Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_06-cv-02019/USCOURTS-caed-2_06-cv-02019-1/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 12:22 Securities Fraud

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 All further references to “Rule” or “Rules” are to the 1

Federal Rules of Civil Procedure unless otherwise noted.

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

NUTRACEA, No. 2:06-cv-2019-MCE-DAD

Plaintiff,

v. ORDER

LANGLEY PARK INVESTMENTS PLC; 

HARRY G. PEARL; RUFUS PEARL; 

PEARL INVESTMENT MANAGEMENT 

SERVICES LIMITED; and DOES 1

THROUGH 50 inclusive,

Defendants.

----oo0oo----

Presently before the Court is a Motion to Dismiss, brought

by Defendant Langley Park Investment Trust PLC (“Langley Park”),

pursuant to Federal Rule of Civil Procedure 12(b)(2) and

12(b(3), on grounds of lack of personal jurisdiction, or 1

alternatively for improper venue. 

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2

Since filing the motion, Defendant has withdrawn its

jurisdictional objection, leaving the only unresolved issue

whether or not this action should be dismissed for improper

venue, under Rule 12(b)(3), given the presence of a forum

selection clause in the underlying Stock Purchase Agreement which

provided than any action regarding the Agreement was to be

brought exclusively in New York, and determined in accordance

with New York Law.

Preliminarily, while this Motion is premised on its face on

Rule 12(b)(3) and requests outright dismissal instead of

transfer, Plaintiff Nutracea points out, and Langley Park does

not dispute, that outright dismissal would bar any newly filed

action on statute of limitations grounds, since the applicable

statute of limitations in a federal securities law action like

this one is two years. See In re Qwest Communications Int’l Inc.

Securities Litigation, 387 F. Supp. 2d 1130, 1141 (D. Colo. 2005;

see also 28 U.S.C. § 1658. It is well settled that where a

dismissal for improper venue under Rule 12(b)(3) would terminate

a plaintiff’s rights on timeliness grounds, the “interests of

justice” instead mandate that the matter be transferred absent

some showing of bad faith. Burnett v. N.Y. Cent. R.R. Supp. 

Co., 380 U.S. 424, 430 n.7 (1965); Roberson v. Norwegian Cruise

Line, 897 F. Supp. 1285, 1289 (E.D. Cal. 1995).

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3

Aside from Langley Park’s suggestion that the very filing of

this action outside of New York evidences bad faith in the face

of the forum selection provisions of the Stock Purchase

Agreement, Langley offers no credible basis for its claim of bad

faith, and the Court finds none under the circumstances of this

case. Accordingly, the Court will treat Langley’s request as a

request that Nutracea’s lawsuit be transferred pursuant to 28

U.S.C. § 1404(a). The propriety of transfer under that statute

hinges on more than the simple presence of a forum selection

clause. As the Supreme Court noted in Stewart Org., Inc. v.

Ricoh Corp., 487 U.S. 22, 30 (1988):

Section 1404(a) directs a district court to take account of

factors other than those that bear solely on the parties’

private ordering of their affairs. The district court also

must weigh in the balance the convenience of the witnesses

and those public-interest factors of systemic integrity and

fairness that, in addition to private concerns, come under

the heading of the “interest of justice.”

Turning first to the forum selection clause itself, the

Stock Purchase Agreement signed by the parties provides not only

that New York law shall govern the agreement, but also that any

action to enforce its terms be commenced in New York:

 5.8. Governing Law; Venue; Service of Process. The

parties hereto acknowledge that the transactions

contemplated by this Agreement and the exhibits hereto bear

a reasonable relation to the State of New York. The parties

hereto agree that the internal laws of the State of New York

shall govern this Agreement and the exhibits hereto,

including, but not limited to, all issues related to usury. 

Any action to enforce the terms of this Agreement or any of

its exhibits, or any other Transaction Document shall be

brought exclusively in the state and/or federal courts

situated in the County and State of New York. If and only

if New York declines jurisdiction within the State of New

York, such action shall be brought in the State and County

where the Target Company’s principle (sic) place of business

is situated ....

(Stock Exchange Agreement, attached as Ex. “A” to the Decl. of

Harry Pearl, ¶ 5.8).

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 Section 25401, for example, provides in pertinent part as 2

follows: “It is unlawful for any person to offer or sell a

security in this state or buy or offer a security in this state

by means of any written or oral communication which includes an

untrue statement of a material fact or omits to state a material

fact necessary in order to make the statements made, in the light

of the circumstances under which they were made, not misleading.” 

This varies from the common law requirements for proving

securities fraud, as well as federal law under SEC Rule 10b-5,

which both require reliance and proof of causation. See Bowden

v. Robinson, 67 Cal. App. 3d 705, 715 (1977) (California law);

Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d

87, 95-96 (2d Cir. 2001) (federal law). 

4

In spite of the professed choice of both a New York venue

and New York law, this lawsuit entails allegations of securities

fraud visited on a California corporation. California courts

have identified a public policy on the state’s part in preventing

fraud and deception in securities transactions. Hall v. Superior

Court, 150 Cal. App. 3d 411, 417 (1983). The Corporate

Securities Act of 1968, California Corporations Code § 25000, et

seq., was enacted to effectuate this policy by regulating

securities transactions in California and providing statutory

remedies, in addition to the remedies available under common

law. Id. Under California law, forum selection clauses will 2

not be enforced if doing so significantly impairs the substantial

legal rights of California consumers. See Am. Online, Inc. v.

Super. Ct., 90 Cal. App. 4th 1, 12 (2001).

Corporations Code § 25701, which applies whenever there is

an offer to buy or sell securities in California, provides that

“[a]ny condition, stipulation or provision purporting to bind any

person acquiring any security to waive compliance with any

provision of this law ... is void.” 

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5

In the face of § 25701 and the clear public policy it evinced,

the Hall court declined to give effect to a clause selecting

Nevada as the contractual forum. Hall goes so far as to conclude

that § 25701 “removes any discretion [in permitting the choice of

forum provision at issue] and compels denial of enforcement.” 

Hall, 150 Cal. App. 3d at 418.

 Section 25701's prohibition applies equally to the venue

selection and choice of law provisions set out in the Stock

Exchange Agreement here, since Langley Park does not dispute

Nutracea’s claim that there are no similarly statutory

protections available under New York law, which provides only

common law protections as opposed to the additional statutory

remedies encompassed within California’s Corporate Securities Act

of 1968.

While Nutracea argues strenuously that forum selection

clauses like that contained in the Stock Purchase Agreement

should be presumed valid, both the Supreme Court and the Ninth

Circuit have recognized an exception to that general rule when

the contractual choice-of-forum law would contravene a strong

public policy of the forum in which suit is brought, whether

declared by statute or by judicial decision. M/S Bremen v.

Zapata Off-Shore Co., 407 U.S. 1, 15 (1972); see also Jones v.

GNC Franchising, Inc., 211 F.3d 495, 497 (9th Cir. 2000).

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 See also Boam v. Trident Financial Corp., 6 Cal. App. 4th 3

738, 743-44 (1992) (California’s Corporate Securities Act of 1968

“demonstrates a legislative intent to afford victims of

securities fraud a remedy without the task of proving common law

fraud”). 

 Although Langley Park argues that choice of law is 4

separate and distinct from choice of forum and that the latter

should be enforced even if the former is not by virtue of a

severability provision contained in the Stock Exchange Agreement,

the Court rejects any distinction in that regard on grounds that

both issues are in fact “inextricably bound” together. See Hall,

140 Cal. App. 3d at 416.

6

Here, as both Section 25701 and the Hall decision make

clear, California does have a strong public policy in providing

additional statutory remedies to safeguard the public against

securities violations. That policy militates against 3

enforcement of the venue selection/choice of law clause4

contained within the Stock Purchase Agreement. While Langley

Park argues that litigation in California still should not be

proceed because there has been no showing that New York courts

would not apply California law in adjudicating this dispute, the

Court finds that argument wholly unsatisfactory and unpersuasive.

The Court declines to enforce the forum selection clause

denominating New York as both the location for the instant

lawsuit and the source of the law to be employed in its

adjudication. That conclusion is further underscored by

additional considerations of convenience and fairness that, as

stated above, must be evaluated in assessing a Section 1404(a)

motion to transfer, even in the face of the forum selection

clause involved here. Stewart, 487 U.S. at 30. 

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 Although Langley contends that certain Nutracea personnel 5

recently relocated to Arizona, that factor still does not make

New York a more convenient locale for litigating this dispute.

7

Aside from the fact that the escrow company selected by Langley

to hold the Nutracea shares pending consummation of the agreement

was located in New York, and Langley’s counsel were also

headquartered there, New York bears virtually no relationship

whatsoever to this case. The Stock Exchange Agreement was

negotiated directly between Langley representatives in the United

Kingdom and Nutracea personnel in California, and the signed

transaction documents were forwarded from California to London

and not to New York. See Decl. of Brad Edson, ¶¶ 2-3. Moreover,

most of the witnesses and evidence, at least in the United

States, would appear to be located in California where Nutracea

has been headquartered. Nutracea claims that some ten other 5

California companies were involved in Langley Park’s private

placement arrangements, and may also attest through Californiabased officers and employees to Langley’s alleged fraud. None of

this points to New York as a more convenient forum, and instead

highlights the impropriety of transferring this matter to New

York.

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 Because oral argument will not be of material assistance, 6

the Court ordered this matter submitted on the briefs. E.D. Cal.

Local Rule 78-230(h). 

8

Based on all the foregoing, Defendant Langley Park’s Motion

to Dismiss, which the Court has construed as a request for

transfer, is hereby DENIED.6

IT IS SO ORDERED.

DATED: January 16, 2007

_____________________________

MORRISON C. ENGLAND, JR

UNITED STATES DISTRICT JUDGE

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