Norman v. Brown, Todd & Heyburn

• Decision Date: 05 May 1988
• Docket Number: Civ. A. No. 87-3128-S.
• Citation: 693 F. Supp. 1259
• Court: U.S. District Court — District of Massachusetts
• Parties: Michael E. NORMAN and Angelo Diodati, Plaintiffs, v. BROWN, TODD & HEYBURN, et al., Defendants.

693 F. Supp. 1259

Michael E. NORMAN and Angelo Diodati, Plaintiffs, v. BROWN, TODD & HEYBURN, et al., Defendants.

Civ. A. No. 87-3128-S.

United States District Court, D. Massachusetts.

May 5, 1988.

Erik Lund, Jane E. Sender, Posternak, Blankstein & Lund, Boston, Mass., for plaintiffs.

Francis K. Toto, Carolan, Sullivan & Greeley, Boston, Mass., for defendant Lauxmont Farm.

James J. Clark, pro se.

Robert A. Sherman, Goffin and Krattenmaker, Boston, Mass., for defendant M.B.A. Equity Corp.

James C. Heigham, Ailsa D. Deitemeyer, Choate, Hall and Stewart, Boston, Mass., for defendants Brown, Todd and Heyburn.

MEMORANDUM AND ORDER

SKINNER, District Judge.

This action is brought by two individual plaintiffs who purchased units in Lauxmont Standardbred Broodmares/1982, an equine tax shelter structured as a limited partnership. Plaintiffs allege that defendants grossly inflated the value of horses sold to investors through a series of related party transfers, and misrepresented the tax advantages of the investment, in violation of federal securities laws, the Racketeer Influenced Corrupt Organizations Act ("RICO"), and state common law. The defendants are the promoters of the investment (Lauxmont Farms and two individual shareholders of Lauxmont Farms), Lauxmont's accountant (James J. Clark), the broker from whom plaintiffs purchased their units (MBA Equity Corporation), and the law firm of Brown, Todd & Heyburn, which provided legal services in connection with the limited partnership offering and provided a tax opinion that was included in the offering circular.

Presently before me are a motion to transfer, submitted by defendants Lauxmont Farms I, Inc., Lauxmont Farms II, Inc., Ronald C. Kohr, and Bradley D. Kohr ("Lauxmont Farm defendants"), and motions to dismiss, submitted by defendants Brown, Todd & Heyburn and James J. Clark. I will address each in turn.

Motion to Transfer

The Lauxmont Farm defendants are defendants in a number of actions filed in the United States District Court for the Middle District of Pennsylvania, all of which concern equine tax shelters, although not the limited partnership that is the subject of this action. The Lauxmont defendants have moved to transfer this action to Middle District of Pennsylvania to consolidate it with the already pending cases either in its entirety or, in the alternative, for pretrial purposes. The motion is opposed both by the plaintiffs and by defendant Brown, Todd & Heyburn, none of whom are parties to the Pennsylvania lawsuits.

The motion to transfer was made pursuant to 28 U.S.C. § 1404(a) (1982):

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.

In making the determination whether to transfer an action, a district court should consider the convenience of the parties and witnesses, the order in which jurisdiction was obtained by the district court, the availability of documents, and the possibilities of consolidation. Cianbro Corp. v. Curran-Lavoie, Inc., 814 F.2d 7, 11 (1st Cir.1987); Codex v. Milgo Electric Corporation, 553 F.2d 735, 737 (1st Cir.), cert. denied, 434 U.S. 860, 98 S.Ct. 185, 54 L.Ed. 2d 133 (1977). The defendant that makes the transfer motion bears the burden of showing that the factors in favor of transfer predominate. Crosfield Hastech, Inc. v. Harris Corp., 672 F.Supp. 580, 589 (D.N. H.1987). "Unless the balance is strongly in favor of the defendant, the plaintiff's choice of forum should rarely be disturbed." Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508, 67 S.Ct. 839, 843, 91 L.Ed. 1055 (1947).

The convenience of the parties and the witnesses in this action does not dictate transferring the case. It would be more convenient for the Lauxmont defendants, who reside in Pennsylvania, to litigate in Pennsylvania. The firm of Brown, Todd & Heyburn, however, is located in Louisville, Kentucky and would prefer the Massachusetts forum. Defendant MBA Equity, the broker, is a Massachusetts corporation. Finally, plaintiffs, who are Massachusetts residents, would certainly be inconvenienced by a transfer. A transfer should not be ordered if the result is merely to shift inconvenience to the plaintiff. Berrigan v. Greyhound Lines, Inc., 560 F.Supp. 165, 169 (D.Mass.1982).

The core of the Lauxmont defendants' argument is that this action should be litigated in the Middle District of Pennsylvania because of its similarity to the cases pending there. They argue that the cases should be consolidated, at least for pretrial proceedings. Where identical actions are proceeding concurrently in two federal courts, threatening duplicative litigation and a waste of judicial resources, the first-filed action is generally preferred in a choice-of-venue decision. Cianbro Corp. v. Curran-Lavoie, Inc., 814 F.2d at 11. Defendants argue that under this "first-filed" rule, this action should be transferred.

What this argument overlooks, however, is the fact that this action is in no way identical to the Pennsylvania lawsuits. The cases in Pennsylvania involve 47 plaintiffs and 36 defendants. Of the parties in this action, only the Lauxmont defendants and their accountant are also parties in the Pennsylvania cases. The two plaintiffs are not involved at all. Furthermore, although the Pennsylvania cases, like this case, involve equine tax shelters, the programs involved are different. The Pennsylvania plaintiffs were investors in approximately eleven separate Lauxmont programs issued between 1978 and 1981. The plaintiffs in this action were investors in one program issued in 1982. This program had its own offering circular, including a tax opinion letter drafted by different attorneys. Different horses were involved.

Although the complaints and the claims in this action and the Pennsylvania actions are to some extent similar, there is no identity of parties or issues. Under these circumstances, the "first-filed" rule does not apply. Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215, 218 (2d Cir.1978) (first-filed rule applies when the lawsuits involve the same parties and the same issues), cert. denied, 440 U.S. 908, 99 S.Ct. 1215, 59 L.Ed.2d 455 (1979). Similarly, defendants' argument that the judge in the Middle District of Pennsylvania is "educated," and therefore it would conserve judicial resources to transfer the action, is less persuasive due to the differences between the cases.

Finally, defendants argue that the action should be transferred because the bulk of their documents are located in Pennsylvania, and are already organized and marked for inspection. While this may be true, it is not enough to warrant transferring the action. Presumably all parties will be producing documents, and the documents will be located in Pennsylvania, Massachusetts, Washington, D.C., and Kentucky. The fact that the Lauxmont defendants have an outside copying service that is "prepared to make copies in an effective and cost-efficient fashion," is, considering the proliferation in this country of copying and mail services, not enough to warrant a change of venue. The Lauxmont defendants' motion for transfer is DENIED.

Motion to Dismiss of Brown, Todd & Heyburn

1. Section 17(a) of the Securities Act

Counts I, III and V of the complaint are brought pursuant to section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a) (1982). Section 17(a) does not explicitly authorize civil actions.¹ Defendant Brown, Todd & Heyburn argues that Counts I, III, and V must be dismissed because there is no private right of action under section 17(a).

The Supreme Court has repeatedly declined to consider the question of whether an implied right of action exists under section 17(a) of the Securities Act of 1933. Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 304 n. 9, 105 S.Ct. 2622, 2625 n. 9, 86 L.Ed.2d 215 (1985); Herman & MacLean v. Huddleston, 459 U.S. 375, 378 n. 2, 103 S.Ct. 683, 685 n. 2, 74 L.Ed.2d 548 (1983); Aaron v. SEC, 446 U.S. 680, 689, 100 S.Ct. 1945, 1951, 64 L.Ed.2d 911 (1980); International Brotherhood of Teamsters v. Daniel, 439 U.S. 551, 557 n. 9, 99 S.Ct. 790, 795 n. 9, 58 L.Ed.2d 808 (1979); Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 733 n. 6, 95 S.Ct. 1917, 1924 n. 6, 44 L.Ed.2d 539 (1975). The First Circuit has also expressly declined to consider the issue. Cleary v. Perfectune, 700 F.2d 774, 779 (1st Cir. 1983).

Until recently, there was a clear split in the circuits on the question. The recent trend, however, has been to find that no private right of action exists. The Fifth, Eighth, Ninth, and Eleventh Circuits have all come to this conclusion in well-reasoned opinions. Currie v. Cayman Resources Corp., 835 F.2d 780, 784 (11th Cir.1988); In re Washington Public Power Supply System, 823 F.2d 1349 (9th Cir.1987); Landry v. All American Assurance Co., 688 F.2d 381, 389 (5th Cir.1982); Shull v. Dain, Kalman & Quail, Inc., 561 F.2d 152, 159 (8th Cir.1977), cert. denied, 434 U.S. 1086, 98 S.Ct. 1281, 55 L.Ed.2d 792 (1978). Even those circuits which had at one point allowed a private right of action have come to doubt the wisdom of their holdings. Compare Kirshner v. United States, 603 F.2d 234, 241 (2d Cir.1978), cert. denied, 442 U.S. 909, 99 S.Ct. 2821, 61 L.Ed.2d 274 (1979), and Daniel v. International Brotherhood of Teamsters, 561 F.2d 1223, 1245 (7th Cir.1977), rev'd on other grounds, 439 U.S. 551, 98 S.Ct. 1232, 55 L.Ed.2d 761 (1979), and Newman v. Prior, 518 F.2d 97, 99 (4th Cir.1975), with Yoder v. Orthomolecular Nutrition Institute, Inc., 751 F.2d 555, 559 n. 3 (2d Cir.1985) and Teamsters Local 282 Pension Trust Fund v. Angelos, 762 F.2d 522, 530-31 (7th Cir.1985) and S.E.C. v. American Realty Trust, 586 F.2d 1001, 1006 (4th Cir.1978). Finally, the majority of the district courts in this circuit have concluded that no private right of action exists under section 17(a). See, e.g., ...