City of Sterling Heights Police & Fire Retirement System v. Reckitt Benckiser…

Background

The named plaintiffs—City of Birmingham Retirement and Relief System, City of Pontiac General Employees Retirement System, and City of Sterling Heights Police & Fire Retirement System—brought a proposed class action against Reckitt Benckiser Group PLC, Rakesh Kapoor, Adrian Hennah, Shaun Thaxter, and Adrian Bellamy. They alleged that the defendants made false or misleading statements about the safety and advantages of Suboxone Sublingual Film compared with the tablet version. The plaintiffs alleged that these statements inflated the price of Reckitt securities and caused losses when information about the product was disclosed.

The amended complaint included claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 for purchasers of Reckitt American Depositary Shares. It also included claims under United Kingdom law for purchasers of Reckitt ordinary shares, including claims for fraudulent misrepresentation, deceit, violations of the United Kingdom’s Financial Services and Markets Act, and negligent misrepresentation and misstatement.

The defendants moved under 28 U.S.C. § 1404(a) to transfer the case from the District of New Jersey to the United States District Court for the Southern District of New York. The plaintiffs opposed transfer and argued that New Jersey had stronger connections to the dispute because Reckitt’s United States headquarters, manufacturing activities, marketing work, and fraud investigation were located there.

Court’s analysis

The court applied the framework for cases involving both claims covered by a forum-selection clause and claims not covered by such a clause. A forum-selection clause is a contractual provision identifying where disputes must be litigated. The court explained that valid clauses generally receive controlling weight, and that a party opposing one must make a strong showing that enforcement would be unreasonable, violate public policy, or require litigation in a seriously inconvenient forum.

For the American Depositary Share claims, the court held that the plaintiffs were bound by the forum-selection clause associated with the deposit agreement governing those securities. The court found that the plaintiffs had not shown that the clause was invalid or that enforcing it would be unreasonable or contrary to public policy. The court therefore determined that those claims should be transferred to the Southern District of New York.

For the United Kingdom-related claims, the court weighed the private and public-interest factors used when no controlling forum-selection clause selects the forum. Those factors slightly favored New Jersey because the claims arose from activities connected to New Jersey and because witnesses and records were available there. The court also found that the United Kingdom-related claims were subject to provisions in Reckitt’s articles of association requiring shareholder disputes to be resolved by arbitration under International Chamber of Commerce rules. The articles also provided for litigation in the United Kingdom if arbitration was invalid.

The court then considered whether to sever the United Kingdom-related claims and leave them in New Jersey. It concluded that severance was not required to address a jurisdiction, venue, joinder, or similar defect. The court further concluded that transferring the entire case to the Southern District of New York would promote efficiency, avoid duplicative litigation, and not prejudice the plaintiffs because the United Kingdom-related claims were expected to be arbitrated in the United Kingdom or litigated there if arbitration was invalid.

Disposition

Judge Brian R. Martinotti granted the defendants’ motion to transfer venue to the United States District Court for the Southern District of New York. The opinion did not decide the merits of the alleged securities fraud, misrepresentation, or other underlying claims.