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Denari v. U.S. Dry Cleaning Services Corp.

United States District Court, E.D. California

June 27, 2017

TIMOTHY DENARI, Plaintiff
v.
U.S. DRY CLEANING SERVICES CORPORATION dba U.S. Dry Cleaning Corporation, and ROES 1-10, Defendants

          ORDER ON DEFENDANT'S MOTION TO TRANSFER VENUE, (DOC. NO. 6)

         This case stems from an employment relationship between Plaintiff Timothy Denari (“Denari”) and his former employer, Defendant U.S. Dry Cleaning Services Corporation (“USDC”). Denari alleges claims for breach of contract, three forms of indemnity, unfair competition, and California Labor Code § 2802.

         FACTUAL BACKGROUND[1]

         Denari began his employment with USDC in March 2009 as a consultant. Denari worked out of USDC's corporate headquarters in Newport Beach, Orange County, California, but commuted from his home in Bakersfield, Kern County, California. See Denari Dec. ¶ 7. Denari would telecommute from time to time, and after hours or on weekends would answer e-mails or other communications from his Bakersfield home. All of USDC's corporate employees worked out of the Orange County headquarters. See Cox Dec. ¶ 4. In February 2010, Denari became USDC's Chief Financial Officer.

         On March 4, 2010, USDC filed for Chapter 11 Bankruptcy in the Central District of California - Santa Ana Division. Denari's employment with USDC ceased in June 2010.

         In April 2011, USDC filed a debtor's plan with the Bankruptcy Court. Following an objection from the Internal Revenue Service (“IRS”), a stipulation was made whereby USDC would make payments to the IRS of $41, 000 per quarter, with $20, 500 allocated to non-trust fund payroll taxes and $20, 500 allocated to trust fund payroll taxes.

         On September 14, 2011, the debtor's plan was amended to include the IRS stipulation (“the Plan”). On September 23, 2011, the Bankruptcy Court entered an order confirming the Plan. Denari did not receive notice or service of the Plan or the order confirming the Plan.

         In November 2012, Denari received a notice from the IRS that he was considered a possible responsible party for recovery of USDC's unpaid trust fund payroll taxes that were owing prior to USDC's bankruptcy. However, no demands were actually made.

         In March 2013, Denari received another notice from the IRS that he was considered a possible responsible party for recovery of USDC's unpaid trust fund payroll taxes that were owing prior to USDC's bankruptcy. However, no demands were actually made.

         Upon representations that the bankruptcy case was on track and that USDC was fully performing, the bankruptcy case was closed on June 5, 2013. At all relevant times, Denari was informed by USDC's officers and corporate counsel that USDC was current on its payments and that the IRS debt would be paid in full by April 2015.

         In April 2015, Denari learned that there were issues with the application of payments, but that payments were still being made. Subsequently, Denari learned that USDC had requested an extension through the end of July 2015. The Plan's deadline was extended to December 2015.

         In September 2015, the IRS made an assessment against Denari for $214, 202.04 and demanded payment in full.

         Denari made numerous demands on USDC to indemnify him against the IRS demands and assessment. USDC refused and did not do so.

         In January 2016, the IRS placed a lien on Denari's assets because the assessment was not paid in full.

         USDC was headquartered in Orange County, California until March 31, 2015, when it operated “remotely.” Cox Dec. ¶ 3. USDC moved its headquarters to Houston, Texas in December 2015.

         Denari's communications with USDC personnel and officers were directed to individuals located in Orange County; Denari never sent communications to Houston. See Denari Dec. ¶¶ 16, 18. The communications from the IRS to Denari were received in Bakersfield, as were the communications from USDC officers to Denari regarding the IRS notices and assessments and USDC's performance under the Plan. The IRS lien was also filed against Denari in Kern County.

         USDC maintains numerous One Hour Martinizing businesses in Fresno County, California. At all relevant times to this case, USDC's Bylaws and Articles of Incorporation stated that USDC shall indemnify its current and former officers to the fullest extent allowed by law.

         DEFENDANT'S MOTION

         Defendant's Argument

         USDC argues that venue is improper in the Eastern District of California (“EDCA”) as none of the three categories of venue under § 1391(b) apply. First, for purposes of § 1391(b)(1), no defendant resides in the Eastern District. USDC argues that it is the only defendant, and its corporate headquarters are in Houston, Texas. Prior to Houston, the corporate headquarters where in Newport Beach, California, which is not in the EDCA. Second, for purposes of § 1391(b)(2), there is no indication that a substantial part of the events or omissions giving rise to the claims at issue occurred in the EDCA. The claims at issue center around Denari's employment with USDC, which occurred in Newport Beach. Denari cannot show that any of the alleged acts or omissions (such as the alleged failure of USDC to pay tax contributions, entering into the stipulation with the IRS, and allegedly failing to make payments under the stipulation/the Plan) occurred in the EDCA. The only thing that connects this case to the EDCA is the impact of USDC's alleged conduct on Denari. Third, § 1391(b)(3) does not apply because USDC could be sued in Houston. As venue is not proper in the EDCA, the Court should either dismiss this case or transfer it to Houston.

         In reply, USDC argues that its motion is timely. USDC raised improper venue as an affirmative defense in its answer, included it as an affirmative defense in its amended answer, and filed the pending 12(b)(3) motion. This conduct comports with Rule 12(h)(1). USDC also argues that Denari has not cited cases that support his reliance on the location of the harm suffered as being a “substantial event.” The cases that are heavily relied upon are debt collection cases in which the location where the improper communication was received is an element of a claim and a substantial event. There are no claims alleged under any debt collection statute in the Complaint. Further, Denari has not shown that USDC resides in the EDCA. There are no allegations in the Complaint that relate to USDC's operations in Fresno, and none of the conduct alleged occurred in Fresno and thus, the claims do not arise out USDC's ...


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