ADA-ES, Inc. v. Big Rivers Electric Corporation

Filing 39

ORDER SUA SPONTE TRANSFERRING CASE. ORDERED: 1. This case is sua sponte TRANSFERRED to the Western District of Kentucky; 2. To the extent that Defendant's Motion to Dismiss 27 argues that Plaintiff's Complaint 20 should be dismissed for lack of personal jurisdiction under Rule 12(b)(2), it is DENIED as moot; and 3. To the extent that Defendant's Motion to Dismiss 27 argues that Plaintiff's Complaint 20 should be dismissed for failure to state a claim under Rule 12(b)(6), it is DENIED without prejudice, by Judge William J. Martinez on 2/12/2018. (dhans, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 17-cv-1001-WJM-MEH
ADA-ES, INC.,
Plaintiff,
v.
BIG RIVERS ELECTRIC CORPORATION,
Defendant.

ORDER SUA SPONTE TRANSFERRING CASE

Plaintiff ADA-ES (“Plaintiff” or “ADA”) brings this action alleging fraud (ECF No.
20 at 6, ¶¶ 36–39), unjust enrichment (id. at 7, ¶¶ 46–47), breach of UCC warranties
(id. at 11, ¶¶ 68–69), and breach of contract (id. at 11–12, 72–76). ADA is a Colorado
based company that manufactures and installs Dry Sorbent Injection Systems (“DSI
system”), which are incorporated into power plants to reduce sulfur trioxide (“SO3”)
emission levels. (Id. at 2–3, ¶¶ 6, 12–13.) The DSI system “inject[s] a powdered
sorbent (a substance with certain chemical properties that allows it to bond with certain
pollutants) into the power plant system where the exhaust gas is produced in order to
bind with, capture, and sequester the SO3 gas.” (Id. at 3, ¶ 13.) Defendant Big Rivers
Electric Corporation (“Defendant” or “Big Rivers”) is a Kentucky-based electrical
corporation which owns power plants. (ECF No. 27 at 1.)
ADA entered into a contract (“Contract”) with Big Rivers to manufacture, deliver,
and install a DSI system in Big Rivers’ Wilson power plant, located in Kentucky. (ECF

No. 20 at 2, ¶ 7; ECF No. 27 at 1.) The Contract included a Performance Guarantee
that the DSI system would reduce SO 3 emissions to less than five parts per million
(ppm) when a specified amount of sorbent was consumed under conditions that were
set forth in ADA’s Performance Guarantee. (ECF No. 20 at 3, ¶ 20.) T he Contract also
specified Performance Guarantee Test Procedures, which called for the use of high
reactivity hydrated lime as the sorbent. (Id. at 3, ¶ 16.)
Big Rivers conducted a performance test using basic hydrated lime, but the DSI
system failed to reduce SO 3 emissions to below 5 ppm. (Id. at 4, ¶¶ 21–23.) ADA
advised Big Rivers to conduct the performance test again using high reactivity hydrated
lime, but Big Rivers again conducted the test using basic hydrated lime and the DSI
system again failed to reduce SO 3 emissions to below 5 ppm. (Id.) ADA alleges that
after the second failed performance test, Big Rivers issued a demand in the amount of
$605,458.78 in actual and liquidated damages. (Id. at 4, ¶ 24.) According to ADA, Big
Rivers then withheld $563,382.56 of contractually owed payments. (Id. at 4, ¶ 25.) In a
letter dated September 1, 2016, ADA formally rejected Big Rivers’ claim that ADA had
breached the Contract. (Id. at 4, ¶ 26.) In that same letter, ADA explained that even if
there were a breach of Contract, per the Contract, Big Rivers could only recover
liquidated damages, which were capped at 10% of the Contract. (Id.) ADA alleges that
in spite of these terms, in addition to the withheld contract payments, Big Rivers
withdrew the entire $807,651.00 Letter of Credit (“Letter of Credit”) funds by delivering a
letter to a bank in Denver, which letter fraudulently stated that ADA had failed to fulfil its
obligations under the Contract. (Id. at 4–5, ¶¶ 27–28.)

2

ADA alleges that this Court has jurisdiction over this action, because in
withdrawing the letter of credit funds, Big Rivers hand-delivered a letter containing
misrepresentations to a Colorado bank in Colorado, thus harm ing ADA, a Colorado
company. ADA claims that “the fraud claim occurred in Colorado and the harm was felt
in Colorado, and this makes jurisdiction proper here.” (ECF No. 32 at 5.) ADA
maintains that Big Rivers knew that the Letter of Credit contained a Colorado choice of
law provision and also knew that ADA was using a Colorado bank. (Id.) ADA claims
that because the Letter of Credit was governed by Colorado law, it was subject to the
UCC warranty set forth in C.R.S. § 4-5-110(a)(2) and Big Rivers violated these
warranties in withdrawing the Letter of Credit funds. (Id. at 6.) According to ADA, this
Court has personal jurisdiction because the UCC warranties arise under Colorado law.
(ECF No. 32 at 7–8.) Additionally, ADA argues that Big Rivers had minimum contacts
with Colorado by contracting with ADA and withdrawing the letter of credit funds from a
Colorado bank. (Id. at 9–10.)
While it is not apparent that the Court has personal jurisdiction ov er Big Rivers
for claims arising from the underlying Contract, the Court agrees that it has personal
jurisdiction over Big Rivers for claims arising from its withdrawal of the Letter of Credit
funds and can thus assert pendent personal jurisdiction ov er Big Rivers for claims
arising under the Contract. See Ward Petroleum Corp. V. Federal Deposit Ins. Corp.,
903 F.2d 1297, 1299 (“The independence of the letter of credit from the underlying
commercial transaction facilitates payment under the credit upon a mere facial
examination of documents; it thus makes the letter of credit a unique commercial device
which assures prompt payment.”); see also United States v. Botefuhr, 309 F.3d 1263,
3

1272 (10th Cir. 2002.) (“Pendent personal jurisdiction, like its better known cousin,
supplemental subject matter jurisdiction, exists when a court possesses personal
jurisdiction over a defendant for one claim, lacks an independent basis for personal
jurisdiction over the defendant for another claim that arises out of the same nucleus of
operative fact, and then, because it possesses personal jurisdiction ov er the first claim,
asserts personal jurisdiction over the second claim.”)
However, the Court is not convinced that the District of Colorado is the most
convenient forum for this action. The ultimate and central issue in this litigation is
whether Big Rivers, a Kentucky entity, breached the Contract for the installation of a
DSI system in Kentucky, which is governed by Kentucky law, when it withheld funds
and withdrew Letter of Credit funds. ADA does business nationally,1 and thus can
expect to be haled into court outside of Colorado. (ECF No. 27 at 9.) The DSI system
was delivered to Kentucky and ADA employees installed it in a Kentucky power plant.
(ECF No 27 at 10.) Indeed, the DSI system has been operating for two years in
Kentucky. (ECF No. 37 at 5.)
“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). In deciding whether to change venue, district
courts must assess two issues: (1) whether the case might have been brought in the
proposed transferee district, and (2) whether the “competing equities” weigh in favor of
adjudicating the case in the that district. See Hustler Magazine, Inc. v. U.S. Dist. Court

1

See http://www.advancedemissionssolutions.com/ADA-Products/Products-andServices/Dry-Sorbent-Injection-Systems/default.aspx (last visited Feb. 8, 2018)

4

for the Dist. of Wyo., 790 F.2d 69, 71 (10th Cir. 1986). As Big Rivers is headquartered
in the Western District of Kentucky and the events giving rise to ADA’s claim occurred
in the Western District of Kentucky, this action could have been filed in the Western
District of Kentucky. Thus the first issue of the analysis is easily met.
With regard to the second issue, the competing equities which the Court must
consider include the following factors:
(1) plaintiff’s choice of forum; (2) the accessibility of
witnesses and other sources of proof, including the
availability of compulsory process to insure attendance of
witnesses; (3) the cost of making the necessary proof;
(4) questions as to the enforceability of a judgment if one is
obtained; (5) relative advantages and obstacles to a fair trial;
(6) difficulties that may arise from congested dockets; (7) the
possibility of the existence of questions arising in the area of
conflict of laws; (8) the advantage of having a local court
determine questions of local law; and (9) all other
considerations of a practical nature that make a trial easy,
expeditious and economical.

Chrysler Credit Corp. v. Country Chrysler, Inc., 928 F.2d 1509, 1516 (10th Cir. 1991)
(quoting Tex. Gulf Sulphur Co. v. Ritter, 371 F.2d 145, 147 (10th Cir. 1967)).
The Court ordered the parties to show cause why it should not sua sponte
transfer the case to the Western District of Kentucky, a venue with significantly greater
connections to the parties, witnesses, and events relevant to this litigation. (ECF No.
36.) Both parties briefed the issue and the Court now considers each of the Chrysler
factors in turn.
First, the Court agrees with ADA that Plaintiff’s choice of forum weighs against
transferring the case to Kentucky, because ADA filed this action in the District of
Colorado. However, the second factor—accessibility of witnesses and other sources of
5

proof—weighs in favor of transfer. ADA makes two arguments regarding this factor.
First, ADA argues that the bank witnesses are located in Colorado, ADA’s employees
are all located in Colorado, Big Rivers’ key technical personnel are located in Illinois
and Missouri, and the supplier of the hydrated lime is also located in Missouri. (ECF
No. 38 at 4–6, 10.) The Court agrees with Big Rivers that no bank witnesses are likely
to be necessary for the prosecution or defense of this case and the ADA witnesses and
third party engineers who worked on the DSI system did so in Kentucky. (ECF No. 37
at 5.)
Next, ADA argues that the DSI system installed in Kentucky is not relevant for
the disposition of this case, because “the conditions for the performance guarantee
testing can never be replicated. Similarly stated, this is not a case in which the
performance testing could be conducted using the proper hydrated lime at this point”
because “the performance test is a start-up commissioning test to ensure functionality
and it must be run within a certain time period after the commissioning.” (ECF No. 38
at 6.) ADA claims that the most useful version of the DSI system for this case will be
the scaled model of the DSI system currently stored with ADA’s vendor in Michigan.
(Id. at 10.) Big Rivers claims that “having a trial where the DSI project is located is
‘practical’ and will ‘make a trial easy, expeditious and economical.’” (ECF No. 37 at 5.)
The Court agrees with Big Rivers, but also notes that if ADA is correct in its assessment
and the scaled model is indeed the most important version of the DSI system, Michigan
is closer to Kentucky than to Colorado, making it easier to ship the model to the
Western District of Kentucky than to the District of Colorado.
Turning to factor three—the cost of making the necessary proof—ADA argues
6

that if the case is transferred, it will need to retain counsel in Kentucky in addition to
incurring travel costs, whereas Big Rivers is represented by a firm that has offices in
Denver. (ECF No. 38 at 7.) While the Court acknowledges that transferring the case
will impose additional costs on ADA, the Court also notes that the Local Rules f or the
Western District of Kentucky has a pro hac vice mechanism by which ADA’s Colorado
lawyer can litigate this case in the Western District of Kentucky. Joint W.D.Ky. Loc. Civ.
Prac. R. 83.2.
The fourth factor—questions as to the enforceability of a judgment if one is
obtained—is neutral. A judgment obtained in federal court may be enforced in any
other federal court through a very simple “registration” process in the federal court
where enforcement would take place. See 28 U.S.C. § 1963. Thus, there are no
barriers to enforcement beyond minimal paperwork and nominal fees.
The fifth factor—relative advantages and obstacles to a fair trial—is also neutral.
The District of Colorado and the Western District of Kentucky are equally capable of
providing a fair trial.
The sixth factor—difficulties that may arise from congested dockets—weighs in
favor of transfer. As ADA points out, according to the Tenth Circuit, “[w]hen evaluating
the administrative difficulties of court congestion, the most relevant statistics are the
median time from filing to disposition, median time from filing to trial, pending cases per
judge, and average weighted filings per judge.” Employers Mut. Cas. Co. v. Bartile
Roofs, Inc., 618 F.3d 1153, 1169 (10th Cir. 2010). T he median time from filing to
disposition and from filing to trial are lower in the District of Colorado, despite the fact
that pending cases per judge and weighted filings per judge are significantly higher in
7

the District of Colorado. (ECF No. 38-5 at 2–3.) 2 Taking all four statistics into account,
the Court finds that this factor ultimately favors transfer to the Western District of
Kentucky.
As to the seventh factor—the possibility of existence of questions arising in the
area of conflict of laws—the Court concludes that there is no question about which law
applies. The parties agree that the Contract contains a Kentucky choice of law clause
(ECF No. 27 at 9), while the Letter of Credit contains a Colorado choice of law clause
(ECF No. 32 at 6). Thus, this factor is neutral.
ADA argues that the eighth factor—the advantage of having a local court
determine questions of local law—weighs against transfer. (ECF No, 38 at 9.) Here,
the Court notes that regardless of which District the case is tried in, the court will need
to apply the local laws of the other state. If the case remains in the District of Colorado,
this Court will have to apply the laws of Kentucky to resolve issues arising from the

2

U.S. District Court—Judicial Caseload Profile (September 30, 2017) (ECF No. 38-5.)
W.D.KY

D.CO

Pending Cases

417

451

Weighted Filings

370

546

Median time (months) filing
to disposition (Criminal
felony)

12.2

8.7

Median time (months) filing
to disposition (Civil)

23.5

7.0

Median time (months) from
filing to trial (civil only)

29.8

23.9

8

Contract. Alternatively, if the case is transferred to the Western District of Kentucky,
that court may need to apply Colorado law to resolve issues arising from the Letter of
Credit. However, based on the record before the Court, it appears that in order to
reach the fraud claim arising under the Letter of Credit, it is likely that a court will have
to first resolve issues arising from the underlying Contract. Thus, because a court will
initially have to apply Kentucky law, this factor weighs in favor of transferring the case to
the Western District of Kentucky.
Finally, and for the record, the Court notes that it considered all of ADA’s
arguments under factor nine—those being all other considerations of a practical
nature—under one or more of the other eight factors above.
The Court recognizes that all of the foregoing competing equities, considered
together, are fairly evenly weighted. The Letter of Credit and the underlying Contract
are inherently linked. While it is clear that the Court can assert personal jurisdiction
over claims arising under the Letter of Credit, it will have to determine whether there
was a breach of the underlying Contract. The Court finds that using the Letter of Credit
as a hook to assert personal jurisdiction over Big Rivers for claims arising pursuant to
the underlying contract is the legal equivalent of the Letter of Credit tail wagging the
breach of contract dog, and the Chrysler factors need to be evaluated with this context
firmly in mind. As such, in its discretion, the Court finds that sua sponte transfer of this
case to the Western District of Kentucky is warranted and appropriate.
Conclusion
For the reasons set forth above, the Court ORDERS as follows:

9

1.

This case is sua sponte TRANSFERRED to the Western District of Kentucky;

2.

To the extent that Defendant’s Motion to Dismiss (ECF No. 27) argues that
Plaintiff’s Complaint (ECF No. 20) should be dismissed for lack of personal
jurisdiction under Rule 12(b)(2), it is DENIED as moot; and

3.

To the extent that Defendant’s Motion to Dismiss (ECF No. 27) argues that
Plaintiff’s Complaint (ECF No. 20) should be dismissed for failure to state a claim
under Rule 12(b)(6), it is DENIED without prejudice.
Dated this 12th day of February, 2018.
BY THE COURT:

______________________
William J. Martínez
United States District Judge

10