Opinion
CA No. 20135-NC.
Submitted: September 29, 2003
Decided: October 22, 2003
Joel Friedlander. of BOUCHARD MARGULES FRIEDLANDER. Wilmington. Delaware, Attorneys for Plaintiffs.
Thomas R. Hunt, Jr., David J. Teklits and Thomas W. Briggs, Jr.. of MORRIS, NICHOLS, ARSHT TUNNELL. Wilmington, Delaware. Attorneys for Defendant.
MEMORANDUM OPINION
I. BACKGROUND
Plaintiff Candlewood Timber Group LLC ("Candlewood") is a Delaware limited liability company that formed an Argentina subsidiary. Forestal Santa Barbara SRL ("FSB"), which purchased approximately 250,000 acres of land in the Argentina Province of Salta. Candlewood and FSB are in the business of selling wood products derived from forests managed in an environmentally friendly manner. Candlewood and FSB allege that their business depends on the ability to obtain certification from an internationally recognized forestry organization that FSB's lands are managed sustainably. Defendant Pan American Energy LLC. ("Pan American") is a Delaware limited liability company that engages in oil and gas extraction. Pan American is the majority owner and operator of a consortium of companies that were granted concessionary rights by the Argentina Republic, the owner of all oil and gas rights in Argentina, to extract oil and gas in the Province of Salta, including lands owned by FSB.
Pan American operates in Argentina through a "branch." that is similar to a wholly-owned subsidiary.
Pan American has the right to extract oil and gas underneath FSB's land and sought permission from FSB to enter its land for this purpose. FSB, at Candlewood's direction, issued two permits for Pan American to enter FSB's land. These permits obligated Pan American to purchase comprehensive liability insurance, to hold harmless FSB from any claims by third parties. and indemnify FSB for any damage caused to "properties or any other assets (moveable or real estate) owned by FSB whether the damage is produced directly or indirectly by any employee or person or company contracted by Pan American, with obligation to repair or replace the asset damaged at the choice FSB, immediately."
Second Am. Compl. ¶ 24. Plaintiffs also allege that there was accompanying correspondence and oral communications to the issuance of the permits in which plaintiffs explained to Pan American their sustainable forestry plans and the need to obtain third-party certification. It is also alleged that in these communications Pan American agreed to limit its impact to the land, conduct environmental impact assessments, and engage in certain environmental remediation activities.
Pan American initialed one of the permits and proceeded to enter FSB'S land to perform oil and gas exploration and extraction. Candlewood and FSB allege that Pan American operations inflicted significant damage on the property. They also allege that this damage has prevented the plaintiffs from having their forest products certified as coming from sustainable sources.
Plaintiffs allege five counts in their Second Amended Complaint: (1) Breach of Contract; (2) Negligence; (3) Fraud; (4) Tortious Infringement of Property Rights; and (5) Tortious Interference with Business Relations. The contract claim alleges that Pan American breached its obligations under the permits and accompanying correspondence and that "Candlewood and FSB are entitled to indemnification for their losses, and specific performance to compel Pan American to purchase comprehensive liability insurance, as Pan American committed to do." The prayer for relief seeks an "order compelling Pan American to obtain and maintain in effect sufficient casualty, liability and fire insurance policies to protect FSB against any loss of value to the Candlewood Forest Property from casualty. including, without limitation, forest fire, and any liability and injury to employees. agents, contractors or other representatives of Plaintiffs, and to include Plaintiffs as named insureds of such policies. This request for specific performance is the only reference in the complaint to an equitable remedy.
See Second Am. Compel. ¶ 45.
Second Am. Compl. ¶ (A).
II. ANALYSIS
The plaintiffs' complaint is dismissed on two independent and alternative grounds. First, the complaint fails to invoke this Court's equity jurisdiction. Second, Delaware is not the proper forum for this dispute.
A. Equity Jurisdiction
By common-law tradition and statute, this Court does "not have jurisdiction to determine any matter wherein sufficient remedy may be had by common law, or statute, before any other court or jurisdiction of this State." A legal remedy. i.e., money damages, is "sufficient" if it is "complete, practical, and efficient." As applied to this action, if money damages are a sufficient remedy to Pan American's alleged breach of contract, I will dismiss the complaint for lack of jurisdiction. "Equitable jurisdiction must be determined from the face of the complaint as of the time of filing, with all material factual allegations viewed as true." But this Court will go behind the "facade of prayers" to determine the "true reason" for which Candlewood and FSB brought suit. Then-Chancellor Allen described the applicable jurisdictional analysis as "a realistic assessment of the nature of the wrong alleged and the remedy available in order to determine whether a legal remedy is available and fully adequate."
10 Del. C. § 342.
In re Wife, K., 297 A.2d 424 (Del.Ch. 1972).
None of the plaintiffs' five claims implicate matters over which this Court has jurisdiction pursuant to 10 Del, C § 341, e.g., a claim for breach of fiduciary duty. If jurisdiction exists, it only exists because there is no adequate remedy at law. The parties did not brief this issue directly, but "it is clear that, unlike many jurisdictions, judges in the Delaware Court of Chancery are obligated to decide whether a matter comes within the equitable jurisdiction of this Court regardless of whether the issue has been raised by the parties." IBM Corp. v. Comdisco, Inc., 602 A.2d 74. 77 n. 5 (Del.Ch. 1991). See also Glanding v. Industrial Trust Co., 45 A.2d 553, 554 Del. 1945) (issue of equitable jurisdiction was raised on appeal "not by the patties but by the Court itself"); Del. Ch. Ct. R. 12(h)(3) ("whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the Court shall dismiss the matter").
IBM Corp. v, Comdisco, Inc., 602 A.2d 74, 78 (Del.Ch. 1991).
Id.
McMahon v. New Castle Assocs., 532 A.2d 601. 603 (Del.Ch. 1987).
I should note at the outset that the plaintiffs' complaint does not allege that there is an inadequate remedy at law. There is no allegation that a multiplicity of suits at common law will be required to cure the asserted wrong with finality. There is no allegation that Pan American is insolvent or otherwise in such dire financial straits that execution on a money judgment would fail. It does not appear from the face of the complaint that a trier of fact would be unable to quantify the damages arising from the alleged breach of contract. And there is no allegation that the subject matter of the action is unique or of some special value to Candlewood and FSB that defies valuation. In short, the complaint sets out no basis at all for establishing equity jurisdiction other than "a kind of formulaic `open sesame'" by the use of the words "specific performance." Such an "incantation of magic words" is insufficient.
IBM Corp., 602 A.2d at 78.
McMahon, 532 A.2d at 603. In fact, looking at the complaint as a whole, it appears that the request for specific performance is a disingenuous jurisdictional hook and that plaintiffs truly seek money damages. But for my conclusion that Delaware is an inconvenient forum, this matter would be transferred to the Superior Court pursuant to 10 Del. C § 1902.
Even if the plaintiffs had alleged that they had an inadequate remedy at law, a realistic assessment of whether money damages are sufficient to remedy the alleged breach of contract demonstrates that such an allegation would be a facade. The plaintiffs seek to require Pan American to purchase an insurance policy covering damage to their property, damage that has already been inflicted by Pan American's actions. Even if Pan American had such an insurance policy, it would presumably direct monetary payment to the plaintiffs if damage was done to the property — monetary payment that plaintiffs can recover as damages without resort to the extraordinary remedy of spedcific performance. In fact, the complaint itself demonstrates that there is an adequate remedy at law: the complaint seeks money damages for those harms that would have been covered by the insurance policy that Pan American allegedly never purchased. Because plaintiffs can adequately seek monetary damages in a court of law for Pan American's alleged breach of contract, this Court can not grant specific performance and, hence, does not have jurisdiction to hear and decide this matter. B. Forum Non Conveniens
See, e.g., Theis v. Board of Educadon, 2000 Del. LEXIS 48 (Del.Ch.) (dismissing for lack of jurisdiction where adequate remedy at law existed for breach of contract claim); Manchester v. Narragansett Capital, Inc., 1989 Del. LEXIS 141 (Del.Ch.) (finding specific performance an unnecessary remedy where money damages are adequate).
A complaint is dismissed on forum non conveniens grounds when a defendant demonstrates that litigating in Delaware would impose on it an "overwhelming hardship." In determining whether Pan American has demonstrated an overwhelming hardship, this Court considers the six Cyro-Maid factors. The six factors are: (1) ease of access to proof; (2) availability of compulsory process for witnesses; (3) possibility of the view of the premises; (4) whether the controversy is dependent upon application of Delaware law; (5) the pendency of a similar action in another jurisdiction; and (6) other practical problems.
Mar-Land Industrial Contractors, Inc. v. Caribbean Petroleum Refining, L.P. 777 A.2d 774 (Del. 2001); Warburg, Pincus Ventures, L.P. v. Dietrich K.H. Schrapper, M.D. 774 A.2d 264 (Del. 2001).
Mar-Land, 777 A.2d at 778.
Id. (citing Ison v. DuPont de Nemours, 729 A.2d 832 (Del. 1999); General Foods Corp. v. Cyro-Maid, Inc., 474 A.2d 681 (Del. 1964)).
Pan American "must show `with particularity' that one or more of these factors, individually or together, imposes an `overwhelming hardship.'" The Supreme Court's reference to "particularity" has established that "bare allegations of inconvenience without an adequate showing of particulars of the hardships" will not suffice. Furthermore, the Supreme Court has held that "it does not matter whether only one of the Cyro-Maid factors favors defendant or all of them do" because "whether an alternative forum would be more convenient for the litigation. or perhaps a better location, is irrelevant." The issue is not whether Pan American has shown that Argentina is a better forum for the litigation, but whether Pan American has shown with particularity, through one or more of the Cyro-Maid factors, that litigating in Delaware constitutes an overwhelming hardship.
Id. (citing Ison, 729 A.2d at 838; Williams Gas Supply Co. v. Apache Corp., 594 A.2d 34, 36 (Del. 1991). See also Warburg, 774 A.2d at 271 ("through the combination and weight of any or all of the . . . factors").
Id. at 780.
Chrysler First, 669 A.2d at 108 (emphasis added).
Mar-Land, 777 A.2d at 779.
Access to Proof and Compulsory Process for Witnesses. The first two factors involve similar considerations and essentially seek to ascertain whether Pan American's ability to establish its defense is significantly impaired by litigating in Delaware. This analysis requires a consideration of what defenses Pan American proposes to rely on and an identification of "specific pieces of evidence [or witnesses] necessary to its defense that it will not be able to produce in Delaware."
Id. at 781.
Although Pan American has not filed an answer in this case, it is clear that Pan American intends to contest that it damaged FSB's land to the extent alleged and that the witnesses, physical evidence, and documents related to this defense are located in a remote area of Argentina. Travel to and from this location for litigation in Delaware is extremely inconvenient. The travel time is of am magnitude considerably greater than that found no to work an overwhelming hardship in Warburg. Moreover, the five employees most knowledgeable of Pan American's activities in Argentina live, unsurprisingly, in Argentina and speak minimal English. These employees are also critical to normal business operations and Pan American's business will suffer significant disruption if they must travel to Delaware for trial. Furthermore, all of the documents relating to this case are in active use in Argentina and virtually all of the documents are in Spanish. Securing live testimony of these witnesses and producing English translations of the relevant documents in Delaware will entail substantial burdens of Pan American. Practically, in order to litigate in Delaware, Pan American may suffer the deprivation of live testimony and, resultantly, any have difficulty presenting rebuttal testimony.
Warburg involved travel to and from major metropolitan areas in Germany and England, 774 A.2d at 270.
The facts regarding the location and access to witnesses and evidence were established through the affidavit of Fernando Villarreal, Gas Operations Vice President at Pan American.
Additionally, this Court may have limited powers to compel access to witnesses and documents, at least at p pre-tail stage. Argentina is a signatory of the Hague convention on Taking of Evidence Aboard in Civil and Commercial Matters. The Supreme Court has recognized that use of the Hague Convention's procedures for securing evidence is cumbersome. Under the Convention's procedures, this Court may issue a "Letter of Request" directed at the Argentina Ministry of Foreign Relations and Culture to obtain evidence. The Ministry of Foreign Relations and Culture then transmits the letter to a judicial authority competent to execute the request. Notably. however, Argentina included as a reservation to its accession to the Convention the following language: "The Argentina Republic will not execute Letters of Request issued for the purpose of obtaining pre-trial discovery of documents as known in the common law countries." As a result of Argentina's reservation to the Hague Convention. Pan American may have no pre — trial discovery.
Opened for signature March 18, 1970, 23 U.S.T. 2555, 28 U.S.C. § 1781.
Ison, 729 A.2d at 843.
See Hague Conference on Private International Law, Full Status Report Convention #20 (Aug. 21. 2003), at http://www.hcch.net/e/status stat20e.html.
View of the Premises. As noted, the essential damages issue in this case is whether Pan American caused harm to FSB's land. Plaintiffs' central allegation is that "Pan American has engaged in mammoth excavation activities on FSB's property that have inflicted and continue to inflict widespread, unremediated damage." The case will undoubtedly contain dueling expert opinions on the scope of the alleged damage. Pan American asserts that this factual dispute cannot come to resolution without a view of the premises and, therefore, it will suffer overwhelming hardship if forced to litigate here. Delaware cases that have considered this factor have concluded that, to the extent that a view of the premises is necessary, video is a reasonable substitute. None of theses cases, however, involved complex factual disputes related to injury done to real property; the need to view the premises, in my opinion, is greater in the instant case. Video is a substitute, but it is only that — a substitute. Pan American will clearly suffer difficulties if forced to litigate in Delaware because the finder of fact cannot view the premises. Delaware's Interest in the Litigation. Delaware's interest in a dispute regarding injury to land located in Argentina is minimal, especially since the conduct alleged to have caused that injury occurred in Argentina. A preliminary analysis of the relevant choice of law principles indicates that Argentina law will almost certainly govern this dispute. Although Delaware courts "wrestle" with open questions of the law of foreign countries on occasion, this case presents a unique combination of circumstances that warrants a careful and thorough examination of this factor.
Second Am. Compl. ¶ 4. The plaintiffs allege that this damage has resulted in "degradation of the environment and biodiversity" of FSB's land through "fragmentation of habitats, " "creation of access corridors that facilitated the illegal intrusion of hunters and cattle, " and "invasion of exotic . . . Species." Id. at ¶ 37.
See Ison v. E.I. Dupont De Nemours Co., 729 A.2d 832, 837 (Del. 1999); Texas Instruments v. Cyrix Corp., 1994 Del. LEXIS 31, 18-19 (Del.Ch.) Sequa Corp. v. Aetna Casualty Surety Co., 1990 Del. LEXIS 303 (Del.Super.). But see McDonald's Corp. v. Bukele, 960 F. Supp. 1311, 1319 (U.S. Dist. 1997) ("a view of the premises may be necessary:); Miller v. Phillips Petroleum Co., 529 A.2d 263, 270 (Del.Super. 1987) ("[t]o the extent it is necessary . . . it is more easily done by the [foreign court]"); Moffitt v. Illinois Power Co., 248 Ill. App.3d 752, 761 (Ill.App. 1993) ("if a view of the premises were necessary it would be more convenient" to travel from the foreign court).
IN Woodlands Cemetery Co. v. United States, 110 F. Supp. 704, 706 (E.D. Pa. 1953), the court found that in a takings case "the jury were in a much better position to properly evaluate the property after having seen it with its own surroundings" an "in view of the great disparity in the testimony of the two sets of experts as to the value of the land, that the jury would have been in no position to properly evaluate the estimates of the experts without personally viewing the land, its location and surroundings. . . ."
Delaware has adopted the Restatement approach to resolving choice of law issues. Oliver B. Cannon Son, Inc. v. Dorr-Oliver, Inc., 394 A.2d 1160 (Del. 1978). The Restatement establishes the broad principle that rights and liabilities with respect to the particular issue are determined by the local law of the State that, as to that issue, has "the most significant relationship' to the occurrence and the parties. In this case, Argentina has the most significant relationship to the dispute and the parties: the land is located in Argentina, the relevant conduct occurred in Argentina, and two parties are Argentina companies. See Restatement (Second) of Conflict of Laws § 147. Plaintiffs' contract claim is also governed by Argentina law. The place of contracting, negotiation, and performance was Argentina. The subject matter of the contract is located in Argentina. And again two parties are Argentina companies. See Restatement (Second) of Conflict of Laws § 188. The preceding concerns are amplified in this case since the contract concerns interests in land located in Argentina. See Restatement (Second) of Conflict of Laws § 189.
See Taylor v. LSI Logic corp., 689 A.2d 1196, 1120 (Del. 1997).
The heart of this case involves a land use dispute arising under the laws of Argentina. Delaware has a very limited interest in this litigation, but Argentina's interest in this litigation is substantial. In fact, Pan American has argued that Argentina courts have exclusive jurisdiction to resolve the issues in this case because the resolution of this litigation will implicate Argentina's interests in the oil and gas that Pan American was seeking to extract from FSB's land, Pan American filed a petition on March 5. 2003, in the Supreme Court of Argentina seeking a declaration that this dispute is subject to the exclusive jurisdiction of Argentina courts. The Argentina Attorney General issued an opinion concerning Pan American's petition, in which the Attorney General opined that Argentina courts should have exclusive jurisdiction over any dispute concerning Pan American's operations on FSB's land under the concessionary rights provided by Argentina to Pan American, Based on the Attorney General's opinion, the Supreme Court of Argentina ordered service on all defendants, including the Nation of Argentina and the Province of Salta. On July 11, 2003, the Province of Salta entered an appearance in the Argentina Supreme Court and asserted that the Argentina courts are the proper forum for this dispute. On September 12, 2003, the Nation of Argentina also entered its appearance. stated that it had a direct interest in the outcome of the dispute, and reiterated the Province of Salta's assertion that the Argentina courts are the only appropriate forum.
As noted above, all oil and gas in Argentina is owned by the national government and the right to extract oil and gas is granted to private parties like Pan American. The right to extract the oil and gas is accompanied by an easement to access any land under which the oil and gas is located. The Nation of Argentina and the Province of Salta derive significant revenues from Pan American's extraction of oil and gas reserves. Aff. of Francisco J. Romano, Ex. 2 (op. of Argentina Att'y Gen.); Aff. of Haracio A. Grigera Naon, ¶¶ 47-53: Aff. of Edmundo F. Catalano, ¶¶ 3-5.
Aff. of Francisco J. Romano, Ex. 2.
Argentina, as owner of all oil and gas resources in Argentina, has a bona fide interest in any compensation paid to FSB due to damage allegedly caused by Pan American's operations pursuant to extraction rights granted to it by Argentina, This interest is not speculative, and is evidenced by the Nation of Argentina and Province of Salta's submissions before the Supreme Court of Argentina. A decision in this action will likely implicate Argentina's right to regulate access to surface property that lies above government owned oil and gas fields. Furthermore, a decision will implicate Argentina's economic interests because a decision adverse to Pan American may reduce the revenues Argentina derives from Pan American's extraction activities. Because of the significant interests of Argentina governmental entities, the Argentina courts may have exclusive jurisdiction over this dispute. This exclusive jurisdiction may independently deprive this Court of its jurisdiction. Regardless, Argentina's significant interest in this litigation, and Delaware's limited interest in this litigation, counsels judicial discretion strongly in favor of dismissal.
Although the resolution of this issue is pending before the Argentina Supreme Court, it appears that under Articles 116 and 117 of the Argentina Constitution a dispute where the Nation of Argentina and a province thereof are interested parties requires resolution in an Argentina court, not a foreign country.
See Taylor v. LSI Logic Corp., 715 A.2d 837 (Del. 1998) (dismissing complaint where foreign country recognized exclusive jurisdiction over subject of dispute).
See IM2 Merchandising Mfg., Inc. v. Tirex Corp., 2000 Del. LEXIS 156, *37 (Del.Ch.) ("The great weight given to a plaintiffs interest in having novel Delaware law question, decided in our own courts under the Cyro-Maid test suggests that a defendant's interest in having the courts of the jurisdiction of the governing law decide important legal issues ought also be given some weight") (footnotes omitted). In addition, it is notable that although the complaint sounds in simple breach of contract and negligence language, it is clear that resolution of this dispute will require thorough consideration of Argentina hydrocarbon law and policy, as well as a careful policing of the boundaries between Argentina tort, contract, and real property law. "Modesty and consistency in approach suggest that the evaluation of theses issues may best be accomplished by the courts in the jurisdiction of the governing law." Id. at *39.
Other Pending Litigation. As discussed, there is an action similar to this litigation pending before the Argentina court. Both parties' legal experts have testified that the Argentina courts are fully capable of resolving disputes of this nature. And the Argentina courts may actually have greater capacity to resolve this dispute since they can exercise jurisdiction over the governmental entities, the Nation of Argentina and the Province of Salta, with an interest in the outcome of this dispute. Another Practical Problem. Before Pan American began extensive oil and gas extraction, Pan American conducted preliminary seismic surveying on FSB's land. This preliminary activity apparently caused some damage to FSB's land. Pan American paid FSB for damage caused by the seismic surveying, and in June 2000. George Brooking, attorney-in-fact for FSB. signed a Receipt for Indemnification Payment that included an exclusive Argentina forum selection clause. Pan American argues that the forum selection clauses contained in the Receipts strip this Court of subject-matter jurisdiction.
This Court is limited in its exercise over foreign governments by the Foreign Sovereign Immunities Act of 1976. 28 U.S.C. § 1330. 1332(a), 1391(f), and 1601-1611.
FSB signed a similar Receipt, which also contained an exclusive Argentina forum selection clause, in August of 2000.
This Court may dismiss an action where the parties have consented to have their dispute resolved in another forum. Elf Atochem North America, Inc. v. Jaffari, 727 A.2d 286 (Del. 1999).
Pan American, however, must establish that the claims alleged in the complaint are governed by the forum selection clauses contained in the Receipts. The Receipts were signed as acknowledgement of monies paid by Pan American to FSB for damage related to the conduct of seismic surveying. The Receipts do not purport to cover Pan American's more intensive activities of establishing an oil well and constructing a road to that oil well. Plaintiffs argue that those activities are governed by different contracts that do no contain a forum selection clause and that the claims in the Second Amended Complaint only relate to damage from the drilling and road constructing covered by those contracts.
See supra n. 2 and accompanying text.
Pan American argues, however, that it would be impossible in some circumstances to determine what damage was caused by clearing land to conduct seismic activities, which would be governed by the forum selection clauses, as opposed to damage caused by building an oil well and connecting road. In In re IBP, Inc. S'holders Litig., the Court of Chancery assumed jurisdiction over a dispute that was partially governed by a forum selection clause (specifying the Delaware Court of Chancery) because otherwise no single jurisdiction could hear all of the relevant claims. Similarly, Pan American argues that this Court should decline jurisdiction because only the courts of Argentina can hear claims for damages arising out of both the seismic surveying and oil drilling/road clearing activities. Although I decline to dismiss this action solely because of the forum selection clauses in the Receipts, I note that it will be necessary to delineate clearly the line between the damage caused by the seismic activities and the damage caused by oil and gas extraction during the course of this litigation — a complicated task that could prove unmanageable. Argentina courts would not face this same definitional problem and could hear all issues surrounding Pan American's activities.
2001 WL 406292 (Del.Ch.).
Independently, FSB's agreement to an exclusive Argentina forum selection clause evidences a willingness to adjudicate some disputes relating to Pan American's activities in Argentina. This further supports. in my opinion, the appropriateness of Argentina courts as the forum for this dispute. It also undercuts plaintiffs' repeated efforts to disparage the Argentina court system.
Taking all of these various factors into consideration and giving each the weight it deserves, I conclude that litigating this dispute in Delaware would constitute an overwhelming hardship to Pan American. Delaware has little or no interest in resolving this dispute. Plaintiffs purchased real estate in Argentina. They formed an Argentina entity to develop the resources located in Argentina. They negotiated and executed contracts in Argentina. The breach of these contracts, and the alleged tortious conduct attendant thereto, all occurred in Argentina. Argentina law will govern this dispute. Finally, Argentina governmental authorities have expressed a direct interest in this controversy. Litigating this matter in Delaware, rather than in Argentina, defies common sense.
III. CONCLUSION
For the foregoing reasons, the plaintiffs' claims are dismissed based on a lack of subject matter jurisdiction. Alternatively, plaintiffs' claims are dismissed based on forum non conveniens.
IT IS SO ORDERED.