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Quasar Energy Group LLC v. WOF SW GGP 1 LLC

United States District Court, D. Arizona

November 27, 2018

QUASAR ENERGY GROUP LLC, Plaintiff,
v.
WOF SW GGP 1 LLC, Defendant.

          REPORT AND RECOMMENDATION

          Eric J. Markovich United States Magistrate Judge.

         Pending before the Court is Defendant's Motion to Dismiss or, in the Alternative, Stay. (Doc. 14). Pursuant to the Rules of Practice of this Court, this matter was referred to the undersigned for a Report and Recommendation. (Doc. 23). The motion has been fully briefed, and the Court heard oral argument from the parties on November 15, 2018. For the reasons stated below, the Magistrate Judge recommends that the District Court enter an ordering granting Defendants' Motion to Dismiss.

         I.FACTUAL AND PROCEDURAL BACKGROUND

         Plaintiff quasar energy group, llc (“Quasar”) filed this action on July 23, 2018 alleging claims against Defendant WOF SW GGP 1 LLC (“WOF”) for breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, and unjust enrichment. (Doc. 1). The basis of the parties' dispute concerns two contracts: a Design-Build Agreement and General Conditions Between Owner and Design-Builder (“Design-Build Agreement”), whereby WOF would pay Quasar to construct an anaerobic digestion facility, and an Operations and Maintenance Management Services Agreement (“O&M Agreement”), whereby WOF would pay Quasar to manage and operate the project. (Doc. 1 at 3-4). While Quasar alleges that the parties entered both agreements on April 5, 2017 (Doc. 1 at 4 ¶¶ 12-13), WOF states that the parties entered the Design-Build Agreement on April 5, 2017 and the O&M Agreement on April 19, 2017 (Doc. 14 at 2).

         Quasar alleges that WOF refused and substantially delayed, without reasonable justification, to provide certain items for the project, including water and seed sludge, and that because of WOF's delay, Quasar was delayed in discovering leaks in the storage tanks and timely completing its work under the Design-Build Agreement. (Doc. 1 at 5-6). Quasar further alleges that WOF requested that Quasar install a redundant flare and blower system that was not part of the original scope of work. Id. at 6 ¶ 22. Quasar provided WOF with a proposal for the cost of the system plus construction and design costs, but alleges WOF failed to timely approve the purchase. Id. at 7 ¶ 23; 9 ¶¶ 28-29. Quasar also states that in April 2018, it sent notices to WOF for failure to make timely payments for work performed, but that WOF did not make payment until May 18, 2018. Id. ¶¶ 30-31.

         On May 21, 2018, WOF sent notice that Quasar was not supplying qualified workers to complete the project, and Quasar responded with assurances as to the worker's qualifications and the safety of the project. Id. ¶¶ 35-36. Quasar requested to meet with WOF pursuant to the dispute resolution provisions of the Design-Build Agreement, but WOF ignored the request. Id. ¶¶ 36, 38-39. On May 28, 2018 WOF sent a second notice to cure, and Quasar responded that it was WOF's failure to timely provide necessary materials and approvals that prevented Quasar's timely completion of the project. Id. ¶¶ 41-42.

         On May 31, 2018 WOF claimed Quasar had defaulted under the O&M agreement by failing to meet deadlines under the Design-Build Agreement and that Quasar had misappropriated WOF funds. Id. ¶ 44, 46. Quasar alleges WOF wrongfully terminated the O&M Agreement without engaging in the dispute resolution process and without giving the 120 days' notice required by the contract. Id. ¶¶ 46, 48. Quasar contacted a mediator, but WOF responded that mediation was premature because the parties needed to conduct direct discussions. Id. ¶¶ 50-51. On June 12, 2018 WOF terminated the Design-Build Agreement, alleging that Quasar failed to perform and failed to make corrections following notice of breach of provisions of the contract. Id. ¶ 54.

         Quasar alleges that WOF failed to timely and in good faith provide the materials and approvals obligated under the Design-Build Agreement that Quasar needed to timely complete the construction. Id. ¶¶ 56-57. Quasar further alleges that WOF terminated the O&M Agreement for the purpose of securing Quasar's employees and to avoid paying Quasar. Id. ¶ 59.

         On July 19, 2018 the parties participated in mediation of all disputes under both agreements. (Doc. 20 at 3). On that same date, WOF filed a complaint against Quasar in the Circuit Court of the State of Oregon seeking declaratory relief; specifically, WOF requested a court order stating that it rightfully terminated the O&M Agreement and that it had no obligation to pay Quasar. (Doc. 14-2 at 6-7). On August 9, 2018 Quasar removed the case to the United States District Court of Oregon, Portland Division. (Doc. 14 at 2-3). On August 10, 2018 Quasar filed a Motion to Dismiss, or in the Alternative, Transfer or Stay the Oregon suit, claiming an exception to the first to file rule. (Doc. 21 at 2). On August 23, 2018, WOF filed a motion to remand the suit back to Oregon state court based on the waiver provision of the forum selection clause in the O&M Agreement. Id.[1]

         On July 23, 2018 Quasar filed its Complaint in this Court alleging breach of both the Design-Build Agreement and the O&M Agreement. The Complaint states five claims for relief: One, breach of the Design-Build Agreement; Two, breach of the O&M Agreement; Three, breach of the implied covenant of good faith and fair dealing; Four, promissory estoppel; and Five, unjust enrichment. (Doc. 1). Quasar states that it filed its suit before being served or otherwise notified of WOF's Oregon suit. (Doc. 20 at 3).

         On August 21, 2018, WOF filed its Motion to Dismiss or, in the Alternative, Stay the Arizona suit. (Doc. 14). WOF states that it properly filed the Oregon suit to resolve claims relating to the O&M Agreement and that Quasar is improperly attempting to combine litigation of the O&M Agreement and the Design-Build Agreement. (Doc. 14 at 4). WOF claims that “Quasar seeks to litigate the O&M Agreement and Design-Build Agreement together in Arizona, without regard to the first-to-file rule, the O&M's forum-selection clause, and despite the fact that the O&M Agreement and Design-Build Agreement are separate contracts containing irreconcilable provisions regarding governing law, right to a jury trial, and recovery of attorney fees.” (Doc. 14 at 3). Thus, WOF seeks dismissal of Quasar's claims as they relate to the O&M Agreement, or, in the alternative, a stay of the O&M claims in the Arizona suit.

         II. DISCUSSION

         Both the O&M Agreement and the Design-Build Agreement are at issue in both this action and the Oregon suit. Here, WOF contends that Quasar is improperly attempting to litigate both agreements in Arizona, even though the Oregon action was filed first and the O&M Agreement includes a forum selection clause and waiver provision that requires claims relating to the O&M Agreement to be litigated in Oregon. WOF argues that this Court should decline jurisdiction and dismiss Counts Two, Three, Four, and Five of the complaint (as they relate to the O&M Agreement), or, in the alternative, stay the Arizona suit, or sever and transfer the O&M claims from the Arizona suit to the Oregon suit. (Doc. 14 at 5). In contrast, Quasar contends that WOF's arguments are fatally flawed because WOF ignores the legal impact of the Design-Build Agreement and the fact that its Oregon suit is based largely on whether Quasar breached the Design-Build Agreement. (Doc. 20 at 1). Quasar further argues that the Design-Build agreement has a mandatory venue provision that requires disputes to be litigated in Arizona, whereas in the O&M Agreement the parties agreed to the permissive and non- exclusive jurisdiction of the Oregon courts. Id. at 1-2.

         There is no dispute that WOF filed the Oregon action first. Thus, the question before the Court is whether the first to file rule applies here to bar Quasar from litigating any claims under the O&M Agreement in Arizona, or whether the mandatory forum selection clause in the Design-Build Agreement trumps the forum selection clause in the O&M Agreement and requires that the parties' claims under both agreements be litigated in Arizona. After a careful review of the pleadings and the parties' oral arguments, the undersigned recommends that the District Court enter an order granting WOF's motion to dismiss Quasar's claims related to the O&M agreement without prejudice and with leave for Quasar to file an amended complaint reasserting those claims pending the outcome of the Oregon District Court's ruling on the motions currently pending before it.

         A. Forum Selection Clause

         WOF first argues that this Court should decline jurisdiction and dismiss Quasar's claims relating to the O&M Agreement because the O&M Agreement's forum selection clause provides that any claim arising from or related to the O&M Agreement may be brought in Oregon, and also includes an express waiver of objections to venue. (Doc. 14 at 5). WOF also notes that in the Oregon suit, Quasar explicitly relied on the O&M Agreement's forum selection clause when it removed the case to federal court, and thus Quasar should now be judicially estopped from denying the applicability of the O&M Agreement's forum selection clause. (Doc. 21 at 3).

         Quasar contends the O&M Agreement “contains a permissible, non-exclusive venue provision allowing the parties to file disputes arising under the O&M Agreement in Oregon, but only to the extent that is not trumped by the mandatory venue provision in the Design-Build Agreement.” (Doc. 20 at 4). Quasar further argues that the Design-Build Agreement's forum selection clause is mandatory and thus requires those issues to be litigated in Arizona. Id. at 6, 10. Quasar also contends that enforcing the O&M Agreement's forum selection cause would be unreasonable because it would result in the type of piecemeal litigation that courts strive to avoid. (Doc. 20 at 11). Finally, Quasar argues that bifurcating the litigation would make it impossible to join any relevant subcontractors who performed work under the Design-Build Agreement in Arizona in the Oregon suit, because the subcontractors would have no connection to Oregon or the O&M agreement. (Doc. 20 at 12).

         i. Law

         “Forum selection clauses are presumptively valid [and t]he U.S. Supreme Court and lower federal courts have consistently recognized contracting parties' freedom to bind themselves to a chosen forum for the resolution of any disputes that may later arise.” U.S. ex rel. Purcell P & C, LLC, 2012 WL 2871787 at *3 (citations omitted). “When the parties have agreed to a valid forum-selection clause, a district court should ordinarily transfer the case to the forum specified in that clause.” Atl. Marine Const. Co. v. U.S. Dist. Court for W. Dist. of Texas, 571 U.S. 49, 62 (2013). “Only under extraordinary circumstances unrelated to the convenience of the parties should a § 1404(a) motion [to transfer venue] be denied.” Id.[2] As the Supreme Court explained,

The “enforcement of valid forum-selection clauses, bargained for by the parties, protects their legitimate expectations and furthers vital interests of the justice system.” [Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 33 (1988)] (KENNEDY, J., concurring). For that reason, and because the overarching consideration under § 1404(a) is whether a transfer would promote “the interest of justice, ” “a valid forum-selection clause [should be] given controlling weight in all but the most exceptional cases.” Id., at 33, 108 S.Ct. 2239 (same).

571 U.S. at 63 (second alteration in original). Thus, “[w]hen parties have contracted in advance to litigate disputes in a particular forum, courts should not unnecessarily disrupt the parties' settled expectations.” Id. at 66. “In all but the most unusual cases, therefore, ‘the interest of justice' is served by holding parties to their bargain.” Id. Finally, the party challenging a forum selection “clause bears a ‘heavy burden of proof' and must ‘clearly show that enforcement would be unreasonable and unjust.'” U.S. ...


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