Schreiber v. Redhawk Holdings Corp., 3:17-cv-00824

Background

Plaintiff Daniel Schreiber, a San Diego resident and trustee of the Schreiber Living Trust, owned 57,064,608 restricted shares of RedHawk Holdings Corp.; he previously served as RedHawk CEO and director.
Beginning September 2016 Schreiber alleges RedHawk impeded the Trust’s sales under SEC Rule 144 by (a) directing the transfer agent to block transfers, (b) filing a late Form 10-Q, and (c) terminating the transfer agent, delaying share transfers and causing sales loss.
Schreiber sued in the Southern District of California alleging violations of UCC § 8-401, breach of fiduciary duty, negligence, and unfair business practices; he sought a preliminary injunction to stop RedHawk from blocking transfers.
Defendants moved to dismiss for lack of personal jurisdiction, improper venue, and failure to state a claim; they argued defendants lack sufficient contacts with California and that plaintiff’s claims arise elsewhere.
The court found the complaint did not show a substantial part of the events occurred in the Southern District of California and that defendants and relevant acts were centered outside the district.
The court dismissed the complaint without prejudice for improper venue and denied the preliminary injunction without prejudice; plaintiff may file a motion to amend within 30 days.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether venue is proper in the Southern District of California under 28 U.S.C. § 1391(b)(2)	Schreiber: substantial events and intended harm occurred in San Diego; he is domiciled there and conducted RedHawk business there	Defendants: alleged blocking acts occurred outside California; defendants are not resident or doing business in California	Venue is improper; Schreiber failed to show a substantial part of events occurred in this district; complaint dismissed without prejudice
Whether court should decide personal jurisdiction before venue	Schreiber sought to litigate here; venue question secondary	Defendants argued threshold jurisdiction/venue issues should be resolved first	Court permissibly resolved venue first under prudential principles (Leroy / Sinochem) and dismissed for improper venue
Whether dismissal should be without prejudice or transferred under 28 U.S.C. § 1406(a)	Schreiber opposed transfer (had challenged venue in Louisiana) and did not request transfer	Defendants suggested transfer to Eastern District of Louisiana where related action is pending	Court declined transfer as not in interests of justice given plaintiff’s litigation stance; dismissed without prejudice
Whether to grant preliminary injunction barring transfer-blocking	Schreiber sought emergency relief to stop alleged blocking	Defendants argued injunction consideration should await resolution of jurisdiction/venue	Court denied injunction without prejudice because venue was improper and threshold issues unresolved

Key Cases Cited

Leroy v. Great Western United Corp., 443 U.S. 173 (U.S. 1979) (permits deciding venue before personal jurisdiction for prudential reasons)
Sinochem Int’l Co. Ltd. v. Malaysia Int’l Shipping Corp., 549 U.S. 422 (U.S. 2007) (court may dismiss on forum non conveniens or venue grounds without reaching personal jurisdiction)
Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 134 S. Ct. 568 (U.S. 2013) (venue propriety depends on statutory venue rules)
Piedmont Label Co. v. Sun Garden Packing Co., 598 F.2d 491 (9th Cir. 1979) (plaintiff bears burden to establish venue when challenged)
Kukje Hwajae Ins. Co. v. M/V Hyundai Liberty, 408 F.3d 1250 (9th Cir. 2005) (on Rule 12(b)(3) courts may consider facts outside the pleadings)
Argueta v. Banco Mexicano, S.A., 87 F.3d 320 (9th Cir. 1996) (same)
King v. Russell, 963 F.2d 1301 (9th Cir. 1992) (affirming dismissal where plaintiff showed no interest in transfer)
Johnson v. Payless Drug Stores Northwest, Inc., 950 F.2d 586 (9th Cir. 1991) (court may decline transfer when plaintiff has opposed that forum)