Butorin ex rel. KBR Inc. v. Blount

106 F. Supp. 3d 833, 2015 U.S. Dist. LEXIS 160505
CourtDistrict Court, S.D. Texas
DecidedMarch 31, 2015
DocketCIVIL ACTION H-14-1471
StatusPublished
Cited by4 cases

This text of 106 F. Supp. 3d 833 (Butorin ex rel. KBR Inc. v. Blount) is published on Counsel Stack Legal Research, covering District Court, S.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Butorin ex rel. KBR Inc. v. Blount, 106 F. Supp. 3d 833, 2015 U.S. Dist. LEXIS 160505 (S.D. Tex. 2015).

Opinion

Memorandum Opinion & Order

Gray H. Miller, United States District Judge

Pending before the court is a motion to dismiss filed by defendants Frank Blount, Loren Carroll, Jeffrey Curtiss, Linda Cook, Lester Lyles, Jack Moore, Richard Slater, John Huff, and William Utt (collectively, the “Board”), and nominal defendant KBR, Inc. (“KBR”). Dkt. 13. Plaintiff Pavel Butorin, a shareholder of KBR, brings this derivative action on behalf of KBR. Dkt. 12. After considering the amended verified complaint, motion to dismiss, response, reply, and the applicable law, the court is of the opinion that the motion (Dkt.13) should be DENIED but that the court should sua sponte TRANSFER the case to the United States District Court in the District of Delaware.

I. Background

Butorin brought this claim derivatively for the benefit of KBR against the Board and nominal defendant KBR (collectively, “Defendants”) for breach of fiduciary duties, abuse of control, violations of section 14 of the Securities and Exchange Act of 1934, and unjust enrichment. Dkt. 12. Butorin contends that KBR’s financial reports showed steady profits from certain Canadian contracts in 2013 when there were actually large undisclosed losses from those contracts. Id. Butorin alleges that Defendants were presented with facts showing KBR’s internal controls relating to accounting for these contracts were inadequate repeatedly in 2013, but KBR did not disclose it publicly until an independent auditor identified weaknesses. Id. KBR restated its financial statements in May 2014 and, according to Butorin, admitted that it had violated Generally Accepted Accounting Principles resulting in an artificial inflation of KBR’s operating income in its Services segment by over 500%, and an overstatement of KBR’s net income by over 300% during the third quarter, 200% in the fourth quarter, and over 60% for the entire year. Id. Butorin contends that KBR has been, and will continue to be, severely damaged and injured by Defendants’ misconduct. Id.

Two days before the public disclosure regarding material weaknesses, the Board enacted a bylaw relating to the forum in which certain types of lawsuits could be brought. Dkt. 14. Article VI, section 6 of KBR’s bylaws states:

Exclusive Forum. Unless the Corporation consents in writing to selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of fiduciary duty owed by any director or officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, ... shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware.)

Dkt. 13, Ex. 1, art. VI § 6 (hereinafter, the “Forum Selection Bylaw”).

Defendants move to dismiss all of Butorin’s claims based on the doctrine of forum non conveniens, arguing that both federal law and Delaware law dictate that the Forum Selection Bylaw be enforced, which in turn requires that Butorin’s derivative claims be heard in state court in Delaware. Dkt. 13. Defendants contend that Butorin became contractually bound by KBR’s bylaws when he purchased KBR stock. Id. Butorin argues, on the other hand, that the [836]*836Forum Selection Bylaw is unenforceable and invalid and that, regardless, since there is a federal claim over which federal courts have exclusive jurisdiction, the Delaware state courts have no jurisdiction and the clause may not operate to deprive Butorin and KBR of a federal forum for the federal claim. Dkt. 14.

II. Legal Standard

“[T]he appropriate way to enforce a forum-selection clause pointing to a state or foreign forum is through the doctrine of forum non conveniens.” Atl. Marine Constr. Co., Inc. v. U.S. Dist. Court for the W. Dist. of Tex., — U.S. -, 134 S.Ct. 568, 580, 187 L.Ed.2d 487 (2013). The appropriate way to enforce a forum selection clause pointing to another federal forum is through a motion to transfer venue pursuant to 28 U.S.C. § 1404(a). Id. “Section 1404(a) is merely a codification of the doctrine of forum non conveniens for the subset of cases in which the transferee forum is within the federal court system; in such cases, Congress has replaced the traditional remedy of outright dismissal with transfer.” Id. Section 1404 and the forum non conveniens doctrine “entail the same balancing-of-interests standard, [and] courts should evaluate a forum-selection clause pointing to a nonfederal forum the same way that they evaluate a forum-selection clause pointing to a federal forum.” Id.

Whether a forum selection clause is enforceable is determined according to federal law. Alliance Health Grp., LLC v. Bridging Health Options, LLC, 553 F.3d 397, 399 (5th Cir.2008). “A forum selection provision in a written contract is prima facie valid and enforceable unless the opposing party shows that enforcement would be unreasonable.” Kevlin Servs., Inc. v. Lexington State Bank, 46 F.3d 13, 15 (5th Cir.1995); see also Calix-Chacon v. Global Int’l Marine, Inc., 493 F.3d 507, 511 (5th Cir.2007) (noting that a forum selection clause is not enforceable if it is “fundamentally unfair and therefore unreasonable”). The party opposing enforcement bears the heavy burden of making a “ ‘strong showing’ that the clause is unreasonable.” Marinechance Shipping, Ltd. v. Sebastian, 143 F.3d 216, 220 (5th Cir.1998). There are four bases for determining that a forum selection clause is unreasonable:

(1) the incorporation of the forum selection clause into the agreement was the product of fraud or overreaching; (2) the party seeking to escape enforcement ‘will for all practical purposes be deprived of his day in court’ because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law will deprive the plaintiff of a remedy; or (4) enforcement of the forum selection clause would contravene a strong public policy in the forum state.

Haynsworth v. The Corporation, 121 F.3d 956, 963 (5th Cir.1997) (citing Carnival Cruise Lines v. Shute, 499 U.S. 585, 595, 111 S.Ct. 1522, 113 L.Ed.2d 622 (1991), and M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12-13, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972)).

If the court determines a forum selection clause is valid and enforceable, the clause should be “given controlling weight in all but the most exceptional cases.” Stewart Org., Inc. v. Ricoh Corp.,

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Cite This Page — Counsel Stack

Bluebook (online)
106 F. Supp. 3d 833, 2015 U.S. Dist. LEXIS 160505, Counsel Stack Legal Research, https://law.counselstack.com/opinion/butorin-ex-rel-kbr-inc-v-blount-txsd-2015.