ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT; GRANTING IN PART AND DENYING IN PART DEFENDANT PARKER'S MOTION FOR DECLARATORY RELIEF; DISMISSING DEFENDANT MICHAEL DAVIS WITHOUT PREJUDICE; DECLINING JURISDICTION OVER REMAINING ISSUES
SUSAN ILLSTON, District Judge
On May 7, 2010, the Court held a hearing on plaintiffs' motion for summary judgment and defendant Parker's motion for declaratory relief. Plaintiffs filed this declaratory relief action because they wished to explore settlement of the then-pending Ninth Circuit appeals, and they seek a declaration of the parties' rights and responsibilities under the contingent fee agreement in the event of a settlement. For the reasons set forth below, plaintiffs' motion is GRANTED in part and DENIED in part, and defendant Parker's motion for declaratory relief is GRANTED in part and DENIED in part. The Court DISMISSES WITHOUT PREJUDICE plaintiffs' claims against defendant Michael Davis. To the extent that there are issues raised by plaintiffs' complaint for declaratory relief that this order does not resolve, the Court exercises its discretion and declines jurisdiction over those matters in this case; any remaining questions regarding fees can be raised and addressed in Alvarado et al. v. FedEx, C 04-0098 SI.
In June 2010, the Ninth Circuit issued decisions in both appeals. The mandate has issued in both appeals.
At the hearing, the Court inquired about the status of this case with regard to defendant Davis. Plaintiffs' counsel stated that they believed Mr. Davis had moved to France, and that plaintiffs wished to dismiss their claims against Mr. Davis without prejudice.
BACKGROUND
In 2009, plaintiffs Edward Alvarado and Charlotte Boswell filed this action for declaratory relief against their former attorneys, Waukeen McCoy, Kay M. Parker, and Michael Davis. The current case, Alvarado et al. v. McCoy et al., C 09-485 SI (" Alvarado II"), involves a dispute between plaintiffs and their former counsel regarding the fee agreement between plaintiffs and the defendant lawyers in an earlier lawsuit, Alvarado et al. v. FedEx, C 04-0098 SI (" Alvarado I").
I. Alvarado I
Alvarado I was filed on behalf of sixteen plaintiffs, including Mr. Alvarado and Ms. Boswell, who alleged various claims of employment discrimination against FedEx. In 2002, plaintiffs entered into fee agreements with defendants McCoy and Davis. Amended Compl. Ex. 1, 2. Those fee agreements provide, in relevant part:
We have agreed to the following attorney fee arrangement: (a) 33 1/3% of any amounts received or recovered by way of settlement prior to mediation and/or arbitration; (b) 40% of any amounts received or recovered by way of settlement after arbitration, mediation, or trial.
Id.
In 2004, plaintiffs discharged Mr. Davis. Alvarado Decl. ¶ 3; Boswell Decl. ¶ 3. Around January 2004, plaintiffs signed "Addendum No. 1" which deleted Mr. Davis from the retainer agreement and substituted defendant Parker as co-counsel with Mr. McCoy. Amended Compl. Ex. 3.
In 2006, plaintiffs discharged Ms. Parker, and proceeded to trial represented by Mr. McCoy and his office. Both plaintiffs prevailed at trial: in September 2006, a jury awarded Mr. Alvarado $500,000 on his retaliation claim, and in April 2007, a jury awarded Ms. Boswell $3 million on her claims for sexual harassment, retaliation, and constructive discharge. In post-trial orders filed on March 18, 2008, the Court remitted Mr. Alvarado's damages to $300,000, and applied the Title VII $300,000 cap to Ms. Boswell's punitive damages award, thus reducing her total damages to $850,000. Docket Nos. 1035-37 in C 04-0098 SI.
FedEx appealed. On appeal, Mr. Alvarado and Ms. Boswell retained different counsel to represent them; those counsel also filed the instant action for declaratory relief. In June 2010, the Ninth Circuit affirmed this Court's amended judgment in Mr. Alvarado's case. Also in June 2010, the Ninth Circuit affirmed in part and reversed in part the Court's amended judgment in Ms. Boswell's case. The mandate has now issued in both cases. On July 23, 2010, the Court held a case management conference in Alvarado I regarding Mr. Alvarado's case, as well as other matters that remain in Alvarado I, including matters related to attorneys' fees, as discussed in greater detail infra.
At the time of the July 23, 2010 case management conference, the mandate had not yet issued in Ms. Boswell's case.
II. Statutory fee petitions for Alvarado and Boswell in Alvarado I
After the Court entered the amended judgments for plaintiffs Alvarado and Boswell, both Mr. McCoy and Ms. Parker sought statutory fees under FEHA from FedEx. FedEx challenged Ms. Parker's standing to seek statutory fees. In an order filed April 7, 2008, the Special Master held that Ms. Parker had standing to seek fees under FEHA; this Court adopted those rulings in an order filed June 5, 2008. The Special Master held that the fee agreements "appear to address only what the attorneys will receive `by way of settlement,'" and that they "do not contemplate what would happen if there was no settlement and the matter was resolved solely by trial." As a result, the Special Master and the Court held that Ms. Parker had standing to seek statutory fees for the work she performed on behalf of Mr. Alvarado and Ms. Boswell. Ms. Parker's fee motions are currently pending before the Special Master.
Mr. McCoy also filed motions for statutory fees for the Alvarado and Boswell cases. After extensive proceedings, the Special Master found, as did the Court on review of the Special Master's order, that Mr. McCoy made numerous misrepresentations to the Court in connection with those fee petitions. In an order filed on March 19, 2009, the Court denied Mr. McCoy's fee petitions, and sanctioned Mr. McCoy by denying him leave to refile the petitions and by imposing monetary sanctions. Docket No. 1353 in C 04-0098 SI. Mr. McCoy appealed the sanctions order, and in June 2010, the Ninth Circuit affirmed the Court's initial denial of the fee petitions, but reversed the imposition of sanctions on the ground that the Court did not afford Mr. McCoy adequate process prior to imposing the sanctions. At the July 23, 2010 case management conference in Alvarado I, the Court set a briefing schedule and hearing on Mr. McCoy's motion regarding whether he should be permitted to refile the statutory fee petitions for the Alvarado and Boswell cases.
III. Attorneys' fees and the settlement plaintiffs in Alvarado I
In November 2007, the seven remaining plaintiffs in Alvarado I reached settlements with FedEx ("settlement plaintiffs"). Mr. McCoy and his office represented those plaintiffs in the settlement negotiations. Each plaintiff signed identical settlement agreements, save for the amount of the settlement. The settlement agreements released all claims for attorneys' fees, including any claims by Ms. Parker for her fees and costs. In accordance with the settlement release language, Mr. McCoy did not seek statutory FEHA fees from FedEx with respect to the seven settlement plaintiffs.
However, after an evidentiary hearing, the Court found that Mr. McCoy improperly required three settlement plaintiffs to make cash payments to him out of their 60% portion of the settlement proceeds, in contravention of his sworn representation to this Court that the settlement plaintiffs would receive the entire 60% portion of the settlement amounts without any deductions for attorneys' fees or costs. See generally December 18, 2009 Order Re: Disbursement of Interpled Funds, Docket No. 1499 in C 04-0098 SI.
Ms. Parker, however, wished to seek statutory FEHA fees from FedEx with respect to the seven settlement plaintiffs. Ms. Parker contended that she was not bound by the settlement agreements' release of attorneys' fees and costs because neither the plaintiffs nor Mr. McCoy represented her interests in the settlement negotiations, and the parties excluded her from the settlement process. Ms. Parker also contended that she had the right to seek fees directly from FedEx under FEHA, and she relied on the Special Master's order (and this Court's adoption of that order) finding that Ms. Parker had standing under FEHA to seek fees directly from FedEx for the work she performed on behalf of plaintiffs Alvarado and Boswell. In response, FedEx filed a motion for declaratory relief seeking an order that Ms. Parker had no right to fees from FedEx. In an order filed January 27, 2009, the Court granted FedEx's motion for declaratory relief, and held that Ms. Parker could not seek statutory fees under FEHA from FedEx with regard to the seven settlement plaintiffs:
Assuming arguendo that Ms. Parker is not bound by the settlement agreements, the Court
nevertheless concludes that she may not seek fees directly from FedEx. In
Flannery v. Prentice, the California Supreme Court held that "attorney fees awarded pursuant to [FEHA] (exceeding fees already paid) belong, absent an enforceable agreement to the contrary, to the attorneys who labored to earn them." 26 Cal. 4th at 590. Here, as the Special Master noted in his order, the fee agreements expressly address fee arrangements in the event of a settlement, and under those agreements the attorneys shall recover "40% of any amounts received or recovered by way of settlement after arbitration, mediation, or trial." The Court concludes that these agreements constitute an "agreement to the contrary" under
Flannery, and thus Ms. Parker does not have standing to seek fees under FEHA directly from FedEx.
To the extent Ms. Parker is entitled to fees, she may seek them from her former clients under
quantum meruit. In
Fracasse v. Ray Raka Brent, 6 Cal. 3d 784 (1972), the California Supreme Court held that an attorney retained under a contingent fee agreement and then discharged with or without cause is to be compensated in the amount of the reasonable value of her services rendered to the time of discharge. The Court also noted, "To the extent that such a discharge is followed by the retention of another attorney, the client will, in any event be required, out of any recovery, to pay the former attorney for the reasonable value of his services. Such payment, in addition to the fee charged by the second attorney, should certainly operate as a self-limiting factor on the number of attorneys so discharged."
Id. at 791. The Court found that its ruling "preserve[s] the client's right to discharge his attorney without undue restriction, and yet acknowledge[s] the attorney's right to fair compensation for work performed."
Id.;
see also Madirossian Assoc., Inc. v. Ersoff, 153 Cal. App. 4th 257, 272 (2007) ("It is well settled that a contingency fee lawyer discharged prior to settlement may recover in quantum meruit for the reasonable value of services rendered up to the time of discharge.");
Di Loreto v. O'Neill, 1 Cal. App. 4th 149, 156-57 (1991) ("[Where] the contingent fee is insufficient to meet the quantum meruit claims of both discharged and existing counsel, the proper application of the
Fracasse rule is to use an appropriate pro rata formula which distributes the contingent fee among all discharged and existing attorneys in proportion to the time spent on the case by each. Such a formula insures that each attorney is compensated in accordance with work performed, as contemplated by
Fracasse, while assuring that the client will not be forced to make a double payment of fees.").
January 27, 2009 Order at 5-7 (internal footnotes omitted). Docket No. 1279.
In an order filed December 18, 2009, the Court determined Ms. Parker's quantum meruit recovery for the seven settlement plaintiffs, and apportioned the contingent fee on a pro rata basis between Ms. Parker and Mr. McCoy based on this Court's assessment of the relative value of each attorney's work on behalf of the settlement plaintiffs.
IV. Alvarado II
In this case, plaintiffs Alvarado and Boswell seek a determination of the rights and duties under the Alvarado I fee agreements. The amended complaint alleges that "Plaintiffs and FedEx Corporation (the defendant in the underlying action) wish to discuss settlement of FedEx's appeals from the amended judgment. Because of the ambiguity of their legal services agreements, the plaintiffs cannot determine the extent of their liability to defendants for attorney fees. Furthermore, they cannot determine whether a settlement of their appeals with FedEx might alter their liability for attorney fees under the legal services agreement by, for example, transforming a `judgment' into a `settlement.'" Amended Compl. ¶ 14.
Plaintiffs have filed a motion for summary judgment contending that (1) in the event of a recovery by trial the only compensation to be provided to defendants McCoy and Parker under the fee agreements with plaintiffs is the exclusive right to pursue statutory fees; (2) neither Mr. McCoy nor Ms. Parker is entitled to quantum meruit; and (3) the parties have fully discharged their obligations under the fee agreements and hence the judgments awarded to plaintiffs belong solely to plaintiffs and may be settled without plaintiffs becoming liable to pay any portion of such settlements to defendants Parker and McCoy.
Ms. Parker seeks a declaration that (1) once the amended judgments were entered, her right to recover statutory fees from FedEx became a vested property right and that any future settlement may not dispose of her vested and choate property interest in statutory fees and costs without her participation and agreement; and (2) she also has a right to seek fees in quantum meruit from plaintiffs in the event she is denied a "compensatory FEHA fee."
Defendant McCoy opposes plaintiffs' motion for summary judgment and Parker's motion for declaratory relief. Defendant McCoy contends (1) this matter is not ripe; (2) under the fee agreements, a settlement on appeal is a settlement after trial, and thus Mr. McCoy is entitled to 40% of the recovery; and (3) if the fee agreements are found not to apply to amounts received at trial, Mr. McCoy is entitled to recover under quantum meruit.
The Court refers to the parties' arguments as they were framed in the papers, which were filed prior to the Ninth Circuit's resolution of the appeals.
At the hearing, counsel for Mr. McCoy stated that in the event of a settlement on appeal, it might be possible that, depending on plaintiffs' fee agreements with their current counsel, the contingency fee would be apportioned between Mr. McCoy and current counsel.
LEGAL STANDARD
Summary adjudication is proper when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).
In a motion for summary judgment, "[if] the moving party for summary judgment meets its initial burden of identifying for the court those portions of the materials on file that it believes demonstrate the absence of any genuine issues of material fact, the burden of production then shifts so that the non-moving party must set forth, by affidavit or as otherwise provided in Rule 56, specific facts showing that there is a genuine issue for trial." See T.W. Elec. Service, Inc., v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp. v. Catrett, 477 U.S. 317 (1986). In judging evidence at the summary judgment stage, the Court does not make credibility determinations or weigh conflicting evidence, and draws all inferences in the light most favorable to the non-moving party. See T.W. Electric, 809 F.2d at 630-31 (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 (1986)); Ting v. United States, 927 F.2d 1504, 1509 (9th Cir. 1991). The evidence presented by the parties must be admissible. Fed.R.Civ.P. 56(e). Conclusory, speculative testimony in affidavits and moving papers is insufficient to raise genuine issues of fact and defeat summary judgment. Thornhill Publ'g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979).
DISCUSSION
I. Ripeness
Defendant McCoy contends that this declaratory relief action is not ripe, and that resolution of any dispute over attorneys' fees and the interpretation of the fee agreements must wait until FedEx actually pays money to resolve the underlying actions and interpleads the funds.
To determine whether there is a live controversy under the Declaratory Judgment Act, the Court must evaluate "whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Maryland Cas. Co. v. Pacific Coal Oil Co., 312 U.S. 270, 273 (1941). Declaratory relief is appropriate "(1) when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and (2) when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Bilbrey by Bilbrey v. Brown, 738 F.2d 1462, 1470 (9th Cir. 1984).
The Court finds that there is a ripe controversy regarding how the contingent fee agreement applies in the event of a settlement post-trial, and the Court resolves this question in this order. Plaintiffs' declaratory relief complaint alleges that plaintiffs wish to explore settlement, and there is a current dispute among plaintiffs and their former counsel about the effect of a settlement on Parker's and McCoy's claims for attorneys' fees. See Eureka Federal Savings Loan Ass'n v. American Cas. Co., 873 F.2d 229, 232 (9th Cir. 1989) (holding declaratory relief action seeking declaration of policy limits under insurance policy was ripe because "American's settlement posture thus indicates to us that a settlement cannot be achieved in Kidwell without a resolution in this case of the limits of liability coverage").
At the July 23, 2010 case management conference in Alvarado I, counsel for plaintiffs Boswell and Alvarado stated that even after the Ninth Circuit's disposition of the appeals, plaintiffs and FedEx remain interested in exploring settlement, and that the disputes over fees remained an impediment to settlement discussions.
Relatedly, the Court finds that there is a live controversy regarding the effect, if any, of a settlement on Ms. Parker's right to seek statutory fees, as well as Ms. Parker's right to seek fees in quantum meruit, and the Court resolves these questions in this order. Ms. Parker's statutory fee petitions are currently being litigated, and in July 2010 the Special Master held a dispositive hearing on those matters. Ms. Parker has filed a lien against plaintiffs' judgments, and she seeks a declaration that she is entitled to fees in quantum meruit in the event her statutory fee petitions are denied or if she deems any statutory fee award insufficient.
Finally, to the extent that plaintiffs' complaint for declaratory relief and motion for summary judgment seek an interpretation of the contingency fee agreement in the event of a recovery at trial (without a settlement), the Court finds that this question is now ripe in light of the disposition of the Boswell and Alvarado appeals. However, as discussed below, the Court finds that the plain language of the fee agreement does not address the fee arrangement in the event of a judgment at trial, and thus this question can not be resolved on this record. Further, due to the proceedings underway in Alvarado I regarding (1) FedEx's upcoming motion to interplead Mr. Alvarado's judgment, and (2) Mr. McCoy's upcoming motion to refile his statutory fee petitions in the Alvarado and Boswell cases, the Court finds it appropriate to exercise its discretion and decline jurisdiction over the balance of the declaratory relief action, as any remaining issues concerning attorneys' fees in the Boswell and Alvarado cases can and should be litigated in Alvarado I, C 04-0098 SI.
II. Interpretation of fee agreements
Plaintiffs contend that the fee agreement only provides for attorneys' fees in the event of a settlement. Plaintiffs argue that the fee agreement does not explicitly provide for attorneys' fees in the event of a recovery by arbitration or trial, and that "the failure to provide for fees upon recovery by arbitration or trial was by design, it being contemplated that in such event the attorneys would be compensated solely by means of statutory fees awarded by the court and not by a percentage of the recovery." Plaintiffs' motion at 2:7-10. Plaintiffs then argue — in a leap of unexplained logic — that based on this interpretation of the fee agreements, the Court should hold that the parties have fully discharged their obligations under the fee agreements and that the judgments awarded to plaintiffs now belong solely to plaintiffs and may be settled by plaintiffs without plaintiffs becoming liable under the fee agreements to defendants.
Defendant Parker agrees with plaintiffs that the fee agreements only explicitly address fees in the event of a settlement, and that the agreements contain no provision concerning attorney's fees sought or awarded after the clients secured a verdict and judgment. Parker asserts that "Plaintiffs are correct in asking this Court to determine that a settlement of the amounts that FedEx is obligated to pay on the Alvarado and Boswell judgments would not convert Plaintiffs Alvarado and Boswell to the status of `non-verdict settlement plaintiffs,' like that of the seven plaintiffs governed by this Court's January 27, 2009 Order." Parker's response at 8:8-11. Parker seeks a declaration that "when Alvarado and Boswell secured judgments after trial and after verdict, they permanently assumed the status of judgment plaintiffs, and that the Retainer Agreements can never negate Ms. Parker's ownership of the statutory fee under Flannery." Id. at 8:15-18.
Defendant McCoy contends that under the plain language of the fee agreements, if plaintiffs settle on appeal, that constitutes a "settlement after trial" and that he would be entitled to 40% of the recovery, or some pro rata portion as between him and plaintiffs' current attorneys. McCoy also argues that the fee agreements give him a 40% contingency after trial, whether or not plaintiffs settle, and he argues that the question of the attorneys' recovery after a trial cannot be summarily adjudicated. McCoy notes that plaintiffs' complaint for declaratory relief alleges that the fee agreements are susceptible to four different interpretations, and that plaintiffs have failed to establish with any evidence that their interpretation is the correct one. McCoy has also submitted evidence in support of his interpretation of what the fee agreements provide in the event of a recovery by way of trial, with no settlement.
"The interpretation of a written instrument . . . is essentially a judicial function to be exercised according to the generally accepted canons of interpretation so that the purposes of the instrument may be given effect." Parsons v. Bristol Development Co., 62 Cal.2d 861, 865 (1965). The California Civil Code sets forth numerous guidelines under which a contract must be interpreted. "A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." Cal. Civ. Code § 1636. When interpreting a contract, California courts begin their analysis with the language itself. "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." Id. at § 1638. "[T]he intention of the parties is to be ascertained from the writing alone, if possible. . . ." Id. at § 1639. "The whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." Id. at § 1641. "Whether a contract provision is ambiguous is a question of law. If it is, ordinarily summary judgment is improper because differing views of the intent of parties will raise genuine issues of material fact." Maffei v. Northern Ins. Co. of New York, 12 F.3d 892, 898 (9th Cir. 1993).
The Court holds that the plain language of the fee agreements addresses attorneys' fees in the event of a settlement, whether the settlement occurs prior to mediation and/or arbitration, or "after arbitration, mediation or trial," which includes a settlement on appeal (or any time post-trial). The fee agreements provide:
We have agreed to the following attorney fee arrangement: (a) 33 1/3% of any amounts
received or recovered by way of settlement prior to mediation and/or arbitration; (b) 40% of any amounts received or recovered by way of settlement after arbitration, mediation, or trial.
Amended Compl. Ex. 1. A settlement on appeal is a "settlement after trial," and plaintiffs do not explain how they reach their interpretation that the fee agreement would not apply to a settlement on appeal.
The Court further finds that the fee agreements do not fully address the question of the attorneys' fees arrangement in the event of a recovery by way of trial. Plaintiffs assert that the parties intended that in this situation, the attorneys' recovery was solely limited to statutory fees from the defendant. However, to reach this conclusion, the Court would be required to draw inferences that are not supported by the current record. Conversely, Mr. McCoy asserts that the parties intended for both a contingent recovery and statutory fees. Again, because the agreements are silent on issue of attorneys' fees in the event of a recovery at trial, the Court cannot resolve this question on the present record. As discussed supra, the Court will resolve these questions as necessary in the upcoming proceedings in Alvarado I.
The Court's finding that a settlement on appeal is a "settlement after trial" under the fee agreements does not, as defendant Parker fears, convert plaintiffs into the same status as the seven settlement plaintiffs, nor does it negate her right to seek statutory fees based on the work she performed for plaintiffs. The seven settlement plaintiffs settled prior to trial, and they were bound both by their settlement agreements with FedEx and the fee agreements providing for a 40% contingent fee recovery. In contrast, plaintiffs Alvarado and Boswell proceeded to trial and obtained a verdict. Unlike the case of the settlement plaintiffs where the fee agreements explicitly address the fee arrangement in the event of settlement, the fee agreements do not address the attorneys' fees recovery in the event of a recovery by trial; it was due to the absence of such language that the Special Master and this Court held that Ms. Parker had standing to seek statutory fees from FedEx related to her work for plaintiffs Alvarado and Boswell. If plaintiffs settle their cases, those settlements would not alter Ms. Parker's right to seek statutory fees from FedEx.
III. Quantum meruit
Defendant Parker seeks a declaration that in addition to her right to seek statutory fees from FedEx, she has a right to seek fees from plaintiffs under quantum meruit in the event she does not receive a "fully compensatory" statutory fee. Parker relies on Fracasse v. Brent, 6 Cal.3d 784 (1972), and Mardirossian Assoc., Inc. v. Ersoff, 153 Cal. App. 4th 257 (2007), which both held that discharged attorneys had a right to recover in quantum meruit from their former clients. However, if not for quantum meruit, the attorneys in Fracasse and Mardirossian would have received nothing, even though there was an expectation on the part of both the discharged attorneys and the clients that the discharged attorneys would receive compensation for their services. Here, in contrast, Ms. Parker is seeking her statutory fees for all of the work she performed for plaintiffs. Ms. Parker has provided no authority for the contention that a discharged attorney may recover in quantum meruit from her former clients if she is dissatisfied with a statutory fee award.
In Fracasse, the underlying lawsuit involved personal injury claims. 6 Cal. 3d at 786. In Mardirossian, the underlying lawsuit involved contract, tort and fraud claims. 153 Cal. App. 4th at 261. Thus, in neither case could the discharged attorney seek statutory fees, unlike the case here.
Similarly, the Court's prior ruling holding that Ms. Parker could seek a quantum meruit recovery in the cases of the seven settlement plaintiffs rested on the Court's determination that the fee agreements' provision regarding fees in the event of settlement governed Ms. Parker's fee claim, and thus that Ms. Parker did not have standing to seek statutory fees.
Plaintiffs contend that Mr. McCoy is not entitled to recover in quantum meruit because the fee agreements solely limit him to the right to seek statutory fees in the event of a recovery by way of trial. For the reasons stated above, the question of Mr. McCoy's fee recovery will be litigated in Alvarado I.
CONCLUSION
For the reasons set forth above, the Court holds that (1) under the language of the fee agreements, a settlement on appeal is a "settlement after trial," and thus the fee agreement applies; (2) the question of how the fee agreements treat attorneys' fees in the event of a recovery at trial without a subsequent settlement, as well as the questions surrounding Mr. McCoy's fees, will be resolved in Alvarado I; (3) Ms. Parker's right to seek statutory fees from FedEx is vested and will not be affected or negated if plaintiffs settle their cases; and (4) Ms. Parker does not have a right to seek her fees in quantum meruit from plaintiffs.
Plaintiffs' motion for summary judgment is GRANTED IN PART AND DENIED IN PART, and defendant Parker's motion for declaratory relief is GRANTED IN PART AND DENIED IN PART. (Docket Nos. 39 and 51 in C 09-485 SI; Docket No. 1149 in C 04-0098 SI). Plaintiffs' claims against defendant Davis are DISMISSED WITHOUT PREJUDICE.
IT IS SO ORDERED.
Dated: September 27, 2010
the United States and the plaintiff's grievance."); H.R. Rep. No. 1487 at 17,
reprinted in 1976 U.S.C.C.A.N. at 6615 (referring to "commercial transaction or act having a `substantial contact' with the United States"). "[I]t is clear[, moreover,] that Congress intended a tighter nexus than the `minimum contacts' standard for due process.'"
Shapiro,
930 F.2d at 1018 (citing
Maritime Int'l Nominees Establishment v. Republic of Guinea,
693 F.2d 1094, 1109 (D.C. Cir.),
cert. denied,
464 U.S. 815 (1983);
Verlinden B.V. v. Cent. Bank of Nigeria,
488 F. Supp. 1284, 1296 (S.D.N.Y. 1980),
aff'd on other grounds,
647 F.2d 320 (2d Cir. 1981),
rev'd on other grounds,
461 U.S. 480 (1983);
see also H.R. Rep. No. 1487 at 17,
reprinted in 1976 U.S.C.C.A.N. at 6616 (statute was "intended to reflect a degree of
contact beyond that occasioned simply by U.S. citizenship or U.S. residence of the plaintiff").
While Plaintiffs cite all three exceptions set forth in Section 1605(a)(2), they rely primarily on the exception concerning acts performed in the United States in connection with commercial activity elsewhere. "This [exception] `is generally understood to apply to non-commercial acts in the United States that relate to commercial acts abroad.'" Kensington Int'l, Ltd. v. Itoua, 505 F.3d 147, 157 (2d Cir. 2007) (quoting Byrd v. Corporacion Forestal y Industrial de Olancho S.A., 182 F.3d 380, 390 (5th Cir. 1999)). Plaintiffs argue that the "Complaints assert claims for breaches of contract that occurred in New York. . . . Thus, the breach by Petrobras of the contractual right of Rogers and Burlew to convert their Bonds into Petrobras preferred stock occurred in New York." (Pltf. Br. 4) Plaintiffs assert that they had no communication with Brazil, nor were they instructed to direct their conversion requests to any Brazilian office or representative. (Id.) Moreover, the record presently before this Court demonstrates that Defendant — from its New York office — communicated with U.S. clients and creditors about their rights under Petrobrás debt instruments. Although the bonds were issued in Brazil and are denominated in Brazilian currency, the Complaints are based on actions the Defendant took in New York: its communications to Plaintiffs that it would not honor the bonds' conversion provisions.
Defendant argues that Plaintiffs' claims are not based upon an "act" performed in the United States, because "the document reflecting Petrobras' policy of rejecting conversion claims bears the address of Petrobras' Rio headquarters . . . and is in fact a translation of a Portuguese language document produced by that office." (Reply 5) While that may be, Defendant used its New York office and its New York representative to carry out and finalize the "act" of alleged breach at issue. Accordingly, the "act performed in the United States" exception to sovereign immunity applies.
Even if the "act" exception did not apply, however — and no act related to Defendant's commercial activity in Brazil was "performed in" the United States, as Defendant argues — the "direct effect" exception provides a basis for jurisdiction. In evaluating the applicability of the "direct effects" exception to FSIA immunity, courts "consider[] whether th[e] lawsuit is (1) based . . . upon an act outside the territory of the United States; (2) that was taken in connection with a commercial activity of [defendant] outside this country; and (3) that caused a direct effect in the United States." Republic of Argentina, 504 U.S. at 611 (U.S. 1992) (internal citation and quotations omitted).
For an act to have
a "direct" effect within the meaning of the third clause of the commercial activity exception, the impact need not be either substantial or foreseeable,
see Republic of Argentina v. Weltover, Inc.,
504 U.S. 607, 617-18, 112 S.ct. 2160,
119 L. Ed. 2d 394 (1992) ("
Weltover II"),
aff'g
941 F.2d 145 (2d Cir. 1991) ("
Weltover I"); rather, "an effect is `direct' if it follows `as an immediate consequence of the defendant's . . . activity,'"
Weltover II,
504 U.S. at 618 (quoting
Weltover I,
941 F.2d at 152). In
Weltover I, we indicated that, by "immediate," we meant that, between the foreign state's commercial activity and the effect, there was no "intervening element."
941 F.2d at 152;
see also Martin v. Republic of South Africa,
836 F.2d 91, 95 (2d Cir. 1987) ("
Martin") ("The common sense interpretation of a `direct effect'" within the meaning of § 1605(a)(2) "is one which has no intervening element, but, rather, flows in a straight line without deviation or interruption." (other internal quotation marks omitted)). We have held that "the requisite immediacy" is lacking where the alleged effect "depend[s] crucially on variables independent of" the conduct of the foreign state.
Virtual Countries, 300 F.3d at 238.
Guirlando v. T.C. Ziraat Bankasi A.S.,
602 F.3d 69, 75 (2d Cir. 2010).
Here, even if the decision not to honor the bonds' conversion term was made in Brazil, Defendant communicated its rejection of Plaintiffs' conversion request through its New York representative. The immediate consequence of Defendant's rejection of Plaintiffs' conversion request was that Plaintiffs were denied the preferred shares to which they claim to be contractually entitled. It is well established that financial loss experienced through breach of contract may constitute a "direct effect." Morris v. People's Republic of China, 478 F. Supp. 2d 561, 568 (S.D.N.Y. 2007) (citing Texas Trading Milling Corp., 647 F.2d at 312).
The "effect," however, must not only be "direct" but must have been felt in the United States. Mere citizenship or residency does not establish that direct effects were felt in the United States. Adler v. Federal Republic of Nigeria, 107 F.3d 720, 726-27 (9th Cir. 1997) (citations omitted); accord Guirlando, 602 F.3d at 78-79; Zedan v. Kingdom of Saudi Arabia, 849 F.2d 1511, 1515 (D.C. Cir. 1988). In such cases, "courts often look to the place where legally significant acts giving rise to the claim took place." Republic of Argentina v. Weltover (Weltover I), 941 F.2d 145, 152 (2d Cir. 1991), aff'd, 504 U.S. 607 (1992) (citingZedan, 849 F.2d at 1515); accord Morris, 478 F. Supp. 2d at 570 (holding that "the locus of contractual obligation" is essential to deciding whether a direct effect occurred in the United States) (citing Virtual Countries, Inc. v. Republic of South Africa, 300 F.3d 230, 240 (2d Cir. 2002)).
In cases involving the legally significant act of failing to honor or repay financial instruments, for example, the "nonpayment of a commercial obligation by a foreign state or its instrumentality has a direct effect in the United States if the defaulting party was contractually obligated to pay here." Dar el-Bina Eng'g Contracting Co. v. Republic of Iraq, 79 F. Supp. 2d 374, 382 (S.D.N.Y. 2000). The Second Circuit has found a direct effect where the defaulting party agreed to make payments in one of several enumerated cities, including New York, Weltover I, 941 F.2d 145, and where the defaulting party agreed in advance to make payments per payee's instructions and payee chose a New York bank. Hanil Bank v. PT. Bank Negara Indonesia, 148 F.3d 127 (2d Cir. 1998).
Here, the plain language of the bonds neither limits nor indicates the place of exchange or redemption, but broadly reads: "Petrobrás entitles to the holder of this obligation the option for receiving preferred nominative shares without voting rights, after the bond party meets the Corporation Law and Section 18 of Law No. 2,004 of October 3, 1953." (Petrobrás Exs. 1 (Series 1 bearer bond) 3 (Series 4 bearer bond)) Nor do the bonds place any restrictions on negotiability or sale outside of Brazil. That the bonds do not specify or require a place of payment or exchange within the United States does not foreclose that Plaintiffs reasonably expected they could make such a request in New York, given the open ended terms of the bonds and the fact that Petrobrás has a New York office. See United States Fid. Guar. Co. v. Braspetro Oil Servs. Co., No. 97 Civ. 6124 (JGK), 1999 U.S. Dist. LEXIS 7236, at **40-41 (S.D.N.Y. May 13, 1999) (finding direct effect where bonds "understood to be (although not contractually obliged to be) payable in New York"). Defendant was free to limit the terms of the bearer bonds by restricting their negotiability and place of redemption or exchange, but it did not do so. Moreover, Defendant does not argue that it would not have had to honor redemption or conversion requests made in the United States if such a request had been made prior to the "lapse" of an investor's redemption or conversion right. (Pltfs. Ex. C) Because Plaintiffs are and were U.S. residents, purchased the bonds in the United States with U.S. currency, communicated with Petrobrás' New York representative at its New York office regarding these bonds, and were told by that New York representative that Petrobrás would not honor the bonds' conversion provision, this Court finds that the direct effect of Defendant's alleged breach was felt within the United States.
Morris, 478 F. Supp. 2d 561, cited by Defendant, is readily distinguished. In Morris, the court held that no direct effect was felt in the United States because numerous factors apart from the plaintiff's citizenship "all point[ed] abroad," and the default occurred before plaintiff owned the bonds:
the
only evidence of a nexus with the United States clearly presented to the Court is plaintiff's citizenship, coupled with his purchase of eight bonds over sixty years after they went into default. There is no evidence before the Court of prior ownership of plaintiff's bonds by U.S. citizens or corporations at the time of any default. No issuing banks were located in the United States, as a result of President Woodrow Wilson's explicit decision not to support domestic bank[s'] role in the issuance of the bonds. The PRC had no designated agent to administer the bonds in the United States. No negotiations concerning the bond issuance or payment occurred within the United States. The bonds were not issued or payable in U.S. currency. And, importantly, the contractually designated locations where payments of principal and interest were to be paid were all in cities outside the United States. Considering all the factors, the Court concludes that plaintiff suffered no "direct effect in the United States" sufficient to establish jurisdiction under the commercial activity exception of the FSIA.
Morris, 478 F. Supp. 2d at 570-71 (emphasis in original). The facts alleged here are entirely different. The bonds at issue were purchased in the United States by United States citizens with United States currency. They were not in default at the time. Defendant has an office and a representative located in New York charged with administering the bonds. Finally, the bonds did not limit redemption or conversion to designated locations outside the United States.
II. THIS ACTION WILL NOT BE DISMISSED ON GROUNDS OF FORUM NON CONVENIENS
Defendant next argues that these actions should be dismissed on grounds of forum non conveniens. (Def. Br. 13)
The Supreme Court has "characterized forum non conveniens as, essentially, `a supervening venue provision, permitting displacement of the ordinary rules of venue when, in light of certain conditions, the trial court thinks that jurisdiction ought to be declined.'" Sinochem Int' Co. v. Malay. Int'l Shipping Corp., 549 U.S. 422, 429-30 (2007) (quoting American Dredging Co. v. Miller, 510 U.S. 443, 453 (1994)). "The decision to dismiss a case on forum non conveniens grounds `lies wholly within the broad discretion of the district court. . . .'"Iragorri v. United Techs. Corp., 274 F.3d 65, 72 (2d Cir. 2001) (en banc) (quoting Scottish Air Int'l, Inc. v. British Caledonian Group, PLC, 81 F.3d 1224, 1232 (2d Cir. 1996)). Dismissal based on forum non conveniens requires a three-step analysis: (1) the court must "determine[] the degree of deference properly accorded the plaintiff's choice of forum"; (2) the court must consider "whether the alternative forum proposed by the defendants is adequate to adjudicate the parties' dispute"; and (3) the court must "balance[] the private and public interests implicated in the choice of forum." Norex Petroleum, Ltd. v. Access Indus., 416 F.3d 146, 153 (2d Cir. 2005). "The burden of demonstrating that the plaintiff's chosen forum is not convenient is on the defendant seeking dismissal." DiRenzio v. Philip Servs. Corp., 294 F.3d 21, 29 (2d Cir. 2002). Because Defendant has failed to meet this burden, and because the interests at stake favor maintaining these actions in the United States, they will not be dismissed on forum non conveniens grounds.
A. Plaintiffs' Choice of Forum Deserves Deference
"Any review of a forum non conveniens motion starts with `a strong presumption in favor of the plaintiff's choice of forum.'"Norex Petroleum, Ltd., 416 F.3d at 154 (quoting Piper Aircraft Co. v. Reyno, 454 U.S. 235, 255 (1981)). Moreover, a "plaintiff's choice of forum is generally entitled to great deference when the plaintiff has sued in the plaintiff's home forum." Iragorri, 274 F.3d at 71 (citing Koster v. (Am.) Lumbermens Mut. Cas. Co., 330 U.S. 518, 524 (1947); see also Piper, 454 U.S. at 255-56, 256 n. 23. The Second Circuit has stated that "the degree of deference to be given to a plaintiff's choice of forum moves on a sliding scale depending on several relevant considerations,"Iragorri, 274 F.3d at 71, including whether the plaintiff is a U.S. citizen, "the convenience of the plaintiff's residence in relation to the chosen forum, the availability of witnesses or evidence to the forum district, the defendant's amenability to suit in the forum district, [and] the availability of appropriate legal assistance." Plaintiff's choice of forum is entitled to less deference where it is based on "forum-shopping reasons" such as an "attempt[] to win a tactical advantage resulting from local laws that favor the plaintiff's case, the habitual generosity of juries in the United States . . . [or] the plaintiff's popularity or the defendant's unpopularity in the region. . . ." Id. at 72.
Analysis of these factors here indicates that deference to the Plaintiffs' forum choice is appropriate. While neither plaintiff lives in New York — Rogers is a citizen of Florida (Rogers Cmplt. ¶ 1) and Burlew is a citizen of Connecticut (Burlew Cmplt. ¶ 1) — they are both citizens of the United States who engaged in business communications with Defendant's New York office. Moreover, while "[t]he fact that a plaintiff is not a resident of the district in which he seeks to sue is not irrelevant, . . . [a] plaintiff should not be penalized for suing outside their home district." BFI Grp. Divino Corp., 298 Fed App'x at 90 (citing Iragorri, 274 F.3d at 73, 74; Piper Aircraft Co., 454 U.S. at 255 n. 23). This is particularly true where the alternative forum is in a foreign country:
In many circumstances, it will be far more convenient for a U.S. resident plaintiff to sue in a U.S. court than in a foreign country, even though it is not the district in which the plaintiff resides. It is not a correct understanding of the rule to accord deference only when the suit is brought in the plaintiff's home district.
Iragorri,
274 F.3d at 73.
Here, Plaintiffs' choice of a New York forum is grounded in the fact that their communications with Petrobrás' New York City office provides the basis for their claims. (Cmplt. ¶ 8). Plaintiffs further argue that they do not have the resources to travel to and prosecute an action in Brazil. (Rogers Decl. ¶ 5; Burlew Decl. ¶ 5; see Opp. at 16) Nor have they ever lived in or travelled to Brazil. They do not speak Portuguese. (Rogers Decl. ¶ 3) Accordingly, Plaintiffs face significant challenges in bringing these actions in Brazil.
Petrobrás claims that these actions should proceed in Brazil, because a majority of the relevant witnesses — including its employees and all of the other bondholders — reside in Brazil. (Def. Br. 17; Reply 7-8) Defendant does not explain, however, how testimony from Brazilian bondholders and Petrobrás employees will be relevant to Plaintiffs' breach of contract claim, or why Defendant could not have local counsel take declarations of any necessary witnesses in Brazil for use before this Court. In any event, because Petrobrás has not identified any witnesses in Brazil, this factor does not weigh in favor of dismissal.
As to the other forum non conveniens factors, it appears that Petrobrás is amenable to suit in New York, as it has defended at least one other action in this district and has even initiated an action in this district — Petroleo Brasileiro S.A. v. IBE Grp., Inc., No. 93 Civ. 3305 (TPG), 1995 WL 326502 (S.D.N.Y. May 31, 1995). Petrobrás also has ample financial resources and has "retained highly competent New York counsel who are fully capable of litigating this dispute in this forum." Ancile Inv. Co. Ltd. v. Archer Daniels Midland Co., No. 08 Civ. 9492 (PAC), 2009 WL 3049604, at *6 (S.D.N.Y. Sept. 23, 2009).
See U.S. Fidelity Guar. Co. v. Braspetro Oil Servs., Co., No. 97 CIV. 6124 (JGK), 98 CIV. 3099 (JGK), 2000 WL 744369 (S.D.N.Y. June 8, 2000).
On its website, Petrobrás reported an annual net income of R $33 billion in 2008. (Gordon Decl., Ex. E at 2)
Petrobrás argues, however, that Plaintiffs "appear to be forum shopping to avoid decisions of numerous Brazil[ian] courts . . . denying nearly identical claims under the bearer bonds." (Def. Br. 14-15) Defendant does not assert, however, that U.S. law is more favorable to Plaintiffs, or that U.S. law would even apply if the actions were litigated in New York. Moreover, while Petrobrás has submitted a number of Brazilian court decisions allegedly holding that bond holders have no right to convert the Petrobrás bonds at issue here after the redemption expiration date (see Def. Br. 15 (citing Exs. 6-13)), Plaintiffs have submitted a declaration from Joao Augusto de Lima Lustosa, a Brazilian attorney, asserting that "[u]nder Brazilian law, prior court decisions are not regarded as having binding or substantial persuasive authority until several decisions by the Superior Federal Court of Justice (Superior Tribunal de Justiçia) have been issued with the same conclusions." (Lustosa Decl. ¶ 3) Petrobrás has not challenged, much less refuted, Lustosa's statement regarding the non-binding nature of Brazilian case law from lower courts. (See Oliveira Decl. ¶ 5 (stating that "[a]lthough Brazilian court decisions do not have automatic binding effect, precedents from all courts are considered
persuasive judicial authority")) Assuming arguendo that Brazilian law is unfavorable to Plaintiffs, such a finding does not support Defendant's forum shopping argument, because both parties concede that Brazilian law would be applicable to this case in the event it is litigated in New York.
While analysis of the relevant factors overwhelmingly suggests that Plaintiffs' choice of forum here is entitled to great deference, this "is only the first level of inquiry," Iragorri, 274 F.3d at 73, and "simply recalibrate[s] the balance for purposes of the remaining analysis." Norex Petroleum, Ltd., 416 F.3d at 157. This Court must go on to consider whether Brazil is "an adequate alternative forum." In the event that Brazil is an "adequate alternative forum," this Court must then weigh a number of private and public interest factors, as discussed below.Iragorri, 274 F.3d at 73.
B. Brazil Is An Adequate Alternative Forum
"To secure dismissal of an action on grounds of forum non conveniens, a movant must demonstrate the availability of an adequate alternative forum." Norex Petroleum, Ltd., 416 F.3d at 157. "`An alternative forum is adequate if the defendants are amenable to service of process there, and if it permits litigation of the subject matter of the dispute.'" Id. (quotingPollux Holding Ltd. v. Chase Manhattan Bank, 329 F.3d 64, 75 (2d Cir. 2003)). However, "`the availability of an adequate alternative forum does not depend on the existence of the identical cause of action in the other forum,' nor on identical remedies." Norex Petroleum, Ltd., 416 F.3d at 158 (quoting PT United Can Co. v. Crown Cork Seal Co., 138 F.3d 65, 74 (2d Cir. 1998)).
Petrobrás states that it "is amenable to service of process in Brazil, and, in any event, will consent to the jurisdiction of the appropriate Brazil[ian] court." (Def. Br. 16) The prosecution of numerous actions against Petrobrás on the bonds at issue clearly evidences that Brazilian courts "permit[] litigation of the subject matter of the dispute." See Norex Petroleum, Ltd., 416 F.3d at 157. (See Def. Exs. 6-13) Plaintiffs, while not conceding that Brazil is an adequate alternative forum, present no arguments to the contrary. (Pltf. Br. 20) Accordingly, based on the record thus far, this Court concludes that Brazilian courts would provide an adequate alternative forum for the current actions.
Courts "will not dismiss for forum non conveniens . . . merely because an adequate alternative forum exists," however. Ancile, 2009 WL3049604, at *7. Instead, an analysis of various private and public factors must be conducted.
C. The Public and Private Interest Factors Do Not Favor Dismissal
The final step in a forum non conveniens analysis is to balance factors of private and public interest. Private interest factors include: "(1) ease of access to evidence; (2) the availability of compulsory process for the attendance of unwilling witnesses; (3) the cost of willing witnesses' attendance; (4) if relevant, the possibility of a view of premises; and (5) all other factors that might make the trial quicker or less expensive." DiRienzo v. Philip Servs. Corp., 294 F.3d 21, 29-30 (2d Cir. 2002) (citingGilbert, 330 U.S. at 508); see also Iragorri, 274 F.3d at 73-74. Public interest factors include: "(1) administrative difficulties associated with court congestion; (2) the unfairness of imposing jury duty on a community with no relation to the litigation; (3) the `local interest in having localized controversies decided at home;' and (4) avoiding difficult problems in conflict of laws and the application of foreign law." DiRienzo, 294 F.3d at 31 (quoting Gilbert, 330 U.S. at 508-09); see also Iragorri, 274 F.3d at 74. 1. Private Interest Factors
In considering the private interest factors, "`the court should focus on the precise issues that are likely to be actually tried, taking into consideration the convenience of the parties and the availability of witnesses and the evidence needed for the trial of these issues.'" Monegasque De Reassurances S.A.M. v. Nak Naftogaz of Ukraine, 311 F.3d 488, 500 (2d Cir. 2002) (quotingIragorri, 274 F.3d at 74). Petrobrás argues that "[a]ccess to proof is a particular problem," because Brazil has not signed either of the two international conventions regarding evidence in civil and commercial matters. (Def. Br. 18). Because these actions involve a contract dispute, however, the primary physical evidence at issue is the bonds themselves, which are already in the record and translated into English. The parties do not argue that the bonds are ambiguous on their face or that this Court will require extrinsic physical evidence — other than Brazilian case law — to interpret them. See, e.g., J.A. Apparel Grp. v. Abboud, 569 F.3d 390, 396-97 (2d Cir. 2009). To the extent Petrobrás intends to offer additional physical evidence, such as company records and communications, it has not explained what obstacles exist to presenting such materials in this Court.
Hague Convention on Service Abroad of Judicial and Extra Judicial Documents in Civil and Commercial Matters, November 15, 1965, 20 U.S.T. 361, 658 U.N.T.S. 163; Hague Convention on the Taking of Evidence Abroad in Civil and Commercial Matters, March 18, 1970, 23 U.S.T. 2555, 847 U.N.T.S. 231.
Petrobrás has indicated that it may seek testimony from current and former employees and from bondholders who have attempted to redeem or convert, the majority of whom reside in Brazil. (Def. Br. 17; Reply 7-8) Plaintiffs note, however, that Petrobrás has not identified any specific witnesses in Brazil, and that the Company presumably could compel the testimony of its own employees. (Opp. at 22)
It also appears that testimony of relevant witnesses could be taken in Brazil for use in litigation in New York. While U.S. attorneys are not permitted to take depositions in Brazil, depositions for use in foreign courts may be conducted before Brazilian judicial authorities. (Petrobras Ex. 15 at 1 (U.S. Dep't of State, Brazil Judicial Assistance)) Defendant presumably has Brazilian counsel who could conduct whatever depositions are required. Letters rogatory are also an available discovery device. In sum, consideration of access to witnesses and evidence, and the cost associated with obtaining relevant evidence, does not clearly favor dismissal.
The Court also considers the convenience of the parties in assessing the private interests at stake. See Monegasque De Reassurances S.A.M. v. Nak Naftogaz (In re Monegasque De Reassurances S.A.M.), 311 F.3d 488, 500 (2d Cir. 2002). Petrobrás argues that "individuals having acquired the bonds second or third hand[] could have no reasonable expectation that disputes concerning the bonds would be resolved anywhere than the courts of Brazil." (Def. Br. 14) Petrobrás appears to be arguing that it could not have foreseen defending an action on the bonds in the United States, and that being forced to do so would be unreasonable. This argument, however, does not address the convenience or inconvenience of defending this action in New York. As noted above, Petrobrás has ample financial resources and has already retained competent U.S. counsel. While defending these actions in New York will involve some expense, Petrobrás has not suggested that it will experience any real inconvenience. Plaintiffs, on the other hand, have credibly stated that they are without sufficient financial resources to prosecute these actions in Brazil and have no familiarity with or contacts in Brazil. (Rogers Decl. ¶¶ 4-5; Burlew Decl. ¶¶ 4-5; see Pltf. Br 16) The expense and inconvenience Defendant will incur in litigating these actions in New York is far outweighed by the expense and inconvenience Plaintiffs would face if forced to litigate their claims in Brazil. See Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 107 (2d Cir. 2000) ("the additional cost and inconvenience to the defendants of litigating in New York is fully counterbalanced by the cost and inconvenience to the plaintiffs of requiring them to reinstitute the litigation in England — especially given the plaintiffs' minimal resources in comparison to the vast resources of the defendants. These considerations cannot justify overriding the plaintiffs' choice of forum.").
Petrobrás notes that the bonds "were created under Brazilian law and issued in Brazil some 50 years ago to individuals possessing certificates evidencing payment of the compulsory annual fee paid by automobile owners in Brazil between 1954 and 1957," and that "[t]he bonds were issued in Brazil, are written in Portuguese, and reference Brazilian law concerning, inter alia, requirements to exercise conversion rights." (Def. Br. 14)
Finally, Petrobrás argues that its inability to implead third-party defendants, namely the State of Brazil, weighs in favor of dismissal. (Def. Br. 18). According to the terms of the bonds and the law governing them, however, Brazil is already jointly liable for their nominal value as a matter of law and contract. (Petrobrás Ex. 1 (Series 1 Bearer Bond) 3 (Series 4 Bearer Bond); Ex. 5 (Brazil Law No. 2.004 (Oct. 3, 1953)) Thus, Brazil has explicitly assumed liability for the bearer bonds held by Plaintiffs. See Matthews v. CTI Container Transport Int'l, Inc., 871 F.2d 270, 281-82 (2d Cir. 1989) (holding that foreign state entity waived its right under FSIA to a non-jury trial where it had agreed to indemnify a third party for all liability). In any event, Petrobrás could file a separate indemnification action in Brazil and thus avoid the issue altogether.
2. Public Interest Factors
The first public interest factor — administrative difficulties associated with court congestion — favors neither forum. While "this Court can accommodate these cases on its calendar . . . there is no indication of significant court congestion in . . . the Brazilian courts." In re Air Crash near Peixoto De Azeveda, Brazil on September 29, 2006, 574 F. Supp. 2d. 272, 288 (E.D.N.Y. 2008). Petrobrás bears the burden as movant to establish that court congestion weighs in favor of dismissal. Where, as here, the congestion factor recommends neither forum, the Court favors the non-movant's choice of forum. See Kimberly-Clark Corp. v. Continental Cas. Co., No. 3:05 Civ. 0475, 2005 WL 2679698, at *6 (N.D. Tex. Oct. 19, 2005).
The second and third public interest factors involve the unfairness of imposing jury duty on U.S. residents with no interest in Brazilian controversies, and the value in having local interests control the outcome of local controversies. See DiRienzo v. Philips Servs. Corp., 294 F.3d 21, 31 (2d Cir. 2002). Petrobrás argues that Brazil's interest predominates, since the bonds "were created pursuant to Brazilian law" and were "issued by a Brazilian corporation in which the government of Brazil owns [a] majority." (Def. Br. 19, see Reply 8) "United States courts have an interest in adjudicating matters affecting [U.S.] residents," however. Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 107 (2d Cir. 2000). Under these circumstances, the two fora have counter-balancing interests, and these factors are neutral.
The final public interest consideration — which relates to the need to resolve conflict of laws and foreign law issues — favors dismissal, because foreign state substantive law will likely control here. "New York's choice of law rules require that determination of contract disputes be governed generally by the laws of the state with the most significant contacts to the contract." Schwimmer v. Allstate Ins. Co., 176 F.3d 648, 650 (2d Cir. 1999); Brink's Ltd., v. S. Afr. Airways, 93 F.3d 1022, 1030 (2d Cir. 1996). "In contract cases, New York courts now apply a `center of gravity' or `grouping of contacts' approach" which considers "the place of contracting, the places of negotiation and performance, the location of the subject matter, and the domicile or place of business of the contracting parties."Brink's Ltd., 93 F.3d at 1030-31 (internal citations omitted). Given that the bonds are written in Portuguese, denominated in cruzeiros, and were originally issued to Brazilian automobile owners, it is evident that the initial place of contracting and the place of negotiation and performance is Brazil. (See Def. Br. 14). Furthermore, Petrobrás' principal place of business is in Brazil. (Id. at 17) Since neither of the Plaintiffs reside or are domiciled in New York, Brazil has a more compelling interest than New York in having its law apply. (See Cmplt. ¶ 1)
Plaintiffs do not dispute that Brazilian law applies to these actions.
"`[T]he need to apply foreign law is not in itself a reason to apply the doctrine of forum non conveniens' . . . and [courts] must guard against an excessive reluctance to undertake the task of deciding foreign law, a chore federal courts must often perform." Manu Intern., S.A. v. Avon Products, Inc., 641 F.2d 62, 67-68 (2d Cir. 1981) (quoting Olympic Corporation v. Societe Generale, 462 F.2d 376, 379 (2d Cir. 1972)).
Analysis of the private and public interest factors indicates that the great deference due Plaintiffs' choice of forum is not overcome here. Accordingly, this Court will not exercise its discretion to dismiss these actions for forum non conveniens.
III. THE BEARER BONDS' TERMS DO NOT REQUIRE DISMISSAL
Defendant also argues that this Court is required to dismiss these actions for failure to state a claim under Fed.R.Civ.P. 12(b)(6), because claims similar to those raised by Plaintiffs have been rejected in numerous Brazilian court decisions. The evidence currently before this Court, however — including the declarations of Luiz Carolos Sturzenegger, Celio de Oliveira Borja, and Patrick J. Hurford, and translated copies of several Brazilian court opinions — is insufficient to demonstrate that Plaintiffs' claims are foreclosed as a matter of law. Indeed, the parties' declarations concerning Brazilian law and case citations contradict each other. (Compare Lustosa Decl. ¶¶ 3-4 with Borja Decl. ¶¶ 7-8) Moreover, the Brazilian precedents provided to this Court do not involve parties such as Plaintiffs, who bought bonds second-hand decades after original issue and in another country, and thus cannot be said to have sat on their rights.
In its moving papers, Defendant also argues that "plaintiffs' claims are untimely on the face of the complaints," because of New York's six-year statute of limitations for breach of contract. (Def. Br. 21-22) Defendant incorrectly argues, however, that the limitation period began to run from the maturity dates of the bonds — December 31, 1977, 1979 and 1980 — rather than the date the action accrued according to the facts pleaded in the Complaints. The Complaints clearly allege that Defendant's breach occurred on June 25, 2009, when Petrobrás refused Plaintiffs' conversion requests, giving Plaintiffs until 2015 to assert breach claims. Defendant drops this argument in its Reply Brief. (Reply 9-10)
Furthermore, it is hardly self-evident from the language of the bonds that Plaintiffs' conversion rights are tied to the maturity dates specified for redemption. The relevant language from the bonds states:
1
st) Redemption as from January 1, 1958, so that it is fully paid up on December 31, 1977;
. . . .
6
th) Petroleo Brasileiro S.A. — Petrobrás entitles to the holder of this obligation the option for receiving preferred nominative shares without voting rights, after the bond party meets the requirements of the Corporation Law and Section 18 of Law No. 2004 of October 3, 1953.
(Hurford Decl., Ex. 1)
The parties agree that — except for the dates of redemption set forth in the first clause — each series of bond contains identical language. (Opp. at 10 n. 5)
Defendant argues that these clauses should be read together, and that "[t]he right to convert the Petrobras Series 1, Series 3 and Series 4 bearer bonds at issue[] into preferred shares of Petrobras existed only during the applicable redemption periods." (Def. Br. 21) The plain language of the bond requires no such interpretation, however. Defendant was free to place an explicit time limit on the conversion right — as it did with the redemption right — but failed to do so. In sum, the plain language of the bonds presents no obvious bar to Plaintiffs' claims.
The Court also requires additional briefing on the question of whether Brazilian law controls all aspects of these actions. As a court in the Northern District of New York has recently summarized:
"The general rule appears established that for the purpose of deciding whether to apply local law or foreign law, statutes of limitations are classified as `procedural.'"
Id. (citing Stumberg, Conflict of Laws 147 (1951); Lorenzen, Statutes of Limitation and the Conflict of Laws, 28 Yale L.J. 492 [1919]). "Hence the law of the forum controls."
Id. (citations omitted). "This rule has been criticized . . . [because] the foreign statute, unlike evidentiary and procedural details, is generally readily discovered and applied, and a difference in periods of limitation would often be expected to influence the choice of forum."
Id. (citations omitted). Nonetheless, "this general rule is firmly embedded in our law."
Id.
"But as might be expected, some legislatures and courts, perhaps recognizing that in light of the rationale of the underlying conflict-of-laws doctrine it is anomalous to classify across-the-board statutes of limitation as `procedural,' have created exceptions to the rule so categorizing such statutes."
Id. at 155. "A court-made exception, and the one with which we are concerned here, is that where the foreign statute of limitations is regarded as barring the foreign right sued upon, and not merely the remedy, it will be treated as conditioning that right and will be enforced by our courts as part of the foreign `substantive' law."
Id. (citation omitted);
Whisenhunt v. Sylvania Corp.,
671 F. Supp. 214, 216 (W.D.N.Y. 1987) ("An exception to this general rule exists when the right sued upon was created by a foreign statute under which the commencement of an action within a specified period is a condition precedent to securing relief.").
Rusyniak v. Gensini, 629 F. Supp. 2d 203, 232 (N.D.N.Y 2009) (quoting Bournias v. Atlantic Maritime Co., 220 F.2d 152, 154 (2d Cir. 1955)).
CONCLUSION
For the reasons stated above, Defendant's motions to dismiss (09-cv-8227, Dkt. No. 5; 09-cv-8228, Dkt. No. 7) are DENIED. The Clerk of the Court is directed to terminate these motions.
Dated: New York, New York
September 27, 2010
SO ORDERED.