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Securities and Exchange Commission v. RPM International, Inc.

United States District Court, District of Columbia

December 20, 2016

RPM INTERNATIONAL, INC., et al, Defendants.


          AMY BERMAN JACKSON United States District Judge.

         Plaintiff Securities and Exchange Commission ("SEC") has brought this action for securities violations under the Securities Act of 1933 ("Securities Act"), the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules, against defendants RPM International, Inc. ("RPM") and RPM's General Counsel and Chief Compliance Officer Edward W. Moore ("Moore"). Compl. [Dkt. #1] ¶¶ 1, 3 8-9, 85-105. Plaintiff alleges that defendants fraudulently failed to disclose loss contingencies on certain SEC filings after the Department of Justice ("DOJ") conducted an investigation into a complaint against RPM under the False Claims Act. Id. ¶¶ 1-2. Defendants moved to transfer this case to the United States District Court for the Northern District of Ohio under 28 U.S.C. § 1404(a) on the grounds that private and public interests favor transfer. After consideration of all of the facts, the Court will deny the motion.


         RPM is a Delaware corporation headquartered in Medina, Ohio that "manufactures and sells various chemical product lines, including paints, protective coatings, roofing systems, sealants, and adhesives" Compl. ¶ 14. Beginning in 2007, Moore served as RPM's General Counsel and Corporate Secretary, and in 2011, he assumed his current position of Chief Compliance Officer. Id.¶ 15.

         The instant action stems from a previous lawsuit against RPM and one of its wholly-owned subsidiaries, Tremco, Inc. ("Tremco"), a company that "provides roofing materials and services." Compl. ¶¶ 1-2, 14. In July 2010, a former Tremco employee filed a complaint under the False Claims Act, 31 U.S.C. § 3729 et seq., alleging that Tremco overcharged the United States under certain government contracts by failing to provide required price discounts. Compl. ¶¶ 2, 17. The DOJ initiated an investigation during which Moore oversaw the responses of both RPM and Tremco and kept RPM and auditors informed. Id. ¶¶ 2, 17-20. RPM and the DOJ eventually settled the False Claims allegations for approximately $61 million. Id. ¶¶ 2, 71.

         According to plaintiff, the ongoing DOJ investigation described above amounted to a "loss contingency, " which is defined as "an existing condition, situation, or set of circumstances involving uncertainty as to a possible loss that will be resolved when one or more future events occurs or fails to occur, " including "actual or possible claims and [] pending or threatened litigation." Compl. ¶ 23. If a material loss was reasonably possible, plaintiff alleges that RPM had to disclose this loss contingency and record it as a charge against income in order to comply with its reporting obligations under the securities laws. Id.

         Plaintiff claims that defendants did not publicly disclose this loss contingency until the "fiscal third quarter end[ing] February 28, 2013, " Compl. ¶¶ 64-65, even though defendants were allegedly required to account for the loss contingency beginning in March 2011. Id. ¶ 23. As a result, plaintiff alleges that defendants "submitted multiple materially false and misleading filings to the SEC" between October 2012 and December 2013 because the filings did not account for a loss contingency and continued to be misleading even after the company disclosed the DOJ investigation and recorded an accrual. Id. ¶¶ 4-5.

         On September 9, 2016, the SEC brought this securities action against RPM and Moore in the District Court for the District of Columbia. See Compl. Defendants filed a motion to transfer this action to the District Court for the Northern District of Ohio on October 4, 2016. See Notice of Defs.' Mot. to Transfer This Case to the United States District Court for the Northern District of Ohio [Dkt. # 19] ("Defs.' Mot."); Mem. of P. & A. in Supp. of Defs.' Mot. [Dkt. # 19-1] ("Defs.' Mem.") at 10-19. Defendants argue that private and public interest factors favor transfer because the most important events took place in the Northern District of Ohio; the Northern District of Ohio is the most convenient forum for the parties and witnesses; the relevant evidence is located at RPM's headquarters; the District Court for the Northern District of Ohio has a shorter time to trial than the District Court for the District of Columbia; and Ohio has the stronger local interest in seeing the case resolved. Defs.'Mem. at 11-19. Plaintiff opposed defendants'motion. Pl.'s Opp. to Defs.' Mot. [Dkt. # 22] ("Pl.'s Opp."). It contends that defendants have not met their burden to justify the transfer because plaintiffs choice of forum is "entitled to deference-significant events took place in the District of Columbia, and it will take less time to try the case here. See Id. at 1-2, 13-22. On November 15, 2016, defendants filed a reply in support of their motion. See Reply Mem. of P. & A. in Supp. of Defs.' Mot. [Dkt. # 23] ("Defs.' Reply").


         "For the convenience of 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 28 U.S.C. § 1404(a). The defendant, as the moving party, bears the burden of establishing that transfer is proper. Greater Yellowstone Coal. v. Bosworth, 180 F.Supp.2d 124, 127 (D.D.C. 2001). The Court has broad discretion in deciding whether transfer from one jurisdiction to another is appropriate. See Norwood v. Kirkpatrick, 349 U.S. 29, 31 (1955); Sec. & Exch. Comm'n v. Savoy Indus., Inc., 587 F.2d 1149, 1154 (D.C. Cir. 1978). The decision to transfer requires an "individualized, case-by-case consideration of convenience and fairness." Van Dusen v. Barrack, 376 U.S. 612, 622 (1964).

         The threshold question under section 1404(a) is whether the action "might have been brought" in the transferee district. 28 U.S.C. § 1404(a); see also Lentz v. Eli Lilly & Co., 464 F.Supp.2d 35, 36 (D.D.C. 2006). An action may be brought in any judicial district in which "any defendant resides, if all defendants are residents of the State in which the district is located" or in a district where "a substantial part of the events or omissions giving rise to the claim occurred." 28 U.S.C. § 1391(b)(1)-(2). The venue provisions of the Securities Act and the Exchange Act also provide that venue is proper where "the defendant is found or is an inhabitant or transacts business." 15 U.S.C. §§ 77v(a), 78aa.

         After establishing that the threshold requirement has been met, the Court "must balance case-specific factors which include the private interests of the parties as well as public interests such as efficiency and fairness." See Wilderness Soc'y v. Babbitt, 104 F.Supp.2d 10, 12 (D.D.C. 2000). The private interest considerations include:

(1) the plaintiffs choice of forum, unless the balance of convenience is strongly in favor of the defendants; (2) the defendants' choice of forum; (3) whether the claim arose elsewhere; (4) the convenience of the parties; (5) the convenience of the witnesses of the plaintiff and defendant but only to the extent that the witnesses may actually be unavailable for trial in one of the fora; and (6) the ease of access to sources of proof

Trout Unlimited v. U.S. Dep't of Agric, 944 F.Supp. 13, 16 (D.D.C. 1996) (internal citations omitted). Public interest considerations include: "(1) the transferee's familiarity with the governing laws; (2) the relative congestion of the calendars of the potential transferee and transferor courts; and (3) the local interest in deciding local controversies at home." Id.


         It is undisputed that this action could have been brought in the Northern District of Ohio. Defs.' Mem at 10; Pl.'s Mem. at 10; see also 28 U.S.C. § 1331(b)(1); 15 U.S.C. §§ 77v(a), 78aa. Therefore, the Court need only examine and balance the private and public interest factors. See Lentz, 464 F.Supp.2d at 37 (determining on a motion to transfer that only the second inquiry ...

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