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Pipeline Productions, Inc. v. Horsepower Entertainment

United States District Court, D. Kansas

February 22, 2017

PIPELINE PRODUCTIONS, INC., et al., Plaintiffs,
v.
HORSEPOWER ENTERTAINMENT, et al., Defendants.

          MEMORANDUM AND ORDER

          Kathryn H. Vratil United States District Judge

         On May 21, 2015, Pipeline Productions, Inc. and Backwood Enterprises, LLC filed this lawsuit against Horsepower Entertainment and The Madison Companies, LLC. Plaintiffs assert state law claims for breach of contract and breach of fiduciary duty related to a joint venture to produce music festivals.[1] Defendants contend that they did not enter a joint venture but merely loaned plaintiffs $270, 000 to fund a music festival in Arkansas. This matter comes before the Court on Defendants' Motion To Dismiss Plaintiffs' Complaint Or Alternatively Transfer To The District Of Delaware (Doc. #6) filed June 27, 2015. For reasons set forth below, the Court finds that defendants' motion should be overruled.

         Legal Standards

         A party may seek to enforce a forum selection clause by filing a motion to transfer under 28 U.S.C. § 1404(a). Atl. Marine Constr. Co. v. U.S. Dist. Ct. for W. Dist. of Tex., 134 S.Ct. 568, 579 (2013). Section 1404(a) provides as follows:

For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented.

28 U.S.C. § 1404(a) (2012). In the typical case which does not involve a forum selection clause, a district court considering a motion to transfer under Section 1404(a) must evaluate both the convenience of the parties and various public-interest considerations. Atl. Marine Constr. Co., 134 S.Ct. at 581. Ordinarily, a district court weighs the relevant factors and decides whether, on balance, a transfer would serve “the convenience of parties and witnesses” and otherwise promote “the interest of justice.” Id. The calculus changes, however, when the parties' contract contains a valid forum selection clause, which represents the parties' agreement as to the most proper forum. Id. (citing Stewart Org. v. Ricoh Corp., 487 U.S. 22, 31 (1988)). Courts should give a valid forum selection clause controlling weight in “all but the most exceptional cases.” Atl. Marine Constr. Co., 134 S.Ct. at 581 (internal citation omitted).

         Procedural And Factual Background

         Pipeline Productions, Inc. is a Kansas corporation with its principal place of business in Lawrence, Kansas. Backwood Enterprises, LLC is an Arkansas limited liability corporation with its principal place of business in Lawrence, Kansas. Pipeline and Backwood (collectively, “Pipeline”) produce live music and music festivals. Brett Mosiman and Nathan Prenger conduct business for Pipeline and related entities, including OK Productions.[2]

         The Madison Companies, LLC is a Delaware limited liability company with its principal place of business in Greenwood Village, Colorado. Horsepower Entertainment, a Delaware limited liability company, is a wholly- owned subsidiary of Madison with its principal place of business in Greenwood Village, Colorado. Madison and Horsepower (collectively, “Horsepower”) are in the business of providing venture capital.

         In 2014, on behalf of Pipeline, Mosiman and Prenger negotiated with Horsepower concerning a potential joint venture to produce music festivals. On July 28, 2014, the parties executed a Letter of Intent (“LOI”) which summarizes a possible investment by Horsepower in Pipeline Festivals, LLC, a to-be-formed Delaware limited liability company. Doc. #8-1. The LOI refers to Mosiman, Prenger, Pipeline Productions, Inc., OK Productions and affiliates collectively as the “Pipeline Parties, ” the “PPI Parties” or “PPI Entities.” The LOI provides that Pipeline Festivals, LLC will commence operations upon “(i) the contribution by the Pipeline Parties of substantially all of the assets, free and clear of all liabilities, of Pipeline Production, Inc.'s musical festival business to Pipeline Festivals LLC and (ii) the funding by Horsepower of certain payments to the Pipeline Parties, certain initial capital contributions to Pipeline Festivals, LLC and Horsepower's commitment to make further capital contributions to Pipeline Festivals [LLC].” Id. at 1. The LOI provides that the Pipeline Parties will issue equity interests to Horsepower and that in exchange, Horsepower will make up to $6, 560, 000 in payments and investments. Id.

         The LOI further states that “[a]s soon as practicable after execution of the LOI, the parties shall commence to negotiate definitive agreements . . . to evidence the Transaction, ” and that “[t]he Definitive Agreements will include such terms and conditions as may be acceptable to all of the Parties.” Id. at ¶ 8. The LOI includes a choice of law and forum selection clause which provides that all disputes “arising from or related to” the LOI must be litigated in Delaware, as follows:

Governing Law; Venue. This letter shall be governed by and construed in accordance with internal laws of the State of Delaware . . . . The U.S. Federal Court for Delaware and Delaware state courts having jurisdiction shall be the exclusive venues for any litigation arising from or related to this Agreement.

Id. at ¶ 16.

         The LOI provides that it “will automatically terminate and be of no further force and effect upon the earlier of (i) execution of the Definitive Agreements by the Parties, (ii) mutual agreement of the Parties, and (iii) November 1, 2014.” Id. at ¶ 14. It provides, however, that the choice of law and venue clause shall survive termination of the LOI. Id.

         The Delaware Lawsuit

         On April 15, 2015, Horsepower filed suit in Delaware Chancery Court against Pipeline Productions, Inc., Mosiman and Prenger. Horsepower sought a declaratory judgment that (1) the LOI did not create any obligation for Horsepower regarding production of the Thunder Mountain Festival in Arkansas (Count 1) and (2) Pipeline Productions, Inc., Mosiman and Prenger were obligated to repay Horsepower a $270, 000 loan to produce the festival (Count 2). Horsepower also asserted that defendants breached a loan contract and thus owed Horsepower $270, 000 plus interest (Count 3). Horsepower asserted that based on the LOI, which provides exclusive jurisdiction in Delaware, the Delaware Chancery Court had personal jurisdiction over defendants.

         On May 14, 2015, Pipeline removed the case to the United States District Court for the District of Delaware (the “Delaware court”), asserting diversity jurisdiction. See Madison Cos. v. Backwood Enters., No. 15-cv-388-RGA (D. Del. 2015) (“Madison”).[3] Pipeline moved to dismiss the claims for lack of jurisdiction or, alternatively, to transfer the claims to the United States District Court for the District of Kansas where (by then) this action was pending. Specifically, Pipeline asserted that the Delaware court lacked subject matter jurisdiction over the declaratory judgment claim in Count I and lacked personal jurisdiction over the remaining claims, as follows:

         Defendants will show that the first claim - for a declaration that no duties or

obligations arise under the LOI - must be dismissed because this Court lacks subject matter jurisdiction. The claim is not justiciable because there is no real dispute or controversy between the parties. The second and third claims - for declaratory judgment, and a money verdict on a loan agreement - must be dismissed for lack of personal jurisdiction because there are no sufficient minimum contacts between the parties, the claims asserted against them, and Delaware.

See Doc. #8 in Madison at 5-6. Pipeline argued that Horsepower had brought the declaratory judgment claim in an attempt to establish personal jurisdiction over Pipeline to enforce an underlying loan agreement, as follows:

[Horsepower] does not claim, and cannot claim that the alleged loans were made under the terms of the LOI. But without the LOI, and application of its forum selection clause, [Horsepower] cannot bring suit to prove and enforce a loan in Delaware. To solve this problem [Horsepower] manufactures a dispute over the LOI that simply does not exist.

Id. at 8. Pipeline stated that “[i]n its first cause of action [Horsepower] asks the Court to declare that the LOI is a dead letter, and that no rights or obligations can arise from it.” Id. at 9. Pipeline then asserted that “there cannot be a controversy when [Horsepower]'s opponent, Pipeline, agrees.” Id.

         In its response brief and at the hearing on the motion, Horsepower argued that the declaratory judgment claim in Count 1 was not as limited as Pipeline asserted. Horsepower argued that it presented a justiciable controversy because the declaratory judgment claim sought not only a declaration regarding the enforceability of the LOI, but also a declaration regarding the parties' commercial relationship as it related to the Thunder Mountain Festival. See, e.g., Doc. #25 in Madison at 27.

         On December 4, 2015, the Delaware court granted Pipeline's motion to dismiss.[4] With respect to the declaratory judgment claim (Count 1), the Delaware court did not rule whether it had personal jurisdiction over Pipeline.[5] Rather, it dismissed the declaratory judgment claim for lack of subject matter jurisdiction, stating as follows:

[I]n my opinion seeking declaratory relief to somehow or other interpret a contract or the Letter of Intent when we're agreed it has no [prospective] effect, because it's expired, then there is - and there's no claim that it was breached, means ...

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