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Wedelstedt v. Law Offices of Goldstein

January 31, 2006

EDWARD WEDELSTEDT, PLAINTIFF,
v.
THE LAW OFFICES OF GOLDSTEIN, GOLDSTEIN AND HILLEY; GERALD H. GOLDSTEIN, AN INDIVIDUAL; AND DOES 1-3, DEFENDANTS.



The opinion of the court was delivered by: Judge Phillip S. Figa

ORDER ON MOTION TO DISMISS OR TRANSFER VENUE

This matter is before the Court on Defendants' Motion to Dismiss for Improper Venue or, in the Alternative, to Transfer Venue Pursuant to 28 U.S.C. §§ 1404 or 1406 (Dkt. # 13), on November 14, 2005. A hearing on this matter was held before this Court on January 20, 2006. The motion is fully briefed and ripe for decision.

I. BACKGROUND AND PROCEDURAL HISTORY

Plaintiff Edward Wedelstedt filed a Complaint on September 20, 2005 (Dkt. # 1), against the defendant law firm Goldstein, Goldstein and Hilley ("GGH"), Mr. Gerald Goldstein individually, and Does 1-3, who are "potential additional defendants including, but not limited to, other partners/members/agents of GGH and Goldstein and/or third parties who have liability to the Plaintiff and whose identities are anticipated to be more accurately discerned through the process of litigation and who will be named more specifically as parties when appropriate." Compl. at 2, ¶ 6. The Complaint asserts diversity jurisdiction and that venue is proper pursuant to 28 U.S.C. § 1391 "in that a substantial part of the events or omissions giving rise to the Plaintiff's claims occurred in this judicial district." Id., ¶ 8

Mr. Wedelstedt is the Chief Executive Officer of Goalie Holdings, Inc., a Colorado corporation that operates adult entertainment businesses around the country. Sometime in 2000, governmental agencies began investigating Goalie and its related entities for tax violations, among other things. An indictment was handed down in March 2005, including obscenity, RICO, and tax fraud charges, and Mr. Wedelstedt has since pled guilty as part of a plea negotiation.

Mr. Wedelstedt sought legal counsel from the State of Texas, as the investigation began there and the indictments were issued under the auspices of the United States District Court for the Northern District of Texas. After a meeting in Denver, Colorado, plaintiff hired Defendants Goldstein and GGH to represent him in connection with the Grand Jury investigation for a lump sum fee of $600,000 plus reasonable out of pocket expenses. Eventually, he paid GGH and Goldstein approximately $1.1 million including the lump sum payment for legal services.

Mr. Wedelstedt now challenges the compensation he paid for the legal services provided by defendants, claiming that 1) the non-refundable flat fee is an improper fee agreement in Colorado; 2) defendants overcharged and failed to provide services warranting their billings, in breach of the agreement between attorney and client; 3) defendants have failed to meaningfully provide an accounting of time charges by separate category of work. Mr. Wedelstedt brings a breach of contract claim, a claim for breach of covenant of good faith and fair dealing, a willful and wanton breach of contract claim, a promissory estoppel claim, an unjust enrichment claim, and a fraud in the inducement claim (as related to the allegedly impermissible fee arrangement).

On November 14, 2005, defendants filed their Motion to Dismiss for Improper Venue or, in the Alternative, to Transfer Venue (Dkt. # 13). Plaintiff requested an extension of time to respond (Dkt. # 14), which was granted in part on December 6, 2005. Defendants then requested an Expedited Hearing on the Motion to Dismiss or Transfer, noting their concern that factual disputes would require the plaintiff's testimony, who was scheduled to surrender to a Federal Correctional Facility in April 2006 to begin serving a sentence following his plea agreement in the underlying criminal case. The motion was granted, and a hearing was held on January 20, 2006.

Plaintiff filed his Response on January 5, 2006 (Dkt. # 23), and defendants filed a Reply on January 13, 2006 (Dkt. # 28). Following the hearing and pursuant to the Court's request, plaintiff and defendants also filed supplemental briefs on venue provision 28 U.S.C. § 1391(a)(1) (Dkts. ## 35 and 34, respectively).

II. ANALYSIS

Defendants argue that venue is improper under 28 U.S.C. § 1391 and the case should be dismissed pursuant to F.R.Civ.P. 12(b)(3);*fn1 or dismissed or transferred pursuant to 28 U.S.C. § 1406(a); or transferred because of convenience pursuant to 28 U.S.C. § 1404(a). Title 28 U.S.C. § 1391(a)(2) dictates proper venue in a diversity case as one 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," and is the venue provision relied on by plaintiff in his Complaint. Section 1406(a) provides for dismissal or transfer when venue is improper.

Defendants in their Motion to Dismiss or Transfer emphasize that this case involves a Texas lawyer hired to represent the plaintiff in a Texas criminal investigation. Defendants say they believed that plaintiff "was a California resident from some time in 1999 until sometime in 2004, when he moved to Colorado." Mot. at 2, n.1. (Defendants later maintain that "at the very least, [plaintiff] returned the executed Fee Agreement from California." Id. at 5.) Although negotiations for the fee agreement took place in Colorado, the agreement was entered into after those negotiations. According to defendants, all the acts or omissions alleged in plaintiff's complaint occurred in Texas. Defendants claim that the case is filed here only to take advantage of Colorado's more stringent rules on attorney fee agreements. Further, the fee agreement at issue was allegedly negotiated by Mr. Wedelstedt's Colorado attorney,

C. Garold Sims, who "acted as if Texas law applied to the Fee Agreement." Id. at 11.

Defendants allege that at a January 2001 meeting in Colorado, attorneys from GGH discussed with Mr. Sims, plaintiff's Colorado attorney, the acceptability of a nonrefundable flat fee agreement under Texas law. Numerous Texas witnesses were interviewed during defendants' representation of plaintiff, and extensive research was conducted into Texas community standards on pornography and obscenity. The fee agreement itself, sent to Mr. Wedelstedt at a Colorado address, states that it is for legal representation for a ...


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