Opinion
No. CV 10-356-PHX-MHM.
December 21, 2010
ORDER
Currently before the Court are Defendant Paramount Gold and Silver Corp.'s Motion to Dismiss, (Doc. 11), and Motion to Strike Plaintiff's Supplemental Authorities Regarding Response to Defendant's Motion to Dismiss, (Doc. 24); and Plaintiff's Amended Motion for Leave to File Supplemental Legal Authorities. (Doc. 22). Having considered the Parties' briefs and decided that oral argument is unnecessary, the Court issues the following Order.
I. BACKGROUND
A. Procedural History
On February 19, 2010, Plaintiff Danny Sims brought the instant action, alleging breach of contract, promissory estoppel, unfair competition, violation of right of privacy, false designation under the Lanahm Act ( 15 U.S.C. § 1125(a)(1)(A)), late and unpaid wages in violation of A.R.S. §§ 23-353 and 355, and unjust enrichment. (See Doc. 1, Complaint). Plaintiff's causes of action all stem from events related to his employment by Defendant Paramount Gold and Silver Corp. (Id.). Defendant filed its Motion to Dismiss on April 29, 2010, seeking enforcement of a forum selection clause. (Doc. 11). Plaintiff replied on May 21, 2010, (Doc. 15), and the Motion became fully briefed on June 3, 2010. (Doc. 18). Subsequently, on July 15, 2010, Plaintiff filed his Amended Motion for Leave to File Supplemental Legal Authorities, seeking leave from this Court to file a sur response/supplemental authority. (Doc. 22). On July 21, 2010, Defendant filed both its Response to Plaintiff's Motion to Supplement, (Doc. 25). and its own Motion to Strike Plaintiff's Supplemental Authorities Regarding Response to Defendant's Motion to Dismiss. (Doc. 24). Plaintiff responded to the Motion to Strike on August 4, 2010, (Doc. 28), and it became fully briefed on August 20, 2010. (Doc. 31).
B. Factual Background
In or around November, 2007, Plaintiff, who is a geologist, began working for Defendant as a consultant. (Complaint, ¶ 15). On March 27, 2008, Defendant granted Mr. Sims 10,000 Paramount stock options with a strike price of $2.50. (Id. at ¶ 16). On April 1, 2008, the Parties executed a written employment agreement ("Agreement"), which named Plaintiff as a "Senior Technical Advisor." For compensation, the Agreement stated that Plaintiff would be: (1) paid $12,000.00 per month ($600.00 per day for 20 days of work); (2) receive 10,000 stock options, at a price of $2.50 per share, vesting on May 1, 2008, exercisable on or before December 31, 2009; and (3) receive 115,000 stock options to be granted subsequent to fiscal year end (June 30, 2008) upon establishing new equity plan or sooner. (Doc. 11, Exh. A, ¶ 1.2). The Agreement also provided that either Party could terminate the contract at will upon 30 days written notice and contained a forum selection clause which stipulated that: "This Agreement shall be construed in accordance with the laws of the Province of Ontario and any proceedings arising between the Parties in any matter pertaining to or related to the Agreement shall, to the extent permitted by law, be held in Ontario, Canada. (Id. at ¶ 2.1; ¶ 4.6).
On July 9, 2008, Defendant granted Plaintiff 40,000 shares of Paramount common stock. (Complaint, ¶ 22). On November 14, 2008, Defendant provided Plaintiff with notice that it would be terminating his employment without cause in 30 days. (Id. ¶ 23). Pursuant to that notice, Defendant terminated Plaintiff on December 15, 2008. (Id. ¶ 24). Defendant, however, rehired Plaintiff on January 1, 2009, full-time under an oral contract in a management position titled "Senior Technical Advisor." (Id. ¶ 27).
According to Plaintiff, on February 27, 2009, the Parties entered into a new stock option agreement ("Second Agreement"), under which Defendant would provide 75,000 repriced stock options that had not yet been delivered to Plaintiff, and that Defendant would re-price 10,000 stock options that Plaintiff already held. (Id. ¶ 31). Plaintiff, on June 25, 2009, having not yet received any of the stock options that were promised to him pursuant to the Second Agreement, demanded from Defendant delivery of all of the promised stock options. (Id. ¶ 33). On June 26, 2009, Defendant informed Plaintiff that it would not honor the February 27, 2009, stock option agreement. (Id. ¶ 34). Plaintiff, on June 29, 2009, received from Defendant a repricing agreement for the 10,000 stock options that were granted on March 27, 2008. (Id. ¶ 36). These options were reset to a price of $0.65, and Plaintiff exercised the 10,000 stock options on June 29, 2009, at a price of $1.49. (Id.). Plaintiff, on July 8, 2009, due to the dispute over stock options owed, and an ongoing dispute regarding billing practices, resigned from Paramount and submitted a $23,500 invoice for days worked. (Id. ¶ 37). Plaintiff alleges that Defendant refused to pay him $2,500 of the invoice for days worked. (Id. ¶ 38).
After Plaintiff's July 8, 2009, resignation, Defendant continued to list Plaintiff as one of only five of its senior managers on its Investor Presentation, and one of only four of its senior managers on its investor's "one pager," both published on Paramount's corporate website. (Id. ¶ 40). On July 19, 2009, Defendant updated its Investor Presentation and continued to list Plaintiff as a manager of the corporation, even though he had resigned 11 days earlier. (Id. ¶ 43). Defendant, sometime in October, 2009, updated its Investor Presentation and removed Plaintiff from the list of managers. (Id. ¶ 55). On October 29, 2009, Plaintiff demanded Defendant remove Plaintiffs name from its web page and on November 4, 2009, Defendant removed Plaintiff's name from its one pager. (Id. ¶ 56).
II. PLAINTIFF'S MOTION TO DISMISS
Although Defendant does not specify, it is clear that its Motion to Dismiss as been brought pursuant to Fed.R.Civ.P. 12(b)(3), as the sole issue before this Court is the enforceability of a forum selection clause contained in the Agreement.
A. LEGAL STANDARD
Because Defendant's Motion to enforce the forum selection clause is made pursuant to Fed.R.Civ.P. 12(b)(3), the pleadings need not be accepted as true, Richards v. Lloyd's of London, 135 F.3d 1289, 1292 (9th Cir. 1998), and the court may consider facts outside of the pleadings. Argueta v. Banco Mexicano, S.A., 87 F.3d 320, 324 (9th Cir. 1996). In so doing, the trial court must "draw all reasonable inferences in favor of the non-moving party and resolve all factual conflicts in favor of the non-moving party." Murphy v. Schneider National, Inc. 362 F.3d 1133, 1138 (9th Cir. 2004). As a general rule, forum selection clauses are presumptively valid and should be upheld "absent some compelling reason and countervailing reason." Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972). The party challenging the clause bears a "heavy burden of proof" Id. Despite this presumption, three circumstances render the enforcement of such clauses unreasonable: "first, if the inclusion of the clause in the agreement was the product of fraud or overreaching; second, if the party wishing to repudiate the clause would effectively be deprived of his day in court were the clause enforced; and third, if enforcement would contravene a strong public policy of the forum in which suit is brought."Richards v. Lloyd's of London, 135 F.3d 1289, 1294 (9th Cir. 1998) (citing and quoting Bremen, 407 U.S. at 12-13, 15, 18).
B. DISCUSSION
The validity of the forum selection clause does not appear to be at issue in this case. Instead, the primary issue presented is whether Plaintiff's causes of action pertain to or are related to the Agreement, thereby triggering the Agreement's forum selection clause. Plaintiff's argument against application of the forum selection clause is two-fold: (1) when Defendant terminated Plaintiff on December 15, 2008, it had the effect of rescinding the Agreement; and (2) the stock options at issue in this lawsuit were promised pursuant to the Second Agreement, which did not contain a forum selection clause. Defendant, disputes both that the Parties rescinded the contract and that they entered into the Second Agreement. These disagreements concern issues of fact. Evans v. Valley Radiologists, 127 Ariz. 177, 180 (1980) ("In an action on a contract, the question whether one contract has been cancelled and a new contract entered into is a question of fact."); Reed v. McLaws, 56 Ariz. 556, 562 (1941) ("Whether or not there was a rescission of the contract is also a question of fact."). "[I]f the facts asserted by the non-moving party are sufficient to preclude enforcement of the forum selection clause, the non-moving party is entitled to remain in the forum it chose for suit unless and until the district court has resolved any material factual issues that are in genuine dispute." Id. at 1139. The Court must determine, therefore, if the facts asserted by Plaintiff are sufficient to preclude enforcement of the Agreement's forum selection clause.
1. Recession or Termination
"To rescind a contract is not merely to terminate it, but to abrogate and undo it from the beginning." Reed, 56 Ariz. at 562. In other words, recision does not merely "release the parties from further obligation to each other in respect to the subject to the contract, but [works] to annul the contract and restore the parties to the relative positions which they would have occupied if no such contract had ever been made." Id. at 562-63. Plaintiff alleges that the Parties' rescinded the Agreement, thereby negating the forum selection clause therein, alleging in his Complaint.
The sole basis of Plaintiff's position with respect to rescission, however, is an incorrect legal conclusion: "[a] party which terminates an agreement pursuant to a contractual right within that agreement does, indeed, rescind the agreement." Rescission occurs only by "mutual consent," of both Parties to a contract. Reed, 56 Ariz. at 563. In other words, "the parties to . . . [a] bilateral contract may decide they are mutually dissatisfied with their agreement . . . and simply call it off." JOHN EDWARD MURRAY, JR., MURRAY ON CONTRACTS § 143(c) (4th ed. 2001). In addition to a written contract of rescission, "an intent to rescind a contract may be inferred from acts or a course of conduct of the parties which clearly indicates a mutual understanding that a written contract has been abrogated or terminated." Webber v. Smith, 129 Ariz. 495, 498 (Ct. App. 1981). Rescission of a contract, however, is importantly different from mere termination. Reed, 56 Ariz. at 562 ("To rescind a contract is not merely to terminate it"). Termination "occurs when a party puts an end to a contract pursuant to a power created by the agreement or by law." Importantly, when termination occurs, "all executory obligations are thereby discharged, but any right based upon prior breach or performance survives." MURRAY, supra, § 145(e).
In defending against Defendant's Motion, Plaintiff has relied solely on his inaccurate understanding rescission, neither pleading nor marshaling any additional facts that supports his recision allegation. This Court, therefore, finds that Plaintiff has not plead sufficient facts to support its position that the Parties rescinded the Agreement. Accordingly, to the extent it is applicable, the Agreement's forum selection clauses remains in force.
2. Agreement or Second Agreement
Notwithstanding the issue of rescission, Plaintiff asserts that his claims are not predicated on the Agreement, but instead are based on the alleged Second Agreement, which the Parties purportedly entered into on February 27, 2009, and that does not contain a forum selection clause. As proof of the Second Agreement, Plaintiff relies on a February 27, 2009 email chain, which documents an exchange between Plaintiff and Defendant's employee Chris Cruppi. Defendant disputes the existence of the Second Agreement, arguing that the email chain on which Plaintiff relies is nothing more than a discussion concerning Defendant's obligations to Plaintiff under the Agreement. The Court does not have to accept Plaintiff's allegation concerning the Second Agreement as true. In considering whether the Second Agreement exists, however, the Court "is obligated to draw all reasonable inferences in favor of the non-moving party and resolve all factual conflicts in favor of the non-moving party." Murphy, 362. F.3d at 1138.
The February 27, 2009 email chain reads as follows:
Cruppi: Dany [Plaintiff], how many stock options did we agree on and how many have we delivered. Plaintiff: We agreed on 125,000 for the first year and 10,000 at $2.50 strike price were delivered with an expiration date of December 31, 2009. Thanks. Cruppi: yes i recall I also granted 40,000 shares way back which were to reduce the options payable. By my calculations I owe you 95,000 shares then. Does this make sense? Also, by resolution of the shareholders the strike price is now reduced to $0.65 Plaintiff: I think that is 10 too many but otherwise yes. Cruppi: ok 85,000 then. will now get to it soon. (Doc 15, Response, Exh. B). Even when viewed in the light most favorable to Plaintiff, the Court is unable to find that this email chain evidences the formation of a new agreement. Instead, and as Defendant argues, this exchange appears to concern Defendants's obligations to Plaintiff under the terms of the Agreement. Both Cruppi and Plaintiff make reference to a past agreement: Cruppi asked Plaintiff "how many stock options did we agree on and how many have we delivered?" and Plaintiff responded with the past-tense phrase "We agreed on 125,000 for the first year. . . . "(Id. (emphasis added)). Tellingly, the terms of the agreement being discussed appear to be identical to those of the Agreement. The 125,000 stock options mentioned by Plaintiff is the total number of options owed to Plaintiff pursuant to the Agreement, and the amount of options Cruppi and Plaintiff agreed were still owed to Plaintiff — 85,000 — appears to be the same amount still owed to Plaintiff under the terms of the Agreement. To wit, Plaintiff admits that the 85,000 shares Cruppi agreed to give Plaintiff consisted of 75,000 yet-as-undelivered repriced stock options and 10,000 stock options Plaintiff already held. (Complaint, ¶ 31). The Parties agreed that Defendant owed Plaintiff only 85,000 shares because Plaintiff already received "40,000 shares way back," which likely refers to the 40,000 shares Plaintiff received on July 9, 2008, while the Agreement was still in effect. In arguing that Cruppi's promise to give Plaintiff 85,000 stock options indicates the existence of a new agreement because the figure 85,000 is not found in the Agreement, Plaintiff ignores Cruppi's reference to the 40,000 shares Plaintiff had already received, and that 40,000 plus 85,000 equals 125,000, the very amount of shares owed to Plaintiff under the Agreement. Perhaps to avoid the glaring symmetry of the purported Second Agreement and the original Agreement, Plaintiff's Complaint alleges that Defendant never provided Plaintiff any of the 115,000 stock options owed to him under the Agreement, seemingly suggesting that the 40,000 shares of stock Defendant gave Plaintiff in July 2009 did not count against Defendant's obligation to Plaintiff pursuant to the Agreement. (Complaint ¶ 25). Plaintiff, however, does not explain the basis for this position or address its apparent contradiction with the email exchange on which he relies.The Court, however, need not decide if the February 27, 2009 email exchange is in fact a new agreement, as a subsequent June, 2009 email correspondence between Plaintiff and Defendant's attorney, Karen Hennessey demonstrates that Plaintiff's claims related to unpaid stock options are pertaining to or related to the Agreement. In a message dated June 26, 2009, Plaintiff wrote the following to Hennessey:
Karen,
Please read my employment agreement of April 2008. I was granted 125, 000 options that vested in May 2008. I received 10,000 immediately and received 40,000 granted shares later that year. As per the agreement, the remaining options (75,000) which vested in May, 2008, would be granted at the next annual board meeting. Mr. Crupi emailed me earlier this year that these options had been set at $0.65 at that meeting. There is not different terms on those than the 10,000 I received in April 2008.
(Doc. 11, exh. B (emphasis added)). Not only does Plaintiff explicitly reference the Agreement (i.e. "my employment agreement of April 2008"), by stating that "Mr. Crupi emailed me earlier this year that these options had been set at $0.65 at that meeting," Plaintiff admits that the email exchange between he and Cruppi — the exchange on which is allegation of a Second Agreement are based — concerned Defendant's obligations under the original Agreement (Id. (emphasis added)). Accordingly, without passing judgment on the existence of the Second Agreement (the existence of which appears to be a highly questionable proposition), the Court finds that any of Plaintiff's claims predicated on the Second Agreement are related to or pertain to the Agreement, as by Plaintiff's own admission, the February 27, 2009 email chain concerned the Agreement.
3. Claims governed by the forum selection clause.
The Court must now consider which, if any, of Plaintiff's claims are governed by the forum selection clause. Defendant alleges that all of Plaintiff's claims are subject to the forum selection clause. In his Response, Plaintiff does not appear to dispute that his first and second claims would be governed by the forum selection clause (if it applied). The Court agrees. Both of these claims are based on Defendant's alleged failure to provide Plaintiff 75,000 stock options at a strike price of $.65 pursuant to the Second Agreement and are, therefore, clearly governed by the forum selection clause. See Part II(B)(2), infra.
The picture is less clear, however, with respect to Plaintiff's claims three (unfair competition), four (violation of right of privacy), and five (false designation). In these claims, Plaintiff alleges damages stemming from Defendant's alleged use of Plaintiff's name and likeness on certain of Defendant's materials and its website after Plaintiff's July 8, 2009 resignation from Paramount. (Complaint, ¶ 40, 41). As plead, none of these claims make reference to or are explicitly predicated on either the Agreement or the alleged Second Agreement. Regardless, Defendant argues that these causes of action are related to or pertain to the Agreement because they all depend on whether Defendant compensated Plaintiff for the use of his likeness and name pursuant to the Agreement. Forum selection clauses can apply both to tort and contract claims, the determinative question being "whether resolution of the [tort] claims relates to interpretation of the contract." Manetti-Farrow, Inc. v. Gucci America, Inc., 858 F.2d 509, 514 (9th Cir. 1988). The Court, therefore, must determine if Plaintiff's claims require interpretation of the Agreement. Id.
In support of its position, Defendant relies primarily onGraham Technology Solutions, Inc. v. Thinking Pictures, Inc., 949 F. Supp. 1427 (N.D. Cal. 1997). In Graham, the district court considered whether a claim for copyright infringement of software related to interpretation of a contract that had a forum selection clause. In holding that it did, the Graham court pointed to specific sections of the contract that governed ownership of all copyrights to the software in question, finding that the plaintiff's copyright claim could not proceed without first determining ownership pursuant to the contract. Id. at 1433-34. Unlike the defendant in Graham, Defendant's contention that resolution of Plaintiff's third, fourth, and fifth claims will require interpretation of the Agreement, is entirely speculative. Despite having a copy of the Agreement and being a party thereto, Defendant has not pointed to a single provision therein that governs the use of Plaintiff's likeness or otherwise explained why it is likely Plaintiff has been compensated for the use of his likeness pursuant to the Agreement. This omission is especially glaring in light of the fact that Plaintiff seeks relief for Defendant's use of his likeness during a period of time after Defendant had terminated the agreement. Additionally, as the Court has already mentioned, Plaintiff's pleadings with respect to these claims do not make reference to the Agreement or otherwise rely upon it. Cf. K H Mfg. Co. v. Strong Industries, Inc., 2008 WL 65606, *2 (D. Ariz. January 4, 2008) (upholding forum selection clause where non-contract claims made reference to the contract in the pleadings).
While a legitimate dispute concerning the necessity of interpreting the Agreement with respect to Plaintiff's non-Agreement based claims would certainly dictate exercise of the forum selection clause, the effect of enforcing a forum selection clause is "dramatic," and a party may not compel such a dramatic result based merely on speculation. Murphy, 362 F.3d at 1139. In other words, a defendant should not be able to defeat a plaintiff's otherwise legitimate choice of venue merely by alleging without specificity that the plaintiff's non-contractual claims require interpretation of the contract. Accordingly, the Court is not persuaded at this time that Plaintiff's third, fourth, and fifth claims for relief will require interpretation of the Agreement. If further development of the evidentiary record during discovery brings facts to light which demonstrate that interpretation of the Agreement will in fact be necessary to these claims, Defendant may file a renewed 12(b)(3) motion at the close of fact discovery. See Murphy, 362 F.3d at 1139. Therefore, the Court denies Defendant's motion to dismiss with respect to these three claims, but without prejudice.
Plaintiff's Sixth claim for relief, which alleges late and unpaid wages, very clearly does not require interpretation of the Agreement. Plaintiff alleges that Defendant failed to fully pay Plaintiff's invoice for work done in May and June 2009, and made late payment on what it did pay. Defendant terminated the Agreement in December, 2008, and therefore it does not appear to govern the time period in question, and other than generalized conclusory statements to the contrary, Defendant has given this Court no reason to find otherwise.
Plaintiff's seventh claim for relief is for unjust enrichment, and is plead as an alternative to Plaintiff's first, third, fourth, and fifth claims. Importantly, Plaintiff alleges that if "Defendant's promise for 75,000 stock options at a strike price of $0.65 is void or otherwise unenforceable, and there is no remedy at law, Defendant cannot justly retain the benefit, and Plaintiff's only available relief is in equity." Accordingly, it appears that analysis of this claim relates or pertains to the Agreement, as a determination must be made concerning whether Defendant can recover based on the stock options allegedly promised to him, an issue the Court has already found related to the Agreement. Accordingly, Defendant's Motion is granted as to Plaintiff's seventh claim.
IV. MOTION TO STRIKE and MOTION TO FOR LEAVE TO FILE SUPPLEMENTAL AUTHORITY.
Plaintiff requests leave of this Court to file a surreply to Defendant's Motion to Dismiss. "Surreplies . . . are highly disfavored, as they usually are a strategic effort by the nonmoving party to have the last word on a matter." In re Enron Corp. Secs., 465 F. Supp. 2d 687,691 n. 4 (S.D. Tex. 2006) (quoting Lacher v. West, 147 F. Supp. 2d 538, 539 (N.D. Tex. 2001). Accordingly, courts will not allow surreplies except "in the most extraordinary circumstances." Beckner v. Astrue, 2007 WL 2013608 *1 (D. Kan. 2007). See also Gen.Elec. Co. v. Latin Am. Imports, S.A., 187 F. Supp 2d 749, 752 n. 1 (W.D. Ky. 2001) ("[M]otions for surreplies . . . will be summarily denied absent extraordinary circumstances."); Atlin v. Mendes, 2008 WL 5422871 *3 (N.D. Tex. 2008) (moving party must set forth "exceptional or extraordinary circumstances warranting a surreply."); Starr v. Cox, 2008 WL 1914286 *2 (D. N.H. 2008) (it is proper to deny "a motion for leave to file a surreply where the party failed to demonstrate that the case presented extraordinary circumstances warranting the relief sought."). Plaintiff has failed to point to any extraordinary circumstances that justify his request, and this Court sees none. Plaintiff had a full and fair opportunity to brief the issues in this case in his Response; his Motion is denied.
Accordingly,
IT IS HEREBY ORDERED granting in part and denying in part Defendant's Motion to Dismiss. (Doc. 11). Defendant's motion is granted as to Plaintiff's first, second, and seventh claim, but denied as to Plaintiff's third, fourth, fifth, and sixth claims.
IT IS FURTHER ORDERED denying Plaintiff's Amended Motion for Leave to File Supplemental Legal Authorities. (Doc. 22).
IT IS FURTHER ORDERED denying as moot Defendant's Motion to Strike Plaintiff's Supplemental Authorities Regarding Response to Defendant's Motion to Dismiss. (Doc. 24).
DATED this 20th day of December, 2010.