Sugarman v. Muddy Waters Capital LLC

Background

Steven A. Sugarman, COR Capital, LLC, and COR Advisors, LLC alleged that the defendants participated in a conspiracy to damage Sugarman’s reputation and the business prospects of the COR Plaintiffs. They alleged that Jason Galanis supplied false or misleading information that other defendants used in papers, blogs, websites, and other materials. The alleged attacks included statements that Sugarman and the COR Plaintiffs had business relationships with Galanis and were involved in his financial crimes. The plaintiffs asserted two claims under the Racketeer Influenced and Corrupt Organizations Act and three California-law claims: defamation and two claims for unfair competition.

Motion to Transfer

The defendants moved under 28 U.S.C. § 1404(a), a federal law allowing a court to transfer a civil case to another federal district for the convenience of the parties and witnesses and in the interest of justice. They sought transfer from the Northern District of California to the Central District of California.

The court first considered whether the case could have been brought in the Central District. The defendants argued, and the plaintiffs did not dispute, that the Racketeer Influenced and Corrupt Organizations Act claims could be brought in a district where a defendant resides. Although Galanis was incarcerated, he submitted a declaration stating that Los Angeles was his home, that he had lived there before his incarceration, and that he intended to return there after release. Applying a presumption that an incarcerated person retains residence in the district where the person lived before incarceration, the court found that the case could have been brought in the Central District.

Transfer Factors

The court considered the relevant transfer factors. The plaintiffs’ choice of the Northern District weighed against transfer, but only slightly, because the plaintiffs neither lived nor alleged that they were harmed there, although they alleged some connection to the district. Convenience of the parties, convenience of nonparty witnesses, access to evidence, and each court’s familiarity with the applicable law were neutral.

The feasibility of coordinating related matters weighed in favor of transfer. The Central District had handled related securities-fraud and shareholder-derivative litigation involving the same alleged connections between Sugarman, the COR Plaintiffs, Galanis, and Banc of California. Although the securities-fraud cases had ended through a court-approved settlement and the derivative cases involved different legal claims, the Central District had already spent substantial time addressing the facts underlying this case and related discovery disputes.

The local-interest factor also favored transfer because the plaintiffs and Banc of California were located in the Central District, the plaintiffs alleged harm there, and the challenged statements concerned alleged conduct there. Court congestion favored transfer only slightly because the Ninth Circuit gives that factor little weight in deciding whether to transfer a case.

Disposition

The court concluded that three of the four factors favoring transfer supported transfer, while only one factor weighed against it. It found that the factor concerning coordination of related matters carried considerable weight. The court therefore granted the defendants’ motion to transfer and ordered the action transferred to the United States District Court for the Central District of California. The order transferred the case; it did not decide the merits of the plaintiffs’ claims.