Clement v. Pehar, Civ. A. No. C82-1677A.

• Decision Date: 08 August 1983
• Docket Number: Civ. A. No. C82-1677A.
• Citation: 575 F. Supp. 436
• Parties: John D. CLEMENT Jr., Charles L. Schreeder III, Kenneth R. Cantrell, Das A. Borden, Jerry W. Borden, Plaintiffs, v. John PEHAR, Robert W. Spencer, Myriad Mineral Resources, Inc., Lloyd G. Frost, Lawrence Williams, Charles Nelson, Defendants.
• Court: U.S. District Court — Northern District of Georgia

575 F. Supp. 436

John D. CLEMENT Jr., Charles L. Schreeder III, Kenneth R. Cantrell, Das A. Borden, Jerry W. Borden, Plaintiffs, v. John PEHAR, Robert W. Spencer, Myriad Mineral Resources, Inc., Lloyd G. Frost, Lawrence Williams, Charles Nelson, Defendants.

Civ. A. No. C82-1677A.

United States District Court, N.D. Georgia, Atlanta Division.

August 8, 1983.

John A. Christy, Schreeder, Wheeler & Flint, Atlanta, Ga., for plaintiffs.

Mary G. Whitaker, Lewis, D'Amato, Brisbois & Bisgaard, Los Angeles, Cal., Thomas A. Varlan, Sutherland, Asbill & Brennan, Atlanta, Ga., Paul J. Kelly, Marina Del Rey, Cal., Richard Oetting, Voegelin & Barton, Los Angeles, Cal., Thomas S. Carlock, Dennis, Corry, Carlock & Williams, Atlanta, Ga., for defendants.

ORDER

SHOOB, District Judge.

Plaintiffs initiated this action on August 10, 1982, alleging that in a 1980 transaction involving the sale to them of interests in a Nevada gold and silver mining venture, defendants violated the Securities Act of 1933 and the Securities Exchange Act of 1934, 15 U.S.C. §§ 77a, et seq., the Racketeer Influenced and Corrupt Organizations ("RICO") provisions of the Organized Crime Control Act of 1970, 18 U.S.C. §§ 1961, et seq., various state securities laws, and common law provisions against fraud.

In August 1980 each plaintiff purchased various percentages of working mineral interests in a mining venture known as Randall Mining Associates ("Randall"). Randall had been formed by defendants John Pehar and Robert W. Spencer as a means of financing the exploitation of certain mining claims held in Nevada by defendant Myriad Mineral Resources, Inc. ("Myriad"), a corporation of which they were the sole officers and shareholders. Plaintiffs learned of the opportunity to invest in Randall through a confidential memorandum or "offering circular" that was allegedly prepared by defendants Pehar and Spencer with the assistance of defendant Lawrence Williams, an attorney, defendant Charles Nelson, a financial planner, and defendant Lloyd Frost, a geologist.

Each of the plaintiffs in this action is a resident of the state of Alabama, except for Charles L. Schreeder III, who is an attorney residing in Atlanta, Georgia, and whose law firm is representing plaintiffs. Each of the responding defendants, on the other hand, is a resident of the state of California, except for Myriad, which is a Nevada corporation but maintains its corporate offices in California. Defendants Pehar, Spencer, Myriad, and Williams have all moved to dismiss this action pursuant to Fed.R.Civ.P. 12(b)(2) and 12(b)(3) on grounds of lack of jurisdiction over the person and improper venue, or, in the alternative, to transfer the action to the Central District of California pursuant to either 28 U.S.C. § 1404(a) or 28 U.S.C. § 1406(a).¹

I. Personal Jurisdiction

Defendants' argument with respect to personal jurisdiction relies entirely on a "minimum contacts" analysis derived from International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), and its progeny. This argument, however, misconceives the basis of this Court's jurisdiction over defendants in the instant action. Jurisdiction here is founded on specific statutory provisions authorizing nationwide service of process in federal securities and RICO cases. See 15 U.S.C. §§ 77v(a), 78aa and 18 U.S.C. § 1965(d). Service of process on defendants in California was therefore authorized under Fed.R. Civ.P. 4(e)'s provision for extraterritorial service of process "whenever a statute of the United States or an order of court thereunder provides." Where such nationwide service of process is authorized, a federal district court's jurisdiction is "coextensive with the boundaries of the United States, and due process requires only that a defendant in a federal suit have minimum contacts with the United States, `the sovereign that has created the court.'" FTC v. Jim Walter Corp., 651 F.2d 251, 256 (5th Cir. Unit A 1981) (quoting Stafford v. Briggs, 444 U.S. 527, 554, 100 S.Ct. 774, 789, 63 L.Ed.2d 1 (1980) (Stewart, J., dissenting)).

In Fitzsimmons v. Barton, 589 F.2d 330 (7th Cir.1979), cited with approval, F.T.C. v. Jim Walter Corp., supra, 651 F.2d at 256, the Seventh Circuit applied this principle to a case arising under the Securities Exchange Act of 1934. The court analyzed the due process restraints imposed on a court's jurisdictional power in International Shoe, supra, and Shaffer v. Heitner, 433 U.S. 186, 97 S.Ct. 2569, 53 L.Ed.2d 683 (1977), and concluded that the "fairness" standard articulated in those cases "relates to the fairness of the exercise of power by a particular sovereign, not the fairness of imposing the burdens of litigating in a distant forum." Fitzsimmons, 589 F.2d at 333. Accordingly, where a defendant is a resident citizen of the United States, "there can be no question but that he ... has sufficient contacts with the United States to support the fairness of the exercise of jurisdiction over him by a United States court." Id. (Footnote omitted.)

Defendants here, as did the defendant in Fitzsimmons, supra, argue that an additional standard of fairness should be applied to determine whether federal jurisdiction arising from nationwide service of process comports with the due process clause. They rely on Oxford First Corp. v. PNC Liquidating Corp., 372 F.Supp. 191 (E.D.Pa.1974), where the district court, in upholding its own jurisdiction over a nonresident defendant in a securities fraud action, applied a "fairness" test to determine whether extra-district service of process under 15 U.S.C. § 78aa satisfied due process requirements.² As the Fifth Circuit has noted, however, the Oxford approach "mistakenly relies on Lone Star Package Car Co. v. Baltimore & Ohio R.R., 212 F.2d 147 (5th Cir.1954) and misconstrues the International Shoe line of cases." Jim Walter, supra, 651 F.2d at 256 n. 9. "The `fairness' measured by ... the Oxford factors does not relate to the fairness of the exercise of power by a particular sovereign ... but instead to the fairness of imposing the burdens of litigation in a particular forum." Fitzsimmons, supra, 589 F.2d at 334. As such, they are more appropriately applied in determining whether venue is properly laid in a particular district, and if so, whether a transfer is nonetheless appropriate under 28 U.S.C. § 1404(a). Id. at 334-35.

Accordingly, because it is not disputed that defendants are citizens of the United States and were properly served with process within the United States, the Court concludes that it may constitutionally exercise jurisdiction over them.

II. Venue

The threshold question is whether venue is proper in this district. If venue is proper, then the Court might nevertheless determine that transfer is appropriate "for the convenience of parties and witnesses" or "in the interest of justice." 28 U.S.C. § 1404(a). If venue is improper, then the Court must determine whether, "in the interest of justice," the case should be transferred rather than dismissed. 28 U.S.C. § 1406(a).

The parties agree that if venue in this district is proper under the broad provisions of section 27 of the Securities Exchange Act of 1934, as amended, 15 U.S.C. § 78aa, then it is also proper for the other related violations of law that are alleged, see In re Penn Central Securities Litigation, 338 F.Supp. 438 (E.D.Pa.1972), excepting the RICO claims, which must satisfy the independent venue requirements of 18 U.S.C. § 1965(a). See Farmers Bank of the State of Delaware v. Bell Mortgage Corp., 452 F.Supp. 1278, 1281 n. 7 (D.Del. 1978).

Venue is proper under 15 U.S.C. § 78aa in any district where (1) any act or transaction constituting the violation occurred, or where the defendant (2) is found, (3) is an inhabitant, or (4) transacts business. Since it is undisputed that none of the defendants is found, is an inhabitant, or transacts business in this district, the only possible basis under section 78aa for laying venue in this district is that some "act or transaction constituting the violation" occurred here. Plaintiffs contend that this basis for venue is present because (1) plaintiff Schreeder purchased his interest in Randall in this district, and (2) defendants, by both telephone and mail, transmitted false and misleading statements into this district.

The Court turns first to plaintiffs' second contention. Plaintiffs argue that defendants sent false and misleading statements into this district by mail (1) when defendant Spencer sent approximately one dozen Randall offering circulars to a personal friend in Birmingham, Alabama, Mr. Robert Underwood, who in turn mailed one of the circulars to plaintiff Schreeder in Atlanta at his request; and (2) when defendant Spencer, approximately two months after plaintiffs' purchase of their interests in Randall, mailed to plaintiff Schreeder in Atlanta a confirmation of his investment. Such statements were also allegedly transmitted by telephone when, prior to his decision to purchase an interest in Randall, plaintiff Schreeder made separate calls from Atlanta to defendants Pehar, Williams, and Frost, who discussed various aspects of the proposed mining operation and confirmed statements made in the offering circular.

There are some factual disputes regarding these mailings and telephone calls. Plaintiff Schreeder has filed an affidavit stating that he first learned of the Randall investment opportunity from one of his clients, co-plaintiff Das A. Borden, who had in turn learned of Randall from Mr. Underwood, his personal financial planner. According to his affidavit, Schreeder then telephoned Mr. Underwood, who informed him that he had received offering circulars from the organizers of Randall describing the investment in greater detail. After Schreeder expressed an interest in the investment, Underwood offered to send, and subsequently did send, a copy of the circular by mail to Schreeder's office in Atlanta. Schreeder...