JTH Tax, Inc. v. Hines

• Decision Date: 26 July 2016
• Docket Number: Action No. 2:15cv558
• Court: U.S. District Court — Eastern District of Virginia
• Parties: JTH TAX, INC., d/b/a LIBERTY TAX SERVICE, Plaintiff, v. CHARLES HINES, Defendant.

JTH TAX, INC., d/b/a LIBERTY TAX SERVICE, Plaintiff, v. CHARLES HINES, Defendant.

Action No. 2:15cv558

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA Norfolk Division

July 26, 2016

UNITED STATES MAGISTRATE JUDGE'S REPORT AND RECOMMENDATION

By order of reference dated May 12, 2016 (ECF No. 26), this case was referred to the undersigned United States Magistrate Judge for a report and recommendation on defendant Charles Hines' motion for change of venue (ECF No. 14), pursuant to the provisions of 28 U.S.C. § 636(b)(1)(B) and (C) and Rule 72(b) of the Federal Rules of Civil Procedure.

For the reasons stated herein, the Court RECOMMENDS that defendant's motion for change of venue be DENIED.

I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

On December 23, 2015, plaintiff JTH Tax, Inc., d/b/a Liberty Tax Service ("Liberty"), filed a four-count complaint against defendant Charles Hines ("Hines"). Compl., ECF No. 1. The complaint alleges that Hines breached certain franchise agreements with Liberty by failing to comply with his post-termination obligations (count one) and failing to make required royalty and advertising payments to Liberty (count three), infringed Liberty's trademarks (count two), and breached certain promissory notes by failing to make required payments of principal and interest due (count four). Compl. ¶¶ 31-49, ECF No. 1.

The complaint alleges the following facts, among others. Liberty is a Delaware corporation and its principal place of business is located at its headquarters in Virginia Beach, Virginia. Compl. ¶ 1. Hines resides in the state of Maryland. Compl. ¶ 2. Liberty is in the business of selling franchises engaged in the preparation of tax returns. Compl. ¶ 2. Liberty owns certain federally registered trademarks, which it authorizes franchisees to use in the course of their operations. Compl. ¶¶ 8, 36-37. During 2012, Hines signed three separate agreements with Liberty to establish and operate tax service franchises within three, specified territories located in Maryland. Compl. ¶¶ 9-11. In conjunction with the purchase and operation of his tax franchises, Hines traveled to Virginia Beach to attend training classes and regularly submitted reports to and communicated with persons located at Liberty's Virginia Beach headquarters. Compl. ¶ 3a.

On the date Hines entered into the latter two franchise agreements, he also executed two promissory notes payable to Liberty, each in the amount of $32,000.00. Compl. ¶ 26. Further, as part of each franchise agreement, Hines agreed to pay a monthly advertising fee to Liberty, at a rate of five percent of a franchise's monthly gross receipts, as well as a royalty payment totaling fourteen percent of a franchise's gross receipts, subject to certain, specified minimum royalty payments. Compl. ¶¶ 23-24. Due to Hines' alleged failure to make such payments, the complaint alleges that he not only owes Liberty $60,460.66 in past due royalty and advertising payments, but also the outstanding principal balances of $25,600.00 and $29,496.33, respectively, due on each promissory note, along with unpaid interest. Compl. ¶¶ 25-26.

In response to these and other alleged breaches, Liberty terminated Hines' franchise rights on June 3, 2015. Compl. ¶ 12. Pursuant to the franchise agreements, following termination, Hines was required, among other things, to remove all Liberty signs from his premises, cease identifying himself as a Liberty franchisee, pay all outstanding sums due to Liberty, transfer customer lists and files to Liberty, and adhere to covenants not to compete or solicit certain prior customers for business. Compl. ¶¶ 13-14. Hines reportedly failed to comply with such terms and covenants. Compl. ¶ 15. Notwithstanding that in August and November 2015, Liberty sent cease and desist letters demanding the return of customer files and compliance with non-compete and other clauses, Hines allegedly retained customer files and continued to engage in the tax preparation business from an office located in Baltimore, Maryland, which continues to use Liberty signs and trademarks. Compl. ¶¶ 17-21.

Accordingly, Liberty filed the complaint now pending before the Court and seeks injunctive relief, damages for breach of contract and trademark infringement, and attorneys' fees and costs. Compl. 9-11. Although the complaint alleges that Hines' franchise agreements contain a "consent to jurisdiction clause in favor of Virginia" and/or a "forum selection clause specifying venue in this Court," Compl. ¶¶ 3b, 6, the three franchise agreements attached to the complaint (exhibits 5-7) specify otherwise. ECF No. 1-5, 1-6, 1-7; See Cozzarelli v. Inspire Pharms. Inc., 549 F.3d 618, 625 (4th Cir. 2008) (considering facts contained in documents incorporated into a complaint when evaluating a motion to dismiss). In this respect, the three franchise agreements are identical. Section 15b of the franchise agreements, entitled "Jurisdiction and Venue," reads, in pertinent part, as follows:

In any suit brought by [Liberty], which in any way relates to or arises out of this Agreement, or any of the dealings of the parties hereto, you consent to venue and personal jurisdiction in the state and federal court of the city or county of [Liberty's] NationalOffice, presently Virginia Beach state courts and the United States District Court in Norfolk, Virginia.

ECF No. 1-5 ¶ 15b, ECF No. 1-6 ¶ 15b, ECF No. 1-7 ¶ 15b. Paragraph 4 of the signed "Maryland Addendum" to each of these franchise agreements, however, specifies that:

Section 15.b. of the franchise agreement is deleted and in its place is substituted the following language:

"You agree to bring any claim against us, including our present and former employees, agents, and affiliates, which in any way relates to or arises out of this Agreement, or any of the dealings of the parties hereto, solely in arbitration before the American Arbitration Association."

ECF No. 1-5 at 21; ECF No. 1-6 at 23; ECF No. 1-7 at 23.

In response to the complaint, defendant Hines, proceeding pro se, filed a motion for a change of venue (ECF No. 14), and a motion to dismiss (ECF No. 15).¹ Hines seeks the transfer of this case to the District of Maryland because that reportedly is where he resides, the "primary office in dispute" is located, and a substantial portion of the events giving rise to the complaint occurred, and because it is readily accessible to those who may be involved in the case. Def.'s Mot. for Change of Venue ("Def.'s Mot.") 1, ECF No. 14. With the motion for change of venue fully briefed, this matter is ripe for consideration.

II. STANDARD OF REVIEW

Unless otherwise provided by law, venue in a civil action brought in federal court exists in a judicial district: (1) where any defendant resides, if all defendants reside in the same state, (2) where "a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the actions is situated" or (3) where a defendant is subject to personal jurisdiction at the time the action commences, if there otherwise is nodistrict in which the action may be brought. 28 U.S.C. § 1391(b)(1)-(3) (2012). A party challenging venue may seek to dismiss or transfer a case on the ground that venue is "improper." Fed. R. Civ. P. 12(b)(3); see 28 U.S.C. § 1406(a) (2012) (authorizing dismissal or transfer of a case, based upon the interest of justice, to another district or division in which such case could have properly been brought). Analysis of whether a chosen venue is "'improper' depends exclusively on whether the court in which the case was brought satisfies the requirements of federal venue laws . . . ." Atlantic Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568, 577 (2013) (rejecting claim that a forum selection clause plays any role in the determination of whether venue is improper). In the typical case, this venue inquiry turns upon "whether the case falls within one of the three categories set out in § 1391(b)." Id.

Alternatively, if venue is proper in the judicial district in which a complaint is originally filed, a party may move to change venue pursuant to 28 U.S.C. § 1404. Section 1404 authorizes a court to transfer a case to any district or division in which the plaintiff could have also properly filed suit, "[f]or the convenience of the parties and witnesses, in the interest of justice . . . ." 28 U.S.C. § 1404(a) (2012). This grant of authority to change venue from one district to another seeks 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 (1964) (quoting Cont'l Grain Co. v. Barge F.B.L.-585, 364 U.S. 19, 26 (1960)). A party seeking such a transfer bears the burden of demonstrating entitlement to it. Agilent Techs., Inc. v. Micromuse, Inc., 316 F. Supp. 2d 322, 324 (E.D. Va. 2004).

A court assessing a motion to transfer venue must inquire: "'(1) whether the claims might have been brought in the transferee forum; and (2) whether the interest of justice and convenience of the parties and witnesses justify transfer to that forum.'" JTH Tax, Inc. v. Lee,482 F. Supp. 2d 731, 735 (E.D. Va. 2007) (quoting Koh v. Microtek Int'l, Inc., 250 F. Supp. 2d 627, 630 (E.D. Va. 2003)). With respect to the latter inquiry, a court is vested with the discretion to transfer a case to another district or division based upon an "'individualized, case-by-case consideration of convenience and fairness.'" Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988) (quoting Van Dusen, 376 U.S. at 622). This involves a consideration of factors pertaining both to the parties' "private" interests, as well as to the "public" interest. Atlantic Marine Const., Inc., 134 S. Ct. at 581 n.6 (citing Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241 n.6 (1981)); JTH Tax, Inc., 482 F. Supp. 2d at 735 (identifying...