Nosirrah Management, LLC v. EVmo, Inc.

Background

Nosirrah Management, LLC, a shareholder of nominal defendant EVmo, Inc., brought a derivative action—that is, an action brought by a shareholder for the benefit of the company—against Ramy El-Batrawi and X, LLC. The complaint sought recovery of alleged short-swing profits under Section 16(b) of the Securities Exchange Act of 1934. Nosirrah alleged that El-Batrawi purchased 5,000,000 EVmo shares on January 8, 2021, and sold at least 6,344,000 EVmo shares during the following six months. It alleged that the transactions produced between $260,987 and $1,665,425 in profits subject to recovery.

The defendants moved under 28 U.S.C. § 1404(a) to transfer the action to the Central District of California. EVmo separately moved to join that transfer motion. Nosirrah opposed transfer.

Joinder

The court held that EVmo and the defendants were similarly situated for purposes of transfer. The action concerned transactions involving EVmo common stock, and EVmo was involved as the issuer of the stock and the company for whose benefit the derivative action was brought. EVmo also agreed that its documents and present and former employees with potentially relevant knowledge were principally located in California. The court therefore concluded that ruling on the defendants’ transfer motion would apply equally to EVmo and granted EVmo’s motion for joinder.

Transfer analysis

The court concluded that the action could have been brought in the Central District of California because that court would have had subject-matter jurisdiction, personal jurisdiction over EVmo and the defendants, and proper venue. The court then balanced the convenience and justice factors under Section 1404(a).

The court gave Nosirrah’s choice of New York as the forum minimal weight because Nosirrah did not bring the case in its home district, the action was derivative, and the principal transactions underlying the complaint occurred in California. Although Nosirrah identified some transactions on New York exchanges, the court found that those transactions involved a small portion of the shares at issue and that the complaint centered on the January 8 purchase and February 26 sale, which occurred in California.

The convenience of witnesses favored transfer because El-Batrawi was the only material witness identified, the claims were based on his transactions, and he resided in California. The location of relevant evidence slightly favored transfer because the relevant records were in California and no relevant documents were housed in New York. The convenience of the parties favored transfer because the defendants and EVmo would find California more convenient, while Nosirrah had not explained any inconvenience from transfer. California was also the location of most of the operative facts.

The court found neutral the factors concerning unwilling witnesses, the parties’ relative financial means, and the transferee court’s familiarity with the governing federal law. The interests of justice favored transfer because transfer would aid the defendants and EVmo without impairing Nosirrah’s ability to prosecute the action, and no dispositive motions had been filed.

Disposition

The court concluded that the defendants had made the required clear and convincing showing that transfer was proper. It granted EVmo’s motion for joinder and granted the defendants’ motion to transfer. The Clerk of Court was directed to terminate the motions at ECF Nos. 28 and 31 and transfer the action to the United States District Court for the Central District of California. Judge Analisa Torres did not decide the underlying question whether the alleged short-swing profits were recoverable.