Lowinger v. Rocket One Capital, LLC

Background

Robert Lowinger brought this action under Section 16(b) of the Securities Exchange Act of 1934. He seeks to recover short-swing profits—profits from certain purchases and sales of securities within six months—that he alleges Rocket One Capital, LLC, Michael Shvartsman, and Bruce Garelick made by trading Digital World Acquisition Corp. securities. Digital World is also a defendant.

The complaint alleges that Garelick joined Digital World’s board, giving him access to material nonpublic information. It further alleges that Shvartsman bought Digital World warrants through Rocket One after learning that Digital World was moving toward a merger with Trump Media & Technology Group, and that Shvartsman and Garelick sold their Digital World securities after the merger was announced. The complaint alleges profits of $18,269,042.98 for Shvartsman and at least $49,701.95 for Garelick.

Rocket One and Shvartsman moved to dismiss for failure to state a claim, moved to dismiss for improper venue, and alternatively moved to transfer the case to the Southern District of Florida. Garelick joined the improper-venue and transfer motions. Digital World separately moved to dismiss for failure to state a claim.

Transfer standard

The court considered the transfer request under 28 U.S.C. § 1404(a), which allows a federal court to move a civil case to another federal district for the convenience of the parties and witnesses and in the interest of justice. First, the proposed district must be one where the case could have been brought. The parties agreed that the case could have been brought in the Southern District of Florida.

The court then considered several factors, including witness convenience, the location of documents, the parties’ convenience, where the events occurred, the ability to compel unwilling witnesses, the parties’ relative financial means, familiarity with the governing law, the plaintiff’s choice of forum, and trial efficiency and the interests of justice.

Court’s analysis

The witness-convenience factor moderately favored transfer. The court reasoned that the parties to the transactions—including Rocket One, Garelick, and Digital World—were likely to be important witnesses. Rocket One and Digital World were based in Miami, and Garelick was alleged to have been based in Florida when the relevant events occurred. The court recognized that some New York-based brokers might also have relevant information, but concluded that the transaction parties were likely to provide more material testimony.

The convenience-of-the-parties factor was neutral because transferring the case would shift the inconvenience from the defendants to Lowinger, who resides in Queens, New York. The location of documents was also neutral because neither side identified specific documents or evidence located in either district. The court found the ability to compel unwilling witnesses neutral because neither side identified an unwilling witness.

The location of the operative facts strongly favored transfer. The court concluded that most facts specific to the transactions occurred in Florida because the buyers were based there when the transactions occurred, Digital World was headquartered there, and Digital World was merging with a corporation headquartered in Florida. The court explained that the fact that some trades were executed through New York-based brokers did not make New York the center of the dispute.

The parties did not provide documentation or argument showing that their relative financial means favored either forum, so that factor was neutral. The court also found that federal courts in both districts could competently decide issues under the federal Securities Exchange Act, making familiarity with the governing law neutral.

The court gave Lowinger’s choice of the Southern District of New York little weight. Lowinger resides in Queens, which is outside that district, and most of the operative facts appeared to have occurred in Florida. Finally, because the case was at an early stage—with no formal discovery and no answers filed—the court found that transfer would not cause prejudice or harm judicial efficiency.

Ruling and effect

Judge Cronan granted the motion by Rocket One, Shvartsman, and Garelick to transfer the case to the Southern District of Florida under Section 1404(a). The court expressly did not reach the merits of the defendants’ arguments that the complaint failed to state a claim. Those motions remain pending for consideration by the transferee court.

The motion to transfer under 28 U.S.C. § 1406(a) was denied as moot, and the motion to dismiss for improper venue was denied as moot. The clerk was directed to transfer the case and correct Garelick’s name in the caption from “Bruce Garelik” to “Bruce Garelick.”