Opinion
C.A. No. 02C-02-135-JRJ H
Date Submitted: May 17, 2002
Date Decided: May 28, 2002
Upon Consideration of Defendant's Motion to Dismiss.
DENIED.
ORDER
Upon consideration of the parties' submissions, the record in this case, and relevant case law, it appears that:
1. On February 15, 2002, Plaintiff E.I. DuPont De Nemours and Company, Inc. ("DuPont") filed a declaratory judgment action against Defendant Huttig Building Products, Inc. ("Huttig") for the purpose of establishing: (a) DuPont had not breached its Distributor Agreement (the "Agreement") with Huttig; (b) DuPont had the right not to renew the Agreement with or without cause, and its nonrenewal was valid; and (c) DuPont has no obligation to pay damages of any nature, or make any other payments, to Huttig. As a result of DuPont's nonrenewal, Huttig now moves the Court to dismiss the declaratory judgment action. In support of its motion, Huttig characterizes DuPont's filing of the declaratory judgment action as a "preemptive strike" designed to further its objective of "forum shopping" in violation of Delaware law. Huttig accuses DuPont of making bad faith allegations to support the declaratory judgment prerequisite of establishing immediate harm or hardship and prejudice to DuPont if the action is not permitted to go forward.
2. DuPont is a corporation organized under the laws of the State of Delaware with its principal place of business in Wilmington, Delaware. Huttig is a Delaware corporation with its principal place of business in St. Louis, Missouri. Among other things, DuPont manufactures and sells Tyvek brand products and accessories. These products are used primarily in the construction of new buildings. Over the past fifteen years, DuPont and Huttig have entered into a series of one year contracts or Agreements whereby Huttig served as an Authorized Stocking Distributor for Tyvek products. Under the terms of the Agreement, Huttig was authorized to sell and distribute particular Tyvek brand products within a geographic area that included all or parts of New Mexico, Washington, California, Oregon, Arizona, Utah, Nevada, Idaho and Kansas. It is undisputed that the last of these Agreements commenced on April 4, 2001 and expired automatically, unless renewed in writing, on December 31, 2001. A forum selection clause in the Agreement provided that Delaware courts, applying Delaware law, retain exclusive jurisdiction over any disputes or issues arising under the terms of the Agreement.
3. The parties agree that on December 17, 2001 DuPont informed Huttig of its intent not to renew the Agreement. Consequently, according to DuPont, Huttig asserted that the non-renewal was a breach of the Agreement and a violation of state law and threatened to sue DuPont for damages. In its declaratory judgment action, DuPont articulated that this threat of litigation from Huttig would likely interfere with its efforts to secure new distributors thus supporting its position for the need for declaratory judgment relief. DuPont asks the Court to find that it did not breach its Agreement with Huttig, is not obligated to pay damages for not renewing the Agreement, and that the forum selection clause is valid and enforceable. Huttig contests, among other things, DuPont's claim of harm. According to Huttig, on December 20, 2000, a mere three days after it was notified of DuPont's intent not to renew the Agreement, DuPont informed Huttig that it had finalized contracts with newly appointed distributors. Therefore, according to Huttig, DuPont will not be prejudiced in the event that the declaratory judgment action is dismissed.
Def.'s Mot. to Dismiss, Ex. C.
4. After DuPont instituted the instant action, Huttig filed suit on March 14, 2002 in Superior Court, County of Riverside, for the State of California. Huttig raised four causes of action in the California suit, all stemming from the same nucleus of operative facts, including Lack of Notice — Franchise Non-Renewal; Wrongful Termination of Franchise; Unfair Practices Act and Breach of the Implied Covenant of Good Faith and Fair Dealing.
5. A motion to dismiss for failure to state a claim should be granted only if it appears reasonably certain that "a plaintiff would not be entitled to the relief sought under any set of facts which would be proven [in] support" of its claims. Further, The Court must accept all of Dupont's factual allegations as true and give Dupont "the benefit of all inferences that may be drawn from those facts."
Rabkin v. Philip A. Hunt Chem. Corp., 498 A.2d 1099, 1104 (Del. 1985) (citation omitted).
Parnes v. Bally Ent't Corp., 722 A.2d 1243, 1247 (Del. 1999) (citations omitted).
6. The declaratory judgment action is a tool utilized to "promote preventive justice." Thus, the purpose served by this device is to expeditiously clarify and determine legal interests between adverse parties so as to prevent or alleviate the practical consequences stemming from uncertainty incident to the threat of litigation from another. In 1981, the Delaware legislature adopted the Uniform Declaratory Judgment Act. "[I]ts purpose is to settle and to afford relief from uncertainty with respect to rights, status and other legal relations. . . ." It is within the discretion of the court to grant this form of relief, and, pursuant to statute, due to its remedial nature, it is to be liberally construed and administered. A declaratory judgment action is an appropriate means of relief for parties to a contract in which the terms of the contract or its validity are in dispute. In adopting the Act, the legislature made available to Delaware courts and litigants the "massive body of case law decided under that Act." Under both the Uniform Act and its predecessor, the Supreme Court has outlined four prerequisites of a controversy necessary to utilize a declaratory judgment vehicle: (1) It must be a controversy involving the rights or other legal relations of the party seeking declaratory relief; (2) it must be a controversy in which the claim of right or other legal interest is asserted against one who has an interest in contesting the claim; (3) the controversy must be between parties whose interests are real and adverse; (4) the issue involved in the controversy must be ripe for judicial determination.
Stabler v. Ramsay, 88 A.2d 546 (Del. 1952).
Schick Inc. v. Amalgamated Clothing Textile Workers Union, 533 A.2d 1235 (Del.Ch. 1987) (emphasis added).
Del. C. ANN. tit. 10 Del. C. § 6512.
Id.
Id.
Del. C. ANN. tit. 10 Del. C. § 6502.
Schick, 533 A.2d at 1238.
Rollins International, Inc. v. International Hydronics Corp., 303 A.2d 660 (Del. 1973).
7. The ripeness prerequisite to a declaratory judgment action seeks to avoid adjudication of issues that "have not yet matured to a point at which judicial action is appropriate." The underlying purpose of this requirement is to avoid hypothetical questions.
Schick, 533 A.2d at 1239.
Id.
"In the typical declaratory judgment action, an unwilling litigant will have cast a cloud upon a property right of the declaratory plaintiff, but will not have moved forward to litigate the claim." In utilizing a declaratory judgment action, judicial resources are conserved for actual controversies and adjudications are based on all of the relevant and developed facts of a dispute thus making the final determination legally sound and of precedential value.
Id.
Id.
8. Huttig's principal argument in support of its motion to dismiss, relying on Schick, Inc. v. Amalgamated Clothing and Textile Workers Union, is the assertion that because DuPont faces no immediate harm or practical hardship, its declaratory judgment action should be dismissed under Super.Ct.Civ.R. 12(b)(6). Huttig's reliance on Schick is misplaced. In Schick, the plaintiff corporation sought a declaration from Chancery Court that the defendant Union was not the proper representative of shareholders for purposes of bringing a derivative action suit and that the Union was not entitled to require the corporate board to respond to its demand letter. The court granted defendant Union's motion to dismiss for failure to state a claim. The court found that the corporate board's duty with respect to a stockholder demand to consider facts asserted and to exercise its business judgment was not altered by whether that information came from a "stockholder, a supplier or customer or even a busybody." In addition, the court found that the Schick corporation would not be subjected to any hardship if required to await the filing of a derivative claim to "litigate its assertion that [the union] is disabled to act as a representative plaintiff in such action."
533 A.2d 1235 (Del.Ch. 1987).
Id. at 1241.
Id.
In the case sub judice, Huttig does not dispute that that its interests are adverse to those of DuPont. Indeed, after the instant declaratory action was filed, Huttig filed suit against DuPont in California, based upon the Agreement between the parties. Rather, Huttig argues that declaratory relief is unnecessary because DuPont will not be harmed by waiting until the underlying issues germane to the Agreement are resolved in the California action. The Schick facts and holding are inapposite to the instant action. In Schick, the parties did not enter into an Agreement with respect to a particular forum in which to settle their disputes that was ultimately disregarded by one of them. The governing law was not in issue. In contrast, the forum selection clause agreed upon by the parties in the case at bar and memorialized in their Agreement specifically states that any and all disputes shall be resolved according to Delaware laws and the Delaware courts "shall have exclusive jurisdiction over any disputes or issues arising under this Agreement." It is abundantly clear to this Court that when Huttig threatened to sue DuPont for electing not to renew the Agreement, disputed the validity of DuPont's nonrenewal of the Agreement and the forum selection clause, contended that non-renewal constitutes a breach of the Agreement in violation of state law, and demanded damages for non-renewal, DuPont was faced with the prospect of prejudice in that it would be forced to litigate an issue previously agreed upon by the parties in a forum of Huttig's exclusive choosing rather than the forum agreed upon by both parties in their Agreement. DuPont would also run the risk of receiving an inconsistent judgment from a foreign jurisdiction interpreting Delaware law. Furthermore, in the Court's view, this scenario would also constitute a waste of judicial resources. The declaratory judgment vehicle was designed and is utilized to avoid this situation by promoting "preventive justice." Thus, it is entirely appropriate to seek declaratory relief when seeking to interpret contract provisions and the very validity of those provisions in an effort to "advance [the] stage at which a matter is traditionally justiciable". The facts of the case sub judice strike at the very heart of declaratory judgment relief, namely, contract interpretation.
Def's. Mot. to Dismiss, Ex. A (1).
Stabler v. Ramsay, 88 A.2d 546 (Del. 1952).
Diebold Computer Leasing, Inc. v. Commercial Credit Corp., 267 A.2d 586 (Del. 1970).
9. Huttig also relies for support of its motion on the holding in Burris v. Cross. In Burris, the plaintiff was the owner of a dominant tenement and sought a declaration from the court that a right-of-way could be used to the fullest extent necessary for the expanded operation of a borrow pit, an order estopping the owner of the servient tenement from asserting that use of the right-of-way was restricted to any lesser number of truckloads per day than the extractive use license would permit, and the determination of Cross's liability, and an award of compensatory damages, for any injury suffered by Burris due to past and/or present loss of business, business opportunity and good will as well as intervention to restrain any threatened future tortious interference with the same interests. The court dismissed the Burris suit, finding, inter alia, that it was "overripe." In making this determination, the court considered the following factors:
583 A.2d 1364 (Del.Super. 1990).
Id. at 1370.
1. Whether the defendant is truly an unwilling litigant, thus necessitating declaratory action.
2. What form of relief is truly being sought by the plaintiff and whether that relief, if not solely a declaration of rights, would require resort to another court for supplemental relief. If so, whether both the rights and relief could be attained in a single non-declaratory action already available.
4. Whether another remedy exists and whether it would be more effective or efficient and, thus, whether declaratory judgment would serve a useful purpose.
5. Whether another action is pending, instituted either before or after the instant action, at the time of consideration of the Motion to Dismiss, and whether plaintiff would be able to raise all claims and defenses available in the instant action, as part of the pending action.
6. Whether the instant action has truly been instituted to seek a declaration of rights or merely for tactical or other procedural advantage.
7. Whether the instant action was filed in apparent anticipation of other pending proceedings.
8. Whether plaintiff will suffer any prejudice if the instant action is dismissed.
Id. at 1372 — 1373.
After conducting an in-depth analysis of the foregoing factors, the court concluded that the nature of the dispute and the relief sought were equitable matters best resolved in the Court of Chancery where another action was already pending between the parties based upon the same issues. The defendant in Burris instituted that action thus defeating any assertion of being an "unwilling litigant."
Id. at 1374.
10. Huttig's assertion that Burris is controlling here is mistaken. In Burris, although the court determined that the defendant was willing to litigate because defendant filed suit in the Court of Chancery a mere four days after Burris commenced litigation in the Superior Court, dismissal of the declaratory action was granted in large part due to the lack of subject matter jurisdiction. In contrast, soon after DuPont decided not to renew its contract with Huttig, Huttig "advised DuPont that its action violated a number of applicable state franchise laws." Notwithstanding, Huttig did not institute legal action in California until a month after DuPont filed the instant action in Delaware. This fact pattern mirrors the typical declaratory judgment scenario, wherein "an unwilling litigant will have cast a cloud upon a property right (or other legal interest), but will not have moved forward to litigate the claim." By disputing the propriety of DuPont's actions on contract grounds without commencing litigation, Huttig effectively "cast a cloud" upon the Agreement and gave rise to reasonable grounds for insecurity about its validity and enforcement. Under these circumstances, it was appropriate for DuPont to seek declaratory relief.
Def.'s Mot. to Dismiss at 2.
Schick, 533 A.2d at 1239.
11. Huttig's motion to dismiss must be DENIED. Huttig has failed to establish that Dupont is not entitled to declaratory judgment relief under any set of facts which could be proved in support of its claims.
IT IS SO ORDERED.