Filler v. Lernout, Civil Action No. 01-191-SLR (D. Del. 2/8/2002)

• Decision Date: 08 February 2002
• Docket Number: Civil Action No. 01-191-SLR.,Civil Action No. 01-298-SLR.,Civil Action No. 01-379-SLR.,Civil Action No. 01-380-SLR.
• Parties: GARY B. FILLER and LAWRENCE PERLMAN, Trustees of the TRA RIGHTS TRUST, Plaintiffs, v. JO LERNOUT, POL HAUSPIE, GASTON BASTIAENS, CARL DAMMEKENS, NICO WILLAERT, KLYNVELD PEAT MARWICK GOERDELER BEDRIJFSREVISOREN, and PAUL BEHETS, Defendants. STONINGTON PARTNERS, INC., STONINGTON CAPITAL CAPITAL APPRECIATION 1994 FUND L.P., STONINGTON HOLDINGS, L.L.C., Plaintiffs, v. CARL DAMMEKENS, KLYNVELD PEAT MARWICK GOERDELER BEDRIJFSREVISOVEN, KPMG UK, PAUL BEHETS, KPMG INTERNATIONAL, KPMG LLP, CORPORATIONS A-Z, JOHN DOES 1-50, Defendants. PAUL G. BAMBERG, ROBERT ROTH, PAUL G. BAMBERG and DONALD B. FLETCHER, JR., as Trustees of the Paul G. Bamberg Trust u/a dated 8/18/89, as amended 10/20/93, and CHERRY F. BAMBERG and DONALD B. FLETCHER, JR., as Trustees of the Cherry F. Bamberg Trust u/a dated 8/18/89, as amended 10/20/93, Plaintiffs, v. JO LERNOUT, POL HAUSPIE, NICO WILLAERT, CARL DAMMEKENS, DIRK CAUWELIER, FERNAND CLOET, JAN COENE, MARC G.H. DE PAUW, HUBERT DETREMMERIE, ROEL PIEPER, RVD SECURITIES, N.V., ALEX VIEUX, GERARD VAN ACKER, BERNARD VERGNES, FRANCIS VANDERHOYDONCK, L & H HOLDING, N.V., L & H HOLDING, III, OLDCO, N.V., L & H INVESTMENT COMPANY, N.V., LEHA, KPMG INTERNATIONAL, KPMG LLP, KPMG UK and KPMG BELGIUM, Defendants. JANET BAKER and JAMES BAKER, JKBAKER LLC and JMBAKER LLC, Plaintiffs, v. KPMG LLP, KPMG INTERNATIONAL, KPMG BELGIUM, KPMG UK, PAUL BEHETS, SG COWEN SECURITIES CORPORATION, JO LERNOUT, POL HAUSPIE, CARL DAMMEKENS, NICO WILLAERT, ROEL PIEPER, and CORPORATIONS A-Z, AND JOHN DOES 1-50, Defendants.
• Court: U.S. District Court — District of Delaware

Page 1

GARY B. FILLER and LAWRENCE PERLMAN, Trustees of the TRA RIGHTS TRUST, Plaintiffs, v. JO LERNOUT, POL HAUSPIE, GASTON BASTIAENS, CARL DAMMEKENS, NICO WILLAERT, KLYNVELD PEAT MARWICK GOERDELER BEDRIJFSREVISOREN, and PAUL BEHETS, Defendants.

STONINGTON PARTNERS, INC., STONINGTON CAPITAL CAPITAL APPRECIATION 1994 FUND L.P., STONINGTON HOLDINGS, L.L.C., Plaintiffs, v. CARL DAMMEKENS, KLYNVELD PEAT MARWICK GOERDELER BEDRIJFSREVISOVEN, KPMG UK, PAUL BEHETS, KPMG INTERNATIONAL, KPMG LLP, CORPORATIONS A-Z, JOHN DOES 1-50, Defendants.

PAUL G. BAMBERG, ROBERT ROTH, PAUL G. BAMBERG and DONALD B. FLETCHER, JR., as Trustees of the Paul G. Bamberg Trust u/a dated 8/18/89, as amended

Page 2

10/20/93, and CHERRY F. BAMBERG and DONALD B. FLETCHER, JR., as Trustees of the Cherry F. Bamberg Trust u/a dated 8/18/89, as amended 10/20/93, Plaintiffs, v. JO LERNOUT, POL HAUSPIE, NICO WILLAERT, CARL DAMMEKENS, DIRK CAUWELIER, FERNAND CLOET, JAN COENE, MARC G.H. DE PAUW, HUBERT DETREMMERIE, ROEL PIEPER, RVD SECURITIES, N.V., ALEX VIEUX, GERARD VAN ACKER, BERNARD VERGNES, FRANCIS VANDERHOYDONCK, L & H HOLDING, N.V., L & H HOLDING, III, OLDCO, N.V., L & H INVESTMENT COMPANY, N.V., LEHA, KPMG INTERNATIONAL, KPMG LLP, KPMG UK and KPMG BELGIUM, Defendants.

JANET BAKER and JAMES BAKER, JKBAKER LLC and JMBAKER LLC, Plaintiffs, v. KPMG LLP, KPMG INTERNATIONAL, KPMG BELGIUM, KPMG UK, PAUL BEHETS, SG COWEN SECURITIES CORPORATION, JO LERNOUT, POL HAUSPIE, CARL DAMMEKENS, NICO WILLAERT, ROEL PIEPER, and CORPORATIONS A-Z, AND JOHN DOES 1-50, Defendants.

Civil Action No. 01-191-SLR.

Civil Action No. 01-298-SLR.

Civil Action No. 01-379-SLR.

Civil Action No. 01-380-SLR.

United States District Court, D. Delaware.

February 8, 2002.

MEMORANDUM ORDER

Page 3

I. INTRODUCTION

Presently before the court are defendants' motions¹ to transfer pursuant to 28 U.S.C. § 1404(a). For the reasons that follow, the motions will be granted.

II. BACKGROUND

The above captioned actions arise from a series of events related to security transactions involving Lernout & Hauspie Speech Products N.V. ("L & H"). L & H is a global speech recognition software company that offers products and services including automatic speech recognition, text-to-speech, digital speech and music compression and text-to-text translation. (C.A. 01-191-SLR, D.I. 1, ¶ 1)

Plaintiffs Janet Baker and James Baker² were majority owners of the shares of Dragon Systems, Inc. ("Dragon"), then a leading worldwide supplier of speech and language technology. L & H was a chief competitor of Dragon. On June 7, 2000, the Bakers

Page 4

purchased L & H³ stock in an all-stock transaction whereby Dragon was merged into a U.S. subsidiary of L & H, known as L & H Holdings USA, Inc.. This transaction occurred pursuant to an Agreement and Plan of Merger among the Bakers, L & H, L & H Holdings USA Inc., Dragon Systems, Inc., and certain other principal shareholders of Dragon, dated March 27, 2000.

Plaintiffs Gary B. Filler and Lawrence Perlman⁴ represent Seagate, a world leader in storage technology for Internet, business and consumer applications. Seagate designed, manufactured and marketed products for storage, retrieval and management of data on computer systems, including disc drives, disc drive components, tape drives and software. (C.A. No. 01-191-SLR, D.I. 1, ¶ 1) Seagate⁵ alleges it sold its nearly $170 million interest in Dragon for L & H stock as part of the Agreement outlined above.

Plaintiffs Stonington Partners, Inc, Stonington Capital

Page 5

Appreciation 1994 Fund L.P. and Stonington Holdings, L.L.C.⁶ purchased L & H stock in a merger of Dictaphone Corporation into a subsidiary of L & H that was consummated in May 2000.

Plaintiffs Paul F. Bamberg, Donald B. Fletcher, Jr., Donald B. Fletcher, J. and Cherry F. Bamberg and Donald B. Fletcher, Jr.⁷ were shareholders of Dragon.

In November, 2000, L & H announced it would have to restate its financial statements for 1998, 1999 and the first half of 2000 because of accounting irregularities. (C.A. 01-380-SLR, D.I. 1, ¶ 4) Subsequently, L & H filed for bankruptcy protection in the United States and Belgium, the NASDAQ Exchange delisted L & H stock and investigations followed. A wave of securities fraud actions followed brought by shareholders of L & H against, inter alia, L & H officers and directors, L & H auditors, and various investment bankers. (C.A. 01-380, D.I. 66)

Essentially, all of the above captioned plaintiffs assert L & H engaged in fraudulent transactions and accounting practices that enabled L & H to artificially inflate its revenues, earnings and the value of its stock. Similar lawsuits were first instituted in the United States District Court for the District of Massachusetts, In re Lernout & Hauspie Securities Litigation,

Page 6

Civil Action No. 00-CV-11589-PBS.⁸

III. DISCUSSION

More than fifty years ago, the Third Circuit Court of Appeals adopted the "first-filed rule" where "[i]n all cases of federal concurrent jurisdiction the court which first had possession of the subject must decide it." Crosley Corp. v. Hazeltine Corp., 122 F. 2d 925, 929 (3d Cir. 1941) (quoting Smith v. McIver, 22 U.S. (9 Wheat.) 532 (1824)). Consequently, the second filed action should be stayed or transferred to the court where the first filed action is pending. Peregrine Corp. v. Peregrine Indus., Inc., 769 F. Supp. 169, 171 (E.D. Pa 1991); Dippold-Harmon Enterprises, Inc. v. Lowe's Companies, Inc., Civil Action No. 01-532-GMS, 2001 WL 1414868 (D.Del. 2001). The rule "encourages sound judicial administration and promotes comity among federal courts of equal rank." E.E.O.C. v. University of Pennsylvania, 850 F. 2d 969, 971 (3d Cir. 1988). The decision to transfer or stay the second action is within the discretion of the trial court. Id., at 972, 977. However,

invocation of the rule will usually be the norm, not the exception. Courts must be presented with exceptional circumstances before exercising their discretion to

Page 7

depart from the first-filed rule.

Id. at 979.

The court finds the four cases involve the same set of facts, although not necessarily the same claims as those pending in the United States District Court for the District of Massachusetts. Since the shareholder actions in Massachusetts were filed first, transfer of these subsequently filed Delaware actions will promote judicial administration and consistency of results.

IV. CONCLUSION

For the reasons stated, at Wilmington, this 8th day of February, 2002, IT IS ORDERED that:

1. The motions to transfer⁹ are granted.

2. The above-captioned actions shall be transferred to the United States District Court for the District of Massachusetts.

1. C.A. 01-379-SLR, D.I. 4; C.A. 01-380-SLR, D.I. 66; C.A. 01-191-SLR, D.I. 29. In C.A. 01-298-SLR, defendant Klynveld moved to dismiss under...