Opinion
No. 3-01-CV-2282-L
February 10, 2003
MEMORANDUM OPINION AND ORDER
Plaintiff Moto Photo, Inc. has filed a motion to transfer this case to the Western Division of the Southern District of Ohio. For the reasons stated herein, the motion is denied.
I.
Plaintiff is a nationwide franchisor of a unique and distinctive system for the establishment and operation of retail stores which offer fast, quality photo-processing and related imaging services and products. (Plf. Am. Compl. at 2, ¶ 8). On December 14, 1992, plaintiff entered into a 10-year franchise agreement with Defendant K.J. Broadhurst Enterprises, Inc. ("KJB") to operate a MotoPhoto store in University Park, Texas. ( Id. at 3, ¶ 11; Plf. Prelim. Inj. App., Exh. 1). As part of the agreement, plaintiff allowed KJB to use the service mark "One Hour MotoPhoto" and other proprietary trade names, trademarks, logos, and emblems for marketing purposes. (Plf. Prelim. Inj. App., Exh. 1 at 13, ¶ 7.01.3). KJB, in turn, was obligated to pay plaintiff an initial franchise fee of $1,000, continuing royalty fees in the amount of 6% of gross retail sales, and expend or contribute an additional 6% of gross retail sales on advertising. ( Id., Exh. 1 at 6-7, ¶¶ 5.01-5.02). Royalty and were due on the 20th day of each month for sales made during the preceding month. ( Id., Exh. 1 at 7, ¶ 5.03). The franchise agreement further provides that:
15.01 Upon termination or expiration, this Agreement and all rights granted hereunder to Franchisee shall forthwith terminate, and:
15.01.01 Franchisee shall immediately cease to operate the business franchised under this Agreement and shall not thereafter, directly or indirectly, represent to the public or hold itself out as a present or former franchisee of Franchisor.
15.01.02 Franchisee shall immediately and permanently cease to use, by advertising or in any other manner whatsoever, any confidential methods, procedures and techniques associated with the [MotoPhoto] System; the Proprietary Mark "ONE HOUR MOTOPHOTO"; and all other Proprietary Marks and distinctive ONE HOUR MOTOPHOTO forms, slogans, signs, symbols, or devices associated with the System.
( Id., Exh. 1 at 31, ¶¶ 15.01). KJB also promised not to compete with plaintiff in the rapid photo-processing business within a five-mile radius for a two-year period upon expiration or termination of the agreement. ( Id., Exh. 1 at 34, ¶ 16.03).
From 1996 to 2001, KJB periodically defaulted on its payment obligations under the franchise agreement. ( Id., Exh. 2; Plf. Am. Compl. at 3, ¶ 13). As of August 10, 2001, KJB owed plaintiff more than $40,000 in royalty and advertising fees, had a past due trade balance of $11,609.40, and owed $24,637.28 on a promissory note. (Plf. Prelim. Inj. App., Exh. 3). Plaintiff demanded that KJB cure its default and threatened to terminate the franchise agreement if these payments were not made by September 12, 2001. ( Id.; Plf. Am. Compl. at 5, ¶¶ 19, 21). When KJB failed to make these payments, plaintiff terminated the agreement. (Plf. Am. Compl. at 6, ¶ 22). Thereafter, KJB continued to operate its photo-processing business at the University Park location using the MotoPhoto marks. ( Id. at 7-8, ¶¶ 24-25, 28).
On November 13, 2001, plaintiff sued KJB and its owners, Karen Broadhurst and John Hughett, in Dallas federal court for trademark infringement, trademark dilution, unfair competition, breach of contract, and unjust enrichment. The case was progressing toward trial until November 25, 2002, when plaintiff filed a Chapter 11 bankruptcy in Dayton, Ohio. In re Moto Photo, Inc., No. 02-38935 (Bankr. S.D. Ohio). Plaintiff now wants this case transferred to the Western Division of the Southern District of Ohio where it presumably would be referred to the bankruptcy court under a standing order of reference. Defendants oppose a transfer. The motion has been briefed by the parties and is ripe for determination.
Plaintiff subsequently amended its complaint to join Moto U.P., Inc., the successor-in-interest to K.J. Broadhurst Enterprises, Inc., as a party defendant. See ORDER, 11/15/02.
II.
Plaintiff maintains that a transfer of venue is appropriate under 28 U.S.C. § 1412, Bankruptcy Rule 7087, and 28 U.S.C. § 1404 (a). The court will consider each argument in turn.
A.
Section 1412 provides that "[a] district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties." 28 U.S.C. § 1412. This statute, by its terms, applies only to core bankruptcy proceedings where federal jurisdiction arises "under title 11." Searcy v. Knostman, 155 B.R. 699, 706 (S.D. Miss. 1993) (citing cases). Plaintiff does not contend that this case is a core proceeding. Instead, it maintains that the lawsuit is "related to" the Moto Photo bankruptcy because the claims against defendants "may have significant effects on the chapter 11 process and, ultimately, the rights of other creditors . . ." (Plf. Br. at 3, ¶ 4). However, the weight of authority holds that a "related to" or non-core bankruptcy proceeding is not one "under title 11." See, e.g. NI Fuel Co., Inc. v. Jackson, 257 B.R. 600, 622 (N.D. Okla. 2000); Foxmeyer Corp. v. McKesson, 217 B.R. 511, 514 (Bankr. N.D. Tex. 1997); Searcy, 155 B.R. at 706-07; Thomson McKinnon Securities Inc. v. White, 126 B.R. 833, 834 (Bankr. S.D.N.Y. 1991); Murray, Wilson and Hunter v. Jersey Boats, Inc., 1992 WL 37516 at *3 (E.D. Pa. Feb. 21, 1992). But Cf. Independent Stationers, Inc. v. Vaughn, 2000 WL 1449854 at *2 (S.D. Ind. 2000) ("[c]hange of venue for proceedings related to a case under title 11 is governed by 28 U.S.C. § 1412"). These decisions point out that the predecessor statute to section 1412 provided:
A core proceeding is one that "invokes a substantive right provided by title 11 or a proceeding that, by its nature, could arise only in the context of a bankruptcy case." Matter of Wood, 825 F.2d 90, 97 (5th Cir. 1987). These include, inter alia: (1) the allowance or disallowance of claims; (2) proceedings to determine, avoid, or recover preferences; (3) motions to terminate, annul, or modify the automatic stay; (4) the confirmation of plans; and (5) objections to discharges. See 28 U.S.C. § 157 (b)(2). A "related to" or non-core proceeding is one that "could conceivably have any effect on the estate being administered in bankruptcy." Wood, 825 F.2d at 93 (emphasis in original), quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984).
A bankruptcy court may transfer a case under title 11 or a proceeding arising under or related to such a case to a bankruptcy court for another district, in the interest of justice and for the convenience of the parties.
28 U.S.C. § 1475 (repealed) (emphasis added). Because the phrase "related to such a case" was deleted from the current version of the statute, this suggests that Congress intended to limit the authority of Article I bankruptcy courts to hear non-core proceedings. See NI Fuel, 257 B.R. at 623; Searcy, 155 B.R. at 707. Thus, section 1412 does not provide an independent basis for transfer.
Nor is Bankruptcy Rule 7087 applicable to this case. This rule provides, in pertinent part, that "[o]n motion and after a hearing, the court may transfer an adversary proceeding or any part thereof to another district pursuant to 28 U.S.C. § 1412 . . ." FED. R. BANKR. P. 7087 (emphasis added). The pending lawsuit is not an "adversary proceeding" in the Moto Photo bankruptcy.
B.
The only permissible basis for transferring this case is 28 U.S.C. § 1404 (a). This statute provides that "[f]or the convenience of the 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). In ruling on a motion to transfer under section 1404(a), the court should consider various private interest factors, such as: (1) the availability and convenience of the witnesses and parties; (2) the availability of process to compel the attendance of unwilling witnesses; (3) the cost of obtaining attendance of witnesses; (4) the relative ease of access to sources of proof; (5) the place of the alleged wrong; (6) the possibility of delay and prejudice if the case is transferred; and (7) the plaintiff's right to choose its forum. N2 Consulting, LLC v. Engineered Fastener Co., 2002 WL 31246770 at *1 (N.D. Tex. Oct. 2, 2002), citing Dupre v. Spanier Marine Corp., 810 F. Supp. 823, 825 (S.D. Tex. 1993). The movant must demonstrate that the balance of convenience and justice weighs heavily in favor of transfer. Id.
Plaintiff filed suit against KJB, Broadhurst, and Hughett in Dallas federal court. Notwithstanding its original decision to bring this action in the Northern District of Texas, plaintiff now wants to transfer the case to the Western Division of the Southern District of Ohio due to its recent bankruptcy filing in that district. Assuming arguendo that the Southern District of Ohio is a proper judicial district where this action might have been brought, the court determines that transfer is not warranted.
Defendants suggest that this action could not have been brought in the Southern District of Ohio because KJB, Broadhurst, and Hughett are all residents of Texas. (Def. Resp. at 3). Because plaintiff has failed to prove that the balance of convenience and justice weighs heavily in favor of transfer, the court need not decide whether a federal court in Ohio would have personal jurisdiction over defendants.
1.
As a preliminary matter, defendants argue that a plaintiff may not file a motion to transfer venue under section 1404(a). Such is not the case. Most courts have accepted the view that plaintiffs, like defendants, may seek a transfer for the convenience of the parties and in the interest of justice. In order to prevail, a plaintiff must show that circumstances have changed since the filing of suit. See Washington Public Utility Group v. U.S. District Court, 843 F.2d 319, 327 (9th Cir. 1987); Coffey v. Van Dorn Iron Works, 796 F.2d 217, 219 (7th Cir. 1986); Leiker v. Jarvis Products Corp., 1990 WL 112974 at *1 (D. Kan. Jul. 10, 1990); Haren-Christensen Corp. v. M.S. Frigo Harmony, 477 F. Supp. 694, 698 (S.D.N.Y. 1979); Weltman v. Fletcher, 431 F. Supp. 448, 450 n. 2 (N.D. Ohio 1976). But cf. American Home Assurance Co. v. Glovegold, Ltd., 153 F.R.D. 695 (M.D. Fla. 1994) (rejecting "change of circumstances" requirement); Central Hudson Gas Electric Corp. v. Empresa Naviera Santa, S.A., 769 F. Supp. 208, 209 (E.D. La. 1991) (same). Here, the circumstances have clearly changed due to the Moto Photo bankruptcy. Therefore, plaintiff may seek a transfer of venue under section 1404(a).
2.
Plaintiff offers four reasons why this case should be transferred to the Southern District of Ohio: (1) its right to chose the forum; (2) the convenience of the parties and witnesses; (3) defendants' agreement to litigate this action in Ohio; and (4) the interest of justice.
Ordinarily, the plaintiff's choice of forum is "highly esteemed." See N2 Consulting, 2002 WL 31246770 at *2, quoting Aguero v. Christopher, 481 F. Supp. 1272, 1275 (S.D. Tex. 1980). However, this factor becomes less significant where, as here, the plaintiff originally filed suit in another district. "It is one thing to give great weight to plaintiff's initial choice of forum, but it seems odd that a plaintiff who has chosen an improper forum should have great weight given to [its] second choice." FPC Corp. v. Uniplast, Inc., 994 F. Supp. 945, 946 (N.D. Ill. 1998), quoting 15 C. WRIGHT, A. MILLER E. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3848 at 394 (2d ed. 1986). See also Leiker, 1990 WL 112974 at *2 (if plaintiffs initial and subsequent choices of forum were accorded the same favored status, "a motion to transfer venue could become an unchecked tool for the plaintiff to shop among forums and between judges"). Consequently, this factor does not weigh in favor of or against transfer.
Next, plaintiff argues that most of its witnesses reside in Ohio and will be forced to travel if the trial is held in Texas. (Plf. Br. at 4, ¶ 7). The convenience of witnesses is often regarded as the most important factor to be considered in deciding a motion to transfer venue. See Continental Airlines, Inc. v. American Airlines, Inc., 805 F. Supp. 1392, 1396 (S.D. Tex. 1992). A party seeking a transfer on that basis "must specifically identify the key witnesses and outline the substance of their testimony." N2 Consulting, 2002 WL 31246770 at *3, quoting Dupre, 810 F. Supp. at 825. Here, plaintiff has failed to identify any witnesses who would be inconvenienced by retaining venue in this district. While it may be more convenient for plaintiff to litigate this action in Ohio, a transfer is not appropriate where the only justification is to shift the balance of inconveniences from one party to another. See N2 Consulting, 2002 WL 31246770 at *5, citing Dupre, 810 F. Supp. at 826.
By contrast, defendants list 30 former and current employees, all of whom reside in the Dallas area, who may be potential witnesses in this case. (Def. Resp., Broadhurst Aff. at 1 Exh. A). However, as plaintiff correctly notes, the Broadhurst affidavit does not recite that the statements contained therein are "true and correct." Nor is the witness list attached to the affidavit properly authenticated. Therefore, the court will not consider this evidence for any purpose.
Plaintiff further contends that defendants have waived the right to contest a transfer because they agreed to litigate this action in Ohio. In support of this argument, plaintiff points out that the franchise agreement provides that any arbitration proceeding or legal action commenced by defendants shall be brought in Dayton, Ohio. (Plf. Prelim. Inj. App., Exh. 1 at 39-40, ¶¶ 23.01, 23.04 24). However, this case is neither an arbitration proceeding nor a lawsuit initiated by defendants. It was plaintiff who elected to file suit against the defendants in Texas rather than demand arbitration in Ohio. Consequently, the forum selection clause does not inform the court's decision on the transfer issue.
Plaintiff also emphasizes that defendants traveled to Dayton, Ohio for training and made payments under the franchise agreement in Ohio. (Plf. Br. at 4, ¶ 6). These facts are relevant to the issue of personal jurisdiction, not venue.
Nor is transfer warranted in "the interest of justice." A transfer in "the interest of justice" is appropriate where related cases involving the same issues are pending in another court. As the Supreme Court observed in Continental Grain Co. v. Barge FBL-585, 364 U.S. 19, 80 S.Ct. 1470, 4 L.Ed.2d 1540 (1960):
To permit a situation in which two cases involving precisely the same issues are simultaneously pending in different District Courts leads to the wastefulness of time, energy and money that § 1404(a) was designed to prevent. Moreover, such a situation is conductive to a race of diligence among litigants for a trial in the District Court each prefers.Id., 80 S.Ct. at 1474. Here, there is no related proceeding pending in Ohio. The Moto Photo bankruptcy does not involve the same issues as the breach of contract, unfair competition, and trademark infringement action brought by plaintiff in this district. Under these circumstances, judicial economy does not favor a transfer.
3.
Finally, the court notes that plaintiff did not file its motion to transfer venue until December 10, 2002 — more than a year after this case was filed. Although a motion to transfer venue under section 1404(a) is not subject to the pleading requirements of Rule 12(h), it still must be filed with "reasonable promptness." N2 Consulting, 2002 WL 31246770 at *2, citing Peteet v. Dow Chemical Co., 868 F.2d 1428, 1436 (5th Cir.), cert. denied, 110 S.Ct. 328 (1989). A court may take delay into account in determining whether transfer is warranted. Id.
Rule 12(h) provides, in pertinent part:
A defense of . . . improper venue . . . is waived (A) if omitted from a motion in the circumstances described in subdivision (g), or (B) if it is neither made by a motion under this rule nor included in a responsive pleading or an amendment thereof permitted by Rule 15(a) to be made as a matter of course.
FED. R. CIV. P. 12(h)(1). Unlike a motion to dismiss for improper venue under Rule 12(b)(3), a motion to transfer venue under 28 U.S.C. § 1404 (a) is not a "defense" that must be raised in a responsive pleading.
Here, plaintiff sought a transfer of venue within a few weeks after filing for bankruptcy in Ohio. However, by that time, this lawsuit was well under way. The parties have exchanged initial disclosures, amended their pleadings, and conducted preliminary discovery. Under the current scheduling order, all discovery must be completed by February 28, 2003, with dispositive motions due seven days thereafter. See REV. SCH. ORDER, 1/2/03 at 1-2, ¶¶ 1 2. The timing of plaintiff's motion creates a substantial possibility of undue delay if the case is transferred and may be denied on that basis alone. See FTC v. Multinet Marketing, LLC., 959 F. Supp. 394, 395-96 (N.D. Tex. 1997) (denying motion to transfer where "change in venue now is likely to upset the discovery and trial schedule and waste judicial resources"); American Airlines, Inc. v. Rogerson ATS, 952 F. Supp. 377, 384 (N.D. Tex. 1996) (denying motion where transfer would disrupt existing scheduling order).
CONCLUSION
Plaintiff has failed to establish that the balance of convenience and justice weighs heavily in favor of transfer. Accordingly, its motion to transfer venue is denied.
SO ORDERED.