Moore v. Payson Petroleum Grayson: Investors in 3-Well Program Denied Transfer of Venue
In Moore v. Payson Petroleum Grayson, LLC, No. 3:17-CV-1436-M-BH, 2018 BL 21203 (N.D. Tex. Jan. 23, 2018), the court denied a motion to transfer venue filed by seven Payson Petroleum Grayson, LLC (“Payson”) investors (“Plaintiffs”), from the Northern District of Texas, Dallas Division (“Dallas Division”), to the Eastern District of Texas, Sherman Division (“Sherman Division”). In the class action, Plaintiffs’ alleged Payson and twelve other defendants (collectively “Defendants”) violated the Texas Securities Act. In denying the motion to transfer, the court reasoned both private and public interest factors, as well as the interest of justice, did not warrant transfer.
The complaint alleged Payson committed to funding 20% of its 3-Well Program, which would drill, complete, and operate three oil wells owned by Payson in Grayson County, Texas. The complaint alleged Payson ultimately failed to fund the project despite having successfully raised a total of $23 million from investors. According to the allegations, the SEC launched its own investigation, and filed a civil action alleging fraud against Payson’s owner, Matthew Carl Griffin, and his brother in the Sherman Division on November 23, 2016. SEC v. Griffin, No. 4:16-CV-00902 (E.D. Tex. Nov. 23, 2016). The Griffins subsequently entered into a consent agreement with the SEC. Nearly three months later, Plaintiffs filed a class action in state court in Dallas County, alleging Defendants violated the Texas Securities Act. Defendants removed the case to federal court under the Class Action Fairness Act provisions of 28 U.S.C. § 1332(d)(2). Plaintiffs filed a motion to transfer the venue to the Sherman Division.
When venue is proper in federal court, a party may seek a transfer of the case for the convenience of parties and witnesses, or in the interest of justice, so long as the transferee court is one where the case could have been brought. 28 U.S.C. § 1404(a). The burden is on the moving party to show the transferee court is a proper venue and the transferee court is “clearly more convenient” for this case. 28 U.S.C. § 1391(b), § 1404(a). Once proper venue is established in the transferee court, the transferor court will consider (a) four private interest factors to evaluate the transfer: 1) relative ease of access to sources of proof, 2) availability of compulsory process to secure the attendance of witnesses, 3) cost of attendance for willing witnesses, and 4) all other practical problems that make trial of a case easy, expeditious and inexpensive; and (b) four public interest factors: 1) court congestion, 2) local interest, 3) familiarity with governing law, and 4) avoidance of conflict of laws. Courts will also assess the interest of justice and the plaintiff’s choice of forum.
The court held that all but one of the private and public interest factors were neutral at best, with one factor – cost of attendance for willing witnesses – weighing against transfer. The court held Plaintiffs failed to prove documents or key witnesses would be more accessible in the Sherman Division. Additionally, there was no reason to assume key witnesses were outside of the Dallas Division’s subpoena power, and more events occurred outside the Sherman Division than within it. Moreover, the court noted many, if not most, of the willing witnesses cited in Plaintiffs’ complaint actually lived closer to the Dallas courthouse than to the Sherman courthouse.
As for the interest of justice, the court held Plaintiffs’ argument in support of transfer - that the SEC’s pending case against Griffin was in the Sherman Division - was inadequate justification because all that remained to be settled in the SEC action was the amount of penalty. Furthermore, the underlying case was based on federal securities laws and resulted in an uncontested motion for interlocutory judgment over Griffin. In contrast, the current class action was highly contested, based on alleged violations of the Texas Securities Act, and involved additional Defendants not named in the SEC action. Finally, Plaintiffs’ argument that they were left without their choice of forum was not accepted by the court because Plaintiffs knew their case could be removed to the Dallas Division when they filed in a Dallas County state court, just a few blocks away.
For the above reasons, the court held the Plaintiffs did not satisfy their burden of showing the requested transfer was more convenient for parties and witnesses or would serve the interest of justice, and therefore denied the motion.
The primary materials for this case may be found on the DU Corporate Governance website.