Davis v. Armstrong et al
Filing
37
MEMORANDUM OPINION AND ORDER granting 33 MOTION to Dismiss Pursuant to Mandatory Forum Selection Clause MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
United States District Court
Southern District of Texas
ENTERED
November 08, 2016
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
In re PLAINS ALL AMERICAN
David J. Bradley, Clerk
§
CIVIL ACTION NO. H-15-3632
~D~E~R~I~V~A~T~I~V~E~L~I~T~I~G~A~T~I~O~N~___________ §
§
§
§
§
§
This Document Relates To:
ALL ACTIONS
(Consolidated with Civil
Action No. H-16-0429)
MEMORANDUM OPINION AND ORDER
Pending before the court is Defendants'
Motions to Dismiss
Pursuant to Mandatory Forum Selection Clause and for Failure to
State a
Claim
No. 33).
("Defendants'
Motion to Dismiss")
(Docket
Entry
For the reasons stated below, Defendants' motion will be
granted pursuant to the Forum Selection Clause.
I.
Factual and Procedural Background
Plaintiffs filed independent unitholder derivative actions
related to a May 2015 oil spill on behalf of Plains All American
Pipeline,
L.P.
("Plains") .
On
May
31,
2016,
this
court
consolidated the actions.
Plaintiffs jointly filed their Verified
Consolidated
Derivative
Complaint")
Plains
Uni tholder
Complaint
(the
"Amended
(Docket Entry No. 32) on July 25, 2016.
is
a
Delaware
master
headquartered in Houston, Texas.
PAA GP,
LLC
(the
General
Partner is
"General
limited
("MLP")
The general partner of Plains is
Partner" ) .
Plains AAP,
partnership
L. P. ,
The
sole member of
the
whose general partner is
Plains All American GP LLC ("Plains GP") .
Plains GP' s officers and
directors manage Plains.
As an MLP,
the rights of Plains'
unitholders are currently
governed by the Fifth Amended and Restated Agreement of Limited
Partnership of Plains All American Pipeline, L. P. ("the Agreement")
and the Delaware Revised Uniform Limited Partnership Act
"Delaware LP Act"), 6 Del. C.
§
17-1101, et seq.
(the
In May of 2015
rhe Agreement was amended to include the following forum-selection
clause (the "Forum-Selection Clause" or "the Clause"):
(b)
Each of the Partners and each Person holding any
beneficial interest in the Partnership (whether through
a broker, dealer, bank, trust company or clearing
corporation or an agent of any of the foregoing or
otherwise):
(i) irrevocably agrees that any claims, suits,
actions or proceedings (A) arising out of or
relating in any way to this Agreement
(B) brought in a derivative manner on behalf of the
Partnership, (C) asserting a claim of breach of a
fiduciary duty owed by any director, officer, or
other employee of the Partnership or the General
Partner, or owed by the General Partner, to the
Partnership or the Partners, (D) asserting a claim
arising pursuant to any provision of the Delaware
Act or (E) asserting a claim governed by the
internal affairs doctrine shall be exclusively
brought in the Court of Chancery of the State of
Delaware (or, if such court does not have subject
matter jurisdiction thereof,
any other court
located in the State of Delaware with subject
matter jurisdiction), in each case regardless of
whether such claims, suits, actions or proceedings
sound in contract, tort, fraud or otherwise, are
based on common law, statutory, equitable, legal or
other grounds, or are derivative or direct claimsi
(ii) irrevocably submits to the exclusive
jurisdiction of the Court of Chancery of the State
of Delaware
in connection with any such
claim, suit, action or proceedingi
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(iii) agrees not to, and waives any right to,
assert
in any such claim,
suit,
action or
proceeding that (A) it is not personally subject to
the jurisdiction of the Court of Chancery of the
State of Delaware or of any other court to which
proceedings in the Court of Chancery of the State
of Delaware may be appealed, (B) such claim, suit,
action or proceeding is brought in an inconvenient
forum, or (C) the venue of such claim, suit, action
or proceeding is improper;
(Agreement,
Exhibit 1 to Defendants'
Motion to Dismiss,
Docket
Entry No. 33-1, p. 67)
On May 19, 2015, one of Plains' pipelines, Line 901, began to
leak oil, resulting in the spill of 3,400 barrels of oil into the
coastal area around Santa Barbara, California.
Plaintiffs allege
that
mismanagement
the
Plains.
leak was
the
result
of
Defendants'
of
Plaintiffs allege that Plains GP breached the Partnership
Agreement's "best interest" provision and the implied covenant of
good faith and fair dealing.
that
Plains
GP's
officers
One of the Plaintiffs also alleges
and
directors
breached
common
law
fiduciary duties.
II.
A.
Analysis
Applicable Law
"[T] he appropriate way to enforce a
forum-selection clause
pointing to a state or foreign forum is through the doctrine of
forum
non
conveniens."
Atlantic
Marine
Construction
Co.
v.
United States District Court for the Western District of Texas, 134
S.
Ct .
56 8 ,
58 0
( 2 013 ) .
" [C] ourts
should
evaluate
a
forum-
selection clause pointing to a nonfederal forum in the same way
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that they evaluate a forum-selection clause pointing to a federal
forum."
Id.
( citations omitted) .
"Usually, a court applying that
doctrine must determine whether there is an adequate alternative
forum
and,
if
so,
decide
which
forum
is
best-suited
to
the
litigation by considering a variety of private- and public-interest
factors and giving deference to the plaintiff's choice of forum."
Barnett v. DynCorp International, L.L.C.,
Cir. 2016)
831 F.3d 296,
however,
when the parties'
contains a valid forum- selection clause,
which
parties' agreement as to the most proper forum. '"
Ct.
at 581
[should be]
the
Atlantic Marine,
Inc.
v.
Ricoh
"[A] valid forum-selection
given controlling weight in all but the most
exceptional cases."
(KENNEDY, J.,
contract
'represents
{quoting Stewart Organization,
Corp., 108 S. Ct. 2239, 2245 (1988)).
clause
(5th
(citation omitted).
"The calculus changes,
134 S.
300
Id.
(quoting Stewart,
concurring)).
108 S.
Ct.
at 2246
"Forum selection clauses 'are prima
facie valid and should be enforced unless enforcement is shown by
the resisting party to be "unreasonable" under the circumstances. '"
International Software Systems,
112, 114
Co.,
(5th Cir. 1996)
92 S. Ct. 1907, 1913
cases .
district
Inc.,
77 F.3d
(quoting M/S Bremen v. Zapata Off-Shore
(1972)).
"In all but the most unusual
'the interest of justice' is served by holding parties
to their bargain."
The
Inc. v. Amplicon,
presence
courts
to
Atlantic Marine, 134 S. Ct. at 583.
of
a
valid
disregard
forum-selection
the
-4-
parties'
clause
private
requires
interests.
Butorin on behalf of KBR Inc. v. Blount, 106 F. Supp. 3d 833, 83637
(S.D. Tex.
582).
2015)
(citing Atlantic Marine,
134 S.
Ct.
at 581,
The public interest factors a court must consider include:
"(a)
administrative difficulties flowing from court congestion;
(b)
local interest in having localized controversies decided at
home;
(c)
interest in having the trial of a diversity case in a
forum that is at home with the law that must govern the action; (d)
the avoidance of unnecessary problems in conflict of laws, or in
the application of foreign law; and (e) the unfairness of burdening
citizens in an unrelated forum with jury duty."
Id. at 837 (citing
Piper Aircraft Co. v. Reyno, 102 S. Ct. 252, 258 n.6 (1981).
B.
Analysis
Defendants moved to dismiss pursuant
to a
forum- selection
clause governing derivative actions and under Rule 12(b) (6)
failure to state a claim for which relief may be granted.
for
Because
the court concludes that the Forum-Selection Clause is enforceable,
it does not reach Defendants' Rule 12(b) (6) arguments.
Plaintiffs make three arguments in opposition to Defendants'
Motion to Dismiss.
First,
Plaintiffs challenge the procedural
mechanism under which the motion was brought.
Second, Plaintiffs
argue that the Forum-Selection Clause is unenforceable because of
its unilateral adoption and because of the timing of its adoption.
1.
Procedural Mechanism
Plaintiffs
argue
that
Defendants'
"attempt
to
invoke
the
enforcement of the Clause via Rule 12 is improper and should be
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rejected." 1
Plaintiffs correctly point out that the Supreme Court
has rejected Rule 12 (b) ( 3)
as a basis for dismissing an action
pursuant to a forum-selection clause.
at 574.
But Defendants do not invoke Rule 12 (b) ( 3) .
Defendants
argument
Atlantic Marine, 134 S. Ct.
style
for
their
dismissal
motion
as
pursuant
a
to
standard adopted in Atlantic Marine. 2
Rule
the
12 (b)
Clause
Although
motion,
relies
their
on
the
The court concludes that
there is no procedural defect in Defendants' motion and will apply
the appropriate forum non conveniens analysis upon determining that
the Clause is enforceable.
2.
Enforceability of the Clause
Plaintiffs argue that enforcing the Forum-Selection Clause
would go against federal common law and "time-honored" contract
principles.
Plaintiffs are correct that federal law determines the
enforceability of a forum-selection clause.
But they overlook "the
general principle that outside narrow areas of federal interest,
' [t) here is no federal common law of contracts. '"
F. 3d
at
F. 3d 255,
3 02
258
(quoting
(6th Cir.
enforceability of
Ford
v.
Hamil ton
1994)).
Investments,
Inc. ,
831
29
The federal law governing the
forum-selection clauses is not
contract principles but a
Barnett,
"time-honored"
four- factor analysis provided by the
1
Plaintiffs' Opposition to Defendants' Motions to Dismiss
Pursuant to Mandatory Forum Selection Clause and for Failure to
State a Claim ("Plaintiffs' Response") , Docket Entry No. 34, p. 17.
2
Defendants' Motion to Dismiss, Docket Entry No. 33, p. 15.
-6-
Supreme Court .
S. Ct. 1522,
See Carnival Cruise Lines,
Inc.
v.
(1991); M/S Bremen, 92 S. Ct. at 1907.
Shute,
111
The law
requires a party attacking a forum-selection clause to
overcome a presumption of enforceability by showing that
the clause is "'unreasonable' under the circumstances"
because
(1) the incorporation of the forum selection clause into
the agreement was the product of fraud or overreaching;
(2) the party seeking to escape enforcement "will for all
practical purposes be deprived of his day in court"
because of the grave inconvenience or unfairness of the
selected forum; ( 3) the fundamental unfairness of the
chosen law will deprive the plaintiff of a remedy; or
(4) enforcement of the forum selection clause would
contravene a strong public policy of the forum state.
Barnett, 831 F.3d at 301 (quoting Haynsworth v. The Corporation,
121 F. 3d 956, 963
Plaintiffs
(5th Cir. 1997))
do
not
argue
that
the
designated
forum
or
applicable law is unfair and make only a passing and conclusory
reference to Texas public policy. 3
The court is
thus
left to
determine whether Plaintiffs have shown that the incorporation of
the Forum-Selection Clause into the partnership agreement was the
product
of
fraud or overreaching as
a
result
of
the
Clause's
unilateral adoption or the timing of its adoption.
a.
Plaintiffs
Unilateral Adoption
argue
that
the
Forum-Selection
Clause
is
unenforceable because it was unilaterally added to the Agreement
via amendment. 4
Plaintiffs do not argue that the amendment was
3
Plaintiffs' Response, Docket Entry No. 34, p. 21.
4
Id. at 17-20.
-7-
invalid or that they had no notice that Defendants were permitted
to amend the Agreement unilaterally.
position,
Plaintiffs cite to a
Instead, in support of their
California district court case,
Galaviz v. Berg, 763 F. Supp. 2d 1170 (N.D. Cal. 2011).
The court
in Galaviz denied a motion to dismiss pursuant to a unilaterally
Id. at 1175.
adopted forum-selection clause.
The defendants in
Galaviz amended their corporate bylaws to include a forum-selection
clause after the plaintiff-shareholders had acquired their shares.
Id. at 1172.
In its analysis,
the court focused on the lack of
bilateral agreement to the amended bylaws instead of whether the
plaintiffs
prospectively
agreed
amendment.
Id. at 1174-75.
to
be
subject
to
unilateral
Because the court in Galaviz did not
address the issue of prospective consent to unilateral amendment,
its analysis is inapposite.
Two subsequent district court cases enforced forum-selection
clauses
bylaws.
F.
Supp.
that
were
Butorin,
3d 635
reasoned that
adopted
unilaterally
via
amended
corporate
106 F. Supp. 3d at 833; North v. McNamara, 47
(S.D.
Ohio 2014).
the presence of a
In those cases
the courts
bylaw allowing for unilateral
amendment provided notice to shareholders that the bylaws could be
amended without further notice or input.
Butorin, 106 F. Supp. 3d
at 842; North, 47 F. Supp. 3d at 642-43.
As the court in North put
it,
the
"fact
that
the
shareholders
are
unsatisfied with
the
consequences of the application of the terms to which they agreed
[when purchasing the stock] is an insufficient basis upon which to
-8-
find the bylaw so inequitable that it should not be enforced."
47
F. Supp. 3d at 643.
The court finds the reasoning in Butorin and North persuasive.
Plaintiffs were on notice that Defendants could amend the Agreement
unilaterally
at
any
time.
Defendants'
partnership
Agreement
contained provisions for unilateral amendment similar to the bylaws
in those cases, and Plaintiffs cite no authority to suggest that
they should be treated differently.
b.
Timing of the Adoption
Plaintiffs argue
that
the Clause is unenforceable because
Defendants adopted it after the alleged wrongdoing had commenced.
In support of their argument Plaintiffs cite a New York district
court
case,
In
re
Facebook,
Inc.,
922
F.
Supp.
2d
445
(S.D.N.Y. 2013)
The court in In re
selection
clause
adopted
Facebook declined to enforce a
after
the
defendant's
initial
forumpublic
offering ("IPO") in an action for alleged wrongdoing that occurred
prior to the IPO.
Id. at 463.
The court focused its analysis on
the fact that the forum-selection clause did not take effect until
after the claims in the case arose.
Subsequent
cases
have
reasoned
Id.
that
the
relevant
timing
inquiry is when plaintiffs had notice that they were subject to
unilateral amendment.
certificate
of
See Butorin, 106 F. Supp. 3d at 842
incorporation
that
empowered
the
unilaterally change the bylaws had been in effect
-9-
("The
board
to
So,
[Plaintiff]
cannot argue that he was not on notice .
. "); see
also North, 47 F. Supp. 3d at 644 ("Upon considering the issue, the
Court concludes that the
forum- selection bylaw does not become
unenforceable simply because it was adopted after the purported
wrongdoing.").
For the reasons discussed above,
courts in North and Butorin.
this court agrees with the
Defendants argue, and Plaintiffs do
not dispute, that unilateral amendment was available to Defendants
at the time Plaintiffs purchased their units.
Plaintiffs were on
notice that the Agreement could be amended unilaterally when they
acquired their units.
Thus, the timing of the alleged wrongdoing
does not render the Forum-Selection Clause unenforceable.
3.
The
Forum Non Conveniens Analysis
remaining inquiry is whether,
Forum-Selection
Clause,
public
interest
despite
the
factors
enforceable
weigh
against
dismissal.
The
first
factor
concerns
resulting from court congestion.
administrative
difficulties
Neither party has argued and the
court finds no indication that congestion in Delaware state courts
would prohibit them from adjudicating this matter.
The
first
factor thus has no weight.
The second factor involves the interest in having localized
controversies decided at home.
offices in Houston,
Texas,
Plains has its principal executive
and most of the other defendants are
allegedly residents of Texas.
But the spill giving rise to this
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suit happened in California,
and other affected unitholders may
reside
this
elsewhere.
Because
controversy
is
not
entirely
localized, this factor weighs only slightly, if at all, in favor of
retention.
The factors concerning conflict of laws or the application of
foreign law weigh in favor of dismissal.
Although this court is
capable of applying Delaware law, a Delaware state court is best
suited to the task.
The final factor is whether it is unfair to burden citizens in
an unrelated forum with jury service.
Because the Delaware forum
has
applying
an
interest
partnerships
in
deciding
organized under
unrelated forum.
cases
that
state's
Delaware
laws,
it
law
is
to
not
an
Since both fora have connections to this action,
this factor is neutral.
Taken
together,
these
factors
weigh slightly
in
favor
of
dismissing the case and are consistent with the Clause designating
a Delaware state court as the forum.
The court will therefore
enforce the Forum Selection Clause and dismiss the case.
III.
Conclusions and Order
For the reasons stated above, Defendants' Motions to Dismiss
Pursuant to Mandatory Forum Selection Clause (Docket Entry No. 33)
is GRANTED.
SIGNED at Houston, Texas, on this 8th
ember, 2016.
SIM LAKE
UNITED STATES DISTRICT JUDGE
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