North ex rel. Chemed Corp. v. McNamara

47 F. Supp. 3d 635, 2014 U.S. Dist. LEXIS 131672, 2014 WL 4684377
District Court, S.D. Ohio·Decided September 19, 2014·No. Case No. 1:13-cv-833·Published·Cited by 26 cases

Opinion

OPINION AND ORDER

MICHAEL R. BARRETT, District Judge.

This matter is before the Court on Defendants’ Motion to Transfer Venue Pursu[638] ant to 28 U.S.C. § 1404(a). (Doc. 13). Plaintiff has filed a memorandum in opposition (Doc. 22), and Defendants have filed a reply (Doc. 25). Defendants also have filed a notice of supplemental authority (Doc. 26) and Plaintiff has filed a response thereto (Doc. 27). This matter is now ripe for review.

I. SUMMARY OF BACKGROUND

This is a shareholder derivative action brought by Plaintiff Mildred North, an Illinois resident, against nominal Defendant Chemed Corporation and Individual Defendants Kevin McNamara, David Williams, Timothy O’Toole, Joel Gemunder, Patrick Grace, Walter Krebs, Andrea Lindell, Thomas Rice, Donald Saunders, George Walsh III, Frank Wood, and Thomas Hutton. Plaintiff, derivatively on behalf of Chemed, asserts claims for breach of fiduciary duty, abuse of control, gross mismanagement, unjust enrichment, and insider trading arising between February 2010 and the present in relation to the VITAS Innovative Hospice Care (“VI-TAS”) segment of Chemed’s business. (Doc. 1, PagelD 1-2). Plaintiff contends that Individual Defendants caused VITAS to submit improper claims to Medicare and Medicaid. (Id., PagelD 17-25). Plaintiff further contends that Individual Defendants caused Chemed to make false and misleading statements to the investing public, and that Chemed was damaged when its stock plummeted and it was subjected to numerous lawsuits, including a lawsuit by the United States Department of Justice and a securities-fraud class aetion in this Court. (Id., PagelD 49-94, 104).

Chemed is a corporation that is incorporated under the laws of Delaware with its principal place of business in Cincinnati, Ohio. (Doc. 1, PagelD 1-2, 4). It is a publicly-traded company. (Id., PagelD 2). VITAS is a subsidiary of Chemed that is the largest provider of hospice services in the United States. (Id.). VITAS’s principal place of business is Miami, Florida, but it operates in sixteen states, including Ohio and Delaware. (Id., PagelD 22). VI-TAS’s largest markets are Florida and California. (Id.). Individual Defendants McNamara, Williams, Saunders, and Wood are residents of Ohio, Individual Defendants Grace and Walsh are residents of New York, Individual Defendant Rice is a resident of Maryland, Individual Defendants O’Toole and Gemunder are residents of Florida, Individual Defendant Lindrell is a resident of North Carolina, and Individual Defendant Krebs is a resident of Kentucky. (Doc. 14, PagelD 498).1

Chemed’s Certificate of Incorporation is dated March 26, 1970. (Doc. 14-3, PagelD 561). It was filed on November 26, 1991 along with Form S-3. (Doc. 14, PagelD 495). The Certificate of Incorporation provides, in pertinent part:

In furtherance and not in limitation of the powers conferred upon the board of directors by statute, the board of directors is expressly authorized, without any vote or other action by stockholders other than such as at the time shall be expressly required by statute or by the provisions hereof or the by-laws, to exercise all of the powers, rights and privi[639] leges of the corporation (whether expressed or implied herein or conferred by statute) and do all acts and things which may be done by the corporation, including but not limited to, the authority to make, adopt, alter, amend and repeal from time to time by-laws of the corporation, subject to the right of stockholders entitled to vote with respect thereto to alter and repeal by-laws made by the board of directors.

(Doc. 14-3, PagelD 559).

In 2010, Plaintiff purchased stocks in Chemed and has continuously been a shareholder since that time. (Doc. 24, Pa-gelD 834).

On August 2, 2013, Chemed amended its Bylaws to include Bylaw 8.07. (Doc. 14-1, Page ID 502, 528). Bylaw 8.07 states:

Unless the corporation consents in writing to the selection of an alternative forum, a state or federal court located within the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporation’s stockholders, (iii) any actions asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, the certificate of incorporation or the by-laws of the corporation or (iv) any action asserting a claim governed by the internal affairs doctrine, in each such case subject to such court having personal jurisdiction over the indispensable parties named as defendants therein.

(Doc. 14-1, PagelD 528). On August 5, 2013, Chemed filed a Form 8-K that states, in part, that “[o]n August 2, 2013, [Chemed] amended its bylaws by adding a new section 8.07 which provides Delaware courts are the exclusive forum for certain actions. The full text hereof is incorporated by reference.” (Doc. 14-2, PagelD 537).

On November 6, 2013, Plaintiff KBC Asset Management NV filed a shareholder derivative suit against certain Chemed officers and directors in the United States District Court for the District of Delaware. KBC Asset Management NV., derivatively on behalf of Chemed Corp. v. McNamara, et al., No. 1:13-cv-1854, Doc. 1, 2013 WL 6631931 (D.Del. Nov. 6, 2013). On November 14, 2013, Plaintiff filed this shareholder derivative suit against nominal Defendant Chemed and twelve Individual Defendants, all of whom were named as defendants in the Delaware action. (Doc. 1).

II. ANALYSIS

The parties dispute two issues: 1) the enforceability of Bylaw 8.07 and 2) whether the requested procedural remedy to transfer venue under 28 U.S.C. § 1404(a) is appropriate. As these inquiries are distinct, the Court will consider them separately below.

A. Enforceability of Bylaw 8.07

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North ex rel. Chemed Corp. v. McNamara, 47 F. Supp. 3d 635, 2014 U.S. Dist. LEXIS 131672, 2014 WL 4684377 (S.D. Ohio 2014).

47 F. Supp. 3d 635 (North ex rel. Chemed Corp. v. McNamara) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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