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Lawrence Treppel, Derivatively On Behalf of Norfolk Southern v. J. Paul Reason et al

June 27, 2011


The opinion of the court was delivered by: John D. Bates United States District Judge


Plaintiff Lawrence Treppel ("plaintiff") brings this verified shareholder derivative action against Norfolk Southern Corporation ("Norfolk Southern") and current and former members of Norfolk Southern's Board of Directors and Audit Committee (collectively, "defendants"), alleging violations of Virginia state corporate law, including breach of fiduciary duty, waste of corporate assets, and unjust enrichment. Now before the Court is defendants' motion to dismiss plaintiff's complaint for improper venue, and, in the alternative, to transfer this case to the United States District Court for the Eastern District of Virginia. Upon consideration of the parties' submissions, and for the reasons set forth below, the Court will deny defendants' motion to dismiss and grant defendants' motion to transfer. Accordingly, this case will be transferred to the Eastern District of Virginia.


Norfolk Southern is a Virginia corporation with its principal executive offices located in Norfolk, Virginia. Compl. ¶ 24. Along with four other railroad companies, Norfolk Southern controls more than 90% of all railroad tracks in America. Id. ¶ 2. In his complaint, plaintiff alleges that Norfolk Southern's former Chief Executive Officer ("CEO") David R. Goode and its current CEO Charles W. Moorman IV participated in a series of meetings of the American Association of Railroads ("AAR"), in which representatives of several of the leading railroad companies allegedly conspired to coordinate and raise fuel surcharge prices. See id. ¶¶ 5, 11, 12.

The AAR is a private institutional body headquartered in Washington, D.C. that serves as the primary governing body of the railroad industry. See id. ¶ 3; Pl.'s Opp'n to Defs.' Mot. to Dismiss ("Pl.'s Opp'n") [Docket Entry 30] at 1. Moorman is the current chairman of the AAR and has been a member of the organization since 2005; Goode is a former AAR member and chairman. See Compl. ¶¶ 11-12. Beginning in 2003, the AAR allegedly developed a new pricing system for railroad services that allowed participating railroads to charge artificially high fuel surcharge prices. See Compl. ¶¶ 43-46. This supposed coordination of railroad fuel surcharges among Norfolk Southern and its competitors -- orchestrated through their membership in the AAR -- is alleged to have continued through 2007. Id. ¶ 4.

From 2003 through 2007, the Norfolk Southern Board of Directors met on thirty occasions. See Defs.' Mot. to Dismiss ("Defs.' Mot.") [Docket Entry 27], Ex. 1, Aff. of Howard D. McFadden ("McFadden Aff.") ¶ 3. Twenty-one of those meetings occurred in the Eastern District of Virginia, and none of the meetings took place in the District of Columbia. See id. ¶¶ 3-4. Also during this time period, Norfolk Southern's Audit Committee met on several occasions in the Eastern District of Virginia, but never in the District of Columbia. Id. ¶ 5. The Norfolk Southern Board of Directors is alleged to have approved of the AAR fuel surcharge arrangement at some point during its meetings. See Compl. ¶ 5 (noting that the Board "ratified" the agreements made by Moorman and Goode with Norfolk Southern's competitors at the AAR).

Norfolk Southern made significant profits from its alleged price fixing arrangement, which prompted the filing of at least thirteen different antitrust class actions against the company. See Compl. ¶¶ 47-48, 53; see also Pl.'s Opp'n at 2. On November 6, 2007, these separate antitrust actions were coordinated and consolidated in the District of Columbia by the Judicial Panel on Multidistrict Litigation ("JPML"). Compl. ¶ 53. Following consolidation by the JPML, an amended class action complaint was filed in the District of Columbia charging Norfolk Southern and several of its competitors with price fixing in violation of § 1 of the Sherman Act. See Pl.'s Opp'n at 2-3; see also Consol. Am. Class Action Compl. ("Class Action Compl."), In re Rail Freight Fuel Surcharge Antitrust Litigation, Misc. No. 07-489 (D.D.C. filed Apr. 15, 2008). None of Norfolk Southern's officers or directors were individually named as defendants in the consolidated antitrust class action. See Class Action Compl.; see also Defs.' Mot. at 3.

On September 28, 2010, plaintiff, a California citizen and Norfolk Southern shareholder, filed this shareholder derivative suit on behalf of Norfolk Southern against the company and thirteen of its current and former executives, alleging breach of fiduciary duty, waste of corporate assets, and unjust enrichment. Compl. ¶¶ 1, 10, 57. In his complaint, plaintiff contends that the company's agreement to coordinate fuel surcharge prices with its competitors has "irreparably damaged Norfolk Southern's corporate image and goodwill" and forced the company to spend significant funds "investigating and defending" against the class action. Id. ¶ 55. The thirteen individual defendants named in plaintiff's complaint include Moorman and Goode, as well as other Norfolk Southern directors and Audit Committee members. Id. ¶¶ 11-23. Of the thirteen individuals named, four are citizens of Virginia, and one is a citizen of Washington, D.C. Id.

Along with his complaint, plaintiff filed a "Notice of Designation of Related Civil Cases" pursuant to Local Civil Rule 40.5,*fn1 in which he noted that his case was related to the consolidated antitrust class action pending in this Court before Judge Friedman. See Notice of Related Case [Docket Entry 2]. Accordingly, plaintiff's case was initially assigned to Judge Friedman, but was reassigned to the undersigned judge on December 7, 2010. See Notice of Reassignment [Docket Entry 25]. Ten days later, defendants filed this motion to dismiss for improper venue, or, in the alternative, for transfer to the Eastern District of Virginia. Id.

Defendant challenges venue on two grounds. First, he argues that this case should be dismissed because the District of Columbia is not a proper venue pursuant to 28 U.S.C. § 1391(a). Second, defendant argues that even if venue in the District of Columbia is proper, the Court should still exercise its discretionary authority to transfer this case to the Eastern District of Virginia for the convenience of the parties and the witnesses and "in the interest of justice." See 28 U.S.C. § 1404(a). The Court will address each of these arguments in turn.


I. Venue Under 28 U.S.C. § 1391(a)(2)

Defendant first argues that venue is not proper in the District of Columbia and that this case should therefore be dismissed under Federal Rule of Civil Procedure 12(b)(3). When a plaintiff brings suit in an improper venue, the district court "shall dismiss [the case], 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); see also Fed. R. Civ. P. 12(b)(3). A plaintiff bringing suit in federal court bears the burden of showing that venue is proper, Varma v. Gutierrez, 421 F. Supp. 2d 110, 113 (D.D.C. 2006), and, "[i]n considering a Rule 12(b)(3) motion, the court accepts the plaintiff's well-pled factual allegations regarding venue as true, draws all reasonable inferences from those allegations in plaintiff's favor, and resolves any factual conflicts in the plaintiff's favor," Cooper v. Farmers New Century Ins. Co., 593 F. Supp. 2d 14, 18 (D.D.C. 2008) (quoting Darby v. U.S. Dep't of Energy, 231 F. Supp. 2d 274, 276 (D.D.C. 2002)).

Where, as here, subject-matter jurisdiction is based solely on diversity of citizenship,*fn2 28 U.S.C. ยง 1391(a) ...

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