Dealtime.Com v. McNulty

• Citation: 123 F.Supp.2d 750
• Decision Date: 13 December 2000
• Docket Number: No. 00 CIV 3854 (RWS).,00 CIV 3854 (RWS).
• Parties: DEALTIME.COM LTD., Plaintiff, v. Robert J. McNULTY, Defendant.
• Court: U.S. District Court — Southern District of New York

123 F.Supp.2d 750

DEALTIME.COM LTD., Plaintiff, v. Robert J. McNULTY, Defendant.

No. 00 CIV 3854 (RWS).

United States District Court, S.D. New York.

December 13, 2000.

COPYRIGHT MATERIAL OMITTED

Whitman Breed Abbott & Morgan, New York City, By Charles W. Pieterse, Michael J. Friedman, of counsel, for Plaintiff.

Akin, Gump, Strauss, Hauer & Feld, New York City, By Steven M. Pesner, Nancy Chung, Sapna Mirchandani, of counsel, Rutan & Tucker, Costa Mesa, CA, Richard K. Howell, Steven J. Goon, of counsel, for Defendant.

OPINION

SWEET, District Judge.

Plaintiff DealTime.com Ltd. ("DealTime") has moved to dismiss the Fourth and Fifth Counterclaims of Defendant Robert J. McNulty ("McNulty") for failure to state a claim upon which relief may be granted, pursuant to Rule 12(b)(6), Fed. R.Civ.P. Also pending is McNulty's motion to transfer the case to the Central District of California, Southern Division, pursuant to 28 U.S.C. § 1404(a). For the reasons set forth below, McNulty's motion to transfer is denied, and DealTime's motion to dismiss is granted.

The Parties

DealTime is a corporation organized under the laws of Israel, with a principal place of business in Israel. Among other enterprises, DealTime provides a free comparison online shopping service that lists online merchants, auctions, classifieds and group buying sites that offer products matching its users' shopping criteria.

McNulty is a resident of Newport Beach, California who founded several internet retailing businesses, and briefly served as a consultant and outside director to DealTime.

Background

This action arises out of McNulty's alleged failure to disclose pertinent facts to DealTime before it accepted him as a consultant and outside director. Specifically, DealTime alleges that McNulty never advised that he has been the subject of several Securities and Exchange Commission ("SEC") investigations and an SEC civil enforcement action, is a named defendant in several pending lawsuits alleging federal and state securities law violations, and is allegedly under a contractual obligation with a major computer manufacturer not to work for, consult for, or become a five percent investor in any company that does business on or through the internet without prior approval.

McNulty met twice with DealTime executives prior to February 1999, once in California and once in New York, where they discussed possible mutually beneficial business ventures. At a lunch with DealTime executives in New York on February 22, 1999, McNulty wrote a check for $250,000 as an "equity investment" in DealTime. In the subsequent weeks, DealTime informed McNulty that although the Series "B" DealTime shares that had been discussed on February 22, 1999 were no longer available, McNulty would be "made whole" by receiving stock options at the Series B pricing level in connection with a Board of Directors and consulting options package.

Under this restructured deal, McNulty would receive 500,000 DealTime adjusted dividend stock options in Dealtime for his investment, approximately 357,143 of which were presently exercisable to convert McNulty's equity investment, with the remainder exercisable over his three-year term as a consultant and outside director. During the restructuring of the deal, DealTime's President and CEO, Daniel Ciporin ("Ciporin"), made at least two trips to California to meet with McNulty and others.

The parties memorialized the agreement by a letter executed in May of 1999, but backdated to February 22, 1999 (the "Agreement"), which made no reference to any vesting schedule for the 500,000 options.

Approximately three weeks after the Agreement was signed, on June 7, 1999, McNulty arrived at a DealTime Board of Directors meeting only to discover that he was no longer a member of the Board, because the controversy about McNulty's prior investigation by the SEC had created problems for DealTime's ongoing financing efforts.

In response to McNulty's subsequent inquiries about the remaining options that had not yet been issued to him, DealTime's General Counsel e-mailed McNulty a statement to the effect that:

Since you already paid $250,000, we will treat this as an exercise of the option as to 357,143 shares and will issue them by resolution of the board at its August 12 meeting, and I will have a warrant to give you which will cover the remaining 142,857 options that remain unexercised.

Def. Trans. Mtn. Ex. G (July 14 Katzen e-mail). And, at the August 12, 1999 meeting, the Board adopted the following resolution:

RESOLVED to issue and allocate to Robert McNulty 357,143 Series B Preferred Shares in accordance with a notice of partial exercise of options received by the Company, payment for which the sum of $250,000 having been fully received.

Id. Ex. H ¶ 17.

When McNulty further pursued the question of the remaining shares, he was informed that his options had never vested because his involvement with DealTime had been terminated. In May of 2000, after repeated attempts to receive the balance of options, McNulty advised DealTime's general counsel that he was prepared to file a lawsuit if the options were not forthcoming. McNulty's attorney sent another letter to the same effect on May 9, 2000. After suggesting that they explore non-litigation resolutions, Dealtime notified McNulty of its own potential legal claims and filed this action the same day, on May 22, 2000.

DealTime seeks, inter alia, rescission of the contract and a declaratory judgment that it was not responsible to pay McNulty the balance of 142,857 stock options now claimed due. McNulty contends that he did disclose all relevant information about the SEC investigations and construes this action as a preemptive strike DealTime filed in order to avoid issuing the balance of stock due under the agreement. McNulty filed six counterclaims, the fourth and fifth of which assert common law fraud and federal securities fraud.

By motion of July 13, 2000, DealTime sought to dismiss these claims as duplicative of McNulty's breach of contract counterclaims. McNulty filed a response on August 22, 2000, and DealTime filed a reply brief on September 12, 2000. The motion was deemed fully submitted on September 27, 2000.

Meanwhile, McNulty filed a transfer motion on September 7, 2000, alleging that the case was more properly brought in the Central District of California, where he resides. DealTime responded on September 29, 2000, and McNulty replied on October 6, 2000. The motion was deemed fully submitted upon oral argument on October, 11, 2000.

Discussion

I. The Standard for Transfers Under Section 1404(a)

Section 1404(a) of Title 28 of the United States Code provides in relevant part that:

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). This section is a statutory recognition of the common law doctrine of forum non conveniens as a facet of venue in the federal courts. See DiRienzo v. Philip Services Corp., 232 F.3d 49 (2d Cir.2000); Wilshire Credit Corp. v. Barrett Capital Management Corp., 976 F.Supp. 174, 180 (W.D.N.Y. 1997). Section 1404(a) strives "to prevent the waste of time, energy and money and to protect litigants, witnesses and the public against unnecessary inconvenience and expense." Van Dusen v. Barrack, 376 U.S. 612, 616, 84 S.Ct. 805, 11 L.Ed.2d 945 (1964) (citation and internal quotations omitted); see Ferens v. John Deere Co., 494 U.S. 516, 522, 110 S.Ct. 1274, 108 L.Ed.2d 443 (1990).

"`[M]otions for transfer lie within the broad discretion of the courts and are determined upon notions of convenience and fairness on a case-by-case basis.'" Linzer v. EMI Blackwood Music Inc., 904 F.Supp. 207, 216 (S.D.N.Y.1995) (quoting In re Cuyahoga Equip. Corp., 980 F.2d 110, 117 (2d Cir.1992)) (citing Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 29, 108 S.Ct. 2239, 101 L.Ed.2d 22 (1988)); see Piper Aircraft Company v. Reyno, 454 U.S. 235, 257, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981). The burden of demonstrating the desirability of transfer lies with the moving party. See, e.g., Hubbell Inc. v. Pass & Seymour, Inc., 883 F.Supp. 955, 962 (S.D.N.Y.1995).

Thus, the inquiry on a motion to transfer is two-fold. The court must first determine whether the action sought to be transferred is one that "might have been brought" in the transferee court. Second, the court must determine whether, considering the "convenience of parties and witnesses" and the "interest of justice," a transfer is appropriate. Wilshire, 976 F.Supp. at 180.

In determining whether transfer is warranted, courts generally consider several factors, including: (1) the convenience of witnesses, (2) the convenience of the parties, (3) the locus of operative facts, (4) the availability of process to compel the attendance of unwilling witnesses, (5) the location of relevant documents and the relative ease of access to sources of proof, (6) the relative means of the parties, (7) the forum's familiarity with the governing law, (8) the weight accorded the plaintiff's choice of forum, and (9) trial efficiency and the interest of justice, based on the totality of the circumstances. See Dostana Enterprises LLC v. Federal Express Corporation, No. 00 Civ. 0747(RWS), 2000 WL 1170134, *2 (S.D.N.Y. Aug.16, 2000); Citigroup Inc. v. City Holding Co., 97 F.Supp.2d 549, 560-61 (S.D.N.Y.2000); Cento Group, S.p.A v. OroAmerica, Inc., 822 F.Supp. 1058, 1060 (S.D.N.Y.1993).

II. Transfer is Not Warranted

A. This Action Could Have Been Brought in the Central District of California

An action "could have been brought" in another forum if the defendant would have been amendable to personal jurisdiction in the transferee forum at the time the action was commenced and if venue is proper there. See Dostana, 2000 WL 1170134, at *2. DealTime concedes that both the requirements of personal...