ORDER: (1) DENYING DEFENDANTS’ RULE 12(b)(3) MOTIONS TO DISMISS; (2) DENYING DEFENDANTS’ RULE 12(b)(6) PARTIAL MOTIONS TO DISMISS; (3) DENYING DEFENDANT JOE C. BAL-LENGER SR.’S MOTION TO TRANSFER VENUE
On Oсtober 30, 2013, the Court heard oral argument on the Rule 12(b)(3) Motion to Dismiss (Dkt. # 6) brought by Defendant Joe C. Ballenger, Sr. (“Ballenger, Sr.”) and the Rule 12(b)(3) Motion to Dismiss (Dkt. # 12) brought by Defendants Joe C. Ballenger, Jr., Tejas Concrete & Materials, Inc., Ballenger United Development LTD., and Val-Tex Asphalt & Environmental Recycling Inc. (collectively, “Ballenger, Jr. Defendants”). The Court also heard the Rule 12(b)(6) Partial Motions to Dismiss brought by the Ballenger, Jr. Defendants and Defendant Ballenger, Sr. (Dkt. ## 7,11.) Also before the Court is Defendant Ballenger, Sr.’s Motion to Transfer Venue. (Dkt. # 32.) Marshall R. Ray, Esq., George Baldwin, Esq., and Robert Carson Fisk, Esq., appeared at the hearing on behalf of Defendants. Christopher R. Ward, Esq., appeared on behalf of Plaintiffs Zurich American Insurance Company, Fidelity and Deposit Company of Maryland, and Colonial American Casualty and Surety Company (collectively, “Plaintiffs”). After reviewing the motions and the supporting and opposing memoranda, the Court DENIES Defendants’ Rule 12(b)(3) Motions to Dismiss (Dkt. ## 6, 12), DENIES Defendants’ Rule 12(b)(6) Partial Motions to Dismiss (Dkt. ## 7, 11), and DENIES Ballenger, Sr.’s Motion to Transfer Venue (Dkt. # 32).
BACKGROUND
I. Factual and Procedural Background
On April 15, 2009, Defendants, together with Ballenger Construction, Inc. (“Ballenger Construction”), executed an Agreement of Indemnity in favor of Plaintiffs in consideration for certain surety bonds. (Dkt. # 1 ¶ 11.) Plaintiffs issued several performance and payment bonds (“the Bonds”), which named Ballenger Construction Co. as principal on nine construction projects to be completed in the State of Texas (“the Projects”). (Id. ¶ 12.)
Unpaid subcontractors and suppliers on the Projects have made numerous claims
On April 15, 2013, Plaintiffs filed suit against Defendants in this Court, bringing claims for (1) breach of the Agreement of Indemnity; (2) collateralization of Defendants’ assets; (3) equitable exoneration; (4) violations of Chapter 162 of the Texas Property Code; and (5) an accounting. (See id. ¶¶ 16-40.) Plaintiffs also sеek to recover attorneys’ fees, costs, and interest. (Id. ¶¶ 41-45.)
On May 10, 2013, Defendant Ballenger, Sr. filed a Motion to Dismiss pursuant to Rule 12(b)(3), asserting that venue is improper in the United States District Court for the Western District of Texas. (Dkt. #6.) Ballenger, Sr. also filed a Partial Motion to Dismiss pursuant to Rule 12(b)(6), asking the Court to dismiss Plaintiffs’ claims brought under Chapter 162 of the Texas Property Code. (Dkt. #7.) On May 21, 2013, the Ballenger, Jr. Defendants filed a Motion to Dismiss pursuant to Rule 12(b)(3) and a Partial Motion to Dismiss pursuant to Rule 12(b)(6). (Dkt. ## 11, 12.) On May 24, 2013, Plaintiffs filed responses in opposition to the Motions to Dismiss. (Dkt. ## 14, 15.) On May 31, 2013, Defendants filed replies in support of their motions. (Dkt. ## 23, 24, 25.)
On July 12, 2013, Ballenger, Sr. filed a Motion to Transfer Venue, asserting that venue is “clearly more convеnient” in the United States District Court for the Southern District of Texas, Brownsville Division. (Dkt. # 32.) On July 19, 2013, Plaintiffs filed a response in opposition to the motion. (Dkt. # 34.) On August 30, 2013, Ballenger, Sr. filed a Supplement to Motion to Transfer Venue. (Dkt. # 36.)
II. Related Litigation
A. Bankruptcy of Ballenger Construction
On December 7, 2012, Ballenger Construction
Two of the plaintiffs in the instant case, Colonial American Casualty and Surety Company (“Colonial”) and Fidelity and Deposit Company of Maryland (“Fidelity”) have entered an appearance in the bankruptcy action. (Dkt. # 32-2.) Additionally, Plaintiff Zurich American Insurance Company (“Zurich”) has filed several notices of intent to conduct a Rule 2004 examination and issued several subpoenas duces tecum in the bankruptcy action. (Dkt. # 32-3.) One of the examinations was to be held in Austin, Texas at the law offices of Zurich’s counsel in the bankruptcy action. (Id.)
On December 31, 2012, Ballenger Construction removed to federal court a case filed against it by Cameron County Regional Mobility Authority in the 445th Judicial District Court of Cameron County, Texas. (Dkt. # 32-12.) The parties
On January 3, 2013, Ballenger Cоnstruction removed to federal court a case filed against it by FED Investments Inc. in the 166th Judicial District Court of Bexar County, Texas. (Dkt. #32-14.) Following a status conference, the bankruptcy judge in United States Bankruptcy Court for the Western District of Texas ordered that the action be transferred to the Southern District of Texas. (Dkt. # 32-15.)
B.Actions Brought by Liberty Mutual Insurance Company
Liberty Mutual Insurance Company (“Liberty”) also served as a surety and issued payment bonds to Ballenger Construction and several defendants in the instant case
On April 5, 2013, Liberty filed a lawsuit against Ballenger Construction’s accountant in the United States District Court for the Southern District of Texas, McAllen Division, asserting a claim for negligent misrepresentation. (Dkt. # 32-18.)
C. Action Involving Zurich Construction
On April 30, 2013, CEMEX Material South L.L.C. (“CEMEX”) filed a lawsuit against Ballenger Construction and Plaintiffs in the United States District Court for the Southern District of Texas, Brownsville Division. (Dkt. #32-19.) CEMEX brings claims relating to one of the nine Projects for which Plaintiffs had issued a performance and payment bond. (See id.)
D. Bankruptcy of Val-Tex
On August 23, 2013, Defendant Val-Tex Asphalt & Environmental Recycling, Inc. (“Val-Tex”) filed fоr bankruptcy under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas, Brownsville Division. (Dkt. # 36-1.)
STANDARD OF REVIEW
I. Rule 12(b)(3)
A party may move to dismiss an action based on improper venue pursuant to Rule 12(b)(3). See Fed.R.Civ.P. 12(b)(3). Once a defendant challenges venue, the plaintiff has the burden of demonstrating that the chosen venue is proper. Am. Gen. Life Ins. Co. v. Rasche,
If venue is improper, 28 U.S.C. § 1406(a) instructs district courts to “dismiss, or if it be in the interest of justice, transfer such case to any district or division in which it could have been brought.” 28 U.S.C. § 1406(a). The decision to dismiss or transfer lies within the court’s discretion. AllChem Performance Prods., Inc. v. Aqualine Warehouse, LLC,
II. Rule 12(b)(6)
Rule 12(b)(6) authorizes dismissal of a complaint for “failure to state a claim upon which relief can be granted.” Review is limited to the contents of the complaint and matters properly subject to judicial notice. See Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
A complaint need not include detailed facts to survive a Rule 12(b)(6) motion to dismiss. See Twombly,
III. 28 U.S.C. § im(a)
Under 28 U.S.C. § 1404(a), a court may transfer an action to any other proper judicial district “[f]or the convenience of the parties and witnesses, in the interеst of justice.” The party seeking transfer of venue must show good cause for the transfer. In re Volkswagen of Am., Inc.,
When deciding whether to transfer venue, a court balances the private interests of the litigants and the public’s interest in the fair and efficient administration of justice. The Fifth Circuit has adopted the private and public interest factors first
The private interest factors are: “(1) the relative ease of access to sourсes of proof; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practical problems that make trial of a case easy, expeditious and inexpensive.” In re Volkswagen AG,
DISCUSSION
I. Motions to Dismiss for Improper Venue
Defendants bring motions to dismiss under Rule 12(b)(3), arguing that venue is improper in the Western District of Texas. (Dkt. ## 6, 12.) More specifically, Defendants argue that a “substantial part” of the events that form the basis of Plaintiffs’ claims transpired outside this district.
Pursuant to 28 U.S.C. § 1406(a), a court may dismiss or transfer a case if it has been filed in the “wrong” division or district. 28 U.S.C. § 1406(a). According to 28 U.S.C. § 1391(b), venue is proper in a diversity action in:
(1) a judicial district in which аny defendant resides, if all defendants are residents of the State in which the district is located;
(2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated; or
(3) if there is no district in which an action may otherwise be brought as provided in this section, any judicial district in which any defendant is subject to the court’s personal jurisdiction with respect to such action.
28 U.S.C. § 1391(b).
Plaintiffs assert venue is proper in this Court pursuant to 28 U.S.C. § 1391(b)(2), alleging that a substantial part of the events giving rise to the claim occurred in the Western District. (Dkt. # 1 ¶ 10.) Defendants first argue that venue is improper because Plaintiffs claims concern the alleged failure of the Defendants to reimburse Plaintiffs and, thus, such failures would have occurred where the Defendants allegedly failed to reimburse. According to Defendants, because Defen
Pursuant to the Agreement of Indemnity, Defendants promised to exonerate and indemnify Plaintiffs for losses on the Projects. A promise to exonerate a surety creates in the promisor “a duty to perform the underlying obligation at the time the performance is due.” Restatement (3d) of Suretyship & Guar. (1996) § 21 cmt. i. Thus, the Agreement of Indemnity required Defendants to ensure completion of the Projects, a third of which were located in counties within the Western District of Texas. According to Plaintiffs, Defendants had a duty to pay the subcontractors and suppliers who performed work on thе construction projects, three of which were located in counties within the Western District of Texas. As a result of Defendants’ alleged failure to satisfy these obligations, Plaintiffs assert numerous claims have been made on the Bonds by unpaid contractors and sub-contractors and that this has caused Plaintiffs “to incur substantial losses and expenses.” (Id. ¶ 13.) Thus, events and omissions giving rise to Plaintiffs’ claim occurred in the Western District of Texas, and venue is proper under § 1391(b)(2) because a substantial portion of the events giving rise to this suit occurred in Bexar County, Texas and Hays County, Texas — both of which are located in the Western District of Texas.
Although Defendants concede that three of the projects at issue were located in counties within the Western District, they next assert that because the remaining six construction projects at issue were located in counties within the jurisdiction of the Southern District of Texas, the Southern District is where a “substantial” amount of the events occurred and, therefore, is the proper venue. (Dkt. #32.) However, that three of the nine construction projections were located in the Western District of Texas is sufficient to satisfy the “substantiality” requirement of § 1391(b)(2). “‘Substantiality’ for venue purposes is more a qualitative than a quantitative inquiry, determined by assessing the overall nature of the plaintiffs claims аnd the nature of the specific events or omissions in the forum, and not by simply adding up the. number of contacts.” Daniel v. Am. Bd. of Emergency Med.,
Based on the foregoing, the Court DENIES Defendants’ Rule 12(b)(3) Motions to Dismiss.
II. Partial Motions to Dismiss for Failure to State a Claim
Defendants bring partial motions to dismiss under Rule 12(b)(6), arguing that Plaintiffs’ claims made pursuant to Chapter 162 of the Texas Property Code should be dismissed. (Dkt. ## 7, 11.) More specifically, Defendants argue there is no civil right of recovery under Chapter 162, also known as the Trust Fund Act, because the statute only expressly provides for criminal penalties.
Under the Trust Fund Act, payments made to a contractor or subcontractor under a construction contract for the improvement of real property are considered to be trust funds. Tex. Prop.Code § 162.001(a). A trustee misapplies trust funds if it “intentionally or knowingly or with intent to defraud, directly or indirectly retains, uses, disburses, or otherwise diverts trust funds without first fully paying all current or past due obligations incurred by the trustee to the beneficiaries of the trust fund.” Id. § 162.031(a). Criminal penalties are assessed for violations of the Chapter. See id. § 162.032 (assessing criminal penalties ranging from a Class A misdemeanor to a felony of the third degree for violations). In Dealers Electrical Supply Co. v. Scoggins Construction Co.,
Citing Brown v. De La Cruz,
Several courts of appeals have cited a rule of “necessary implication” — that when a legislative enforcement scheme fails to adequately protect intended beneficiaries, the courts must imply a private cause of action to effectuate the statutory purposes. Sоme cite at the same time a contradictory rule of strict construction' — that causes of action may be implied only when a legislative intent to do so appears in the statute as written. The basis for the former rule appears to be federal cases that have now been abandoned in favor of the latter rule. To the extent that there has been confusion about the Texas rule, we too disapprove of the former in favor of the latter.
Id. at 567.
Defendants now argue that the above language from the Supreme Court of Tex
In Brown, a purchaser of real property sued the seller under Texas Property Code § 5.102, seeking damages for the seller’s failure to timely deliver the deed to the property. Id. at 562. Under the former § 5.102, a seller of certain real property was required to record and transfer a deed within thirty days of final payment. Id. at 563. Prior to a 2001 amendment, § 5.102 provided that a seller who failed to timely transfer the deed was “subject to a penalty” of up to $500 a day, but did not specify to whom that penalty was due. Section 5.102 was subsequently amended to state that a seller in violation of the statute was “liable to the purchaser” for “liquidated damages,” not “subject to a penalty.” Id. at 564. Although De La Cruz’s case was governed by the pre-amendment version of § 5.102, De La Cruz sought a private cause of action, arguing the amended version of § 5.102 demonstrated the legislature’s intent to allow purchasers a рrivate right to recover under the prior statute as well. The Supreme Court of Texas disagreed, holding the statute provided no private cause of action because there was no clear legislative intent for such a remedy under the pre-amendment version. Id. at 567. The court reasoned:
[I]f the Legislature had intended merely to clarify who could recover the penalty, the substitution of “liable to the purchaser” would have been sufficient. Instead, by changing “penalty” to “liquidated damages” and adding a provision for attorney’s fees, the Legislature changed not just the recipient but the nature of the amounts assessed.
Id. at 565.
For two reasons, this Court declines to find that the supremе court’s holding in Brown forecloses civil liability under the Trust Fund Act. First, the Brown ruling did not specifically address the Trust Fund Act and did not decide whether a statute only expressly providing for criminal penalties also allows for a private civil right of recovery. Instead, the Brown ruling addressed a pre-amendment version of a statute of the Texas Property Code and whether that specific statute — providing for a civil statutory penalty, but failing to specify to whom that penalty was due — allowed a private civil cause of action for such penalties.
Second, the Brown decision relied upon by Defendants was issued five years prior to the Supreme Court of Texas’s express recognition in Scoggins that a private civil cause of action exists for violations of the Trust Fund Act. Presumably, had the Scoggins court felt that its prior decision in Brown precluded civil liability under Chapter 162 оf the Texas Property Code, it would not have found that a private cause of action exists under that chapter. To determine Texas law, this Court will look to the final decisions of the Supreme Court of Texas on the issue. Transcon. Gas Pipe Line Corp. v. Transp. Ins. Co.,
Defendants also argue that Plaintiffs’ Chapter 162 claims impermissibly
III. Motion to Transfer Venue
Ballenger, Sr. also brings a Motion to Transfer Venue pursuant to 28 U.S.C. § 1404(a), contending that venue is “clearly more convenient” in the Southern District of Texаs, Brownsville Division.
A. Private Interest Factors
1. Relative Ease of Access to Sources of Proof
Ballenger, Sr. argues that given “the number and significance of pending actions in the Southern District of Texas,” coupled with the fact that many of the Defendants are located in the Southern District of Texas, access to sources of proof would be “much easier” upon transfer. (Dkt. # 32 at 6.)
Plaintiffs argue that “the location of books and other records is usually given little weight” in a motion to transfer venue. (Dkt. # 34 at 5.) However, the Fifth Circuit has held that, despite technological advances that have made the physical location of documents less significаnt, the location of sources of proof remains a meaningful factor in the transfer analysis. Volkswagen II,
Here, Ballenger, Sr. fails to explain why the pending actions in the Southern District of Texas are relevant to the easy access to proof in this case. Additionally, although four Defendants are located in the Southern District of Texas, at least one Defendant is based in the Western District of Texas. And since three of the nine construction projects were located in the Western District of Texas, a significant amount of evidence is presumably also contained in this district. Where important documents are located in both venues, this factor does not weigh in favor of transfer. See Metromedia Steakhouses Co. v. BMJ Foods P.R., Cv. No. 3:07-CV-2042-D,
2. Availability of Compulsory Process to Secure the Attendance of Witnesses
Ballenger, Sr. asserts in a conclusory fashion: “Given that few, if any, po
Furthermore, Federal Rule of Civil Procedure 45(b)(2) governs the places where a subpoena may be served. The Court’s subpoena power is subject to Rule 45(c)(3), which protects non-party -witnesses who live or work more than 100 miles from the courthouse. Volkswagen II,
3. Cost of Attendance for Willing Witnesses
“When the distance between an existing venue for trial of a matter and a proposed venue under § 1404(a) is more than 100 miles, the factor of inconvenience to witnesses increases in direct relationship to the additional distance to be traveled.” Volkswagen I,
Although a defendant can assert that the cost of obtaining the attendance of witnesses will be substantially less in the forum it proposes, courts recognize that the chosen forum is rarely the least expensive venue for every individual affiliated with the case. Bevil v. Smit Ams., Inc.,
4. Any Other Practical Problems
Ballenger, Sr. argues that if venue is not transferred to the Southern District it will be inconvenient for him to maintain active participation in other cases pending in the Southern District as well as the “significant bankruptcy case” involving Ballenger Construction. (Dkt. # 32 at 7.) However, the bankruptcy proceeding for Ballenger Construction is pending in the Corpus Christi Division of the Southern District of Texas, not the Brownsville Division (where Ballenger, Sr. seeks to have the case transferred). The Court also notes that Ballenger Construction’s bankruptcy counsel is located in the Western District of Texas. Finally, and most importantly, the bankruрtcy is not directly related to the factual matters in dispute in this case, because it concerns the debts and liabilities of Ballenger Construction, not the liability of Defendants; Ballenger Construction is not a party to the instant action.
Likewise, the cases involving Liberty are not significantly related to the instant case. Plaintiffs are parties neither to the Liberty indemnity action nor to Liberty’s action against Ballenger Construction’s accountants. Similarly, the case brought by CEMEX against Plaintiffs does not involve any of the Defendants. Plaintiffs asserted at the hearing there is no possibility of consolidation of the instant case and the cases involving Liberty Mutual. The pendency оf another related litigation is not accorded any weight where there is no “realistic probability” of “consolidating the two cases.” U.S. Fire Ins. Co. v. Aldworth Co., No. Civ. 04-4963(JBS),
B. Public Interest Factors
Ballenger, Sr., concedes that the first, third and fourth public interest factors are either not аpplicable in this case or are neutral. (Dkt. # 32 at 8-10.)
1. Administrative Difficulties Flowing From Court Congestion
Ballenger, Sr. concedes this factor is not an issue given similar time frames for case resolution in this district and the Southern District.
2. Local Interest In Deciding Localized Controversies
The Court must also consider the local interest in the litigation, because “[j]ury duty is a burden that ought not to be imposed upon the people of a community which has no relation to the litigation.” Volkswagen I,
As described above, this district has an interest in this litigation because a substantial number of the construction projects were located here. As Plaintiffs allege in the Response to Defendаnt Joe C. Ballenger, Sr.’s Motion to Transfer Venue, Defendants “have failed to adhere to their statutory and contractual trust obligations on the bonded projects in the Western District, to the detriment of numerous sub
3. Familiarity of the Forum with the Governing Law
Ballenger, Sr. concedes that all claims in this case are governed by Texas law. (Dkt. #32 at 10.) Both this district and the Southern District are equally capable of applying Texas state law. Accordingly, this factor does not weigh in favor of transfer.
4. Avoidance of Unnecessary Problems of Conflict of Laws
Neither party asserts an issue regarding conflict of laws that would make either forum more appropriate to decide this case. Accordingly, this factor does not weigh in favor of transfer.
In sum, Ballenger, Sr. has not shown “good cause” for transfer of the instant case to the Southern District of Texas or that the Southern District of Texas would constitute a “clearly more convenient” venue.
CONCLUSION
For the reasons stated above, the Court DENIES Defendants’ Rule 12(b)(3) Motions to Dismiss (Dkt. ## 6, 12), DENIES Defendants’ Rule 12(b)(6) Partial Motions to Dismiss (Dkt. ## 7, 11), and DENIES Ballenger, Sr.’s Motion to Transfer Venue (Dkt. # 32).
IT IS SO ORDERED.
Notes
. Ballenger Construction is not a defendant in this case, but was a party to the Agreement of Indemnity.
. Parties to the payment bonds included Defendants Ballenger, Sr., Ballenger, Jr. and Val-Tex Asphalt & Environmental Recycling, Inc. (Dkt. # 32-16.)
. The Court notes venue is also proper in this case under § 1391(b)(1). Under § 1391(b)(1), venue is proper in a district where any defendant resides, if all the defendants reside in the state where the district is located. 28 U.S.C. § 1391(b)(1). As mentioned above, Joseph C. Ballenger, Jr., resides at 184 Rivеrwood, Boeme, Texas 75006, which is located in Kendall County — within the boundaries of the Western District of Texas — and all other Defendants are residents of the State of Texas. (Dkt. # 1 ¶¶ 4-8.) Ballenger, Jr. also designated his residence in Kendall County as his "homestead” for purposes of obtaining a property tax exemption. (Dkt. # 28 Ex. A.)
. "The preliminary question under § 1404(a) is whether a civil action ‘might have been brought’ in the destination venue.” Volkswagen II,
. Ballenger, Sr., directs the Court to an order issued by the Northern District of Texas granting Defendants’ motion to transfer venue to the Southern District (Dkt. # 32 Ex. 9.) in the factually similar case filed against Defendants by Liberty Mutual Insurance Company. However, in that case, none of the Defendants or projects giving rise to Liberty Mutual's claims were located in the Northern District. Therefore, Defendants met the burden of demonstrating venue was "clearly more convenient” in the Southern District than in the Northern District and, thus, transfer was warranted. Defendants could have presumably shown venue was clearly more convenient in the Western District as well, given the number of the Projects that occurred in this district. The Court finds the facts in the instant case distinguishable from those presented to the Northern District as outlined in that court’s order and therefore disagrees with Ballenger, Sr. that the Northern District’s order lends support to his motion before this Court.