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CAROLINA CAS. CO. v. DATA BROADCASTING CORP.

July 26, 2001

THE CAROLINA CASUALTY COMPANY, PLAINTIFF,
v.
DATA BROADCASTING CORPORATION, CAPITAL MANAGEMENT SCIENCES, ALLAN TESSLER, ALAN HIRSCHFIELD, JAMES KAPLAN, AND MARK IMPERIALE, DEFENDANTS.



The opinion of the court was delivered by: Walker, District Judge.

ORDER

Defendants move to dismiss this case or transfer it to the Central District of California pursuant to 28 U.S.C. § 1406 (a), for improper venue. In the alternative, defendants move for transfer under § 1404(a), which provides for convenience transfers. The hearing scheduled for July 19, 2001, is vacated. See Civil LR 7-1(b). For the reasons that follow, the court concludes that the case should be transferred to the Central District for consolidation with a mirror image suit pending there.

I

On April 2, 2001, a third party, Paul B Farrell, brought suit against defendants in the Los Angeles superior court, alleging breach of contract, breach of a fiduciary duty and fraud. The suit by Farrell arises out of a business arrangement between Farrell and defendant Data Broadcasting Corp (DBC). Farrell and DBC joined forces to create a web site providing information to mutual fund investors. Farrell and DBC were to be equal co-owners of the venture. DBC later partnered with CBS to form the investor web site MarketWatch.com. On January 15, 1999, MarketWatch.com, Inc, went public and was valued at $1 billon. Farrell did not receive any shares of the entity and brought suit. See Farrell Complaint, Campbell Decl, Exh B.

Plaintiff is the issuer of a directors and officers' liability insurance policy held by defendants. After the filing of Farrell's suit, defendants contacted plaintiff regarding coverage. Apparently, plaintiff and defendants could not come to agreement on all of the issues related to coverage. Consequently, defendants prepared to file a law suit in the Central District of California seeking declaratory relief related to costs of defense and coverage. Defendants also alleged breach of contract. On April 12, 2001, defendants provided plaintiff with a "courtesy copy" of its complaint before actually filing the complaint. On April 17, 2001, plaintiff filed its own declaratory relief action in this court. The next day, having lost the "race to the courthouse," defendants filed their suit in the Central District.

On June 4, 2001, defendants moved to dismiss for improper venue or to transfer the case to the Central District. By stipulation, the parties agreed to stay the case filed by defendants in the Central District pending a resolution by this court of defendants' motion to dismiss or to transfer venue.

II

Defendants contend that venue in the Northern District is improper under 28 U.S.C. § 1391 (a), which governs diversity cases. Section 1391(a) provides:

A civil action wherein jurisdiction is founded only on diversity of citizenship may, except as otherwise provided by law, be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which 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 action is situated, or (3) a judicial district in which any defendant is subject to personal jurisdiction at the time the action is commenced, if there is no district in which the action may otherwise be brought.

28 U.S.C. § 1391 (a). Plaintiff, asserts that venue is proper under section 1391(a)(2) because a substantial part of the events or omissions giving rise to the case occurred in this district. In the alternative, plaintiff appears to argue that venue is proper under section 1391(a)(3).

In an insurance coverage action, to establish venue via section 1391(a)(2), a court looks to the underlying events for which coverage is sought. See Horihan v. Hartford Ins. Co. of the Midwest, 979 F. Supp. 1073, 1077-78 (E.D.Tex. 1997) (considering only underlying events); United States Fidelity and Guaranty Co. v. Mayberry, 789 F. Supp. 901, 903 (E.D.Tenn. 1992) (same); Britamco Underwriters, Inc. v. Raymond E. Wallace Special Productions, Inc., 56 F. Supp.2d 542, 544-45 (E.D.Pa. 1999) (considering underlying event and suit, as well as actions related to issuance of the policy). Thus, the court considers the events giving rise to Farrell's complaint against defendants.

Defendants note that the agreement between defendants and Farrell was entered into in Los Angeles, Farrell's obligations under the contract were performed in Los Angeles and at least one additional meeting between Farrell and defendants occurred in Los Angeles. Plaintiff, on the other hand, points to DBC's presence in San Mateo, California, within this district. It appears that DBC's San Mateo office is the home of the MarketWatch.com web site. Additionally, plaintiff presents evidence that at least one meeting between Farrell and defendants occurred in San Mateo. See Morrow Decl, Exh C, Farrell Depo at 143:5-145:1.

It is not clear which party bears the burden of proving that a substantial part of the events occurred (or did not occur) in this district. Courts have gone both ways on the issue. See Simon v. Ward, 80 F. Supp.2d 464, 466-68 (E.D.Pa. 2000). And the Ninth Circuit does not appear to have addressed it. See William W Schwarzer, A Wallace Tashima and James M Wagstaffe, Federal Civil Procedure Before Trial § 4:251 at 4-69 (Rutter Group Practice Guide, 2001). In light of this ambiguity, and because the court has concluded that defendant's motion to transfer must ultimately be granted, the court will place the burden of proof as to this issue on defendants.

With the burden so allocated, defendants cannot prevail on this portion of their motion. While this action might have a stronger connection to the Central District, the court concludes that a substantial part of the events and omissions giving rise to the suit occurred in this district. It is a close question. The contacts with this district highlighted by plaintiff are far from pervasive. The court agrees with defendants that the coverage negotiations between the law firms should not be considered. Nonetheless, the presence in this district of DBC and the MarketWatch.com web site, and the ...


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