Packlane, Inc. v. Best & Flanagan, LLP et al, No. 4:2023cv03496 - Document 29 (N.D. Cal. 2023)

Court Description: ORDER DENYING 14 MOTION TO CHANGE VENUE AND GRANTING IN PART AND DENYING IN PART 12 MOTION TO STRIKE.Case Management Statement due by 12/5/2023. Telephonic Initial Case Management Conference set for 12/12/2023 02:00 PM. The 12/12/2023 pro ceeding will be held by AT&T Conference Line. The parties are advised that in the event of an audio problem, counsel should be prepared to attend the hearing via Zoom conference at the Courts direction. The court circulates the following conference number to allow the equivalent of a public hearing by telephone.For conference line information, see: https://apps.cand.uscourts.gov/telhrg/ All counsel, members of the public and press please use the following dial-in information below to access the conference line: Dial In: 888-808-6929Access Code: 6064255The Court may be in session with proceedings in progress when you connect to the conference line. Therefore, mute your phone if possible and wait for the Court to address you before speaking on the line. For call clarity, parties shall NOT use speaker phone or earpieces for these calls, and where at all possible, parties shall use landlines. The parties are further advised to ensure that the Court can hear and understand them clearly before speaking at length.PLEASE NOTE: Persons granted access to court proceedings held by telephone or videoconference are reminded that photographing, recording, and rebroadcasting of court proceedings, includ ing screenshots or other visual copying of a hearing, is absolutely prohibited. See General Order 58 at Paragraph III.PLEASE NOTE: All attorneys and pro se litigants appearing for a telephonic case management conference are required to dial-in at least 15 minutes before the hearing to check-in with the CRD. Signed by Judge Haywood S. Gilliam, Jr. on 11/20/2023. (ndr, COURT STAFF) (Filed on 11/20/2023)

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Packlane, Inc. v. Best & Flanagan, LLP et al Doc. 29 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 PACKLANE, INC., Plaintiff, 8 v. 9 10 BEST & FLANAGAN, LLP, et al., Defendants. United States District Court Northern District of California 11 Case No. 23-cv-03496-HSG ORDER DENYING MOTION TO CHANGE VENUE AND GRANTING IN PART AND DENYING IN PART MOTION TO STRIKE Re: Dkt. Nos. 12, 14 12 Pending before the Court is Defendants Best & Flanagan, LLP and Daniel L. Grimsrud’s 13 14 motion to change venue, Dkt. No. 14, and Plaintiff Packlane, Inc.’s motion to strike affirmative 15 defenses, Dkt. No. 12. The Court finds these matters appropriate for disposition without oral 16 argument and the matters are deemed submitted. See Civil L.R. 7-1(b). For the reasons detailed 17 below, the Court DENIES the motion to change venue and GRANTS IN PART and DENIES IN 18 PART the motion to strike. 19 20 I. BACKGROUND Packlane initially filed this action in San Francisco Superior Court in May 2023. See Dkt. 21 No. 1-2, Ex. A (“Compl.”). Defendants later removed the action to federal court on the basis of 22 diversity jurisdiction. Dkt. No. 1. In the complaint, Packlane alleges that it retained Best & 23 Flanagan, a law firm, in March 2020 to represent it as part of a potential corporate transaction with 24 Digital Room. See Compl. at ¶¶ 1–2, 11–17. Digital Room had expressed interest in purchasing 25 Packlane for $30 million in cash. See id. at ¶¶ 12–14, 59. Based on Best & Flanagan’s legal 26 advice, Packlane ultimately sold its assets to Digital Room in May 2022. See id. at ¶ 79. 27 However, Packlane alleges that because Best & Flanagan structured the sale as an asset purchase, 28 Packlane incurred approximately $6 million in taxes that could have been avoided had the deal Dockets.Justia.com 1 been structured differently. Id. at ¶¶ 1–3, 59–80. Packlane further argues that none of the Best & 2 Flanagan attorneys, including Defendant Grimsrud, were licensed to practice law in California. 3 See, e.g., id. at ¶¶ 4, 26, 29–43. Based on these alleged facts, Packlane brings causes of action for 4 breach of contract, professional negligence – legal malpractice, and breach of fiduciary duty. See 5 id. at ¶¶ 81–98. Defendants filed an amended answer to the complaint in August 2023, which includes 6 7 several affirmative defenses. Dkt. No. 10 at 12–17. Defendants now move to transfer this case to 8 the District of Minnesota, Dkt. No. 14, and Packlane moves to strike Defendants’ affirmative 9 defenses, Dkt. No. 12. United States District Court Northern District of California 10 II. MOTION TO CHANGE VENUE 11 Defendants seek to transfer this action to the District of Minnesota, where they are located. 12 See Dkt. No. 14. Best & Flanagan’s office is located in Minneapolis, and Defendant Grimsrud is a 13 Minnesota resident.1 See Dkt. No. 14-1 (“Conners Decl.”) at ¶ 4; Dkt. No. 14-2 (“Grimsrud 14 Decl.”) at ¶ 4. 15 A. 16 Where an action has been commenced in an improper venue, a court shall, upon hearing of Legal Standard 17 a timely motion, dismiss the action or, if deemed to be in the interest of justice, transfer it to 18 different venue where the case could have been properly brought. 28 U.S.C. § 1406. Venue is 19 proper where (1) “any defendant resides, if all defendants are residents of the State in which the 20 district is located”; (2) “a substantial part of the events or omissions giving rise to the claim 21 occurred”; or (3) where there is “no district in which an action may otherwise be brought . . . .” 28 22 U.S.C. § 1391(b). 23 Even where a plaintiff’s chosen venue is proper, a defendant may petition the court for 24 transfer to a different district under 28 U.S.C. § 1404. “For the convenience of the parties and 25 26 27 28 1 As a limited liability partnership, Best & Flanagan is considered a citizen for purposes of diversity jurisdiction in every state in which its partners reside. See Carden v. Arkoma Assocs., 494 U.S. 185, 195–96 (1990); see also Johnson v. Columbia Properties Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006) (“An unincorporated association . . . has the citizenships of all of its members.”). Defendants have confirmed that all the partners are residents of Minnesota. See Dkt. No. 14-1 at ¶ 6. 2 United States District Court Northern District of California 1 witnesses, in the interest of justice, a district court may transfer any civil action to any other 2 district or division where it might have been brought . . . .” 28 U.S.C. § 1404(a). The moving 3 party bears the burden of showing that the transferee district is a “more appropriate forum.” See 4 Jones v. GNC Franchising, Inc., 211 F.3d 495, 499 (9th Cir. 2000). And the district court has 5 broad discretion in deciding whether to transfer an action. See Ventress v. Japan Airlines, 486 6 F.3d 1111, 1118 (9th Cir. 2007) (“[T]he district court’s decision to change venue is reviewed for 7 abuse of discretion. Weighing of the factors for and against transfer involves subtle considerations 8 and is best left to the discretion of the trial judge.”) (citations and quotations omitted). 9 The Court engages in a two-step analysis in deciding a motion to transfer under 28 U.S.C. 10 § 1404(a). First, it determines “whether the transferee district was one in which the action ‘might 11 have been brought’ by the plaintiff.” Hoffman v. Blaski, 363 U.S. 335, 343–44 (1960) (quoting 28 12 U.S.C. § 1404(a)). If it is, the Court engages in an “individualized, case-by-case consideration of 13 convenience and fairness.” Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988) (quoting 14 Van Dusen v. Barrack, 376 U.S. 612, 622 (1964)). In this district, courts consider a range of 15 private interest factors (such as the plaintiff’s choice of forum and the convenience of the parties, 16 witnesses, and evidence) and public interest factors (such as the familiarity of the court in each 17 forum with the applicable law, the feasibility of consolidation with other claims, any local interest 18 in the controversy, and the cost differential of litigation in the two forums). See, e.g., Jones, 211 19 F.3d at 499; Perez v. Performance Food Grp., Inc., No. 15-cv-02390-HSG, 2017 WL 66874, at *2 20 (N.D. Cal. Jan. 6, 2017). 21 B. 22 The parties do not appear to dispute that this action could have been brought in the District Discussion 23 of Minnesota. Compare Dkt. No. 14 at 4–6, with Dkt. No. 26 at 2, n.1. Rather, the parties 24 disagree about whether transferring the case to the District of Minnesota would serve the 25 convenience of the parties and witnesses and promote the interests of justice. 26 27 28 i. Plaintiff’s Choice of Forum Ordinarily, “the defendant must make a strong showing of inconvenience to warrant upsetting the plaintiff’s choice of forum.” Decker Coal Co. v. Commonwealth Edison Co., 805 3 1 F.2d 834, 843 (9th Cir. 1986). However, “[t]he degree to which courts defer to the plaintiff’s 2 venue choice is substantially reduced where the plaintiff’s venue choice is not its residence or 3 where the forum lacks a significant connection to the activities alleged in the complaint.” See 4 Carolina, 158 F. Supp. 2d at 1048 (citing cases); Saleh v. Titan Corp., 361 F. Supp. 2d 1152, 1156 5 (S.D. Cal. 2005) (same); cf. Lou v. Belzberg, 834 F.2d 730, 739 (9th Cir. 1987) (noting in the 6 context of a class action that “[i]f the operative facts have not occurred within the forum and the 7 forum has no interest in the parties or subject matter, [the plaintiff’s] choice is entitled to only 8 minimal consideration”). United States District Court Northern District of California 9 At the heart of this action is the legal advice that Defendants provided Packlane relating to 10 the Digital Room asset purchase. Packlane is headquartered in San Francisco, California. See 11 Compl. at ¶ 6. And Digital Room is headquartered in Sherman Oaks, California. Id. at ¶ 12. The 12 Northern District of California therefore is Packlane’s residence and has a significant connection 13 to the activities alleged in the complaint. This factor weighs against transfer. 14 15 ii. Familiarity with Applicable Law The parties appear to dispute what law may apply to this action. Compare Dkt. No. 14 at 16 10–11, with Dkt. No. 26 at 8–10. Defendants suggest that either California or Minnesota law 17 could apply. See Dkt. No. 14 at 10–11. Packlane, for its part, urges that California law should 18 apply to all three of its claims. See Dkt. No. 26 at 8–10. Packlane points out that its claims are 19 based, at least in part, on the unauthorized practice of law in California and the underlying asset 20 purchase involved California entities. Id. at 8–9. Yet neither party actually engages in the 21 (analytically complex) choice-of-law analysis. In any event, the Court notes that “federal judges 22 routinely interpret other states’ laws during their tenure on the bench.” See Hunt v. Ameritas Life 23 Ins. Corps., No. 4:19-CV-01657-JSW, 2019 WL 7666755, at *4 (N.D. Cal. Sept. 25, 2019). This 24 factor is therefore neutral. 25 26 27 28 iii. Convenience of Parties and Witnesses Defendants urge that the convenience of both the parties and witnesses favors transfer to the District of Minnesota. See Dkt. No. 14 at 8–10. Here, where Packlane is headquartered in California and Defendants are located in 4 1 Minnesota, the convenience of the parties appears to be a neutral factor. Still, Defendants point 2 out that ten of the anticipated witnesses are Best & Flanagan attorneys who are named in the 3 complaint as having worked on the Digital Room transaction. Id. at 10; see also Compl. at ¶¶ 15, 4 28, 32. Defendants point out that all its partners reside in Minnesota, and “all employees work out 5 of [the Minneapolis, Minnesota] office.” See Conners Decl. at ¶¶ 4, 6. They accordingly conclude 6 that this factor weighs strongly in favor of transfer to the District of Minnesota. The Court 7 disagrees. 8 United States District Court Northern District of California 9 The Court acknowledges that the convenience to non-party witnesses is a significant factor. In fact, some courts have explained that “[t]he relative convenience to the witnesses is 10 often recognized as the most important factor to be considered in ruling on a motion under 11 § 1404(a).” See Saleh, 361 F. Supp. 2d at 1160 (quotation omitted). “In determining whether this 12 factor weighs in favor of transfer, the court must consider not simply how many witnesses each 13 side has and the location of each, but, rather, the court must consider the importance of the 14 witnesses.” Id. at 1160–61. 15 But critically, Defendants do not identify these attorney witnesses by name, indicate where 16 they currently reside, or provide any context for their anticipated testimony. Aside from 17 Defendant Grimsrud, Defendants do not appear to have confirmed the residence of any of the 18 specific attorneys who worked on the Digital Room transaction (or even whether they still work 19 for the law firm). See Dkt. No. 14 at 10; see also Conners Decl. at ¶¶ 4, 6. Their centrality to the 20 case is also not readily apparent. Although multiple attorneys appear to have worked on the 21 Digital Room transaction, Packlane only sued Defendant Grimsrud. At least as alleged, Defendant 22 Grimsrud “served as the partner and lawyer in charge of this engagement for Best & Flanagan,” 23 and held himself out as an attorney who could provide advice on “tax” and “transaction planning 24 and execution.” See Compl. at ¶¶ 15–16, 18, 52–54, 58. Packlane employees also told Defendant 25 Grimsrud that they did not believe taxes would be owed on the assets sale, and he never corrected 26 them. See id. at ¶¶ 72–78. 27 28 On the other hand, Plaintiff indicates that employees from Digital Room will be key witnesses in the case. See Dkt. No. 26 at 14. Brett Zane, the President, Chief Financial Officer, 5 1 and Director at Digital Room Holdings, Inc., negotiated and signed the asset purchase agreement 2 between Packlane and Digital Room. Id. And although Packlane does not indicate where Mr. 3 Zane currently lives, he works in the Los Angeles area. Id. Digital Room itself is headquartered 4 in Sherman Oaks, California. See Compl. at ¶ 12. In short, the only parties who would benefit 5 from a transfer to the District of Minnesota appear to be Defendants themselves. The Court 6 therefore finds that this factor weighs against transfer. 7 iv. Although the parties each attempt to argue that the ease of access to evidence supports 8 United States District Court Northern District of California Access to Evidence 9 their respective positions, Dkt. No. 14 at 10 and Dkt. No. 26 at 18–19, the Court disagrees. “[T]he 10 ease of access to documents does not weigh heavily in the transfer analysis, given that advances in 11 technology have made it easier for documents to be transferred to different locations.” Hunt, 2019 12 WL 7666755, at *4 (quotation omitted). The Court has no reason to believe that documentary 13 evidence is more accessible in one state or one district over another. This factor is neutral. 14 v. Local Interest in the Controversy Defendants also urge that Minnesota has a stronger interest in this controversy because 15 16 Best & Flanagan “is a going concern and continues to employ Minnesota residents.” See Dkt. No. 17 14 at 11. Defendants appear to suggest that because Packlane sold its assets to Digital Room, 18 California has less of an interest in this case. Id. The Court is not convinced. Even if Packlane 19 were completely defunct, California still has an interest in ensuring that its citizens are represented 20 by competent counsel. This factor is also neutral. * 21 * * Having reviewed the relevant factors,2 the Court finds that Best & Flanagan has not met its 22 23 burden of establishing that hearing this case in the District of Minnesota would better serve the 24 convenience of the parties and witnesses or promote the interests of justice. The Court 25 accordingly declines to exercise its discretion to transfer the case and DENIES the motion. 26 // 27 28 2 Defendants acknowledge that the feasibility of consolidation with other claims and the relative congestion of the two district courts are neutral factors. See Dkt. No. 14 at 11. 6 1 2 United States District Court Northern District of California 3 III. MOTION TO STRIKE Packlane moves to strike all fourteen of Defendants’ affirmative defenses, arguing that Defendants have failed to plead sufficient facts to make each defense plausible. Dkt. No. 12. 4 A. 5 Federal Rule of Civil Procedure 12(f) authorizes a court to “strike from a pleading an Legal Standard 6 insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” An 7 affirmative defense is insufficiently pleaded if it fails to give the opposing party “fair notice” of 8 the nature of the defense. See Wyshak v. City Nat. Bank, 607 F.2d 824, 827 (9th Cir. 1979). In 9 moving to strike, a party seeks “to avoid the expenditure of time and money that must arise from 10 litigating spurious issues by dispensing with those issues prior to trial.” Sidney–Vinstein v. A.H. 11 Robins Co., 697 F.2d 880, 885 (9th Cir. 1983). “Because motions to strike a defense as 12 insufficient are disfavored, they will not be granted if the insufficiency of the defense is not clearly 13 apparent.” G & G Closed Circuit Events, LLC v. Nguyen, No. 10-cv-00168-LHK, 2010 WL 14 3749284, at *1 (N.D. Cal. Sept. 23, 2010) (quotation omitted). In ruling on a motion to strike, a 15 “court[ ] may not resolve disputed and substantial factual or legal issues . . . .” Whittlestone, Inc. 16 v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2010); cf. Colaprico v. Sun Microsystems, Inc., 17 758 F. Supp. 1335, 1339 (N.D. Cal. 1991) (“[M]otions to strike should not be granted unless it is 18 clear that the matter to be stricken could have no possible bearing on the subject matter of the 19 litigation.”). 20 B. 21 Under Federal Rule of Civil Procedure 8(b)(1), a defendant’s answer must “(A) state in Discussion 22 short and plain terms its defenses to each claim asserted against it; and (B) admit or deny the 23 allegations asserted against it by an opposing party.” Fed. R. Civ. P. 8(b)(1). Denials must also 24 “fairly respond to the substance of the allegation.” Fed. R. Civ. P. 8(b)(2). The Ninth Circuit has 25 not, however, definitively held whether the standards articulated in Bell Atlantic Corp. v. 26 Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), also apply to 27 affirmative defenses. Still, this Court has previously concluded—like the majority of courts in this 28 district—that the Twombly/Iqbal standard should apply to affirmative defenses. See, e.g., Fed. 7 1 Trade Comm’n v. Directv, Inc., No. 15-CV-01129-HSG, 2015 WL 9268119, at *1 (N.D. Cal. Dec. 2 21, 2015); accord BGC, Inc. v. Bryant, No. 22-CV-04801-JSC, 2023 WL 4138287, at *4 (N.D. 3 Cal. June 21, 2023) (collecting cases). “Thus, a party pleading an affirmative defense must state 4 enough supporting facts to nudge a legal claim across the line separating plausibility from mere 5 possibility.” Fishman v. Tiger Nat. Gas Inc., No. C 17-05351 WHA, 2018 WL 4468680, at *3 6 (N.D. Cal. Sept. 18, 2018) (quotation omitted). 7 But despite Packlane’s urging, this is not a demanding standard, and Defendants need not 8 allege extensive factual detail. Having reviewed the answer, the Court finds that Defendants have 9 generally alleged enough at this stage. For example, they allege that: 10 United States District Court Northern District of California 11 • Packlane “has failed to pursue and/or exhaust all means for reducing any tax 12 liability arising from the sale of its assets to Digital Room, including, but not 13 limited to, appeals with the Internal Revenue Service.” See Dkt. No. 10 at 12. 14 15 • Packlane “provided inaccurate and/or incomplete tax-related information to 16 Defendants in connection with the sale of Plaintiff’s assets to Digital Room,” and 17 that Defendants relied on this information when advising Packlane about the 18 structuring of the deal. Id. at 12–16. 19 20 • Packlane had told Defendants that it would consult with an outside accounting firm regarding the sale of assets to Digital Room, but Plaintiff failed to do so. Id. 21 22 23 • Defendants advised Plaintiff regarding the sale of its assets, Plaintiff was paid 24 approximately $30 million from the sale, and despite any tax implications, “[n]o 25 structure for the sale other than as an asset sale was a realistic possibility.” Id. at 26 14–16. And even if structured differently, “the purchase price would have been 27 lower such that Plaintiff would not have received more than it did as a result of the 28 actual transaction.” Id. 8 1 • 2 Defendants were not legally required to be “licensed to practice law in California to perform the services they rendered . . . .” Id. at 15–16. 3 4 5 That Defendants perhaps could have provided additional facts does not undermine the plausibility 6 of their defenses.3 The Court therefore DENIES the motion to the extent it is based on 7 Defendants’ purported failure to plead sufficient facts. Packlane also contends some of the defenses—including “Active Fault”; “Complaint 8 United States District Court Northern District of California 9 barred by Sole Negligence or Willful Misconduct”; and “Speculative Damages—should be 10 stricken because they are not in fact affirmative defenses but simply attack Packlane’s prima facie 11 case. See Dkt. No. 12 at 18–19. Defendants do not respond to this argument at all. See generally 12 Dkt. No. 23. The Court therefore strikes these defenses without leave to amend. Similarly, 13 Packlane urges that Defendants’ last defense, reserving the right to assert additional affirmative 14 defenses, is also not an affirmative defense. See id. at 19. The Court agrees that this reservation is 15 not itself an affirmative defense and is stricken without leave to amend. See, e.g., United States v. 16 Ogden, No. 20-CV-01691-DMR, 2021 WL 858467, at *4 (N.D. Cal. Mar. 8, 2021) (striking 17 without leave to amend affirmative defense that “simply reserves the right to assert unspecified 18 defenses later”). Nevertheless, the Court notes that Defendants are still not precluded from 19 asserting additional affirmative defenses later. Id. The Court therefore GRANT IN PART and DENIES IN PART the motion. The Court 20 21 STRIKES Defendants’ Fifth Affirmative Defense (“Active Fault”); Sixth Affirmative Defense 22 (“Complaint barred by Sole Negligence or Willful Misconduct”); Twelfth Affirmative Defense 23 (“Speculative Damages); and Fourteenth Affirmative Defense (“Unstated Additional Defenses”). 24 Defendants make no effort to explain how, if at all, they could amend these defenses to cure the 25 deficiencies that Packlane identified, so the Court strikes these defenses without leave to amend. 26 27 28 Packlane suggests that Defendants’ “Unclean Hands” affirmative defense sounds in fraud and must satisfy Federal Rule of Civil Procedure 9(b). See Dkt. No. 12 at 20–21. However, Packlane makes no effort to explain how this defense sounds in fraud, and the Court declines to strike the defense on that basis. 9 3 United States District Court Northern District of California 1 The Court otherwise DENIES the motion in its entirety. 2 IV. CONCLUSION 3 The Court DENIES the motion to change venue, Dkt. No. 14, and GRANTS IN PART 4 and DENIES IN PART the motion to strike, Dkt. No. 12, as detailed above. The Court further 5 CONTINUES the telephonic case management conference from November 30, 2023, to 6 December 12, 2023, at 2:00 p.m. All counsel shall use the following dial-in information to access 7 the call: 8 Dial-In: 888-808-6929; 9 Passcode: 6064255 10 All attorneys and pro se litigants appearing for a telephonic case management conference are 11 required to dial in at least 15 minutes before the hearing to check in with the courtroom 12 deputy. For call clarity, parties shall NOT use speaker phone or earpieces for these calls, and 13 where at all possible, parties shall use landlines. The Court further DIRECTS the parties to meet 14 and confer and submit a revised joint case management statement by December 5, 2023. 15 16 17 18 IT IS SO ORDERED. Dated: 11/20/2023 ______________________________________ HAYWOOD S. GILLIAM, JR. United States District Judge 19 20 21 22 23 24 25 26 27 28 10

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