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Conrad Shipyard, L.L.C. v. Franco Marine 1 LLC

United States District Court, E.D. Louisiana

January 3, 2020


         SECTION: “J” (1)

          ORDER & REASONS


         Before the Court is a Motion to Dismiss Third-Party Claim for Lack of Subject-Matter Jurisdiction, Personal Jurisdiction, or Forum Non Conveniens (Rec. Doc. 26), filed by Third-Party Defendant Harley Franco (“Franco”), an opposition thereto (Rec. Doc. 32) filed by Third-Party Plaintiff Harley Marine Services (“HMS”), and a reply (Rec. Doc. 43) filed by Franco. Additionally before the Court is a supplemental opposition (Rec. Doc. 45) furnished by HMS after a briefing order issued by the Court. Having considered the motion and legal memoranda, the record, and the applicable law, the Court finds the motion should be DENIED.


         HMS is a marine transportation company that provides clients with tug and barge services. Franco is the founder of HMS as well as, until March 2019, its Chairman, President, and CEO. Currently, HMS, via a derivative action brought by Macquarie Marine Services, LLC., is suing Franco in the Court of Chancery in Delaware for a wide swath of alleged activity including, amongst other things, misappropriation of assets, destruction of evidence, and coercing employees to engage in wrongful conduct. (Rec. Doc. 32-3). HMS is also suing Franco in Washington state court for breach of contract and breach of fiduciary duty. (Rec. Doc. 26-1 at p. 67). Franco, in turn, is suing HMS in Washington state court for wrongful termination, breach of contract, and defamation. (Rec. Doc. 26-1 at p. 111-14).

         The underlying cause of this action is the sale of two anchor-handling tugboats (the “Vessels”) by Conrad Shipyard, L.L.C. (“Conrad”) to Franco Marine 1, LLC (“FM1”) and Franco Marine 2, LLC (“FM2”, hereinafter referred to with FM1 as the “Franco LLCs”).[1] The Franco LLCs are wholly owned by Franco and were formed by him for the sole purpose of being the contracting parties for the purchase of the Vessels.

         Negotiations for purchase of the Vessels began when Franco reached out to Conrad to discuss HMS acquiring the vessels directly. Eventually, negotiations shifted to focus on Franco acquiring the Vessels himself, with the intention to then lease them to HMS for use. Franco formed the Franco LLCs to conduct this business. On September 12, 2017, while Franco was still in his position as head of HMS, the Franco LLCs and Conrad entered into Purchase Agreements for the sale of the Vessels.

         According to Conrad's allegations, the Franco LLCs ceased making the monthly payments required by the Purchase Agreements after five months of construction. As recompense, Conrad sold two winches in its possession that it believed belonged to the Franco LLCs based on representations made by the Franco LLCs in the Purchase Agreements. HMS, however, claims the winches were in fact its property.

         On June 3, 2019, Conrad commenced the present action by filing a complaint against the Franco LLCs for breach of contract arising out of the Purchase Agreements. Conrad also named HMS as a defendant in its breach of contract claim, despite HMS not being a party to the Purchase Agreements, under a “single business enterprise” theory. Furthermore, Conrad brought an additional claim for detrimental reliance claim against HMS alone, presumably in case its single business enterprise argument failed.

         On July 17, 2019, HMS filed the third-party claim against Franco that is the subject of Franco's present motion to dismiss. HMS seeks indemnification from Franco in the event HMS is found liable for the Franco LLCs breach of contract. The basis for HMS's claims is that Franco's negotiations with Conrad and subsequent purchasing of the Vessels via the Franco LLCs exceeded his authority as CEO and breached his fiduciary duty to HMS by misrepresenting HMS's role in the transaction. Specifically, HMS alleges that Franco exceeded his authority by (1) directing HMS employees to negotiate with Conrad regarding the Vessels and (2) by negotiating and interacting with Conrad himself in a manner that, according to Conrad, led Conrad to believe HMS was the true party-in-interest to the Purchase Agreements, not the Franco LLCs. None of the prior litigation between HMS and Franco addresses this particular alleged breach of fiduciary duty, i.e. Franco exceeding his authority during negotiations with Conrad and misrepresenting HMS's role in the Purchase Agreements.

         On September 13, 2019, Franco filed his Motion to Dismiss for Lack of Personal Jurisdiction, or in the alternative Forum Non Conveniens. In his reply to HMS's opposition, Franco raised, for the first time, an argument that the Court should dismiss HMS's third-party claim for lack of subject-matter jurisdiction. In the interest of fairness, the Court allowed HMS the opportunity to file supplemental briefing in opposition to Franco's arguments relating to the Court's lack of subject-matter jurisdiction.


         In deciding a motion to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), “the district court is ‘free to weigh the evidence and resolve factual disputes in order to satisfy itself that it has the power to hear the case.'” Krim v., Inc., 402 F.3d 489, 494 (5th Cir. 2005). The party asserting jurisdiction must carry the burden of proof for a Rule 12(b)(1) motion to dismiss. Randall D. Wolcott, M.D., P.A. v. Sebelius, 635 F.3d 757, 762 (5th Cir.2011). The standard of review for a motion to dismiss under Rule 12(b)(1) is the same as that for a motion to dismiss pursuant to Rule 12(b)(6). United States v. City of New Orleans, No. 02-3618, 2003 WL 22208578, at *1 (E.D. La. Sept. 19, 2003). If a court lacks subject matter jurisdiction, it should dismiss without prejudice. In re Great Lakes Dredge & Dock Co., 624 F.3d 201, 209 (5th Cir. 2010). When a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits. Hill v. City of Pasadena, 561 F.2d 606, 608 (5th. Cir. 1977) (per curiam)).

         Rule 12(b)(2) of the Federal Rules of Civil Procedure permits dismissal of a suit for lack of personal jurisdiction. “Where a defendant challenges personal jurisdiction, the party seeking to invoke the power of the court bears the burden of proving that jurisdiction exists.” Luv N'Care, Ltd. v. Insta-Mix, Inc., 438 F.3d 465, 469 (5th Cir. 2006). However, the plaintiff is not required to establish jurisdiction by a preponderance of the evidence; a prima facie showing is sufficient. Id. The court must accept the plaintiff's uncontroverted allegations and resolve all conflicts between the facts contained in the parties' affidavits and other documentation in favor of jurisdiction. Id.

         A federal court sitting in diversity must satisfy two requirements to exercise personal jurisdiction over a nonresident defendant. Pervasive Software Inc. v. Lexware GmbH & Co. KG, 688 F.3d 214, 220 (5th Cir. 2012). “First, the forum state's long-arm statute must confer personal jurisdiction. Second, the exercise of jurisdiction must not exceed the boundaries of the Due Process Clause of the Fourteenth Amendment.” Id. The limits of the Louisiana long-arm statute are coextensive with constitutional due process limits. Jackson v. Tanfoglio Giuseppe, SRL, 615 F.3d 579, 584 (5th Cir. 2010). Accordingly, the inquiry here is whether jurisdiction comports with federal constitutional guarantees. See id.

         The Due Process Clause of the Fourteenth Amendment guarantees that no federal court may assume personal jurisdiction of a non-resident defendant unless the defendant has certain “minimum contacts with [the forum state] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.'” Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citation omitted). The Supreme Court has recognized two types of personal jurisdiction: specific and general. Bristol-Myers Squibb Co. v. Superior Court, 137 S.Ct. 1773, 1779-80 (2017).[2]

         Specific jurisdiction is limited to “adjudication of issues deriving from, or connected with, the very controversy that establishes jurisdiction.” Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011) (internal quotation marks and citation omitted). To establish specific jurisdiction, a plaintiff must show that “(1) there are sufficient (i.e., not random fortuitous or attenuated) pre-litigation connections between the non-resident defendant and the forum; (2) the connection has been purposefully established by the defendant; and (3) the plaintiff's cause of action arises out of or is related to the defendant's forum contacts.” Pervasive Software, 688 F.3d at 221 (internal quotation marks and citation omitted). The defendant can then defeat the exercise of specific jurisdiction by showing that it would be unreasonable. Id. at 221-22.


         I. Whether the Court has Subject-Matter Jurisdiction Over HMS's Third-Party Claim

         Franco argues that HMS's third-party claim for indemnification is not yet ripe and therefore the Court must dismiss it for lack of subject-matter jurisdiction. The crux of Franco's lack of ripeness argument is that “the harm [can] not even occur until or unless an adverse judgment against HMS is entered.” (Rec. Doc. 43 at 3). HMS counters by arguing that despite the technical posture of its claim in indemnity, the true nature of its claim is tortious in nature, thereby differentiating it from the majority of “true” indemnity claims that are contractual or statutory in nature. Moreover, HMS argues that there is no support under either Washington or Louisiana law for the argument that an indemnity claim cannot be brought until after adjudication of the underlying suit.

         In general, a claim is “ripe if any remaining questions are purely legal ones; conversely, a case is not ripe if further factual development is required.” Chevron U.S.A. Inc., v. Traillour Oil Co., 987 F.2d 1138, 1153 (5th. Cir. 1993). To demonstrate that a claim is ripe, a litigant must show “the fitness of the issues for judicial decision, and (2) the hardship to the parties caused by withholding court consideration.” Window Specialists, Inc. v. Forney Enters, 26 F.Supp.3d 52 (D.D.C. 2014).

         Here, the true facts at issue are ready for judicial decision. Franco has already committed the acts that allegedly constitute a breach of his fiduciary duty. Conrad has already instituted suit against HMS based on those acts, undoubtedly causing HMS to incur legal fees and expenses. The fact that a determination of HMS's liability to Conrad has not yet occurred does not affect the Court's ability to find whether Franco breached his fiduciary duty to HMS.

         Furthermore, adjudicating this case without Franco here is akin to a missing seat at the table. A significant portion of this case will be dedicated to determining Franco's actions and deciding what legal significance to impart to them. Obtaining and interpreting crucial operative facts without Franco will increase the difficulty of properly assessing Conrad's claims and HMS's defenses, thereby causing the parties hardship. Franco's absence will cause further hardship as HMS will likely be forced to relitigate this case to some extent, expending even more in legal fees and costs.

         When it comes to indemnity claims specifically, courts use state law to determine whether an indemnity claim is ripe. Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 536-37 (5th. Cir. 2004).

         Franco argues that the Court should use Washington law to analyze the ripeness of an indemnity claim in this case. Despite not stating so explicitly, Franco likely premises this argument on the fact that HMS's breach of fiduciary claim will be analyzed under Washington law. However, “the body of law that governs a claim for indemnity or contribution usually is the same body of law that establishes the indemnitee's primary liability to the plaintiff.” Hardy v. Gulf Oil Corp., 949 F.2d 826, 830 n.7 (5th. Cir. 1992) (citing Marathon Pipe Line Co. v. Drilling Rig Rowan/Odessa, 761 F.2d 229, 235 (5th Cir.1985)). Here, Conrad's claims against HMS, the claims that would establish HMS's liability, are governed by Louisiana law. (Rec. Doc. 26-1 at p. 38). Regardless, under either Washington or Louisiana law, HMS's third-party indemnity claim is ripe.

         A. Louisiana Law

         In Suire v. Lafayette City-Parish Consolidated Government, 04-1459, 04- 1460, 04-1466 (La.4/12/05), 907 So.2d 37, 51, the Louisiana Supreme Court held that “an indemnitor is not liable under an indemnity agreement until the indemnitee actually makes a payment or sustains losses.” Id. Crucially, the Suire court's holding focused on when an indemnitor became liable, not when the indemnitee's claim became ripe. Subsequent Louisiana jurisprudence clarifies that “there is a distinction between the right to ‘claim' indemnity and the right to ‘collect' indemnity.” Reggio v. E.T.I., 07-1433, p. 11 (La.12/12/08), 15 So.3d 951, 960 (Weimer, J., concurring); see Pizani v. St. Bernard Parish, 2012-1084 (La.App. 4 Cir. 9/26/13), 125 So.3d 546, 553; Dean v. Entergy La., L.L.C., 10-887 (La.App. 5 Cir. 10/19/2010), 2010 WL 9447498 at *4 (unpublished).

         Although the right to collect indemnity does not accrue until the underlying dispute is settled, the right to claim indemnity via impleader before adjudication of the underlying dispute is “consistent with the legislative history and purpose of La. C.C.P. art 1111.” Pizani, 2012-1084 at p. 10, 125 So.2d at 553 (citing Moreno v. Entergy Corp., 10-2268, p. 5 (La.2/18/11), 64 So.3d 761, 765-66) (Victory, J., concurring).[3] This is consistent with the purpose of the impleader procedure, which is to “avoid multiple lawsuits; to facilitate and expedite the trial of litigation; and, wherever possible, consistent with the orderly procedure and due regard ...

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