388 F.Supp. 265 (E.D.Pa. 1975), Civ. 74-549, Umbriac v. American Snacks, Inc.

Docket Nº:Civ. 74-549
Citation:388 F.Supp. 265
Party Name:Umbriac v. American Snacks, Inc.
Case Date:January 27, 1975
Court:United States District Courts, 3th Circuit, Eastern District of Pennsylvania

Page 265

388 F.Supp. 265 (E.D.Pa. 1975)

Rosemary L. UMBRIAC et al.



Civ. No. 74-549.

United States District Court, E.D. Pennsylvania.

Jan. 27, 1975

Page 266

Richard A. Ash of Lyman & Ash, Philadelphia, Pa., for plaintiffs.

David Berman, Medford, Mass., Matthew J. Broderick and Warren Vogel of Dechert, Price & Rhoads; Michael L. Temin of Wolf, Block, Schorr & SolisCohen; Howard D. Scher and Allen J. Levin of Goodis, Greenfield, Henry, Shairman & Levin, Philadelphia, Pa., for defendants.


HIGGINBOTHAM, District Judge.

This is a class action and I must presently decide whether to grant defendants' motion to transfer this case from the Eastern District of Pennsylvania to the District of Massachusetts under 28 U.S.C. § 1404(a) after having denied a similar motion to transfer in an individual action involving many of the same parties, the same factual allegations, and the same cause of action. For reasons hereinafter discussed, I am granting defendants' transfer motions in spite of my ruling in the individual action brought by the same named plaintiffs. A brief statement of the procedural history of the two actions will facilitate a clear understanding of the present issue.


On August 27, 1973, the four named plaintiffs in the above-captioned complaint filed an individual action 1 under the Securities Exchange Act of 1934 against American Snacks, Inc. (hereinafter 'ASI') and the accounting firm of Touche Ross & Co. (hereinafter 'Touche Ross').

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Plaintiffs' claims in that litigation arise out of their purchase of twenty-five debentures from ASI in March, 1969, each one having a face value of $1,000, bearing 6% Interest annually, and maturing in 1989. The complaint alleges that ASI's offering prospectus was misleading in that, among other things, the prospectus (1) overstated the value of the assets; (2) misrepresented the character of the assets; and (3) inflated the earnings of ASI in previous years. Touche Ross was the accounting firm responsible for certifying the financial statements of ASI.

On October 3, 1969, ASI allegedly issued a 'News Release,' reporting that ASI would 'write off' $1,100,000 of corporate assets 'net of taxes' which was based upon a re-evaluation of the assets. Consequently, the debentures offered earlier dropped substantially in value. Twenty of plaintiffs' twenty-five debentures were thereafter sold for approximately $500 per debenture, or 50% Of their original investment. By that action plaintiffs seek, inter alia, a rescission of the sale of the remaining five debentures which they retain, and compensatory damages for the loss incurred by their past sale of the debentures at a reduced value. ASI and Touche Ross thereafter moved to transfer the action to Massachusetts under 28 U.S.C. § 1404(a), and as to the Individual action I denied the motion by Memorandum and Order dated August 15, 1974.

On March 6, 1974, the same four named plaintiffs filed this class action against ASI and Touche Ross reciting the same allegations in their complaint and requesting the same relief as had been requested in the individual action. Additionally, the complaint impleaded directors of ASI as well as the managing underwriter of the debenture issue in question, the firm of Scherck, Stein & Franc, Inc. (hereinafter (Scherck'), located in St. Louis, Missouri. The class which plaintiffs purport to represent are '. . . the class of persons and entities who purchased 6% Convertible subordinated debentures due 1989 issued by Snacks ('the debentures') during the period beginning at the date of original issue (on or about March 15, 1969) and ending October 3, 1969, who either continue to hold the debentures or who have sold the debentures after October 3, 1969, at a loss.' 2 Again in this action ASI and Touche Ross have moved to transfer the case to Massachusetts under § 1404(a). 3 Therefore, I must decide, in essence, whether after denying the motion to transfer in the individual suit, the status of plaintiffs' present case as a class action and the impleading of the additional defendants now tips the balance of convenience and justice away from the Eastern District of Pennsylvania forum and in favor of the District of Massachusetts.


28 U.S.C. § 1404 provides in relevant part:

'(a) 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.'

From the language of the statute I must make two determinations in considering defendants' transfer motions. I must first determine whether Massachusetts is a district wherein this civil action might have been brought at the time it was commenced in this forum. Hoffman v. Blaski, 363 U.S. 335, 80 S.Ct. 1084, 4 L.Ed.2d 1254 (1960); Shutte v. Armco Steel Corp., 431 F.2d 22 (3d Cir. 1970); Goodman v. Fleischmann, 364 F.Supp. 1172 (E.D.Pa.1973). Next I must determine whether a transfer will be in the interest of justice and for the convenience of parties and witnesses.

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The first determination is easily made, for in plaintiffs' action venue is based on § 27 of The Securities Exchange Act of 1934, 15 U.S.C. § 78aa, which states in pertinent part:

'. . . Any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder, or to enjoin any violation of such chapter or rules and regulations, may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found.'

ASI has its principal place of business in Chelsea, Massachusetts: the office of Touche Ross which conducted audits for the offering prospectus is located in Wellesley, Massachusetts; and at least four of the eight named defendants reside in Massachusetts. Clearly, this suit could have been brought in the Massachusetts district under the venue provision of § 78aa.

Next I must determine whether a § 1404(a) transfer to Massachusetts will be in the interest of justice and for the convenience of parties and witnesse. I find the following factors weighing in favor of the transferee forum.

1. ASI has its principal place of business located at Chelsea, Massachusetts.

2. The office of Touche Ross which conducted the audit for the offering prospectus is located at Wellesley, Massachusetts.

3. Four of the eight individual defendants reside in Massachusetts, two reside in Missouri, and one resides in Florida. 4

/4/ The offering prospectus was prepared in part from financial statements audited by an office of K. Lasser & Company located in Boston, Massachusetts.

5. The offering prospectus was prepared in Boston by ASI's general counsel, the firm of Nathanson & Rudofsky, which is also located in Boston.

6. The corporate records used to prepare the offering prospectus are located at ASI's offices in Chelsea, Massachusetts.

7. Defendant ASI lists three party witnesses and one non-party witness, whose testimony will be necessary at trial on the issues of the valuation and character of ASI's assets and the preparation of ASI's financial statements for the years of 1964 through 1968. All these witnesses reside and work in Massachusetts and are officers of ASI.

8. On the issue of the $1,100,000 write-off alleged in plaintiffs' complaint, defendant ASI intends to call its principal officers and directors during the period, December 28, 1968 to March 15, 1969 (the eight named defendants), as well as three non-party witnesses. Two of these non-party witnesses reside in Massachusetts and the third witness resides in Missouri.

9. ASI alleges that the testimony of substantially all of the company's major executives will be required to refute plaintiffs' allegations and that while the number of individuals involved is not large, it represents substantially all of the company's executives, without whom the company would be unable to operate.

10. Complete records of all transactions in the ASI debentures are maintained by the First National Bank of Boston located in Boston, Massachusetts.

In behalf of plaintiffs' opposition to the motion to transfer, I find that:

1. The debentures were purchased by plaintiff, Cletus M. Lyman, for his children through the Trenton, New Jersey office of Merrill, Lynch, Pierce, Fenner & Smith.

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2. Cletus M. Lyman then resided in Hazelton, Pennsylvania, and the individual stock broker through whom the purchase was made resided in Bucks County, Pennsylvania.

3. Plaintiffs have no substantial contacts with Boston.

4. Plaintiffs have offered to depose Boston witnesses in Boston and to examine and photocopy documents there.

5. ASI conducts business in 30 states including Pennsylvania. 5.35% Of ASI's sales revenues for the first nine months of 1973 was derived from within Pennsylvania and 5.77% Of its employees and 4.59% Of its restaurant units are located in Pennsylvania.

In making my second determination I must strike a balance of convenience between those elements of this lawsuit which weigh in favor of transferring it to Massachusetts, and those which favor allowing plaintiffs' choice of forum to stand undisturbed. The factors to be considered have been recited many times but the basic enunciation is ultimately traced to Gulf Oil Corporation v. Gilbert, 330 U.S. 501, 67...

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