MDL No. 1271 Civil Action No.: 1999-382 (AVC) (D. Conn. Document Nos.: 39, 41)
MEMORANDUM OPINION GRANTING IN PART AND DENYING IN PART DEFENDANT USOP'S MOTION TO DISMISS; GRANTING IN PART AND DENYING IN PART DEFENDANT NEW AZTEC'S MOTION TO DISMISS; GRANTING THE PLAINTIFFS' MOTION FOR LEAVE TO AMEND THE COMPLAINT
In September 1997, the plaintiffs sold their company, Professional Network Services ("PNS"), to defendant U.S. Office Products ("USOP") in exchange for 121,124 shares of USOP common stock. After the merger and before the plaintiffs sold their USOP stock, the value of the USOP stock decreased significantly. The plaintiffs claim that on February 11, 1998, the defendants agreed to compensate the plaintiffs for the loss in value of the USOP stock. After the defendants failed to provide this compensation to the plaintiffs, the plaintiffs filed a four-count complaint claiming breach of contract, promissory estoppel, negligent misrepresentation, and unfair trade practices.
The plaintiffs originally filed this action in the United States District Court for the District of Connecticut. The Judicial Panel on Multi-District Litigation ("MDL Judicial Panel") transferred the case to this court for pretrial proceedings as part of the USOP Multi-District Litigation ("MDL") action pending in this court. This case and others in the USOP MDL action involve defendants USOP and Jonathan Ledecky, the former Chairman, Chief Executive Officer, and President of USOP; but this is the only USOP MDL case also filed against defendant Aztec Technology Partners ("New Aztec").
The court dismissed defendant Ledecky from this complaint in an earlier Memorandum Opinion. This matter is now before the court on the separately filed motions to dismiss filed by defendants USOP and Aztec. For the reasons set forth below, the court grants in part and denies in part the defendants' motions to dismiss.
A. Summary of the Case *fn2
The plaintiffs, Philip Arturi and Bruce Torello, are the former owners of PNS, a corporation located in Connecticut. Am. Compl. ("Compl.") ¶¶ 1, 11. On September 25, 1997, the plaintiffs sold PNS to USOP, a corporation located in the District of Columbia, for 121,124 shares of USOP stock pursuant to a written Agreement and Plan of Reorganization ("Reorganization Agreement"). Id. ¶¶ 20, 22. During negotiations regarding USOP's acquisition of PNS, the defendants allegedly made misleading statements and concealed information regarding USOP's business strategy. According to the plaintiffs, the defendants were thereby able to acquire PNS for less than the agreed-upon consideration ("Merger Consideration"). Id. ¶ 4.
On February 11, 1998, the plaintiffs and Jack Meehan *fn3 met with Jonathan Ledecky, the Chairman and former President of USOP, and James Claypoole, the President of USOP's Technology Solutions Group, in the District of Columbia to discuss their concerns about the decreasing value of their USOP stock. Id. ¶¶ 13, 39, 40. The plaintiffs state that at this meeting, Messrs. Ledecky and Claypoole unconditionally guaranteed that USOP would remedy the situation by giving the plaintiffs and Mr. Meehan unrestricted stock in a new entity, defendant New Aztec. Id. ¶ 40. Additionally, the plaintiffs allege that Mr. Ledecky personally guaranteed that if USOP did not take action to address their concerns after the USOP spin-offs occurred, Mr. Ledecky himself would make the plaintiffs whole. Id. Mr. Claypoole stated that the agreement to make the plaintiffs whole ("February 11 Agreement") should remain confidential and that he and Mr. Ledecky would not enter into a formal written agreement with the plaintiffs. Id. ¶ 42. The plaintiffs sent letters to both Mr. Claypoole ("Claypoole letter") and Mr. Ledecky ("Ledecky letter") to confirm the oral agreement. Id. ¶¶ 42, 45, Exs. A-B. On June 9, 1998, New Aztec, a corporation and a spin-off of USOP that included PNS, was created. Id. ¶ 45. When the defendants failed to take action to address the plaintiffs' concerns and make them whole as allegedly promised, the plaintiffs filed this action. Id. ¶ 49.
The plaintiffs originally filed this case in the United States District Court for the District of Delaware. Subject-matter jurisdiction in that court was premised on diversity of citizenship under 28 U.S.C. § 1332. The MDL Judicial Panel transferred the case to this member of this court for pretrial proceedings pursuant to 28 U.S.C. § 1407, as part of the USOP MDL action. Subsequently, the plaintiffs filed a four-count complaint focusing on the February 11 Agreement and claiming breach of contract, promissory estoppel, negligent misrepresentation, and violation of the Connecticut Unfair Trade Practices Act ("CUTPA"). On September 13, 1999 the defendants filed motions to dismiss the plaintiffs' complaint. The court granted defendant Ledecky's motion to dismiss for lack of personal jurisdiction on January 2, 2001.
The court stayed this MDL action several times due to bankruptcy filings, MDL transfers, and mediation efforts. Renewed Mot. of Class Action Pls. to Restore Case to Active List at 1-2. On January 4, 2002, 10 months after providing notice of its bankruptcy, USOP filed a notice regarding its liquidation and reorganization. On January 17, 2002 New Aztec filed a suggestion of bankruptcy. On December 10, 2002 the U.S. Bankruptcy Court for the District of Massachusetts granted the Bankruptcy Trustee's motion to dismiss New Aztec's bankruptcy case and authorized the trustee to provide the secured creditors with the balance of the New Aztec funds. In re Aztec Tech. Partners, Inc., No. 01-17767 (Bankr. D. Mass. Dec. 10, 2002). New Aztec no longer operates and has no funds, officers, or directors. Mot. to Withdraw at 1. New Aztec's counsel filed a motion to withdraw as counsel on December 19, 2002, explaining it cannot authorize or assist in New Aztec's defense because New Aztec no longer exists. Id.
A. The Court Determines that Connecticut is Not the Proper Venue for the Pending Action
Defendant USOP moves the court to dismiss the complaint for improper venue pursuant to 28 U.S.C. § 1391. Mot. to Dismiss (USOP) at 13. *fn4 The plaintiffs counter that venue is proper in Connecticut. Pls.' Opp'n (USOP) at 6. The plaintiffs also argue that if venue is not proper in Connecticut then justice requires the court to transfer the case to the appropriate district rather than dismiss the action. Id. at 10.
In a MDL action, the transferee judge has the same jurisdiction and power over pretrial proceedings that the transferor judge would have in the absence of the transfer. In re Aircrash Disaster Near Monroe, Mich. on Jan. 9, 1997, 20 F. Supp. 2d 1110, 1111 (E.D. Mich. 1998). Because the MDL Judicial Panel transferred the plaintiffs' complaint to the USOP MDL action for pretrial proceedings in this court, this court must determine whether venue would properly lie in the transferor court, the District of Connecticut. Id.
In a case, such as this one, where jurisdiction is based on diversity, venue is proper in:
(1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant is subject to personal jurisdiction at the time the action is commenced, if there is no district in which the action may otherwise be brought. 28 U.S.C. § 1391(a); Compl. ¶ 6.
Barring special circumstances such as pendant venue, the plaintiff in a MDL action has the burden of establishing for each claim that venue is proper in the transferor state. In re Aircrash Disaster, 20 F. Supp. 2d at 1111; Washington v. Gen. Elec. Corp., 686 F. Supp. 361, 362 (D.D.C. 1988); Am. Homecare Fed'n, Inc. v. Paragon Scientific Corp., 27 F. Supp. 2d 109, 112 (D. Conn. 1998). Venue is not necessarily limited to one district. Miller v. Meadowlands Car Imports, Inc., 822 F. Supp. 61, 64 (D. Conn. 1993).
In a case similar to the case at bar, two New Jersey companies formed a contract in New Jersey for the purchase of a Lamborghini Diablo. Id. One of the parties paying the deposit was a Connecticut resident and two of the $25,000.00 deposit checks were drawn on Connecticut banks. Two years later, the contract was assigned to a party residing in Connecticut. Id. at 63-64. The plaintiffs filed the case in Connecticut claiming fraud in the inducement, violations of CUTPA, and breach of contract. Id. Pursuant to 28 U.S.C. § 1391(a), the court held that the allegations did not support venue in Connecticut because the substantial part of the events or omissions giving rise to the claim occurred in New Jersey. Id. at 64.
The plaintiffs in the matter at bar assert that venue is proper in Connecticut pursuant to 28 U.S.C. § 1391(a)(2) because a substantial part of the events or omissions giving rise to the claims occurred in Connecticut. Pls.' Opp'n (USOP) at 6. The significant events giving rise to the plaintiffs' claims that occurred in Connecticut include the plaintiffs' writing of the Ledecky and Claypoole letters and the financial injury to the plaintiffs. Compl. ¶¶ 43, 45; Pls.' Opp'n (USOP) at 9-10 (explaining that the plaintiffs felt the impact of the breach of contract at their residences and places of business, which are in Connecticut). The critical acts that occurred in the District of Columbia include the negotiation of and assent to the February 11 Agreement, which is the subject of the breach of contract and promissory estoppel claims; and the defendants' misrepresentations and omissions, which are the subject of the negligent misrepresentation and CUTPA claims. Washington, 686 F. Supp. at 362; Compl. ¶¶ 31, 34, 36, 40-45, Exs. A-B. As the Miller court determined in evaluating the New Jersey acts, this court determines that the acts occurring in the District of Columbia comprise a substantial part of the events or omissions giving rise to the claims in the complaint, while the acts that occurred in Connecticut do not. 28 U.S.C. § 1391(a)(2); Miller, 822 F. Supp. at 64. Accordingly, venue is proper in the District of Columbia but not Connecticut.
The judge presiding over a case laying venue in the wrong district "shall dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought." 28 U.S.C. § 1406(a); Wild v. Subscription Plus, Inc., 292 F.3d 526, 529-31 (7th Cir. 2002). The defendants provide no reason why transfer of venue, as opposed to dismissal of the complaint, would be contrary to the interests of justice. Given the complex procedural posture of this action, transfer of venue is more efficient than dismissal, as dismissal could require the plaintiffs to refile their complaint in a different district and begin the MDL procedures anew. Because a transfer of venue to the District of Columbia best serves the interests of justice, the court grants defendant USOP's motion to the extent it asks the court to rule that venue is improper, and denies the motion to the extent that it requests dismissal. Wild, 292 F.3d at 529-31.
B. The Court Determines that Counts I, II, and IV Fail to State a Claim and Count III is not Adequately Plead
In this section, the court addresses the defendants' motions to dismiss the complaint for failure to properly state a claim for breach of contract, promissory estoppel, and CUTPA and grants the defendants' motions in part. The court next considers the defendants' motions to dismiss the negligent misrepresentation count for failure to properly plead reasonable reliance and grants the defendants' motions in part. The motions are ...