Pipeline Productions, Inc. v. The Madison Companies, LLC, et al
MEMORANDUM AND ORDER overruling 6 Defendants' Motion to Dismiss Plaintiffs' Complaint Or Alternatively Transfer To The District of Delaware. Signed by District Judge Kathryn H. Vratil on 2/22/2017. (hl)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
PIPELINE PRODUCTIONS, INC., et al.,
HORSEPOWER ENTERTAINMENT, et al.,
MEMORANDUM AND ORDER
On May 21, 2015, Pipeline Productions, Inc. and Backwood Enterprises, LLC filed this
lawsuit against Horsepower Entertainment and The Madison Companies, LLC. Plaintiffs assert state
law claims for breach of contract and breach of fiduciary duty related to a joint venture to produce
music festivals.1 Defendants contend that they did not enter a joint venture but merely loaned
plaintiffs $270,000 to fund a music festival in Arkansas. This matter comes before the Court on
Defendants’ Motion To Dismiss Plaintiffs’ Complaint Or Alternatively Transfer To The District Of
Delaware (Doc. #6) filed June 27, 2015. For reasons set forth below, the Court finds that
defendants’ motion should be overruled.
A party may seek to enforce a forum selection clause by filing a motion to transfer under 28
U.S.C. § 1404(a). Atl. Marine Constr. Co. v. U.S. Dist. Ct. for W. Dist. of Tex., 134 S.Ct. 568, 579
(2013). Section 1404(a) provides as follows:
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 or to any district or division to which all parties have consented.
Plaintiffs assert diversity jurisdiction under 28 U.S.C. § 1332.
28 U.S.C. § 1404(a) (2012). In the typical case which does not involve a forum selection clause,
a district court considering a motion to transfer under Section 1404(a) must evaluate both the
convenience of the parties and various public-interest considerations. Atl. Marine Constr. Co., 134
S.Ct. at 581. Ordinarily, a district court weighs the relevant factors and decides whether, on balance,
a transfer would serve “the convenience of parties and witnesses” and otherwise promote “the
interest of justice.” Id. The calculus changes, however, when the parties’ contract contains a valid
forum selection clause, which represents the parties’ agreement as to the most proper forum. Id.
(citing Stewart Org. v. Ricoh Corp., 487 U.S. 22, 31 (1988)). Courts should give a valid forum
selection clause controlling weight in “all but the most exceptional cases.” Atl. Marine Constr. Co.,
134 S.Ct at 581 (internal citation omitted).
Procedural And Factual Background
Pipeline Productions, Inc. is a Kansas corporation with its principal place of business in
Lawrence, Kansas. Backwood Enterprises, LLC is an Arkansas limited liability corporation with
its principal place of business in Lawrence, Kansas. Pipeline and Backwood (collectively,
“Pipeline”) produce live music and music festivals. Brett Mosiman and Nathan Prenger conduct
business for Pipeline and related entities, including OK Productions.2
The Madison Companies, LLC is a Delaware limited liability company with its principal
place of business in Greenwood Village, Colorado. Horsepower Entertainment, a Delaware limited
liability company, is a wholly- owned subsidiary of Madison with its principal place of business in
Greenwood Village, Colorado. Madison and Horsepower (collectively, “Horsepower”) are in the
OK Productions is an Arkansas entity which is related to Pipeline; the record does
not reflect the exact nature of that relationship.
business of providing venture capital.
In 2014, on behalf of Pipeline, Mosiman and Prenger negotiated with Horsepower
concerning a potential joint venture to produce music festivals. On July 28, 2014, the parties
executed a Letter of Intent (“LOI”) which summarizes a possible investment by Horsepower in
Pipeline Festivals, LLC, a to-be-formed Delaware limited liability company. Doc. #8-1. The LOI
refers to Mosiman, Prenger, Pipeline Productions, Inc., OK Productions and affiliates collectively
as the “Pipeline Parties,” the “PPI Parties” or “PPI Entities.” The LOI provides that Pipeline
Festivals, LLC will commence operations upon “(i) the contribution by the Pipeline Parties of
substantially all of the assets, free and clear of all liabilities, of Pipeline Production, Inc.’s musical
festival business to Pipeline Festivals LLC and (ii) the funding by Horsepower of certain payments
to the Pipeline Parties, certain initial capital contributions to Pipeline Festivals, LLC and
Horsepower’s commitment to make further capital contributions to Pipeline Festivals [LLC].” Id.
at 1. The LOI provides that the Pipeline Parties will issue equity interests to Horsepower and that
in exchange, Horsepower will make up to $6,560,000 in payments and investments. Id.
The LOI further states that “[a]s soon as practicable after execution of the LOI, the parties
shall commence to negotiate definitive agreements . . . to evidence the Transaction,” and that “[t]he
Definitive Agreements will include such terms and conditions as may be acceptable to all of the
Parties.” Id. at ¶ 8. The LOI includes a choice of law and forum selection clause which provides
that all disputes “arising from or related to” the LOI must be litigated in Delaware, as follows:
Governing Law; Venue. This letter shall be governed by and construed in accordance
with internal laws of the State of Delaware . . . . The US Federal Court for Delaware
and Delaware state courts having jurisdiction shall be the exclusive venues for any
litigation arising from or related to this Agreement.
Id. at ¶ 16.
The LOI provides that it “will automatically terminate and be of no further force and effect
upon the earlier of (i) execution of the Definitive Agreements by the Parties, (ii) mutual agreement
of the Parties, and (iii) November 1, 2014.” Id. at ¶ 14. It provides, however, that the choice of law
and venue clause shall survive termination of the LOI. Id.
The Delaware Lawsuit
On April 15, 2015, Horsepower filed suit in Delaware Chancery Court against Pipeline
Productions, Inc., Mosiman and Prenger. Horsepower sought a declaratory judgment that (1) the
LOI did not create any obligation for Horsepower regarding production of the Thunder Mountain
Festival in Arkansas (Count 1) and (2) Pipeline Productions, Inc., Mosiman and Prenger were
obligated to repay Horsepower a $270,000 loan to produce the festival (Count 2). Horsepower also
asserted that defendants breached a loan contract and thus owed Horsepower $270,000 plus interest
(Count 3). Horsepower asserted that based on the LOI, which provides exclusive jurisdiction in
Delaware, the Delaware Chancery Court had personal jurisdiction over defendants.
On May 14, 2015, Pipeline removed the case to the United States District Court for the
District of Delaware (the “Delaware court”), asserting diversity jurisdiction. See Madison Cos. v.
Backwood Enters., No. 15-cv-388-RGA (D. Del. 2015) (“Madison”).3 Pipeline moved to dismiss
the claims for lack of jurisdiction or, alternatively, to transfer the claims to the United States District
Court for the District of Kansas where (by then) this action was pending. Specifically, Pipeline
asserted that the Delaware court lacked subject matter jurisdiction over the declaratory judgment
claim in Count I and lacked personal jurisdiction over the remaining claims, as follows:
Defendants will show that the first claim – for a declaration that no duties or
One week later, on May 21, 2015, Pipeline sued Horsepower in this Court.
obligations arise under the LOI – must be dismissed because this Court lacks subject
matter jurisdiction. The claim is not justiciable because there is no real dispute or
controversy between the parties. The second and third claims – for declaratory
judgment, and a money verdict on a loan agreement – must be dismissed for lack of
personal jurisdiction because there are no sufficient minimum contacts between the
parties, the claims asserted against them, and Delaware.
See Doc. #8 in Madison at 5-6. Pipeline argued that Horsepower had brought the declaratory
judgment claim in an attempt to establish personal jurisdiction over Pipeline to enforce an
underlying loan agreement, as follows:
[Horsepower] does not claim, and cannot claim that the alleged loans were made
under the terms of the LOI. But without the LOI, and application of its forum
selection clause, [Horsepower] cannot bring suit to prove and enforce a loan in
Delaware. To solve this problem [Horsepower] manufactures a dispute over the LOI
that simply does not exist.
Id. at 8. Pipeline stated that “[i]n its first cause of action [Horsepower] asks the Court to declare that
the LOI is a dead letter, and that no rights or obligations can arise from it.” Id. at 9. Pipeline then
asserted that “there cannot be a controversy when [Horsepower]’s opponent, Pipeline, agrees.” Id.
In its response brief and at the hearing on the motion, Horsepower argued that the declaratory
judgment claim in Count 1 was not as limited as Pipeline asserted. Horsepower argued that it
presented a justiciable controversy because the declaratory judgment claim sought not only a
declaration regarding the enforceability of the LOI, but also a declaration regarding the parties’
commercial relationship as it related to the Thunder Mountain Festival. See, e.g., Doc. #25 in
Madison at 27.
On December 4, 2015, the Delaware court granted Pipeline’s motion to dismiss.4 With
respect to the declaratory judgment claim (Count 1), the Delaware court did not rule whether it had
In essence, the Delaware court adopted Pipeline’s argument that the forum selection
clause in the LOI did not apply to Horsepower’s claims and that it had no jurisdiction over the
parties or the case.
personal jurisdiction over Pipeline.5 Rather, it dismissed the declaratory judgment claim for lack
of subject matter jurisdiction, stating as follows:
[I]n my opinion seeking declaratory relief to somehow or other interpret a contract
or the Letter of Intent when we’re agreed it has no [prospective] effect, because it’s
expired, then there is – and there’s no claim that it was breached, means that there’s
no justiciable controversy for me to resolve.
Id. at 72. As to the Counts 2 and 3, the Delaware court ruled that it had no personal jurisdiction over
Pipeline, Mosiman and Prenger because the forum selection clause did not apply to the issue
whether a $270,000 transaction was a loan or an investment as part of a joint venture. Although the
Delaware court did not specifically address the fact that the forum selection clause applies to “any
litigation arising from or related to” the LOI, it necessarily – if implicitly – rejected any argument
that the Delaware case was “related to” the LOI.
On December 30, 2015, Horsepower filed a notice of appeal to the United States Court of
Appeals for the Third Circuit.6 On April 20, 2016, based on the parties’ agreement, the Third Circuit
dismissed the appeal of the Delaware case. See Madison Co. LLC v. Backwoods Enters., No. 15-
The Delaware court addressed personal jurisdiction on a claim-by-claim basis, and
counsel for Pipeline agreed with this approach:
THE COURT: Do you think that the question of whether or not there’s personal
jurisdiction based on a forum selection clause means that I have to consider sort of
each count separately and I could say there is personal jurisdiction for this one and
there isn’t personal jurisdiction for that one?
MR. SKEPNEK: Good question, Your Honor. I think, yes, actually.
Doc. #25 in Madison at 13.
On February 5, 2016, Horsepower filed a motion to stay Pipeline’s case in this court
pending the Third Circuit decision in the appeal of the Delaware case. See Doc. #16. On Apri1 13,
2016, this Court overruled the motion to stay. See Memorandum And Order (Doc. #20).
4096, Doc. #30112269331, at 1 (3d Cir. 2016).
The Instant Lawsuit
On May 21, 2015, the week after it removed the Delaware case from state to federal court,
Pipeline sued Horsepower in this Court. Highly summarized, the complaint in this case alleges as
The parties never reached the “Definitive Agreements” which the LOI contemplated, and on
October 23, 2014, Horsepower revoked the LOI. Complaint at ¶ 10.7
On November 4, 2014, Mosiman proposed a joint venture agreement between Pipeline and
Horsepower for the limited purpose of owning and producing the Thunder Mountain Festival. Id.
at ¶ 12. On November 6, 2014, Horsepower, through its principal Bryan Gordon, orally accepted
a modified version of Mosiman’s proposal. Horsepower agreed that it would (1) pay Pipeline
$750,000 for a 51 per cent interest in the Thunder Mountain Festival, (2) provide $500,000 of
operating capital for the Thunder Mountain Festival, and (3) pay Pipeline $80,000 to operate and
produce the Thunder Mountain Festival.
Based on the agreement of November 6, 2014, Pipeline personnel spent more than 4,000
hours on the Thunder Mountain Festival from November of 2014 through May of 2015. Their
efforts included creating infrastructure, contracting with vendors, setting up ticketing and marketing
and promoting the festival. Mosiman used his industry contacts to obtain commitments from
approximately 50 artists. As part of its commitment to provide operating capital, Horsepower
provided $272,000 to pay deposits for music artists. Pipeline kept Horsepower informed about the
progress of the Thunder Mountain Festival and provided daily reports about advance ticket sales.
In the alternative, the complaint alleges that by its own terms, the LOI terminated on
Nov. 1, 2014. See Complaint, ¶ 10.
Based on music industry expectations and ticket sales, at some point Horsepower forecast
that the Thunder Mountain Festival would generate a loss in 2015. Horsepower then attempted to
re-characterize its investment in the Thunder Mountain Festival as a loan. Horsepower refused to
fulfill its commitment to (1) provide $500,000 to produce the Thunder Mountain Festival, (2) fund
its purchase of a 51 per cent interest in the Thunder Mountain Festival and (3) pay Pipeline $80,000
for operating costs. Horsepower has withheld performance of its contractual obligations in an
attempt to force Pipeline to give Horsepower more favorable terms for the Thunder Mountain
Festival. Pipeline has covered Horsepower’s default by paying over $700,000 in production costs
for the festival.
Pipeline asserts claims for breach of contract (Count 1) and breach of fiduciary duty
(Count 2). It also seeks a declaration that Horsepower breached an oral contract with Pipeline,
anticipatorily repudiated the contract and forfeited its right to any legal or equitable interest in the
Thunder Mountain Festival (Count 3).
Horsepower asserts that the Court must dismiss the complaint or transfer the case to the
District of Delaware because the forum selection clause in the LOI designates the District of
Delaware or Delaware state courts as the exclusive venue for this litigation. On October 12, 2016,
this Court noted that the parties had not addressed the effect of the Delaware litigation on the case
before this Court. The Court therefore ordered the parties to show cause as to the following issues:
whether or to what extent the District of Delaware decision that
the Letter Of Intent does not apply to the controversy [there]
controls the issue whether its forum selection clause applies to the
disputes at issue in this case. If any party claims that the
Delaware ruling has binding force in this case, the party shall
undertake the relevant choice of law analysis and explain the
legal basis for any argument concerning res judicata, issue
preclusion and judicial estoppel.
Memorandum And Order To Show Cause (Doc. #21).8 In response, Pipeline contends that the
Delaware court concluded that the LOI forum selection clause did not apply to the controversy
between the parties, and that collateral estoppel precludes this Court from independently
determining whether the forum selection clause requires dismissal or transfer of the Pipeline claims
in this case. Horsepower argues that Pipeline mischaracterizes the Delaware court’s ruling and
asserts that this Court must determine the merits of Horsepower’s motion to dismiss or transfer.
Forum Selection Clause
Horsepower asserts that the forum selection clause applies to this case and requires the Court
to dismiss the case or transfer it to the District of Delaware. Pipeline counters that the forum
selection clause does not control because its complaint alleges breach of an agreement that does not
“arise from or relate to” the LOI. Plaintiffs’ Pipeline Productions Inc. And Backwood Enterprises,
LLC Response In Opposition To Defendants’ Motion To Dismiss Or Alternatively Transfer To The
District Of Delaware (Doc. #12) filed August 16, 2015 at 2.
A federal court exercising diversity jurisdiction determines the application of a forum
selection clause under federal law. Stewart Org. v. Ricoh Corp., 487 U.S. 22, 28 (1988); Black &
Veatch Const., Inc. v. ABB Power Generation, Inc., 123 F. Supp. 2d 569, 577 (D. Kan. 2000). The
Court must first determine, however, whether a forum selection clause is part of the parties’
agreement. A federal court applies state law in deciding whether an agreement exists and the terms
On December 8, 2016, the Court held oral argument on the order to show cause.
of such an agreement. Yavuz v. 61 MM, Ltd., 465 F.3d 418, 428 (10th Cir. 2006) (law which
governs contract as whole governs forum selection clause); M.K.C. Equip. Co. v. M.A.I.L. Code,
Inc., 843 F. Supp. 679, 683 (D. Kan. 1994). Further, a district court exercising diversity jurisdiction
applies the choice-of-law rules of the state in which it sits. Shearson Lehman Bros., Inc. v. M & L
Invs., 10 F.3d 1510, 1514 (10th Cir. 1993). Kansas choice-of-law rules honor an effective choice
of law made by contracting parties. See Equifax Servs. Inc. v. Hitz, 905 F.2d 1355, 1360 (10th Cir.
1990). Here, the choice-of-law provision in the LOI requires that the Court apply Delaware law.
If the choice-of-law provision did not apply, the Court would apply Kansas law. Because Kansas
and Delaware law appear substantially similar, however, this issue is essentially moot.
In construing a contract, the intent of the parties is the primary question; the court should
ascertain the meaning by examining the document from all corners and by considering all of the
pertinent provisions. Liggatt v. Emp’rs. Mut. Cas. Co., 273 Kan. 915, 921, 46 P.3d 1120, 1125
(2002)). If the terms of the contract are clear, there is no room for rules of construction, and the
intent of the parties is determined from the contract itself. Id. (citing Marquis v. State Farm Fire &
Cas. Co., 265 Kan. 317, 324, 961 P.2d 1213, 1219 (1998)). On the other hand, if the court
determines that written contract language is ambiguous, it may consider extrinsic or parol evidence
to construe it. See Waste Connections of Kan., Inc. v. Ritchie Corp., 296 Kan. 943, 963, 298 P.3d
250, 264 (2013). Before determining that a contract is unambiguous, the court must give the
language a fair, reasonable and practical construction. Marquis, 265 Kan. at 324, 961 P.2d at 1219.
As noted, Horsepower relies on the following language in the LOI:
The US Federal Court for Delaware and Delaware state courts having jurisdiction
shall be the exclusive venues for any litigation arising from or related to this
Doc. #8-1 at 11 (emphasis added). Horsepower asserts that the Pipeline claims in this case arise
from or are related to the LOI. Pipeline argues that its claims are based on an oral agreement
separate from the LOI and that this litigation therefore does not arise from and is not related to the
Here, the complaint alleges that after the LOI terminated, Horsepower orally agreed to a joint
venture with Pipeline to produce the Thunder Mountain Festival. See Complaint (Doc. #1) at ¶¶ 10,
12, 25. Pipeline contends that Horsepower breached the oral agreement to provide funds for the
Thunder Mountain Festival.9 Id. ¶¶ 12, 27. Horsepower disputes that it entered an oral joint
venture, but argues that any such agreement necessarily arose from or is related to the LOI, which
contemplates a joint venture which involved Thunder Mountain Festival. The Court agrees.
The complaint alleges obligations on the part of Horsepower which closely mirror the
obligations proposed in the LOI. For example, Pipeline alleges that Horsepower agreed to fund
$500,000 of operating capital for the Thunder Mountain Festival; the LOI provides that Horsepower
will contribute $510,000 to Pipeline Festivals, LLC to fund the re-launch of the Thunder Mountain
Festival.10 See Coregis Ins. Co. v. Am. Health Found., Inc., 241 F.3d 123, 128 (2d Cir. 2001)
Horsepower disputes that it entered an oral agreement for a joint venture; it asserts
that it loaned Pipeline funds to promote the Thunder Mountain Festival.
The LOI proposes that Horsepower and Pipeline jointly form a new LLC which
would own Thunder Mountain Festival and other Pipeline music festivals. The LOI provides that
the ownership of the proposed LLC would entail Horsepower owning 51%, Mosiman owning
34.3%, and Prenger owning 14.7%. Doc. #10 ¶ 3(a). In other words, Horsepower would have a
51% ownership interest and Pipeline would have a 49% ownership interest in the company that
included Thunder Mountain Festival. Similarly, Pipeline’s complaint here contends that under an
oral agreement for a joint venture, Horsepower would own 51% of Thunder Mountain Festival and
Pipeline would own 49%. Doc. #1 ¶ 12. In addition, the LOI proposes that Horsepower provide
$510,000 of operating capital for Thunder Mountain Festival; here, Pipeline alleges that Horsepower
(“arising out of” usually interpreted to indicate a “causal connection”). The LOI summarizes the
principal terms of Horsepower’s possible investment in Pipeline music festival business. The
negotiation and execution of the LOI was a step toward a potential joint venture regarding Thunder
Mountain Festival and other festivals. Thus, even if Pipeline’s claims do not “arise from” the LOI,
they are certainly “related to” it. John Wyeth & Bros. Ltd. v. CIGNA Int’l Corp., 119 F.3d 1070,
1075 (3d Cir. 1997) (phrase “relating to” broader than “arising from”);11 see also Coregis Ins., 241
F.3d at 128-29 (“related to” equivalent to “in connection with” and “associated with”); Sharp v.
Wellmark, Inc., No. 10-cv-2430-SAC, 2010 WL 4291644, at *1-2 (D. Kan. Oct. 26, 2010) (forum
selection clause may govern claims other than those alleging breach of the contract which contains
clause); cf. Black’s Law Dictionary 1479 (10th ed. 2014) (defining “related” as “[c]onnected in
some way”). If the Court were determining in the first instance whether the forum selection clause
applies to this case, it would easily so find. As set out below, however, under the doctrine of
collateral estoppel, the Delaware court’s ruling bars this Court from finding that the forum selection
clause applies to this case.12
is obligated to provide $500,000 of operating capital for the Thunder Mountain Festival joint
venture. Doc. #10 ¶ 1(a); Doc. #1 ¶ 12. Further, under either the LOI or Pipeline’s alleged oral joint
venture, Mosiman and Prenger were to assume operational roles for Thunder Mountain Festival.
Doc. #10 ¶ 3(f); Doc. #1 ¶ 13.
In Wyeth, the parties’ forum selection clause provided that English courts had
jurisdiction over “any dispute arising . . . in relation to” the parties’ agreement. 119 F.3d at 1074.
The court concluded that the forum selection clause applied to any dispute where the dispute’s origin
had some “logical or causal connection” to the parties’ agreement. Id. at 1074-75.
Because collateral estoppel precludes the Court from finding that the forum selection
clause applies to this case, the Court need not further analyze whether the interests of justice would
be served by enforcing the forum selection clause.
The Tenth Circuit has suggested that in considering the issue-preclusive effect of another
federal court sitting in a diversity case, a federal court should apply the law of the state in which the
court which issued the original ruling sits. See Cudd Pressure Control, Inc. v. N.H. Ins. Co., 645
F. App’x 733, 738 (10th Cir. 2016). Delaware, Kansas and federal law each require four conditions
to establish collateral estoppel:
(1) the issue previously decided is identical with the one presented in the action in
question; (2) the prior action has been finally adjudicated on the merits; (3) the party
As noted, Horsepower seeks dismissal or transfer to the District of Delaware. In the typical
case not involving a forum selection clause, a district court considering a motion to transfer under
Section 1404(a) must weigh the convenience of the parties and various public-interest considerations
and decide whether, on balance, a transfer would serve “the convenience of parties and witnesses”
and otherwise promote “the interest of justice.” Atl. Marine Constr. Co., 134 S. Ct. at 579-81; see
Lagerstrom v. Enter. Bank & Tr., No. 13-2531-JTM, 2014 WL 1047955, at *1 (D. Kan. March 18,
2014). A valid forum selection clause requires district courts to adjust the usual analysis under
Section 1404(a) in three ways. Atl. Marine Constr. Co., 134 S. Ct at 581 (internal citation omitted).
First, Pipeline’s choice of forum merits no weight. Id. Rather, as the party defying the forum
selection clause, Pipeline bears the burden to establish that transfer to the forum for which the
parties bargained is unwarranted. Id. Second, the court does not consider arguments about the
parties’ private interests. Id. at 582 (when parties agree to forum selection clause, they waive right
to challenge preselected forum as inconvenient to themselves). Rather, the court may only consider
arguments about public interest factors. Id. “Because those factors will rarely defeat a transfer
motion,” the practical result is that forum selection clauses should control “except in unusual cases.”
Id. In all but the most unusual cases, therefore, “the interest of justice” is served by holding parties
to their bargain. Id. at 583.
In response to Horsepower’s motion to dismiss or transfer, Pipeline has not demonstrated
that presenting the action in Delaware is clearly unjust, or that Horsepower obtained the forum
selection clause by fraud and overreaching. See Riley v. Kingsley Underwriting Agencies, Ltd., 969
F.2d 953, 958 (10th Cir. 1992). Pipeline briefly argues that Delaware is an inconvenient forum,
stating that “[t]here is literally nothing convenient about Delaware; neither party resides there; none
of the witnesses are in Delaware; nothing at all that is relevant to this case took place in Delaware.”
Plaintiffs’ Response (Doc. #12) at 15. Even if litigating the case in Delaware would inconvenience
Pipeline, however, that prospect was evident when it entered the LOI. The parties chose Delaware,
and Pipeline points to no “inconvenience so serious as to foreclose a remedy.” Riley, 969 F.2d at
against whom the doctrine is invoked was a party or in privity with a party to the
prior adjudication; and (4) the party against whom the doctrine is raised had a full and
fair opportunity to litigate the issue in the prior action.
Betts v. Townsends, Inc., 765 A.2d 531, 534 (Del. 2000); B-S Steel of Kan. Inc. v. Tex. Indus., Inc.,
439 F.3d 653, 662 (10th Cir. 2006) (citing Estate of True v. C.I.R., 390 F.3d 1210, 1232 (10th Cir.
Regarding the first element, identity of issues, collateral estoppel applies to “situations where
the matter raised in the second suit is identical in all respects with that decided in the first
proceeding.” Comm’r of IRS v. Sunnen, 333 U.S. 591, 599-600 (1948). Mere resemblance of issues
is not enough. Farha v. F.D.I.C., 963 F.2d 283, 286 (10th Cir. 1992). To establish that an issue is
not identical to one resolved in previous litigation, a party “need only point to one material
differentiating fact that would alter the legal inquiry[.]” F.T.C. v. Nat’l Urological Grp., Inc.,
785 F.3d 477, 482 (11th Cir. 2015) (quoting CSX Transp., Inc. v. Bhd. of Maint. of Way Emps., 327
F.3d 1309, 1317 (11th Cir. 2003)).13
In the case before this Court, the question is whether the Pipeline claims for breach of an oral
contract “arise from or are related to” the LOI. In Delaware, the question was whether the
Horsepower demands for a declaratory judgment (Counts 1 and 2) and for breach of a $270,000 loan
agreement (Count 3) arose from or were related to the LOI. Because it found that the declaratory
judgment claim in Count 1 did not present a case or controversy, the Delaware court found no subject
At the show cause hearing, Horsepower argued that Pipeline is attempting to employ
offensive collateral estoppel, which is not favored. See In re Microsoft Corp. Antitrust Litig., 355
F.3d 322, 326 (4th Cir. 2004). Offensive collateral estoppel refers to instances where a plaintiff
attempts to foreclose defendant from litigating an issue that defendant previously litigated
unsuccessfully in an action against another party. Id. The caution against offensive collateral
estoppel does not apply here because Pipeline was a party to the previous case. See id.
matter jurisdiction over that question.14 As a result, it only addressed the declaratory judgment and
breach of contract claims regarding the $270,000 “loan” (Counts 2 and 3). It had to decide whether
those two claims arose from or were related to the LOI.15
Plainly put, in Delaware the underlying question was whether Horsepower loaned Pipeline
$270,000 and if so, whether Pipeline was liable for nonpayment. In the case before this Court, the
question is whether $272,000 (or $270,000) was part of operating capital (versus a loan). For
purposes of the forum selection clause, the Court views the issues as undistinguishable; they are
actually two sides of the same question – one is a factual claim, one a factual defense. The Court
finds that Pipeline has satisfied the first element of collateral estoppel.
To establish the second element of collateral estoppel, Pipeline must show that in the previous
case the parties actually litigated the issue and the court adjudicated the issue on the merits.
Specifically, Pipeline must show that the Delaware court finally adjudicated whether the Pipeline
claims for breach of an oral contract arose from or were related to the LOI.
The Delaware court did not decide whether the forum selection clause applied to Count 1 –
Horsepower’s claim for a declaration of the parties’ rights and obligations concerning Thunder
Mountain Festival. It construed Count 1 as only seeking a declaration regarding whether the LOI
created any substantive rights or duties with respect to the Thunder Mountain Festival. Because
Count 1 in the Delaware case asked for a declaration that no duties or obligations
arose under the LOI.
Specifically, in Delaware, Horsepower sought to recover a $270,000 loan to Pipeline
and a declaration that it had no obligations under the LOI. In this action, Pipeline seeks a
declaration that $272,000 was part of $500,000 in operating capital for Thunder Mountain Festival
that Horsepower allegedly committed to Pipeline as part of a joint venture. Pipeline also seeks to
enforce a commercial relationship for Thunder Mountain Festival that is very similar to the terms
contemplated by the LOI.
Pipeline agreed that it did not, the Delaware district court found no justiciable controversy and
dismissed the claim for lack of subject matter jurisdiction. As to Counts 2 and 3, the Delaware court
implicitly decided that Horsepower’s claim for breach of a $270,000 loan agreement was not related
to and did not arise out of the LOI. Horsepower acknowledges that ruling, but argues that because
the issue was not presented in the Delaware action, the Delaware Court did not decide the broader
issue whether the forum selection clause applied to the alleged oral joint venture.16 Thus,
Horsepower argues that the issue which Pipeline now seeks to preclude this Court from deciding –
whether the forum selection clause applies to its claims that Horsepower entered an oral joint
venture and that Horsepower paid Pipeline $272,000 as part of that agreement – was not actually
litigated and decided on the merits. See Faigin v. Kelly, 184 F.3d 67, 78 (1st Cir. 1999) (in
determining preclusive effect, “the issues must be defined by reference to judicial determinations at
stake) (citing Sunnen, 333 U.S. at 600).
In its ruling from the bench, the Delaware court explicitly stated that the forum selection
clause did not apply to “the issue whether a $270,000 transaction was a loan or an investment in a
joint venture.” Thus the Delaware court adjudicated the issue on the merits. See Matosantos
Commercial Corp v. Applebee’s Int’l., 64 F. Supp.2d 1105, 1109 (D. Kan. 1999) (issue preclusion
does not focus on whether party’s entire claim has previously been adjudicated, but only whether
court adjudicated particular issues). Further, although Horsepower appealed the ruling to the Third
Circuit, it later abandoned that appeal. The Delaware court ruling therefore stands as a final ruling
on the issue.
The Court finds that Pipeline has established the third and fourth elements of collateral
Pipeline did not bring any counterclaims in the Delaware action.
estoppel. The parties in this action are the same as those in the Delaware action. Finally,
Horsepower had a full and fair opportunity to litigate the issue in the prior action.
The Court therefore finds that the Delaware court ruling with regard to the forum selection
clause precludes this Court from re-determining the issue. Although this Court would have reached
a different conclusion, it finds that the forum selection clause in the LOI does not require plaintiffs
to proceed in the District of Delaware.
IT IS THEREFORE ORDERED that Defendants’ Motion To Dismiss Plaintiffs’ Complaint
Or Alternatively Transfer To The District Of Delaware (Doc. #6) filed June 27, 2015 is
Dated this 22nd day of February, 2017 at Kansas City, Kansas.
s/ Kathryn H. Vratil
Kathryn H. Vratil
United States District Judge
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