Wayne County Employees' Retirement v. Mgic Inv.

Decision Date10 March 2009
Docket NumberCase No. 08-12080.
Citation604 F.Supp.2d 969
PartiesWAYNE COUNTY EMPLOYEES' RTIREMENT SYSTEM, on behalf of itself and all others similarly situated, Plaintiff, v. MGIC INVESTMENT CORPORATION, Curtis S. Culver, and J. Michael Lauer, Defendants.
CourtU.S. District Court — Eastern District of Michigan

David M. Foster, Farmington Hills, MI, Harold S. Fried, Fried, Saperstein, Southfield, MI, Elwood S. Simon, John P. Zuccarini, Elwood S. Simon Assoc., Birmingham, MI, for Plaintiffs.

Scott T. Seabolt, Foley & Lardner, Detroit, MI, for Defendants.

OPINION AND ORDER DENYING DEFENDANTS' MOTION TO DISMISS AND GRANTING MOTION TO TRANSFER VENUE

DAVID M. LAWSON, District Judge.

The plaintiff in this case, Wayne County Employees' Retirement System, brings this putative class action against the defendants, an investment holding company and its officers, for violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. 240.10b-5. The plaintiff alleges that for a period of time between February 2007 and February 2008, the defendants made material misstatements and omissions about the operations and financial viability of the corporate defendant and its subsidiaries, causing the plaintiff and others similarly situated to purchase stock at inflated prices resulting in substantial losses. Four other entities filed similar lawsuits against these defendants in the United States District Court for the Eastern District of Wisconsin. One of those plaintiffs, Fulton County (Georgia) Employees' Retirement System, has filed a competing motion with the present plaintiff in this case to appoint counsel, liaison counsel, and lead plaintiffs. Meanwhile, the defendants have moved to dismiss for improper venue or to transfer venue to the Eastern District of Wisconsin where the other lawsuits are pending. The Court heard oral argument on the motions on November 3, 2008 and now concludes that venue is proper in this district, but the case ought to be transferred to the Eastern District of Wisconsin for the convenience of the parties and consolidated with the other lawsuits in the interest of judicial economy. Therefore, the Court will deny the motion to dismiss, grant the motion to transfer venue, and dismiss the motions to appoint lead plaintiff and liaison counsel, which may by renewed in the new venue.

I.

MGIC Investment Corporation (MGIIC) is a publicly-traded holding company incorporated and headquartered in Wisconsin. Its largest asset is Mortgage Guaranty Insurance Corporation (MGIC), one of the nation's largest providers of private mortgage insurance that does business in all fifty states. MGIC-IC's chief executive officer and chairman of the board of directors is defendant Curt S. Culver, and its chief financial officer and executive vice-president is defendant J. Michael Lauer. They both reside in Wisconsin. A principal base of MGIC's operations is Troy, Michigan.

Plaintiff Wayne County Employees' Retirement System alleges that during the one-year period from February 6, 2007 through February 12, 2008, it acquired a total of 114,230 shares of the defendant company, incurring estimated losses of $1,664,569, calculated on a mean trading price according to the method set forth in 15 U.S.C. § 78u-4(e)(1). The plaintiff attributes these losses to a series of material omissions and misrepresentations made by MGIC-IC's officers in various press releases, earning announcements, SEC periodic filings, and earning calls that occurred during the class period and led to the company's stock trading at artificially inflated prices.

The allegedly concealed or misstated information includes the status of investments and joint ventures in entities that were set up to invest in risky subprime mortgages, which suffered substantial losses and resulted in the undercapitalization of MGIC-IC. The plaintiff accuses the company of failing to write down these investments in a timely fashion and in accordance with the Generally Accepted Accounting Principles, and, the plaintiff says, given the increased volatility of the subprime market, the defendants were unjustified in making the projections about the company's short-term outlook, especially the 2007-08 earnings projections. Defendants Culver and Lauer are sued in their individual capacities as the company's "controlling persons" who are jointly and severally liable for MGIC-IC's securities law violations under section 20(a) of the Securities Exchange Act, 15 U.S.C. § 78t(a).

As a result of the misleading public information, the plaintiff contends, MGIIC's stock traded at artificially inflated prices, reaching the high of $70.09 per share in February 2007. Then, on July 30, 2007, MGIC-IC issued a press release announcing that the value of one of its major investments was materially impaired. The price of MGIC-IC's common stock declined from $45.44 per share to $38.66 overnight. On October 17, 2007, the stock decreased to $26.16 per share when MGIC-IC announced that it had suffered its first quarterly loss as a public company due to a large increase in amount and severity of defaults. Finally, the price of the stock dropped eighty-two percent compared to the class period high when on February 13, 2008, MGIC-IC issued a press release that finally revealed the company's results for the fourth quarter of 2007 and reported a net quarter loss of $1.47 billion, including an after-tax charge of $33 million related to equity losses incurred by one of its investments. That day, MGIC-IC stock closed at $12.61 per share, the lowest price at which MGIIC's stock had traded in over thirteen years.

Other investors besides the present plaintiff suffered large losses in connection with the acquisition of the company's securities. As a consequence, since the commencement of this action on May 12, 2008 the defendants have been named in four other class actions filed in the Eastern District of Wisconsin. See Plumbers' & Pipefitters' Local # 562 Pension Fund v. MGIC Inv. Corp., No. 08-C-0458 (E.D. Wis., filed May 22, 2008) (naming as defendant Patrick Sinks, the president and chief operating officer of MGIC, in addition to MGIC Investment, Culver and Lauer); Teamsters Local 456 Annuity Fund v. MGIC Inv. Corp., 08-CV-0500 (E.D. Wis., filed June 9, 2008); Minneapolis Firefighters' Relief Assoc. v. MGIC Inv. Corp., No. 08-CV-00614-LA (E.D. Wis., filed July 15, 2008); Fulton County Employees' Retirement Sys. v. MGIC Inv. Corp. (E.D. Wis., filed Oct. 28, 2008) (naming as defendants MGIC Investment Corporation, Curt S. Culver, Patrick Sinks, Larry Pierzchalski, Bruce Williams and J. Michael Lauer). All four actions allege similar federal securities claims and were deemed "related" by Judge Lynn S. Adelman of the Eastern District of Wisconsin. The plaintiffs in Teamsters Local and Minneapolis Firefighters' Relief Association allege the same class period as the one proposed by Wayne CountyFebruary 6, 2007 through February 12, 2008. Fulton County seeks a broader class period—October 12, 2006 through February 12, 2008—as does the plaintiff in Plumbers' & Pipefitters' Local.

MGIC-IC's principal operating subsidiary, MGIC, the plaintiff contends, provides ninety percent of MGIC-IC's revenue. The plaintiff claims that MGIC and MGIC-IC share several high-level executives and officers—such as Culver and Lauer (CEO and CFO of both entities, respectively), Patrick Sinks, president and COO, Jeffrey H. Lane, general counsel and secretary, James Karpowicz, chief investment officer, Joseph J. Komanecki, controller and chief accounting officer, and Joseph J. Ziino, Jr., regulatory relations officer, associate general counsel, and assistant secretary. It appears that MGIC and MGIC-IC's main offices are in the same building in Wisconsin, and they share the same 800 telephone and facsimile numbers. MGIC maintains its largest regional processing center in Troy, Michigan.

The defendants contend that venue is improperly laid in this district, and even if it is not, the case should be transferred to the Western District of Wisconsin, where the other related cases are pending against them. The plaintiff insists that venue is proper here, and its choice of forum should be respected.

II.

Venue in the federal district courts ordinarily is governed by 28 U.S.C. §§ 1391-1413. Under the general venue provision, section 1391, an action may be brought in any district "where any defendant resides" if all defendants reside in the same state, where "a substantial part of the events or omissions giving rise to the claim occurred," or, if no other district is proper, "a judicial district in which any defendant is subject to personal jurisdiction at the time the action is commenced." 28 U.S.C. § 1391(a).

The Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., contains a special provision for venue for securities violations arising under the Act. "Section 27 grants jurisdiction to the federal courts and provides for venue and service of process." Touche Ross & Co. v. Redington, 442 U.S. 560, 577, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979). Section 27 of the Act states:

Any suit or action to enforce any liability or duty created by this chapter or rules and regulations thereunder, or to enjoin any violation of such chapter or rules and regulations, may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found.

15 U.S.C. § 78aa. Section 27 has been interpreted to allow venue in any district where (a) the defendant transacts business; (b) the defendant is found or is an inhabitant; or (c) any act or transaction constituting a violation has occurred. See Securities Investor Prot. Corp. v. Vigman, 764 F.2d 1309, 1316 (9th Cir.1985). A few courts have held that...

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