Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 1 of 25

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1 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 1 of 25 FAHY CHOI LLC. Meadows Office Complex 301 Route 17 North, 9 th Floor Rutherford, NJ (201) Attorneys for All Defendants LAW OFFICES OF MARK ANCHOR ALBERT 601 South Figueroa Street Suite 2360 Los Angeles, CA Tel: Fax: markalbert@maalawoffices.com Attorneys for Defendants Mario R. Ferla, Jack Pitluk, Martin H. Karo, Steve Saleen, and Thomas Del Franco U.S. DISTRICT COURT DISTRICT OF NEW JERSEY THOMASON AUTO GROUP, LLC, vs. Plaintiff, MARIO R. FERLA, JACK PITLUK, MARTIN H. KARO, STEVE SALEEN, WILLIAM TALLY, THOMAS DEL FRANCO, ALEX MISKOV, RICHARD L. KALIKA, and ALEXANDER KEELER, Defendants. CASE NO. 2:08-CV (JLL)(CCC) BRIEF IN SUPPORT DEFENDANTS MOTION FOR ORDER TRANSFERING VENUE TO THE UNITED STATES BANKRUPTCY COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA UNDER 28 U.S.C. 1404(a) AND 28 U.S.C. 1412

2 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 2 of 25 Table of Contents I. FACTUAL AND PROCEDURAL BACKGROUND...2 A. The Defendants...2 B. CHAMCO...2 C. ZXNA...2 D. The Thomason Distributorship Agreement And The Aborted Formation Of ZX Auto West...3 E. The New Jersey State Court Actions...3 F. The ZXNA And CHAMCO Involuntary Bankruptcy Proceedings...4 G. The Thomason Federal Action Against Defendants...4 H. The Removal And Transfer to California Of The State Court Actions On The Basis Of Bankruptcy "Related To" Jurisdiction...4 I. The Hartford/Twin City D&O Liability Insurance Coverage Litigation...5 II. THE CALIFORNIA-CENTRIC FACTUAL UNDERPINNINGS OF THIS ACTION ARE IDENTICAL TO THOSE OF THE STATE COURT ACTIONS AND THE CHAMCO/ZXNA BANKRUPTCY PROCEEDINGS...5 A. This Action Is Integrally Related To The Other California- Centric Actions And Proceedings...5 B. ZXNA's California Connections Are Substantial...6 C. CHAMCO's California Connections Are Substantial...7 III. ARGUMENT...7 A. UNDER 28 U.S.C. 1412, THIS CASE SHOULD BE TRANSFERRED TO THE UNITED STATES BANKRUPTCY COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA BECAUSE IT IS "RELATED TO" THE CHAMCO AND ZXNA BANKRUPTCY PROCEEDINGS PENDING THERE...7 i

3 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 3 of 25 B. UNDER 28 U.S.C. 1404(a), TRANSFER ALSO IS WARRANTED FOR THE CONVENIENCE OF THE PARTIES AND WITNESSES, AND IN THE INTERESTS OF JUSTICE...14 IV. CONCLUSION...19 ii

4 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 4 of 25 Cases Table of Authorities A.D.M. Corp. v. Thomson, 707 F.2d 25 (1st Cir.), cert. denied, 464 U.S. 938 (1983) A.H. Robins Co. v. Piccinin, 788 F.2d 994 (4th Cir. 1986)... 17, 18 Aircraft Co. v. Reyno, 454 U.S. 235 (1981) Am. Cyanamid Co. v. Eli Lilly & Co., 903 F. Supp. 781 (D.N.J. 1995) Belcufine v. Aloe, 112 F.3d 633 (3d Cir. 1997) Bhatnagar v. Surrendra Overseas, 52 F.3d 1220 (3d Cir. 1995) Dean v. Eli Lilly & Co., No , 2007 U.S. Dist. LEXIS (D.D.C. June 1, 2007) Deputy v. Long-Term Disability Plan of Sponsor Aventis Pharms., No. CO2-2010, 2002 WL (N.D. Cal. Nov. 21, 2002) Dunlaps v. Friedman's Inc., 331 B.R. 674 (S.D.W.Va.2005) George Junior Republic in Pennsylvania v. Frances Williams, Civ. No , 2008 U.S. Dist. LEXIS (E.D.Pa. March 19, 2008) Gulf Oil v. Gilbert, 330 U.S. 501 (1947) Halper v. Halper, 164 F.3d 830 (3d Cir. 1999) Hohl v. Bastian, 279 B.R. 165 (W.D. Pa. 2002) Jumara v. State Farm Ins. Co., 55 F.3d 873 (3d Cir. 1995) Kennilworth Partners II LP v. Crisman, No. C , 2001 WL (N.D. Cal. Jan. 3, 2001) Lony v. E.I. DuPont de Nemours & Co., 886 F.2d 628 (3d Cir. 1989) Lou v. Belzberg, 834 F.2d 730 (9th Cir. 1987) Matter of Walker, 51 F.3d 562 (5th Cir 1995) New England Machinery, Inc. v. Conagra Pet Products Co., 827 F. Supp. 732 (M.D. Fla. 1993) Norwood v. Kirkpatrick, 349 U.S. 29 (1955) Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)... 13, 14 Piper Aircraft Co. v. Reyno, 454 U.S. 235, 257 (1981) In re Dow Corning Corp., 86 F.3d 482 (6th Cir. 1996)... 17, 18 iii

5 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 5 of 25 Ricoh Co., Ltd. v. Honeywell, Inc., 817 F.Supp. 473 (D.N.J.1993) Rowles v. Hammermill Paper Co., 689 F. Supp. 494 (E.D. Pa. 1988) Saleh v. Titan Corp., 361 F. Supp. 2d 1152 (S.D. Cal. 2005).) Sizzler USA Restaurants, Inc. v. Belair & Evans LLP (In re Sizzler Restaurants Int'l, Inc.), 262 B.R. 811 (Bankr. C.D. Cal. 2000) Stoe v. Flaherty, 436 F.3d 209 (3d Cir. 2006) Sturm v. Consol. Rail Corp., No , 1990 U.S. Dist. LEXIS (E.D. Pa. Sept. 5, 1990) Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995) Triune Steel Erectors, Inc. v. Shappert Eng'g Co., No. 91 C 20178, 1991 U.S. Dist. LEXIS (N.D. Ill. Oct. 2, 1991) Vergopia v. Shaker, 191 N.J. 217, 228, 922 A.2d 1238 (N.J., 2007) Waller v. Burlington N. R. Co., 650 F. Supp. 988n(N.D. Ill. 1987).) Windt v. Qwest Communications Intern., Inc., 529 F.3d 183 (3rd Cir. 2008)... 20, 21 Zeta-Jones v. Spice House, 372 F. Supp. 2d 568 (C.D. Cal. 2005) Zhang v. Rothrock, No. H , 2006 WL (S.D. Tex. Jan. 25, 2006) STATUTES 28 U.S.C. 1334(b)... 13, U.S.C. 1391(b) U.S.C. 1391(b).) U.S.C. 1391(c) U.S.C. 1404(a)... 19, U.S.C. 1408(2) U.S.C U.S.C and 1404(a) U.S.C. 1412's U.S.C , 24 N.J.S.A. 14A:3-5(4)... 16, 17 iv

6 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 6 of U.S.C. 1962(c) U.S.C. 1962(d)... 9 OTHER AUTHORITIES Admin. Office of the U.S. Courts, Federal Court Management Statistics (2008), available at 23 RULES FRCP Rule 26(f), TREATISES 17 Moore 's Federal Practice, [1] (Matthew Bender 3d ed.) v

7 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 7 of 25 I. INTRODUCTION This action arises from the same facts and circumstances as the three related state-court actions ( State Court Actions ) 1 that this Court ordered transferred in February 2009 in 2:08-cv JLL-ES on the basis of Bankruptcy Code related to jurisdiction (28 U.S.C. 1334(b)) (Docket ## 56 & 57 [transfer opinion and order]). For the same reasons the State Court Actions were transferred, this action should likewise be immediately transferred under 28 U.S.C. 1404(a) and to the United States Bankruptcy Court for the Central District of California (the Bankruptcy Court ) for efficient and coordinated adjudication. As this Court recognized in February, [the Bankruptcy Court] has been mired in the CHAMCO and ZXNA bankruptcy proceedings for several months now and is better-tasked and better-equipped to understand the impact... on the bankruptcies. 3 Because this action is equally related to the CHAMCO and ZXNA bankruptcies arising from the exact same facts as the previously transferred State Court Actions, Defendants have attempted for many months to arrive at an agreed stipulation for transfer with the Plaintiff under the auspices of U.S. Magistrate Judge Claire C. Cecchi. Transfer is both necessary and appropriate for the convenience of the parties and witnesses and in the interests of justice, and to prevent disruption in the administration of the ZXNA and CHAMCO bankruptcy estates. 1 The State Court Actions are: (1) Thomason Auto Group, LLC v. China America Cooperative Automotive, Inc., et al., Docket No. MRS-C-27-08; ("Thomason action"); (2) Mario R. Ferla, et al. v. William L. Pollack, et al., Docket No. MRS-C ("Ferla action"); and (3) China America Cooperative Automotive, Inc., et al. v. Mario R. Ferla, et al., Docket No. MRS- C ("CHAMCO action") (collectively, the "State Court Actions"). This Court transferred the State Court Actions in its Opinion dated February 27, 2009 in Civ. No. 2:09-cv JLL- ES (Docket Entry # 56) ( Transfer Opinion ). A true and correct copy of this Court's Transfer Opinion is attached as Exhibit A to the concurrently-filed Certification of Mark Anchor Albert ("Albert Cert."). 2 All statutory references are to title 28 of the United States Code unless otherwise indicated. 3 Transfer Opinion at 9. The California bankruptcies of debtors China America Cooperative Automotives, Inc. ("CHAMCO") and ZX Automobile Company of North America, Inc. ("ZXNA") are being jointly-administered by the Bankruptcy Court as Case Nos. 8: TA and 8: TA. 1

8 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 8 of 25 Now even more than was the case in February, these related proceedings are focused in California. Even with Plaintiff s delayed refusal to agree to a stipulated transfer, the coordinated CHAMCO and ZXNA bankruptcies have proceeded apace, while this case has seen only a complaint and answer filed. Immediate transfer will thus prevent potential interference with the administration of the bankruptcy estates, lessen the risk of inconsistent rulings on the same or similar factual and legal issues, reduce costs and delays, and eliminate redundancies in duplicative proceedings. On the other hand, absent transfer, the CHAMCO and ZXNA bankruptcy estates, the creditors and other constituencies with interests implicated in the bankruptcy proceedings, as well as the parties and witnesses involved in this action and in the State Court Actions, will be prejudiced. For these reasons, as more fully elaborated below, the prudent administration of justice favors transfer. II. FACTUAL AND PROCEDURAL BACKGROUND A. The Defendants At all relevant times, the Defendants were each officers and/or directors of CHAMCO and/or ZXNA. (See Complaint 3-6 & 8 [referred to as "the Officer/Director Defendants"].) B. CHAMCO CHAMCO is a management holding corporation whose mission was and is to own and operate subsidiaries as the North American distributors, importers, and marketers of pickups and SUVs built by Hebei Zhongxing Automobile Manufacturing ("ZX Auto China") -- a Chinese manufacturer of relatively low-cost automobiles, trucks and SUVs. One of these CHAMCO subsidiaries is ZXNA. Motor vehicles imported by ZX Auto China were to be modified and upgraded though, among other things, a process known a "homologation" (e.g., bringing the vehicles up to federal, state and local emission standards and safety standards). Defendant Mario Ferla was the Chief Executive Officer of CHAMCO; Defendant Karo is CHAMCO's General Counsel; and Defendant Pitluk is CHAMCO s Chief Financial Officer. C. ZXNA ZXNA is a CHAMCO subsidiary that was intended to be the operating entity regarding the importation and sale of automobiles from China pursuant to an Importation, Marketing, Sales and Distribution Agreement ("Chinese Auto Distribution Agreement") with ZX Auto China. The Chinese Auto Distribution Agreement granted CHAMCO and ZXNA the exclusive right to 2

9 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 9 of 25 import, market, sell, distribute and assemble ZX China automotive parts in North America. ZXNA has no current operations and effectively has had none since at least March Defendant Saleen is the Chief Executive Officer of ZXNA; Defendant Del Franco is ZXNA's Chief Operating Officer. D. The Thomason Distributorship Agreement And The Aborted Formation Of ZX Auto West As part of its business plan ZXNA entered a distribution agreement with Thomason in December 2007, which intended that ZXNA would establish a distribution company referred to as "ZX Auto West." ZX Auto West was to act as ZXNA's West Coast distributor of ZX Auto China automobiles and aftermarket parts. Upon entering into the Thomason Distributorship Agreement, Thomason paid $6 million to ZXNA. However, ZX Auto West was never formed. Prior to full formation of ZX Auto West, Defendants discovered that certain persons were committing fraudulent acts with respect to CHAMCO, ZXNA, ZX Auto West, and their respective investors. Upon confirmation of this, Defendants warned Thomason and they arrived at a joint action plan -- including certain legal actions in which Thomason fully participated. This plan ultimately spawned a series of related lawsuits in multiple courts that have now been chiefly consolidated in the Bankruptcy Court for the Central District of California, save for this current action that the Defendants seek to transfer. This multitude of actions is summarized below: E. The New Jersey State Court Actions 1. The Thomason State Action On the morning of March 3, 2008, Thomason filed an action in New Jersey Superior Court of Morris County: Chancery Division (the "New Jersey State Court"), Docket No. MRS- C-27-08, against Defendants CHAMCO, ZXNA, First Capital Corporation (allegedly a merchant bank), Daspin & Co. Merchant Bank Holding Company, Edward Michael Daspin, Joan Daspin, William L. Pollack, and Ronald A. Stella (collectively, "Daspin Defendants") alleging fraudulent inducement, fiduciary breaches, rescission, and related claims arising from his illfated $6 million investment in ZX Auto West. (A true and correct copy of the Thomason action is attached as Ex. A to the Albert Cert.) 2. The Ferla Action Later in the day on March 3, 2008, Messrs. Mario R. Ferla, Steve Saleen, Thomas Del Franco, Martin H. Karo, and Jack Pitluk (i.e., the defendants in this action) and three other individuals, individually and derivatively on CHAMCO's behalf, filed an action in New Jersey State Court, Docket No. MRS-C-28-08, against the Daspin Defendants. The Daspin action 3

10 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 10 of 25 alleges derivative and direct claims for shareholder oppression, fiduciary breaches, constructive fraud, and related claims. (A true and correct copy of the Ferla Action is attached as Ex. B to the Albert Cert.) 3. The CHAMCO Action On March 31, 2008, certain Daspin Defendants, allegedly also on behalf of CHAMCO and ZXNA, caused to be filed a retaliatory action in the New Jersey Court Docket No. MRS-C , against Defendants, Thomason, and other individuals and entities also alleging claims of fraud, fiduciary breach, unfair competition and related claims (the "CHAMCO action"). (A true and correct copy of the CHAMCO Action is attached as Ex. C to the Albert Cert.) The three State Court Actions were consolidated under Case No. MRS-C before the Hon Catherine Langlois, of New Jersey State Court's Chancery Division, before being removed and then transferred by this Court to the Bankruptcy Court for the Central District of California. F. The ZXNA And CHAMCO Involuntary Bankruptcy Proceedings On June 3, 2008, an Involuntary Petition under Chapter 7 of the United States Bankruptcy Code was filed against ZXNA in the United States Bankruptcy Court for the Central District of California (the "ZXNA Bankruptcy Action"). On July 7, 2008, an Involuntary Petition under Chapter 7 of the Bankruptcy Code was filed against CHAMCO in the United States Bankruptcy Court for the Central District of California (the "CHAMCO Bankruptcy Action"). Thomason and the Daspin Defendants filed motions to dismiss the Bankruptcies, or in the alternative transfer them to New Jersey. Both motions were denied. The ZXNA Bankruptcy Action and the CHAMCO Bankruptcy Action are presently being jointly administered by the Central District of California Bankruptcy Court. G. The Thomason Federal Action Against Defendants On August 14, 2008, Thomason filed a complaint against Defendants in this Court, commencing this action. The Complaint in this action asserts purported claims against Defendants under the Federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. 1962(c) [Counts I & II]; 18 U.S.C. 1962(d) [Count III], as well as related claims for fraud, breach of fiduciary duty, negligent misrepresentation, and related claims. H. The Removal And Transfer to California Of The State Court Actions On The Basis Of Bankruptcy "Related To" Jurisdiction On July 7, 2008, the three State Court Actions were removed to the United States District Court for the District of New Jersey on bankruptcy related to grounds. Defendants then filed a motion on July 7, 2008, requesting that this Court transfer the State Court Actions to the United 4

11 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 11 of 25 States Bankruptcy Court for the Central District of California (the "Bankruptcy Court"), under 28 U.S.C and 1404(a). After the matter was fully briefed, argued and submitted, the Court issued its Transfer Opinion on February 27, 2009, transferring the three State Court Actions to the United States Bankruptcy Court for the Central District of California for coordination with the jointly-administered ZXNA Bankruptcy Action and the CHAMCO Bankruptcy Action. (See Albert Cert. 11 & Ex. F [Transfer Order].) 4 I. The Hartford/Twin City D&O Liability Insurance Coverage Litigation On June 22, 2009, Defendants filed in the United States District Court for the Central District of California a complaint against Twin City Fire Insurance Company and The Hartford Financial Services Group, Inc. (collectively, Hartford ), for breach of contract, insurance bad faith and declaratory relief, among other claims (Case No. CV VBF(FFMx). The Hartford action arises out of Hartford s failure, in bad faith, to honor its defense and indemnity coverage obligations to Defendants in this action and in the State Court Actions. (A true and correct copy of the complaint in the Hartford action is attached as Ex. I to the Albert Cert.) III. THE CALIFORNIA-CENTRIC FACTUAL UNDERPINNINGS OF THIS ACTION ARE IDENTICAL TO THOSE OF THE STATE COURT ACTIONS AND THE CHAMCO/ZXNA BANKRUPTCY PROCEEDINGS A. This Action Is Integrally Related To The Other California-Centric Actions And Proceedings The core facts and circumstances underlying this action are the same as those underlying the State Court Actions and the ZXNA and CHAMCO bankruptcies. All of the related actions and proceedings directly concern ZXNA and CHAMCO, Thomason and the Defendants; all of them arise from Thomason's $6 million payment to ZXNA, part of which Thomason alleges is now part of the jointly-administered bankruptcy estates; all of the related actions turn on countercharges of fraud and fiduciary breaches based on the same set of disputed events; and all of them involve the same or similar factual and legal questions. There is, in short, a strong nexus between and among the various actions and the CHAMCO/ZXNA bankruptcies. Moreover, while ZXNA and CHAMCO are New Jersey corporations that conducted some business in this State, the facts and circumstances underlying this action are, on balance, California-centric, as two Federal judges have already found. Some of these California connections are described below. 4 On March 13, 2009, the Clerk of the Bankruptcy Court acknowledged receipt of the transferred State Court Actions, indicating that they were assigned to the ZXNA bankruptcy case (Case No. 8:08-bk TA) with Adversary Case No. 8:09-ap-1142-TA. 5

12 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 12 of 25 B. ZXNA's California Connections Are Substantial ZXNA's principal place of business was and its primary assets were in Anaheim, California. (See concurrently-filed Certification of Steven Saleen ("Saleen Cert.") 3.) While ZXNA was operating, the primary decision-making was done out of the offices in Anaheim, where the Chief Executive Officer of ZXNA, Steve Saleen, was located. The Chief Executive Officer of the related company, CHAMCO Auto, Mario Feria, was also located in Anaheim. (See Saleen Cert. 4.) ZXNA primary operations were to be conducted in California and the homologation of the cars was to occur here. In fact, substantial engineering and design occurred in California prior to the cessation of all operations. This engineering and design in fact was accomplished to the point where certain vehicles met the Mexican certification requirements. (See Saleen Cert. 5.) All but one of the employees of ZXNA were located in California. Similarly, most of the creditors, including employees, are located in California. (See Saleen Cert. 6.) ZXNA's assets, which included test cars, were located in California. Further, ZXNA had its sole office and sole warehouse in California. (See Saleen Cert. 7.) ZXNA's sole distributorship was headquartered in San Francisco. (See Saleen Cert. 8.) Scott Thomason, a California mega-dealer, executed the Western Distributorship contract (the one he is now suing over) in San Francisco. Thomason Auto Group operates extensively in California, and Thomason himself has an office in San Francisco (which he had prior to signing the Thomason Agreement). (See Saleen Cert. 9.) All that occurred in New Jersey was the solicitation of investors by the Daspin Group and, with respect to even that, the investors were located throughout the country, and many were solicited by sales people in the field, notably including California; indeed, one of ZXNA's primary dealer relations executives was based in California. Moreover, much of the solicitation that did occur from New Jersey was not by employees of the debtors but by Daspin who (by his design) was not an employee of the debtors, but only a "consultant" pursuant to a purported services agreement wrapped inside two other services agreements in series. The CHAMCO/ZXNA business is not currently operating, and there have been no operations of any kind since April 22, There are no "day-to-day activities" taking place in New Jersey, or any other business being conducted in New Jersey. Further, all "decision-making" is now the responsibility of the Trustee, who is located in California. (See Saleen Cert. 10.) Accordingly, to the extent that there was a "business," it was conducted in California. If, as some allege, there is a business to be revived, that business would be conducted in California 6

13 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 13 of 25 with California employees. (See Saleen Cert. 12.) ZXNA's liquid funds, to the extent they exist, are under the control of the Chapter 11 Trustee, in California. CHAMCO Auto's accounts are with JPMorganChase Bank, which has thousands of locations operating in more than 60 countries and branches in the Central District of California. (See Saleen Cert. 13.) C. CHAMCO's California Connections Are Substantial CHAMCO is the majority shareholder of ZXNA. Accordingly, CHAMCO is an affiliate of ZXNA, the California Debtor, for the purposes of 28 U.S.C. 1408(2) and, therefore, venue is proper in the Central District of California. Further, CHAMCO has its own substantial contacts with California including: (1) CHAMCO's CEO, Mario Feria, resides and worked in California; (2) CHAMCO had an office in Anaheim, California; (3) Four of CHAMCO's Directors (a third of the Board at the time the company ceased operations) reside in and worked on CHAMCO matters in California (Mario Feria, Steve Saleen, Billy Tally, Scott Thomason); (4) CHAMCO routinely carried on business in California (especially to the extent its business included work with or by Saleen's group); (5) CHAMCO assets are located in Anaheim, including IP and advertising materials; (6) The Western Distributorship contract was negotiated in California; and (7) CHAMCO itself is in Bankruptcy in California, overseen by a California-based Trustee. (See Saleen Cert ) * * * Where, as here, a group of related actions and proceedings are based upon the same or substantially-similar set of facts occurring in another District in which the home court bankruptcy proceedings are pending, transfer is not only appropriate, it is necessary. IV. ARGUMENT A. UNDER 28 U.S.C. 1412, THIS CASE SHOULD BE TRANSFERRED TO THE UNITED STATES BANKRUPTCY COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA BECAUSE IT IS "RELATED TO" THE CHAMCO AND ZXNA BANKRUPTCY PROCEEDINGS PENDING THERE. If the potential outcome of a case could conceivably have an effect on the administration of a bankruptcy case, a District Court can, and should, transfer the case to the Bankruptcy Court where the related bankruptcy case is pending to ensure that the outcome of the case does not 7

14 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 14 of 25 hamper, impede or otherwise adversely affect the administration of the bankruptcy estate. 1. This Action Is "Related To" The CHAMCO And ZXNA Bankruptcy Proceedings Pending In California Under 28 U.S.C. 1334(b). Section 1334(b) of title 28 provides that district courts may hear all cases "related to" cases under title 11 of the U.S. Code. A proceeding is related to a bankruptcy proceeding under 1334(b) if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) (overruled on other grounds by Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995)) (emphasis in original). The "key word" of "conceivable" is broadly interpreted by the Third Circuit: Certainty, or even likelihood, is not a requirement. Bankruptcy jurisdiction will exist so long as it is possible that a proceeding may impact on the debtor's rights, liabilities, options, or freedom of action or the handling and administration of the bankrupt estate. Halper v. Halper, 164 F.3d 830, 837 (3d Cir. 1999). Under well-established case law in the Third Circuit, the claims in this action are related to the CHAMCO and ZXNA bankruptcy proceedings under 1334(b), for at least the following five reasons: (a) The complaint in this action is replete with allegations that the Defendants instituted the CHAMCO and ZXNA bankruptcy proceedings in bad faith (see Complaint 33, 37, 41, 43 &102), and these same allegations form the basis of all of Plaintiff's claims, into which they are expressly incorporated by reference. Indeed, Plaintiff brazenly designates CHAMCO and ZXNA as the operative "RICO Enterprise" (see Complaint & ), and the purported basis for the Defendants' liability is grounded in their conduct undertaken in their capacities as CHAMCO and/or ZXNA officers and directors (see Complaint passim); (b) The three State Court Actions that this Court transferred to California on grounds of bankruptcy "related to" jurisdiction are based upon the same operative core of facts as this action, and all four actions therefore should be coordinated in a single forum; (c) The Defendants have potential claims for indemnity and contribution against the CHAMCO and ZXNA bankruptcy proceedings for advancement of defense costs and to recover their defense costs, settlement amounts and adverse judgments in this action, to the extent that the applicable Twin City D&O Policy does not provide complete defense and indemnity coverage in that regard; (d) The Defendants have a contractual right to coverage under CHAMCO's and ZXNA's D & O Policies, and 8

15 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 15 of 25 (e) Plaintiff Thomason is listed as a creditor in the CHAMCO and ZXNA bankruptcy proceedings, as are the Defendants. (See Albert Cert. Ex. K.) As shown below, these reasons both collectively and individually establish that this action is "related to" the CHAMCO and ZXNA bankruptcy and should be transferred forthwith to the Central District of California for coordinated adjudication. (a) The Claims In This Action Are Predicated Upon The CHAMCO And ZXNA Bankruptcy Proceedings, And A Resolution Of Plaintiff's Claims Here Would Directly Affect The Bankruptcy Estates. There is a strong nexus between the allegations at the heart of this action and the CHAMCO and ZXNA bankruptcy proceedings. (Pacor, 743 F.2d at 994 ("related to" jurisdiction arises when there is "some nexus between the 'related' civil proceeding and the title case.").) All of Plaintiff's claims in this action are predicated on its core allegation that the Defendants acted with the "overarching purpose of illicitly gaining control of CHAMCO and ZXAuto NA, usurping those entities' corporate opportunities and ultimately driving those entities into bankruptcy so as to reap the benefits of those opportunities for their own individual personal gain." (Complaint 18.) As its primary pleading mantra, Plaintiff alleges repeatedly that the Defendants' purported illicit scheme turned on "their plan to drive CHAMCO and ZXAuto into involuntary bankruptcy." (See, e.g., Complaint 33 [repeated 5 times], 37, 41, 43, 102 [repeated 5 times], 121, and (passim [Section entitled "Defendants' Bad Faith Orchestration of The CHAMCO and ZXAuto Bankruptcy Petitions" (bolding in original)].) Further emphasizing the centrality of its bankruptcy-related allegations, Plaintiff then incorporates all of these allegations by reference into each of the complaint's fifteen (15) Causes of Action. (See incorporation-by-reference paragraphs ## 221, 236, 245, 250, 257, 267, 270, 274, 286, 292, 296, 304, 311, 315 & 324.) The Complaint goes on to tie the CHAMCO and ZXNA bankruptcies initiated by the Defendants to their supposed plan to "usurp[] those entities' corporate opportunities." (See id. 18 (Defendants were "usurping those entities' corporate opportunities and ultimately driving those entities into bankruptcy so as to reap the benefits of those opportunities for their own individual personal gain"); 34 (same); see also 21 (defendants "illicitly attempt[ed] to misappropriate the assets and business opportunities of CHAMCO [and] ZXAuto NA...."). Thus, the Complaint seeks to impose liability on defendants with respect to the alleged usurpation and misappropriate of assets of the respective bankruptcy estates (i.e., their "corporate opportunities," "assets" and "business opportunities"). In addition, in its already over-the-top RICO claims, Plaintiff specifically designates CHAMCO as a "RICO Enterprise" by and through which the Defendants supposedly hatched 9

16 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 16 of 25 and implemented their nefarious scheme to force CHAMCO and ZXNA into bankruptcy in California. Count 1 defines the fanciful "RICO Enterprise" as an "association in fact" enterprise comprised of CHAMCO and ZXNA together with the Defendants. Count 2 defines the "RICO Enterprise," alternatively, as consisting only of CHAMCO and ZXNA. (See, e.g., Complaint & ) The centrality in Plaintiff's complaint of the CHAMCO and ZXNA bankruptcy proceedings and their linkage to the supposed CHAMCO/ZXNA "RICO Enterprise" highlight the existence of bankruptcy "related to" jurisdiction and the interconnection of this case's claims with those of the removed State Court Actions and the related bankruptcy estates. The defendants' alleged liability is inextricably intertwined with the alleged conduct of the debtors, who acted by and through the defendants as their officers and directors. "[W]hen the plaintiff alleges liability resulting from the joint conduct of the debtor and the non-debtor defendants, bankruptcy jurisdiction exists over all claims under section 1334." (In re Wood, 825 F.2d 90, (5th Cir. 1987).) "'An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.'" (Matter of Walker, 51 F.3d 562, 569 (5th Cir 1995) (citation omitted).) That test is satisfied here. A finding by this Court or by a jury that those bankruptcies were initiated in "bad faith" as part of a "RICO Enterprise," as alleged by Plaintiff here, would undermine the legitimacy of the Bankruptcy Court's orders and administration of the CHAMCO and ZXNA bankruptcy estates. This result would impede the effective resolution of the claims of creditors, shareholders and other stakeholders and cast doubt on the propriety, effectiveness and enforceability of the Bankruptcy Court's stewardship of those jointly-administered Chapter 11 cases. Whatever ability the Bankruptcy Court may have -- with the assistance and input of CHAMCO's and ZXNA's creditors, shareholders and other stakeholders -- to enable these companies to re-emerge as viable businesses likely would be eliminated entirely or at minimum substantially impeded by a determination that CHAMCO and/or ZXNA were a "RICO Enterprise," as Plaintiff requests in this case. Just as the Bankruptcy Court "has been mired in the CHAMCO and ZXNA bankruptcy proceedings for several months now and is better-tasked and better-equipped to understand the impact of the State Court Actions on the bankruptcies" (Transfer Order at 9), that court also is best-suited to assess the possible impact of this action on the bankruptcies. This action should, therefore, be transferred to the Bankruptcy Court in California's Central District so that the administration of the CHAMCO/ZXNA estates can more 10

17 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 17 of 25 effectively take into account, respond, and adjust to developments that occur in this case. (b) Because This Action Arises From The Same Facts As The Three Removed State Court Actions This Court Previously Transferred To California, All Four Actions Should Be Coordinated In California. Here, the three removed State Court Actions are pending in California. A resolution of a common disputed fact or issue of law in any one of those cases, or in this case, may have a material impact on the outcome of the other cases on the basis of res judicata or collateral estoppel. Any such result could, and undoubtedly would have a material impact on the administration of the bankruptcy estate. It therefore makes sense to transfer this action to the "home court" bankruptcy venue where all other related cases and proceedings are pending. (See, e.g., George Junior Republic in Pennsylvania v. Frances Williams, Civ. No , 2008 U.S. Dist. LEXIS at * 15 (E.D.Pa. March 19, 2008) (it is appropriate to transfer to "the 'home court' [because it] is in the best position to evaluate the claims...." (removed actions); Hohl v. Bastian, 279 B.R. 165, 177 (W.D. Pa. 2002) ("[T]he home court presumption provides that the court in which the bankruptcy case itself is pending is the proper venue for adjudicating all related litigation, including those suits which have been filed in other state or federal courts.); Zhang v. Rothrock, No. H , 2006 WL , at *1 (S.D. Tex. Jan. 25, 2006) ("There is a strong presumption that proceedings 'related to' a bankruptcy should be litigated in the judicial district where the bankruptcy itself is pending.") (c) The Defendants Have Statutory And Equitable Indemnification Rights Against The CHAMCO And ZXNA Bankruptcy Estates. New Jersey statutory law requires corporations to indemnify officers and directors of New Jersey corporations who prevail on the merits in lawsuits, like this one, that charge the officers and directors with malfeasance in the discharge of their corporate responsibilities. To that end, N.J.S.A. 14A:3-5(4) provides as follows: Any corporation organized for any purpose under any general or special law of this State shall indemnify a corporate agent against expenses to the extent that such corporate agent has been successful on the merits or otherwise in any proceeding referred to in subsections 14A:3-5(2) and 14A:3-5(3) or in defense of any claim, issue or matter therein. (See Vergopia v. Shaker, 191 N.J. 217, 228, 922 A.2d 1238, 1245 (N.J., 2007) ["N.J.S.A. 14A:3-5(4), still requires corporations to indemnify directors, officers, agents, and employees"].) The statute goes on to provide that if a corporation, upon appropriate application of a corporate agent, fails or refused to provide indemnification as required under 14A:3-5(4) or permitted under 14A:3-5(2), 14A:3-5(3), and 14A:3-5(6), a corporate agent may apply to the court for an award of indemnification by the corporation. N.J.S.A.14A:3-5(7)(a). (See A.D.M. 11

18 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 18 of 25 Corp. v. Thomson, 707 F.2d 25 (1st Cir.), cert. denied, 464 U.S. 938 (1983) (interpreting New Jersey's mandatory indemnification statute).) Accordingly, an individual has a right to be indemnified for fees and expenses if it is established (1) he/she was sued in the capacity of a corporate agent (14A:3-5(1)(a)); and (2) that the corporate agent was successful on the merits in a proceeding or in a defense of any claim. 5 Under Section 14A:3-5(4), therefore, if and when the Defendants prevail on the merits of this action, the CHAMCO and ZXNA bankruptcy estates will be statutorily required to indemnify them from estate assets (unless Hartford has been previously compelled to honor its defense and indemnity obligations). The Defendants also have implied rights of indemnity and/or contribution against other officers and directors of CHAMCO and/or ZXNA with respect to the claims asserted in this action. The result of such implied indemnity and/or contribution rights may give rise to additional statutory claims against the bankruptcy estates under Section 14A:3-5(4). Claims are related to a bankruptcy proceeding when the defendants have indemnification rights against a corporate debtor: such claims can affect the size of the bankruptcy estates, the duration of the bankruptcy proceedings, and the debtor's ability to reorganize. (See re Dow Corning, 8 F.3d 482, (6th Cir. 1996); accord Belcufine v. Aloe, 112 F.3d 633, 636 (3d Cir. 1997) (contractual indemnity); Stoe v. Flaherty, 436 F.3d 209, 212, (3d Cir. 2006) (same); see also A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1007 (4th Cir. 1986) (finding "related to" jurisdiction over claims against defendants who "were entitled to indemnification by the debtor...."). While these cases involved indemnity rights conferred by contract or a company's bylaws, the "related to" analysis supporting their holdings applies with equal force here: statutory indemnity rights also are sufficient to confer "related to" jurisdiction. (See Sizzler USA Restaurants, Inc. v. Belair & Evans LLP (In re Sizzler Restaurants Int'l, Inc.), 262 B.R. 811, The purpose of the mandatory indemnification provisions of N.J.S.A. 14A:3-5(4) has been described as follows: " '[P]romote the desirable end that corporate officials will resist what they consider' unjustified suits and claims, 'secure in the knowledge that their reasonable expenses will be borne by the corporation they have served if they are vindicated.' Beyond that, its larger purpose is 'to encourage capable men to serve as corporate directors, secure in the knowledge that expenses incurred by them in upholding their honesty and integrity as directors will be borne by the corporation they serve'." (Cohen v. Southbridge Park, Inc., 369 N.J.Super. 156, (App.Div.2004) [quoting Whitco Corp. v. Beekhuis, 38 F.3d 682, 691 (3d Cir.1994)(internal citations omitted)].) 12

19 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 19 of 25 (Bankr. C.D. Cal. 2000) (statutory indemnification rights under Cal. Labor Code Sec sufficient to trigger "related to" jurisdiction).) (d) The Defendants Have Contractual Rights To Coverage Under A Directors' And Officers' Liability Policy That Also Insures CHAMCO And ZXNA. "Related to" jurisdiction often exists when a defendant in a third- party action is entitled to insurance coverage for that action under a policy issued to the debtor. (See In re Dow Corning Corp., 86 F.3d 482, (6th Cir. 1996) (holding that impact on the debtor's insurance policies supports related to jurisdiction); A.H. Robins Co. v. Piccinin, 788 F.2d 994, 1007 (4th Cir. 1986) (finding related to jurisdiction over claims against defendants who "were entitled to indemnification by the debtor under the [debtor's] corporate by-laws... and were, in addition, additional insureds under the debtor's insurance policy"); Kennilworth Partners II LP v. Crisman, No. C , 2001 WL 30534, at *3 (N.D. Cal. Jan. 3, 2001) (finding related to jurisdiction where "any recovery by plaintiff would be subject to defendants' indemnification claims under [the debtor's] bylaws and claims for coverage under the [debtor's] directors and officers insurance policy."). This case directly implicates the directors' and officers' right to insurance coverage. Should the policy be exhausted, the Defendants will have nowhere other than the CHAMCO and ZXNA estates to turn for reimbursement of their defense expenses and coverage of any settlement payment or judgment. Defendants' Hartford action also is pending in the Central District of California, further supporting transfer. (e) The Plaintiff And Several Of The Defendants In This Action Are Creditors Of The CHAMCO And ZXNA Bankruptcy Estates. Plaintiff Thomason and defendants Ferla, Saleen, Del Franco, Karo and Pitluk all are creditors of the CHAMCO and ZXNA bankruptcy estates. (See Albert Certification, K [list of creditors].) The parties' claims asserted in this case could conceivably impact the claims they assert in the jointly-administered bankruptcy proceedings. This reality also supports "related to" jurisdiction. 2. This Action Should Be Transferred To The Central District Of California Because It Is Related To The CHAMCO And ZXNA Bankruptcy Proceedings. Title 28 U.S.C deals with changes of venue in bankruptcy-related actions, and provides as follows: A district court may transfer a case or proceeding under title 11 to a district court for another district, in the interest of justice or for the convenience of the parties. Courts are divided as to whether "a case or proceeding under title 11," as used in this statute, includes non-core proceedings, i.e., those proceedings that merely are "related to" a case 13

20 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 20 of 25 under title 11. (See Dunlaps v. Friedman's Inc., 331 B.R. 674, (S.D.W.Va.2005) (documenting and explaining the division in authority over the scope of "case or proceeding under title 11" as used in 1412).) Whatever conclusion other courts may have reached in this debate, however, this Court already has found that 28 U.S.C. 1412's transfer provisions properly apply to cases before it that are subject to "related to" jurisdiction under 28 U.S.C. 1334(b): this Court transferred the three removed State Court Actions to the California Central District Bankruptcy Court on that very ground. (See Albert Certification, Ex..) The identical analysis applies here, mandating an identical outcome. 6 B. UNDER 28 U.S.C. 1404(a), TRANSFER ALSO IS WARRANTED FOR THE CONVENIENCE OF THE PARTIES AND WITNESSES, AND IN THE INTERESTS OF JUSTICE. The general, or default, change-of-venue statute found in 28 U.S.C. 1404(a) provides: For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought. (28 U.S.C. 1404(a).) Whether to grant transfer of venue is within the sound discretion of the Court. (See Lony v. E.I. DuPont de Nemours & Co., 886 F.2d 628, 632 (3d Cir. 1989).) Section 1404(a) permits federal courts to grant transfers on a lesser showing of inconvenience than is required under the common law forum non conveniens doctrine, while considering the same relevant factors. (Norwood v. Kirkpatrick, 349 U.S. 29, 32 (1955).) A determination of whether to transfer venue is "committed to the sound discretion of the trial court." (Piper Aircraft Co. v. Reyno, 454 U.S. 235, 257 (1981). In making such a determination, the trial court must balance the private interest factors affecting the convenience of the litigants and the public interest factors affecting the convenience of the forum. (Jumara v. State Farm Ins. Co., 55 F.3d 873, (3d Cir. 1995), citing Gulf Oil v. Gilbert, 330 U.S. 501, (1947).) The private interest factors affecting the convenience of the litigants include: "the relative case of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining attendance of willing, witnesses; possibility of view of premises, if view would be appropriate to the action; and all other practical problems that make trial of a case easy, expeditious and inexpensive." (Windt v. Qwest Communications Intern., 6 Inasmuch as the "justice" and "convenience" factors are substantively the same under both Section 1412 and the only substantial difference between the statutes is the additional requirement under 1404(a) that an action may be transferred to any place where venue could have been valid originally (see 15 Charles Alan Wright, Arthur R. Miller & Edward D. Cooper, Federal Practice and Procedure 3844, at 26 (3d ed.2007) (citing cases) -- these factors are discussed in the Section 1404(a) analysis, below. 14

21 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 21 of 25 Inc., 529 F.3d 183, (3rd Cir. 2008).) The public interest factors affecting the convenience of the forum include: "administrative difficulties flowing from court congestion; the 'local interest in having localized controversies decided at home'; the interest in 'having the trial of a diversity case in a forum that is at home with the state law that must govern the case'; the avoidance of unnecessary problems in conflict of laws, or in the application of foreign law; and the unfairness of burdening citizens in an unrelated forum with jury duty." (Id.) These public and private factors, while not exclusive, reflect three principal concerns that govern a district court's analysis of a motion to transfer: (1) the convenience of the witnesses; (2) the convenience of the parties; and (3) the interests of justice. (See Zeta-Jones v. Spice House, 372 F. Supp. 2d 568, 571 (C.D. Cal. 2005).) As elaborated below, these concerns and the factors that illuminate them either strongly support transfer or are neutral. Accordingly, transfer should be granted. 1. Plaintiff Could Have Brought This Action In The Central District of California. Before undertaking the 1404(a) balancing analysis, a court must consider whether the action "might have been brought" in the first instance in the proposed transferee court, here the Central District of California. 28 U.S.C. 1404(a). It is undeniable that Plaintiff could have filed this action in the Central District of California pursuant to the general venue statute, 28 U.S.C. 1391(b). Section 1391(a) provides, in pertinent part, that a: "civil action wherein jurisdiction is not founded solely on diversity of citizenship may, except as otherwise provided by law, [may] be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State [and/or] (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...." (28 U.S.C. 1391(b).) Defendants Steve Saleen, Mario Ferla, Billy Tally, and Thomas Del Franco reside in this District. (See Certification of Mr. Saleen at 1 & 17.) Plaintiff itself is a California Limited Liability Company. A substantial part of the events or omissions giving rise to this lawsuit occurred in this District, and all of CHAMCO's and ZXNA's property and assets that are the subject of this action is "situated" in this District under the jurisdiction of the Bankruptcy Court. Moreover, ZXNA has its principal place of business in this District, and is thus subject to personal jurisdiction and is deemed to reside there for venue purposes. (28 U.S.C. 1391(c).) This action unquestionably could have been brought in this District. 2. The Convenience of the Parties Favors Transfer of Venue to California While a plaintiff's choice of forum is given some weight in the venue transfer analysis 15

22 Case 2:08-cv JLL-CCC Document 36 Filed 07/31/2009 Page 22 of 25 (see Am. Cyanamid Co. v. Eli Lilly & Co., 903 F. Supp. 781, 784 (D.N.J. 1995)), the deference ordinarily afforded to a plaintiff's choice of forum does not apply in this case for several reasons. First, Thomason's choice of New Jersey "is not significant" because Thomason is not a New Jersey resident: it is a California-formed and based Limited Liability Company. (Deputy v. Long-Term Disability Plan of Sponsor Aventis Pharms., No. CO2-2010, 2002 WL , at *3 (N.D. Cal. Nov. 21, 2002). A plaintiff s choice of forum is entitled to greater deference when the plaintiff has chosen his home forum because when the home forum has been chosen, it is reasonable to assume that this choice is convenient. (Piper Aircraft Co. v. Reyno, 454 U.S. 235, (1981).) "When the plaintiff is foreign, however, this assumption is much less reasonable. Because the central purpose of any forum non conveniens inquiry is to ensure that the trial is convenient, a foreign plaintiff's choice deserves less deference." (Id. ) A foreign plaintiff must set forth a "strong showing of convenience" or present "considerable evidence of convenience" in order to be given deference to his chosen venue. (Windt v. Qwest Communications Intern., Inc., 529 F.3d 183, (3d Cir. 2008). Thomason cannot make that showing here. "Deference to the plaintiff's forum choice diminishes further when the defendant seeks transfer to a forum where the plaintiff resides." (Dean v. Eli Lilly & Co., No , 2007 U.S. Dist. LEXIS 39603, at *7 (D.D.C. June 1, 2007). Thomason can hardly be heard to complain that California is an inconvenient forum when its company and business are based in that State. Second, where, as here, the primary "operative facts have not occurred within the forum," a plaintiff's choice "is entitled to only minimal consideration." (Lou v. Belzberg, 834 F.2d 730, 739 (9th Cir. 1987).) While New Jersey is the state of CHAMCO's and ZXNA's incorporation, the central contention of Plaintiff's complaint -- that CHAMCO and ZXNA are "RICO Enterprises" that the Defendants put into involuntary bankruptcy in California as part of a scheme to defraud Plaintiff -- is California-centric: the challenged bankruptcies that figure so largely in all of Plaintiff's claims were commenced and remain pending in California. Moreover, the Bankruptcy Court already has rebuffed Plaintiff's attempt to dismiss the bankruptcy proceedings and transfer them to New Jersey. (See Albert Cert. at 12 & Ex. G.) Defendants Saleen and Ferla are California residents, as are defendants William Tally and Tom Del Franco, as are also both plaintiff Thomason and its owner, Scott Thomason. (See Complaint 7.) The remaining defendants who are not California residents will have to come to California anyway either to conduct bankruptcy-related business and/or to respond to and prosecute the removed State Court Actions pending there. In all events, if parties and witnesses must travel for litigation, it makes sense that they travel to a single forum, not to two forums. 16