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International Fidelity Ins. Co. v. BEP America, Inc.

United States District Court, W.D. Texas, Austin Division

May 29, 2018





         Before the Court are Defendant's Motion to Transfer Venue and Brief in Support (Dkt. No. 22); Plaintiff's Response (Dkt. No. 24); and Defendant's Reply (Dkt. No. 27). The district judge referred the motion to the undersigned Magistrate Judge for a Report and Recommendation pursuant to 28 U.S.C. §636(b)(1)(B), Fed.R.Civ.P. 72 and Rule 1(d) of Appendix C of the Local Rules.


         Restaurants Acquisition I, LLC (“RAI”), a Delaware limited liability corporation, operated a chain of full-service restaurants throughout Texas under the tradenames Black-eyed Pea and Dixie House. The sole managing member of RAI is BEP 1&2, LLC, also a Delaware company, which in turn is wholly owned by BEP America, Inc., a Texas corporation. BEP America is owned equally by Bob Langford and W. Craig Barber. After RAI experienced serious financial difficulties it fell behind on its payments to various taxing authorities, including the State of Texas. In October 2013, the Texas Comptroller of Public Accounts recorded a Texas state tax lien against RAI in the amount of $966, 348.19. After conducting several sales and use tax audits of RAI, the Comptroller determined that RAI owed the State $4, 125, 162.65 in back taxes. RAI disputed the methodology of the audits and made no payments to the Comptroller. On December 2, 2015, RAI filed a bankruptcy proceeding under Chapter 11 of the Bankruptcy Code, which was later converted to a Chapter 7 proceeding. In re Restaurants Acquisition I, LLC, No. 15-12406 (KG) (Bankr. D. Del.) (“Bankruptcy Case”). As of December 2, 2015, RAI had filed returns but not remitted sales taxes for the months of September and October 2015. On February 12, 2016, the Comptroller filed a lawsuit in Travis County, Texas against Barber and Langford in their individual capacities to recover the back taxes.

         Thereafter, RAI, Barber and Langford entered into a Settlement Agreement with the Comptroller in the bankruptcy court, in which the Comptroller agreed to dismiss the state court action in exchange for RAI agreeing to pay it a total of $431, 195.48 in installments beginning on April 4, 2016. The Settlement Agreement included a “Retention of Jurisdiction” clause which provided that the United States Bankruptcy Court for the District of Delaware would retain jurisdiction to hear any disputes “regarding this Agreement.”

         Approximately one year before entering into the Settlement Agreement, on February 10, 2015, RAI and BEP America applied for a “Surety Bond for Texas Limited Sales, Excise, and Use Tax” with International Fidelity Insurance Company. Fidelity issued the sales tax bond which named the Comptroller as the obligee. The signed bond application contained an indemnity agreement in which RAI and BEP America agreed to pay Fidelity upon execution of the Bond and to indemnify Fidelity for “all demands, losses, costs, damages, and expenses. . .which [Fidelity] may sustain or incur by reason of the issuance of such Bond(s).” Dkt. No. 1-1. RAI and BEP America also agreed to reimburse Fidelity “for all expenses, counsel and attorney's fees incurred by [Fidelity] in enforcing any provision of the Agreement. Id.

         After RAI failed to pay the Comptroller as required under the Settlement Agreement, the Comptroller made a claim on the Fidelity bond. Fidelity then paid the Comptroller $100, 000 as required by its bond. Fidelity then demanded that RAI and BEP America indemnify it for its losses, but they have failed to do so. Fidelity contends that because of its payment to the Comptroller, it is subrogated to the rights and remedies of the Comptroller. On October 12, 2017, Fidelity filed this breach of contract lawsuit against BEP America, BEP 1&2, Barber and Langford (“Defendants”) alleging that BEP America and BEP 1&2 breached the Indemnity Agreement. Fidelity also alleges that Barber and Langford breached their fiduciary duties and failed to remit state sales taxes under Section 111.016 of the Texas Tax Code.

         On January 12, 2018, the Defendants filed the instant Motion to Transfer Venue under 28 U.S.C. § 1404(a) arguing that this case should be transferred to the United States Bankruptcy Court for the District of Delaware because of the retention of jurisdiction clause contained in the Settlement Agreement. Fidelity disagrees and argues that the retention of jurisdiction clause does not apply to this lawsuit because its claims arise out of the separate Indemnity Agreement and this is not a suit to enforce the Settlement Agreement.


         “For the convenience of the 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). Section 1404(a) “is intended to place discretion in the district court to adjudicate motions for transfer according to 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 v. Barrack, 376 U.S. 612, 622 (1964)). “There can be no question but that the district courts have broad discretion in deciding whether to order a transfer” under § 1404(a). In re Volkswagen of Am., Inc. (“Volkswagen II”), 545 F.3d 304, 313-15 (5th Cir. 2008) (internal quotation marks omitted), cert. denied, 555 U.S. 1172 (2009). It is well settled that the party seeking the transfer of venue bears the burden of demonstrating that the case should be transferred. Time, Inc. v. Manning, 366 F.2d 690, 698 (5th Cir.1966). See also, Volkswagen II, 545 F.3d at 315; Wolf Designs, Inc. v. Donald McEvoy Ltd., Inc., 2005 WL 827076, at *2 (N.D. Tex. Apr. 6, 2005).

         The starting point on a motion for transfer of venue is determining whether the suit could have originally been filed in the destination venue. Id. at 312. If it could have, the focus shifts to whether the party requesting the transfer has demonstrated the “convenience of parties and witnesses” requires transfer of the action, considering various private and public interests. See Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508 (1974). The private interest factors are: “(1) the relative ease of access to sources of proof; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practical problems that make trial of a case easy, expeditious and inexpensive.” In re Volkswagen AG (“Volkswagen I”), 371 F.3d 201, 203 (5th Cir. 2004) (citing Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241 n. 6 (1981)). The public interest factors are: “(1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflict of laws [or in] the application of foreign law.” Id. Although the Gilbert factors are “appropriate for most transfer cases, they are not necessarily exhaustive or exclusive.” In fact, the Fifth Circuit has noted “none . . . can be said to be of dispositive weight.” Volkswagen II, 545 F.3d at 313-15 (internal quotations omitted). Despite the wide array of private and public concerns, a court must engage in a “flexible and individualized analysis” in ruling on a motion to transfer venue. Stewart, 487 U.S. at 29.

         Lastly, it is important to note that the plaintiff's choice of venue is not a factor in this analysis, but rather contributes to the defendant's burden to show good cause for the transfer. Volkswagen II, 545 F.3d at 313 & 314 n.10 “[W]hile a plaintiff has the privilege of filing his claims in any judicial division appropriate under the general venue statute, § 1404(a) tempers the effects of the exercise of this privilege.” Id. “[W]hen a plaintiff is not a resident of the chosen forum, or the operative facts underlying the case did not occur in the chosen forum, the court will not give as much deference to a plaintiff's choice.” Apparel Prod. Servs. Inc. v. Transportes De Carga Fema, S.A., 546 F.Supp.2d 451, 453 (S.D. Tex. 2008).

         III. ...

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