Chazen v. Deloitte &Touche, Llp

• Decision Date: 28 February 2003
• Docket Number: No. CV-02-BE-0352-S.,CV-02-BE-0352-S.
• Citation: 247 F.Supp.2d 1259
• Parties: Stephen M. CHAZEN, Plaintiff, v. DELOITTE & TOUCHE, LLP, Defendant.
• Court: U.S. District Court — Northern District of Alabama

247 F.Supp.2d 1259

Stephen M. CHAZEN, Plaintiff, v. DELOITTE & TOUCHE, LLP, Defendant.

No. CV-02-BE-0352-S.

United States District Court, N.D. Alabama, Southern Division.

February 28, 2003.

James L. North, J. Timothy Francis, James L. North & Associates, Birmingham, AL, for Plaintiff.

Jack E. Held, Sirote and Permutt, PC, Birmingham, AL, Marshall R. King, Gibson, Dunn & Crutcher, LLP, New York City, for Defendant.

MEMORANDUM OPINION

BOWDRE, District Judge.

This matter is before the court on defendant Deloitte & Touche LLP's ¹ "Motion to Dismiss" (Doc.6). The defendant asserts that this action should be dismissed on four alternative grounds: (1) the doctrine of collateral estoppel precludes relitigation of the forum non conveniens issue decided against plaintiff in state court; (2) the merits of the forum non conveniens issue support dismissal; (3) the statute of limitations bars plaintiffs action; and (4) plaintiff has not adequately pled his claims. The court has reviewed submissions of counsel and heard oral argument on these issue. Because the court finds that plaintiffs claim should be dismissed under the first three alternative grounds, the court need not address the adequacy of plaintiffs pleadings.

I. Facts and Procedural History

This lawsuit represents the second effort by plaintiff to sue Deloitte Canada in Alabama. As stated in his complaint, plaintiff filed suit in December, 1999, in the Circuit Court of Jefferson County, Alabama, based on the identical set of facts that underlie this action. The Circuit Court dismissed that action based on forum non conveniens because it found that Ontario, Canada was a more convenient forum. The Alabama Supreme Court affirmed that dismissal without opinion in January, 2002. The plaintiff then filed this lawsuit in federal court on February 8, 2002. The only significant distinction between this action and the previous state court suit is the addition of a federal securities count that was conspicuously absent from the first suit.

This action and the earlier state court action arose out of the October 1997 purchase by Philip Services Corporation, a Canadian corporation, of Southern Foundry Supply, Inc., a closely held Tennessee corporation. Mr. Chazen, along with four other shareholders, sold his Southern Foundry stock in partial consideration for shares of Philip common stock. In both actions, Mr. Chazen alleges that the value of the Philip stock he received was artificially inflated because of mis-statements contained in various documents, including the 1995 and 1996 financial statements. Deloitte Canada, a limited liability partnership organized under Canadian law, audited those statements.

In January 1998, Philip announced a loss for 1997, and subsequently restated its earnings for 1995 and 1996. The market price of Philip stock dropped and numerous law suits were filed in the United States and Canada. Most of the suits in the United States were unified in multidistrict class action litigation and transferred to the Southern District of New York as In re Philip Services Corp. Securities Litigation. See DiRienzo v. Philip Serv. Corp., 232 F.3d 49 (2000), opinion rehearing, 294 F.3d 21 (2d Cir.2002), cert. den. ___ U.S. ___, 123 S.Ct. 556, 154 L.Ed.2d 442 (2002).

In addition, the other four selling shareholders in Southern Foundry filed suit against Deloitte Canada and others in Tennessee state court in an action entitled Gary D. Chazen, et al. v. Philip Metals, Inc., et al, (the "Chazen Tennessee Action"). The defendants removed the Chazen Tennessee action to federal court, and the court transferred it to the Southern District of New York. Instead of joining in the Chazen Tennessee action, the plaintiff filed a complaint in the Circuit Court of Jefferson County, Alabama, on December 30, 1999. After an unsuccessful removal attempt, Deloitte filed a motion to dismiss the state court action on the basis of forum non conveniens. The state court dismissed the action, specifically finding:

1. a more appropriate forum exists in Ontario;

2. the acts giving rise to the action occurred in Canada;

3. the convenience of the parties and the witnesses would be served by trying the case in Ontario rather than in Alabama; and

4. The interests of justice would be served by trying the case in Ontario.

Chazen v. Deloitte & Touche LLP, No. 99-7522 (Jeff.Cty.Ala.Cir.Ct. Nov. 7, 2000), Order at 10. The state court based its decision on a multitude of factors, including the plaintiffs choice of forum, the plaintiffs residence, where the relevant acts took place, the location of other pending actions, and the location of the relevant documents and witnesses. Order at 3-10. The Alabama Supreme Court affirmed the dismissal of the state court action in January 2002.

In addition to the actions described above, the events underlying Philip's demise have given rise to litigation in Ontario. Deloitte Canada was named in four such actions: (1) a proposed class action lawsuit brought on behalf of all persons in Canada who held and/or purchased Philip common stock between February 28, 1996 and April 23, 1998; (2) a suit by two former officers of Philip; (3) a suit by Philip's receiver; and (4) a proposed class action on behalf of Philip's bank lenders. The heart of the allegations against Deloitte Canada in these actions is the same as that in Chazen's Complaint. The proposed shareholder class action in Ontario was dismissed and is now on appeal; the other three actions remain pending in the Ontario trial court.

II. Collateral Estoppel

The defendant argues that collateral estoppel precludes the relitigation of the forum non conveniens issue as it has already been decided by the Alabama circuit court and Alabama Supreme Court. See Memorandum of Defendant in Support of Its Motion to Dismiss (Doc. 7) at 8-13. The plaintiff counters that Parsons v. Chesapeake & O.R. Co., 375 U.S. 71, 84 S.Ct. 185,11 L.Ed.2d 137 (1963) holds that a federal district court "can never" give issue preclusion effect to a state court decision on forum non conveniens grounds. Because plaintiffs argument based on Parsons would be decisive of this issue if plaintiff were correct, the court first addresses the effect of the Parsons decision on this case.

Plaintiff asserts that Parsons is "on all fours with this case." Plaintiffs Memorandum in Opposition to Defendant's Motion to Dismiss (Doc. 11) at p. 8. The plaintiff then asserts that "[u]nder the clear teachings of Parsons, however, this Court can never be bound by a state court decision on forum non conveniens." Plaintiffs Mem. at 9 (emphasis in original).

The court begs to differ with plaintiffs analysis of Parsons. Only the clever and creative editing by plaintiff of selected quotes from Parsons supports the overstatement of its holding.

In Parsons, the plaintiff had filed a suit in state court that was dismissed on the basis of forum non conveniens. He then filed the same cause of action in federal court. The district court refused to transfer the case. The defendant sought and received mandamus from the appellate court. The Seventh Circuit issued a writ directing the district court to transfer the case. In so doing, the appeals court found that the "district court had no discretion but to recognize the authoritative value of the state court's ruling." 375 U.S. at 72, 84 S.Ct. 185, (quoting Chesapeake & 0. Ry. Co. v. Parsons, 307 F.2d 924, 926 (7th Cir.1962).)

In reversing the decision, the Supreme Court recognized several material factual differences in the considerations by the state and federal courts in applying similar objective criteria to the forum non conveniens issue. As one example, the Court noted that the state court could consider the availability of a more convenient state forum. But no federal court existed in that forum; the closest federal court sat in a city sixty miles away. The Court noted: "the question whether the convenience of the parties and of the witnesses would be better served by a trial in a state court in Ludington is not the same question as whether those interests would be better served by a trial in a federal court in Grand Rapids." 375 U.S. at 73, 84 S.Ct. 185.

In selectively quoting from Parsons, the plaintiff omitted critical language establishing the rationale for the Court's decision. See Plaintiffs Mem. at 9. Two quotes from Parsons in their entirety demonstrate that the ruling does not carry the broad prohibition argued by plaintiff: "However, since the material facts underlying the application of these criteria in each forum were different in several respects, principles of res judicata are not applicable to the situation here presented." 375 U.S. at 73, 84 S.Ct. 185 (emphasis added). "Since different factual considerations may be involved in each court's determination, we hold that a prior state court dismissal on the ground of forum non conveniens can never serve to divest a federal district judge of the discretionary power vested in him by Congress to rule upon a motion to transfer under § 1401(a)." 375 U.S. at 73-74, 84 S.Ct. 185 (emphasis added).

After a thorough review of Parsons, the court concludes that Parsons does not preclude consideration of the collateral estoppel effect of the state court decisions on the forum non conveniens issue in this case if the same objective criteria and the same material facts apply in both cases. See Pastewka v. Texaco, Inc., 565 F.2d 851, 854 (3d Cir.1977) ("[I]n this case appellants point to identical objective criteria and rely on identical material facts underlying the application of those criteria. Their contention amounts to no more than a wish that, in applying objective criteria to the undisputed facts, a different judge would make the discretionary forum non conveniens determination.")

Before considering whether the state court considered the same objective criteria and material facts this court would consider, the court should first determine...