Eastern District Of New York Sua Sponte Orders Transfer Of Action To Southern District Of New York, Finding Parties Failed To Establish Proper Venue
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  • Eastern District Of New York Sua Sponte Orders Transfer Of Action To Southern District Of New York, Finding Parties Failed To Establish Proper Venue 
     
    04/28/2020
    On April 22, 2020, Judge Kiyo Matsumoto of the Eastern District of New York issued an order and notice of venue to parties in a securities action against a foreign coffee chain (the “Company”), placing parties on notice of the Court’s decision to transfer the action to the Southern District of New York if the parties failed to present compelling legal and factual reasons against the transfer; the transfer order went into effect two days later.  Sterckx v. Luckin Coffee Inc. et al., No. 20-cv-01677 (E.D.N.Y. April 22, 2020).  The Court rejected plaintiffs’ argument against transfer based on a provision in a governing agreement pursuant to which the Company consented and submitted to the “jurisdiction of any state or federal court in the State of New York.”

    The consolidated action asserted claims against the Company under Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder in connection with sales of the Company’s securities and American Depository Receipt Shares.  After consolidating the action, the Court ordered plaintiffs to show cause as to why venue was proper in the Eastern District of New York.  The Court noted that the Second Circuit “has recognized the authority of a district court to transfer an action sua sponte” under 28 U.S.C. § 1404(a).  In response, one set of plaintiffs in the consolidated action pointed to a deposit agreement with the Company, invoking the provision under which the Company “consents and submits to the jurisdiction of any state or federal court in the State of New York.”  The Court, however, stated that plaintiffs “confused a consent to jurisdiction . . . with venue” and had provided no facts establishing that “significant events or omissions material to plaintiffs’ claims” occurred in the Eastern District of New York.  The Court observed that the Southern District—where similar prior actions were pending—appeared to be the proper venue because the at-issue offerings were made in that district.  The Court additionally cited the “first filed rule” in the Second Circuit, which favors the venue where “litigation over the alleged fraud by the defendants was first initiated”—here, the Southern District.

    The Court further held that even if venue were properly established in the Eastern District, transferring the action to the Southern District would be justified because the other set of plaintiffs whose action had been consolidated into this one had no objections to the transfer and the parties would not be prejudiced by a transfer given that the “availability of a process to compel attendance of unwilling witnesses . . . appear to be neutral and favor neither venue.”  Pointing to other practical considerations, the Court noted that the Southern District would be a “more convenient venue for witnesses or the parties . . . [because it is] the locus of operative facts,” and the ease of access to witnesses, documents, and evidence weighed in favor of a venue transfer.
    CATEGORIES: JurisdictionVenue/Forum