Securities and Exchange Commission v. Hill International, Inc.

Background

The Securities and Exchange Commission brought claims against Hill International, Inc., Ronald Emma, and Nicholas Tornello concerning alleged accounting fraud and disclosure violations. The agency alleged that Hill’s accounting officials failed to correct approximately $5 million in foreign-currency exchange losses and instead planned to recognize those losses over time, contrary to generally accepted accounting principles. The alleged conduct contributed to materially false financial statements and a later restatement covering 2014, 2015, 2016, and the first quarter of 2017. The SEC also alleged that Hill raised more than $40 million through a secondary stock offering while relying on incorrect financial statements.

Hill and Emma entered into settlements with the SEC. The court approved consent judgments that enjoined them from future violations and required Hill to pay a $500,000 civil penalty and Emma to pay a $75,000 civil penalty. Those judgments terminated the claims against Hill and Emma. Tornello remained in the case.

Motion to Transfer

Tornello moved under 28 U.S.C. § 1404(a), the federal statute allowing a court to transfer a civil case for the convenience of the parties and witnesses and in the interest of justice. He sought transfer to the Eastern District of Pennsylvania or the Camden Division of the District of New Jersey. The SEC opposed the motion.

The court first determined whether the case could have been brought in either proposed district. It held that venue was proper in both because Hill’s headquarters were initially in Marlton, New Jersey, and later in Philadelphia; Tornello and Emma worked from those headquarters; and the accounting records, financial statements, securities offerings, and SEC filings at issue were issued from those locations.

Court’s Analysis

The court considered nine transfer factors: the convenience of witnesses and parties, the location of documents and other evidence, the location of the events at issue, the ability to compel witnesses to attend, the parties’ relative financial resources, each court’s familiarity with federal law, the SEC’s choice of forum, trial efficiency, and the interests of justice.

Four factors favored transfer to the Eastern District of Pennsylvania:

- Location of the events: The court found that the central events occurred at Hill’s headquarters, where the accounting department was located and where Tornello and Emma allegedly carried out the accounting scheme. The New York Stock Exchange, New York-based investors, underwriters, and an investor-relations firm gave New York some connection to the case, but the court found those connections less important than the location where the alleged conduct occurred. - Witness convenience: The most important potential witnesses included Tornello, Emma, and Hill employees who worked at the headquarters and lived in the greater Philadelphia area or southern New Jersey. The court found that their convenience outweighed the possible convenience of New York-based underwriters, analysts, and auditors. - Party convenience: Tornello lived and worked in the greater Philadelphia area, and the lawyers for all parties, including the SEC’s lawyers, were located in Philadelphia. Trying the case in New York would therefore create additional travel and expense burdens. - Relative financial resources: The court found this factor, although of limited importance, favored transfer because Tornello could face costs not necessarily covered by insurance, while the SEC did not claim that its resources were limited.

The SEC’s choice of the Southern District of New York was the only factor that disfavored transfer. The court gave that choice less weight because the core events, key witnesses, defendant, and lawyers were located outside New York. Four factors were neutral: access to documents and other evidence, the ability to compel unwilling witnesses, familiarity with the governing federal law, and trial efficiency and the interests of justice.

Disposition

The court concluded that the factors favoring transfer outweighed the SEC’s choice of forum. Judge Engelmayer granted Tornello’s motion under 28 U.S.C. § 1404(a). The Clerk of Court was directed to terminate the motion at docket 44 and transfer the case to the United States District Court for the Eastern District of Pennsylvania.