of the filing of the complaint in this case. At the time Einhaus made the loan, THI was “largely insolvent” and unable to pay its debts. Doc. 1-1 at 2.

         Pursuant to the promissory note, Einhaus was entitled to convert the outstanding principal and interest of the loan to shares of THI common stock at a discounted rate. When the note became due and THI failed to pay the balance owed, Einhaus demanded that THI convert his loan into shares of common stock. The promissory note states that failure on the part of THI to honor such a request within 15 days will result in a 15% penalty and an additional 15% penalty for every additional period of 30 days that THI does not honor the conversion. To date, THI has neither converted the debt to common stock nor paid the amount owed on the loan. Einhaus asserts that by the terms of the note, THI now owes Einhaus $489, 256.14


         I. Motion to Transfer

         THI argues that the Court should transfer this action to the District of Nevada pursuant to 28 U.S.C. § 1404(a). Section 1404(a) provides that the Court may transfer venue to another district “for the convenience of the parties and witnesses, in the interest of justice.” For the Court to transfer the case under § 1404(a), THI must demonstrate that “(1) venue is proper in this district; (2) venue is proper in the transferee district; (3) the transferee district is more convenient for both the parties and the witnesses; and (4) transfer would serve the interest of justice.” Gueorguiev v. Max Rave, LLC, 526 F.Supp.2d 853, 856 (N.D. Ill. 2007). The transfer decision is committed to the Court's sound discretion because the “weighing of factors for and against transfer necessarily involves a large degree of subtlety and latitude.” Coffey v. Van Dorn Iron Works, 796 F.2d 217, 219 (7th Cir. 1986). The parties do not dispute that venue is proper in this district or in the District of Nevada. Thus, the Court turns to whether transfer would serve the convenience of the parties and witnesses and be in the interest of justice.

         A. Convenience of the Parties and Witnesses

         In evaluating the convenience of the parties and witnesses, the Court considers (1) Einhaus' choice of forum, (2) the situs of material events, (3) the relative ease of access to proof, (4) the convenience of the parties in litigating in the respective forums, and (5) the convenience of the witnesses. Sojka v. DirectBuy, Inc., No. 12 C 9809, 2014 WL 1089072, at *2 (N.D. Ill. Mar. 18, 2014).

         Courts typically give a plaintiff's choice of forum substantial deference, particularly when he lives in the district, as Einhaus does here. Brandon Apparel Grp., Inc. v. Quitman Mfg. Co., 42 F.Supp.2d 821, 833 (N.D. Ill. 1999). As a result, this factor weighs against transfer.

         With respect to the situs of material events, Einhaus' claims arise from the promissory note THI executed in Einhaus' favor. Einhaus asserts, without basis, that “the very plain language found [in the promissory note] states that the situs of the transaction was Illinois.” Doc. 17 at 5. There is no such language in the promissory note. However, neither party states where any of the relevant events took place, including the solicitation of the lending agreement, the negotiation and execution of the promissory note, and the lending of the funds. THI at most states that it is a Nevada corporation and that these events took place, but it does not state that these events took place in Nevada. Given the fact that THI's place of business and employees are located in California, it is likely these events did not take place in Nevada. Regardless the Court is unable to make a determination as to the situs of the material events and, therefore, this factor is neutral.

         As for sources of proof, the parties do not identify what proof, other than witness testimony, they may present in this case. To the extent the other sources of proof are documents, as they are likely to be in a securities fraud case, they are presumed to be easily transportable, so the access to proof factor does not weigh heavily in favor of either district. See Rabbit Tanaka Corp. USA v. Paradies Shops, Inc., 598 F.Supp.2d 836, 840 (N.D. Ill. 2009) (“In this day and age, transferring documents from one district to another is commonplace and, given the widespread use of digital imaging in big-case litigation, no more costly than transferring them across town.”).

         In evaluating the convenience of the parties, the Court considers the parties' residences and their ability to bear the expense of litigating in each forum. Brandon Apparel, 42 F.Supp.2d at 834. Where the parties have willingly assented to a forum selection clause (even a permissive one such as is present in this case), however, they cannot then argue that it would be inconvenient to litigate the case in the selected forum.[2]Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1293 (7th Cir. 1989). THI does not argue that the District of Nevada is more convenient for it. Furthermore, Einhaus states that the District of Nevada would be inconvenient for him. Einhaus lives in Illinois, in this District. He claims to be a novice investor, employed as a utility worker with irregular hours. These allegations are not supported by an affidavit or verified complaint, and as such, the Court accords them little weight when balancing convenience, Boys v. Mass. ...

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