Summary
In Sempra, as here, the parties negotiated one underlying agreement and numerous subsequent agreements to effectuate the transactions contemplated by the original agreement.
Summary of this case from Gramercy Advisors, LLC v. CoeOpinion
00 Civ. 9227 (GEL)
March 20, 2001
Brian M. Coogan, Esq., Stroock Stroock Lavan LLP, New York, N Y for Plaintiff Sempra Energy Trading Corp.
John Brewer, Esq., Fried, Frank, Harris, Shriver Jacobsen, New York, N Y (Bonnie Steingart, Esq., David Zilberberg, Esq., Fried, Frank, Harris, Shriver Jacobsen, New York, NY, of Counsel) for Defendant Algoma Steel, Inc.
OPINION AND ORDER
Sempra Energy Trading Corp. ("plaintiff" or "Sempra"), a Delaware corporation with its principal place of business in Connecticut, brought this action against Algoma Steel, Inc. ("defendant" or "Algoma"), a Canadian company incorporated and headquartered in Ontario, seeking a declaration that Algoma is obligated to pay Sempra certain sums of money under a contract (the "Asset Management Agreement" or "AMA"). The suit does not seek a money judgment, however, because Sempra already has possession of the disputed funds, having withheld the sum in controversy from payments otherwise due from Sempra to Algoma in connection with other, related transactions. Algoma moves to dismiss the suit on grounds of forum non conveniens, arguing that the dispute should more appropriately be settled in Ontario, where Algoma has brought a parallel suit. For the reasons that follow, the motion is granted and the case dismissed.
FACTS
I. The Asset Management Agreement
Plaintiff Sempra is a Connecticut-based energy trading and management company with offices throughout the world. It provides energy management services to clients through strategic purchases and sales of gas, and negotiation of supply contracts. Sempra does business in Canada through a subsidiary, Sempra Energy Trading (Canada) Limited, with offices in Ontario and Calgary. Defendant Algoma is a Canadian steel manufacturing company. As a producer of steel products, Algoma consumes substantial amounts of natural gas, and in order to fulfill its needs, it purchases natural gas, as well as pipeline capacity and storage facilities to transport and store the gas.
In March 1999, Algoma approached Sempra for assistance in lowering its natural gas costs through the management and trading of Algoma's natural gas supply, storage, transportation and delivery assets. Negotiations took place over several months between Algoma's Sault Ste. Marie offices and Sempra Canada's offices in Calgary and Ontario, resulting in the execution of an Asset Management Agreement in September 1999. (See Cowan Decl. ¶ 6.) Pursuant to the AMA, Sempra contracted to assist Algoma in the management of its energy assets, principally through the management and negotiation of natural gas supply transactions. In return, Sempra would receive payments in an amount proportional to any savings realized by Algoma as a result of Sempra's efforts. The AMA established two such bases of profit sharing. The first, which is not at issue in this lawsuit, entitled Sempra to a proportion of any savings pursuant to a projected reorganization of Algoma's transportation assets and natural gas supphers. (See Finley Decl. Ex. B at 3.) The second, which is the subject of the present dispute, entitled Sempra to a share of the revenues or cost savings generated through additional "optimizing transactions." (See id. at 2, 3.)
In addition to these substantive provisions governing the parties obligations, the AMA also contained a merger clause providing that "[t]he terms and conditions contained in this AMA constitute all of the agreed upon terms" of the AMA and that "[n]o amendments, changes or modifications to this AMA shall be valid" unless in writing and signed by both parties. (Id. at 5.) At the same time, the agreement contemplated both that additional provisions relating to the overall relationship between the parties (the "Venture") might be negotiated, and that particular transactions between the parties would be required to carry out the "optimizing" and other functions required by its terms. Accordingly, the AMA provided that "[a]dditional terms and conditions of the Venture and the terms and conditions of any transactions related to the Venture Assets shall be set forth in supplemental agreements between the parties." (Id.) In effect, the AMA functioned as a kind of master agreement, but the parties clearly contemplated that there would be additional documents, reflecting either future amendments to the AMA or other supplemental agreements governing a variety of separate specific transactions involving Algoma, Sempra and third party energy providers to accomplish its overall goals. The AMA does not contain a forum selection clause, but does provide that disputes about its interpretation and enforcement would be governed by Ontario law.
Sempra's general counsel has testified that the AMA was not a master agreement, per se and that the parties contemplated, but never actually executed, a master agreement. (See Goldstein Aff ¶ 8.) Nevertheless, the AMA effectively operated as a master agreement with respect to the optimization activities undertaken by Sempra for the benefit of Algoma.
The parties dispute the nature of the negotiations over the forum selection clause. Sempra's general counsel has testified that there were protracted negotiations over the inclusion of an Ontario forum selection clause, and that the parties agreed to leave the issue open pending the execution of further documents. See Goldstein Aff. ¶ 8.) Algoma denies that the issue was left open and claims that it refused to agree to a forum selection clause specifying New York as the exclusive forum. (See Def Mem. at 5.) The dispute is immaterial, since the version of the AMA that was eventually executed contains no such clause, and a merger clause prohibits reference to prior negotiations to fill the gap.
II. The Specific Transactions
A. The Replacement of Algoma's Gas Supplier
The present dispute between the parties under the AMA relates to the replacement of the natural gas previously supplied to Algoma by Pan Canadian Petroleum Limited ("Pan Canadian"). According to Algoma, in December of 1999, Pan Canadian, a Canadian company, terminated its long-term natural gas contract with Algoma. (See Def Mem. at 5.) With Sempra's assistance, Pan Canadian was then replaced by Renaissance Energy Limited ("Renaissance"), another Canadian company, as a supplier of gas and transportation to Algoma. (See Cowan Decl. ¶ 10.) Sempra, unsurprisingly, characterizes this transaction as one designed to save money for Algoma by negotiating the replacement of Algoma's long-term Pan Canadian natural gas service with a lower cost asset, and insists that it is therefore entitled to a proportion of the savings under the AMA in connection with the transaction. Algoma, in contrast, argues that the replacement of Pan Canadian by Renaissance was not a transaction designed to save money, but to find a new supplier of natural gas due to Pan Canadian's unexpected termination of its contract with Algoma. Sempra apparently received seven monthly payments from Algoma in satisfaction of this purported obligation (Pl. Mem. at 6). Subsequently, Algoma stopped paying and advised Sempra that the replacement of Pan Canadian by Renaissance was not an "optimizing transaction" under the AMA, and that Sempra was not entitled to payment. (See Cowan Decl. ¶ 11 Ex. B.) Thus the instant lawsuit concerns what exactly the parties understood as "optimizing transactions" and whether that term encompassed the replacement of Pan Canadian by Renaissance as Algoma's suppher of natural gas.
B. The Gas Sale Transactions
Under the AMA, Sempra's role was to match Algoma's energy assets with fluctuating market conditions, something which Algoma, as a steel company, did not have the industry expertise or knowledge to do. In addition to renegotiating gas supply contracts, there were several additional ways that Sempra sought to save Algoma the greatest amount of cost on its natural gas assets. One of the principal methods to achieve these cost savings was for Sempra to buy gas from Algoma when it had an oversupply, and then, using Algoma's transportation assets, to resell that gas at particular location where it enjoyed a premium. (See Storfer Aff ¶ 3.) Such transactions would result in either a net profit or a cost savings to Algoma, and under a formula contained within the AMA, Sempra would be entitled to a share of these profits or savings. (Id.)
Algoma argues that the gas sales transactions contemplated by the AMA were distinct from, and were intended to be distinct from, the replacement of Algoma's long-term natural gas contract supplier. Sempra argues, however, that the replacement of Algoma's gas supplier and the gas sales transactions were merely a different means of achieving the single purpose of the AMA, namely to reduce Algoma's costs of energy. On this theory, Sempra claims that it undertook to optimize Algoma's energy assets in a variety of ways. The gas sales trades were one of those means, and would not have occurred in the absence of the relationship established pursuant to the AMA. (See Storfer Aff. ¶ 4.) Sempra insists that this is why the AMA expressly provided for additional terms and conditions to be set forth in supplemental agreements.
Each of the gas sales trades was documented through confirmations generated by Sempra. The confirmations contained a number of terms not contained in the AMA. One such term was a cross-default provision that gave certain rights to each party in the event of the default of any obligation owed by one party to the other. In particular, the confirmations created a broad right of set-off in the event of such a default:
If a default occurs, the performing party may (at its election) from time to time set off any or all amounts which the defaulting party owes to it (whether under this transaction or otherwise and whether or not then due) . . . .
(Storfer Aff Ex. A, emphasis added.) Additionally, the confirmations contained a forum selection provision that clearly establishes New York as the exclusive forum for any litigation between the parties arising from the transactions described in the confirmations:
Each party submits to the exclusive jurisdiction of the state and federal courts located in New York City, Borough of Manhattan, for any action or proceeding relating to this agreement, and expressly waives any objection it may have to such jurisdiction or the convenience of such forum.
(Id.)
III. The Present Dispute
The present dispute arises from a disagreement over whether Sempra's role in the Pan Canadian/Renaissance transaction warranted payment under the provisions of the AMA relating to "optimizing transactions." Sempra, asserting that Algoma had defaulted on its payment obligations under the AMA, invoked its rights under the cross-default and set-off provisions contained in the confirmations and withheld $1,042,814.71 million for payments otherwise owed to Algoma under the natural gas transactions in satisfaction of this obligation. (See Finley Decl. Ex. D.) On November 2, 2000, Algoma advised Sempra that it had done so unlawfully, and threatened legal action action if it did not remit the appropriate amount by the close of business on the next day. (See id.) Sempra did not comply with this request. Thus, on November 7, 2000, Algoma's outside counsel advised Sempra that its intended to commence an action for recovery in Toronto, Ontario, and would move to compel Sempra to remit the disputed amount into court pending resolution of the dispute if Sempra did not do so voluntarily by November 10, 2000. (See id.)
In a pre-emptive move, Sempra filed this action in the Supreme Court of the State of New York, County of New York on November 9, 2000, seeking declaratory judgment on the issue of Algoma's liabilities under the AMA, and requesting attorneys' fees. (See Zilberberg Decl. Ex. A.) On December 5, 2000, Algoma removed this case the United States District Court for the Southern District of New York pursuant to 28 U.S.C. § 1446 (b). (See id. Ex. B.)
DISCUSSION
I. The Parties' Contentions
Algoma argues that this case should be dismissed on the grounds of forum non conveniens, because all relevant contacts are in Ontario and none are in New York. Algoma points out that Sempra asks this Court to adjudicate the rights of the parties under a contract, the AMA, that was negotiated in Ontario between a Canadian manufacturer and Sempra's Canadian subsidiary, as a result of the replacement of one of the manufacturer's Canadian gas supplier by another.
The standards for forum non conveniens are familiar. The threshold inquiry is whether an adequate forum exists elsewhere. See Alfadda v. Fenn, 159 F.3d 41, 45 (2d Cir. 1996) (noting that an alternative forum is adequate if the defendant is subject to service of process there and the forum permits litigation of the subject matter in dispute). If an adequate forum does exist, a Court must weigh public and private interest factors relevant to determining whether the plaintiff's chosen forum is an inappropriate forum. See Gulf Air Corp. v. Gilbert, 330 U.S. 501, 508 (1947). Private interest factors include (1) the ease of access to evidence; (2) the cost for witnesses to attend trial; (3) the availability of compulsory process; and (4) other factors that might shorten trial or make it less expensive. See id. Public interest factors include (1) having local disputes settled locally; (2) avoiding problems of applying foreign law; and (3) avoiding burdening jurors with cases that have no impact on their community. See id. at 508-09.
All the factors in this case point towards dismissal on the basis of forum non conveniens. Ontario courts clearly provide an adequate forum to resolve the present dispute. The AMA was negotiated between Algoma's Sault Ste. Marie offices and Sempra Canada's offices in Calgary and Ontario. (See Cowan Decl. ¶ 6.) Three of the four individuals primarily involved in these negotiations are Canadian residents (see id.), and the fourth, although not a Canadian resident, is Sempra's general counsel. (See Goldstein Aff ¶ 2.) Thus the relevant witnesses and documents are primarily located in Ontario or elsewhere in Canada, not in New York. In addition, the central issue in dispute is whether the replacement of one Canadian natural gas supplier, Pan Canadian, with another, Renaissance, was an "optimizing transaction" under terms of the AMA. Thus, key non-party witnesses and documents relating to the actions of these companies are located in Canada, outside of the subpoena power of this Court. An Ontario forum is consistent with the intent of the parties since the parties failed to agree upon a New York forum clause, but included an Ontario choice of law provision. Ontario courts have an interest in applying Ontario law, which will apply to this dispute. The dispute thus appears to be entirely Canadian in nature.
Sempra does not dispute this description of the relevant contacts, nor does it seriously dispute that, absent a forum selection clause, a forum non conveniens motion would and should be granted. Sempra argues, however, that the case is governed by a forum selection clause contained in the confirmations (which constitute the contract between the parties relative to the gas sale transactions), providing that any disputes "relating to this agreement" shall be litigated in New York. Sempra is correct, and Algoma in its turn does not seriously dispute, that under both New York and federal law, parties to a contract have the right to agree on a forum for settling disputes, and, at least in litigation between sophisticated business entities, a valid forum selection clause will trump the usual considerations governing forum non conveniens. See M/S Bremen v. Zapata Offshore Co., 407 U.S. 1, 12 (1972) ("The choice of forum was made in an arm's-length negotiation by experienced and sophisticated businessmen, and absent some compelling reason it should be honored by the parties and enforced by the courts."); Brooke Group Ltd. v. J.C.H. Syndicate 488, 87 N.Y.2d 530, 534, 640 N.Y.S.2d 479, 481 (1996) (adopting the M/S Bremen standard).
Plaintiff does argue in a footnote that even a straightforward application of the Gilbert factors would cut in its favor. (See Pl. Mem. at 5 n. 11.) This contention is, however, as unpersuasive as its relegation to a short footnote would suggest. Unsurprisingly, given the nature of the dispute, the bulk of the evidence and witnesses are located in Canada. Whether or not the the availability of non-party discovery is more limited in Ontario than in a federal district court, as Sempra argues, is not determinative in deciding a forum non conveniens motion.See Scottish Air Int'l v. British Caledonian Group, 81 F.3d 1224, 1234 (2d Cir. 1996) ("[S]ome inconvenience or the unavailability of beneficial litigation procedures similar to those available in federal district court does not render an alternative forum inadequate"). What is relevant is that only an Ontario court could compel such testimony in the first place. For the reasons stated in the text, it seems clear that a straightforward application of the Gilbert factors favors Algoma.
The real question separating the parties, therefore, is the scope of the forum selection clause, and whether that clause governs this dispute. If the clause applies, the case should be adjudicated in New York, and the motion should be denied; if the clause does not apply, ordinary forum non conveniens standards dictate dismissal of the present action, and adjudication in Ontario.
II. The Scope of the Forum Selection Clause
Sempra sets forth two related arguments as to why the forum clause in the confirmations should control jurisdiction in this case. First, Sempra insists that the clause constitutes a further specification of terms as contemplated by the AMA itself Sempra argues that the confirmations, in effect, constitute a supplement to the AMA, fleshing out its terms, and adding a forum selection clause that now governs disputes arising under the AMA. (See Pl. Mem. at 15.)
This argument, however, is unpersuasive. The AMA is a separate, over-arching agreement that establishes the relationship between the parties and the goals of that relationship. The AMA clearly contemplates that there will be separate individual transactions of various sorts that will carry out its overall goals. The language of the AMA contemplates both "additional terms and conditions of the Venture" and "terms and conditions of any transactions related to the Venture Assets." (Finley Decl. Ex. B at 5.) Sempra invokes this language from the AMA to argue that the forum selection clauses contained in the confirmations were understood as additional terms and conditions of the AMA. However, it is not self-evident why these, or indeed any other, provisions in the confirmations should be considered additional terms of the AMA rather than simply part of the terms and conditions governing distinct individual transactions undertaken to further the parties' business relationship. See, e.g., DeSola Group, Inc. v. Coors Brewing Co., 605 N.Y.S.2d 83 (1st Dep't 1993) (forum selection clause contained within a marketing research agreement did not govern a separate oral agreement for the provision of marketing services).
To the contrary, the language and context of the confirmations suggests that the cross-default, set-off and forum-selection provisions were in fact terms designed to govern the gas sale transactions themselves rather than the overall relationship documented by the AMA. The confirmations do not on their face purport to amend the AMA, and indeed do not refer to the AMA at all. Instead, they seem to govern only specific transactions for sales of natural gas. Notably, there are many confirmations, and each one contains the same forum selection clause, a measure that would hardly be necessary if any single one of them established forum and other related terms for every dispute under the AMA, but a natural practice if each confirmation is understood to embody the terms governing only one particular purchase and sale of gas. Moreover, in addition to the choice of forum clause highlighted by the plaintiff the confirmations have a New York choice of law clause, which on Sempra's theory would not merely supply a term left open (like the forum selection clause) but would actually override a specifically-agreed Ontario choice of law provision in the AMA.
In contrast, the confirmations conspicuously do incorporate by reference "Sempra's general terms and conditions for the purchase and sale of natural gas (1/98), a copy of which has previously been forwarded to counterpart." (Storfer Aff Ex. A at p. 4.) This provision further evidences the fact that the confirmations are standard forms relating to Sempra's gas sale transactions, and have no specific reference to the AMA with Algoma.
Most importantly, we must look to the language of the forum clause itself which refers to "any action or proceeding relating to this agreement." (See Storfer Aff Ex. A (emphasis added).) This would be odd language to use in order to supplement or amend the AMA to provide a forum clause that was intentionally omitted from the main text of the earlier agreement. A supplemental agreement that was intended to amend a term expressly omitted from an earlier agreement would be expected to refer explicitly to the earlier agreement, utilize its particular terminology, and specify that it modifies or expands the terms of that agreement for all purposes. In contrast, "this agreement" is a phrase used elsewhere in the confirmations to refer to the very specific terms of the particular sale of gas (See ¶ 9.3 of the confirmations, defining for purposes of "this agreement" terms that are relevant only to the gas sale contract itself, and that do not appear in the AMA). Grammatically, moreover, "this" agreement can only refer back to the "agreement" identified in the opening words of each confirmation: "We are pleased to confirm the verbal agreement of (date] between [Sempra and Algoma]" for a particular purchase of gas to be delivered on a particular date. (Storfer Aff Ex. A.)
The confirmations do include language providing that "This transaction together with all other transactions between us form a single agreement between the parties." (Id. at p. 4.) Whatever this language is intended to mean, Sempra does not rely on it or refer to it as a basis for concluding that the confirmations are intended to amend the AMA.
For the purposes of this motion, the Court assumes that the forum selection clauses in the confirmations are binding on their own terms. Even though the clauses appear to be boilerplate terms buried within a number of form terms, Algoma signed the confirmations. The parties to these transactions are sophisticated business entities, and as such they are expected to read the fine print of agreements to which the subscribe. See M/S Bremen, 407 U.S. at 12. However, it is one thing to say that Algoma signed each confirmation, and therefore is bound by the terms contained within it, and quite another to say that Algoma should have interpreted the terms contained within these confirmations as having broader effects on the parties' relationship than they explicitly purport to have or than a recipient would reasonably interpret them to have. To hold that the forum clauses contained within the confirmations apply to the parties' dispute over the interpretation of the AMA regarding payment for the Pan Canadian/Renaissance transaction would require precisely such a strained reading of the parties' language of the confirmations. Therefore, properly read, the forum selection clauses only apply to the gas sale transactions themselves.
Second, Sempra argues that even if the clauses are read this narrowly, they still apply here, because this dispute concerns whether Sempra permissibly set off its claimed entitlement from Algoma under the AMA against the amounts due from Algoma to it under the transactions governed by the conformations. Sempra claims that the set-off and cross-default provisions at issue are broad, applying by their own terms "in addition to, and not in limitation or exclusion of" any other rights. Moreover, Sempra insists that for Algoma to get a money judgment, it would have to sue on the gas contracts, and thus presumably in New York, since it is not entitled to any money at all under the AMA — the question about the AMA is whether Algoma owes money to Sempra, not vice versa.
But there really is no dispute "relating to" the gas sale transactions. Sempra does not dispute that it owes money to Algoma in connection with those transactions, and the parties have called our attention to no dispute regarding the amounts due. Nor is there any dispute that, under the contract embodied in the confirmations, Sempra is entitled to set off any amount owed it by Algoma before paying. (See Letter from Paul C. Finley to the Court dated March 6, 2001 (stipulating that "Algoma will not seek any additional relief in the Ontario Action premised on any claim that Sempra's purported exercise of its set-off rights was an improper or wrongful act").) The only dispute between the parties is about the AMA itself and whether a separate transaction, not one documented by the confirmations, is an "optimizing transaction" within the meaning of the AMA that entitles Sempra to a fee. The parties essentially disagree about whether Sempra is entitled to compensation under the AMA for its role in the replacement of Pan Canadian as Algoma's supplier of natural gas. As discussed above, this is a dispute as to which all the usual forum non conveniens factors point to a dismissal in favor of litigation in Ontario. If such litigation is decided in favor of Sempra, there is no need for further action, since Sempra already has the fee to which it is entitled; if it loses, there is no reason to expect Sempra not to pay what it owes, and no lawsuit in New York will be necessary.
This is not to suggest that the set-off and cross-default provisions of the confirmations are ineffective. If Algoma owed some undisputed debt to Sempra, the contracts provide that Sempra would be entitled to the set-off But the combination of the set-off and the forum selection clauses cannot operate to hijack any dispute that may exist between Algoma and Sempra, related or unrelated, and turn a dispute about some other contract or tort that would otherwise be litigated elsewhere into a dispute "relating to" the agreement to sell gas. See Anselmo v. Univision Station Group, Inc., No. 92 Civ. 1471, 1993 WI 17173, at *2 (S.D.N.Y. Jan. 15, 1993) (noting that the phrase "relating to" encompasses claims not explicitly grounded in the contract only if the claims "grow out of the contractual relationship" or if "the `gist' of those claims is a breach of that relationship"). The forum clause only applies, by its terms, to disputes "relating to this agreement," that is, to the particular gas sale transaction documented by each confirmation, and the present dispute simply cannot be construed as one of those.
Sempra cites no case for any jurisdiction interpreting a forum-selection clause in a contract containing a set-off provision as operating in such a dramatic fashion to dictate the forum for all disputes between the parties.
Since the dispute between the parties is not governed by the forum selection clause in the confirmations, the ordinary rules of forum non conveniens apply, and for the reasons set forth above, those rules require litigation in Ontario, and not in New York.
CONCLUSION
For the foregoing reasons, the defendant's motion is granted and the case is dismissed.
SO ORDERED: