Free Response to Motion - District Court of Colorado - Colorado

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 1 of 14

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 96-cv-2451-ZLW-MJW CO2 COMMITTEE, INC., et al., Plaintiffs, v. SHELL OIL COMPANY, et al., Defendants. Civil Action No. 00-cv-1854-ZLW-MJW CO2 COMMITTEE, INC., et al., Plaintiffs, v. SHELL OIL COMPANY, et al., Defendants. Civil Action No. 00-cv-1855-ZLW-MJW CO2 COMMITTEE, INC., et al., Plaintiffs, v. SHELL OIL COMPANY, et al., Defendants. Civil Action No. 00-cv-1856-ZLW-MJW CO2 COMMITTEE, INC., et al., Plaintiffs, v. SHELL OIL COMPANY, et al., Defendants. PLAINTIFF'S RESPONSE TO DEFENDANTS' JOINT MOTION TO DENY, TRANSFER, OR STAY MOTION TO VACATE ARBITRATION AWARD Plaintiff CO2 Committee, Inc. ("Committee"), hereby responds to Defendants' Joint Motion to Deny, Transfer, or Stay Motion to Vacate Arbitration Award as follows:

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 2 of 14

INTRODUCTION On November 6, 2006, the Committee filed its Motion to Vacate Arbitration Award. Through this motion, the Committee seeks to have the Court vacate an arbitration award issued by a panel of three arbitrators on August 7, 2006 ("Arbitration Award"). Shortly before the Committee filed its Motion to Vacate Arbitration Award, certain Defendants filed an Application for Order Confirming Arbitration Award in the United States District Court for the District of New Mexico ("New Mexico Court"). Through the New Mexico motion, those Defendants sought confirmation of the same Arbitration Award the Committee seeks to have vacated in this Court In response to the Committee's Motion to Vacate Arbitration Award, Defendants now move this Court to deny the Committee's Motion to Vacate Arbitration Award, transfer it to the New Mexico Court, or stay further proceedings in this action pending resolution of the New Mexico action. They premise this request on the "first to file" rule and their assertion that the Committee's Motion to Vacate Arbitration Award is procedurally defective. As shown below, Defendants are wrong on both counts. In actual fact, because the New Mexico Court has not ever acquired jurisdiction over the Committee, the first to file rule actually mandates that this Court, not the New Mexico Court, take priority in determining the merits of the Arbitration Award. Furthermore, the Committee's Motion to Vacate Arbitration Award is not procedurally deficient given the fact that the Court retains continuing jurisdiction over this matter and Defendants' acquiescence in the Committee's pursuit of the arbitration resulting in the Arbitration Award. Therefore, the Court should conclude that Defendants' motion is without merit and deny it in its entirety.

2

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 3 of 14

ARGUMENT Defendants' devote much of their motion to matters that the Committee does not contest. For example, the Committee generally accepts Defendants' recitation of the parameters of the first to file rule. It further concedes that the New Mexico Court has jurisdiction to consider the Arbitration Award and this Court does not have exclusive jurisdiction to consider the Arbitration Award. However, these concessions do not resolve the issue before the Court. Rather, the critical issue is which of the competing courts is actually entitled to priority under the first to file rule. For the reasons that follow, the Court should conclude that it actually has priority because the New Mexico Court never obtained jurisdiction over the Committee. Furthermore, having reached this conclusion, the Court should further find that the Committee's Motion to Vacate Arbitration Award is not procedurally defective. 1. As the first court to obtain jurisdiction over the parties and issues relating to the arbitration award, the Court should determine whether the arbitration award should be confirmed or vacated.

In support of their request that the Court deny the Committee's Motion, transfer this matter to the New Mexico Court, or stay further proceedings, Defendants rely on the "first to file" rule. This rule provides, "that the first federal district court which obtains jurisdiction of the parties and issues should have priority and the second court should decline consideration of the action until the proceedings before the first court are terminated." O'Hare Int'l Bank v. Lambert, 459 F.2d 328, 331 (10th Cir. 1972). As noted, the first to file rule gives priority to, "the first federal district court which obtains jurisdiction of the parties and issues ...." Id. [Emphasis added.] The New Mexico Court has not ever obtained jurisdiction over the Committee. Therefore, this Court, not the New

3

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 4 of 14

Mexico Court, is actually the first one to have obtained jurisdiction over the parties and should have priority over this matter in accordance with the first to file rule. Because this Court has priority over the New Mexico Court, there is no reason for the Court to deny the Committee's motion, transfer this matter to New Mexico, or stay further proceedings. In New Mexico, Defendants seek confirmation of the Arbitration Award pursuant to the Federal Arbitration Act (FAA), 9 U.S.C. § 1, et seq. Section 9 of the FAA sets forth the manner by which a court acquires jurisdiction over an adverse party to such a request. Specifically, the statute provides: Notice of the application [for an order confirming an arbitration award] shall be served upon the adverse party, and thereupon the court shall have jurisdiction of such party as though he had appeared generally in the proceeding. If the adverse party is a resident of the district within which the award was made, such service shall be made upon the adverse party or his attorney as prescribed by law for service of notice of motion in an action in the same court. If the adverse party shall be a nonresident, then the notice of the application shall be served by the marshal of any district within which the adverse party may be found in like manner as other process of the court. 9 U.S.C. § 9 [emphasis added]. Thus, Section 9 defines both the manner in which the New Mexico Court could obtain jurisdiction over the Committee (by service of notice of the application) and the method by which such service is to occur (by a marshal if the adverse party is not a resident of New Mexico). The Committee is not a resident of New Mexico. It is a Colorado nonprofit with its principal place of business in Oklahoma City, Oklahoma. As such, notice of Defendants' Application for Order Confirming Arbitration Award sufficient to confer jurisdiction over the Committee on the New Mexico Court, "shall be served by the marshal of any district within which the adverse party may be found ...." Here, despite the clear language of the statute,

4

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 5 of 14

Defendants failed to cause notice of their Application for Order Confirming Arbitration Award to be served on the Committee by a marshal, opting instead to effectuate service through a local sheriff. When confronted with clear and unambiguous statutory language, a court's duty is simply to enforce the statute that Congress has drafted. U.S. v. Ortiz, 427 F.3d 1278, 1282 (10th Cir. 2005); see also Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6, 120 S.Ct. 1942 (2000) ("When the statute's language is plain, the sole function of the courts ­ at least where the disposition required by the text is not absurd ­ is to enforce it according to its terms.") Section 9 clearly, plainly and unambiguously provides that notice of Defendants' New Mexico Application shall by served by a marshal in like manner of as other process of the court. Thus, the only way in which to enforce the clear terms of § 9 of the FAA is to conclude that Defendants' New Mexico Application had to be served on the Committee by a marshal in order for the New Mexico Court to obtain jurisdiction over the Committee. Defendants did not cause notice of their Application to be served on the Committee by a marshal. Accordingly, the New Mexico Court has not obtained jurisdiction over the Committee under § 9 of the FAA. Therefore, under the first to file rule, this Court, as the first to obtain jurisdiction over the parties, has priority. The Committee anticipates that, on reply, Defendants will argue that the New Mexico Court did, in fact, acquire jurisdiction over the Committee and that it should take priority under the first to file rule. Essentially, it is anticipated that Defendants will argue that the plain terms of § 9 of the FAA should be ignored and the statue rewritten to allow for service by any non-

5

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 6 of 14

party over the age of 18. To the extent Defendants advance this claim, the Court should disregard it. To support a claim that service by a marshal is not actually required under § 9 of the FAA despite the statute's plain terms, Defendants might assert that service of process by federal marshals has been eliminated by rule changes. If they make this claim, the Court should have little difficultly rejecting it as the briefest glance at Rule 4 reveals that service of process by federal marshals has not been eliminated from the federal rules by rule changes. See Fed. R. Civ. P. 4(c)(2). Defendants may cite Reed & Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268 (2nd Cir. 1971) in defense of their claim that the plain terms of § 9 of the FAA can be ignored. In that case, the issue confronting the Court was whether, "insufficient time to respond to [Petitioner] was afforded [Respondent] in the District Court." Id. at 1277. In resolving this issue, the Second Circuit concluded that the phrase, "in like manner as other process of the court," in § 9 of the FAA referred to Rule 4 of the Federal Rules of Civil Procedure, not Rules 7 or 12. Id. Notably, it did not discuss, touch upon or interpret the language preceding that phrase, to the effect that the application shall be served by a marshal. In other words, in construing § 9 of the FAA, the Second Circuit did not concern itself with or analyze the language concerning service by a marshal. Rather, it was concerned solely with the phrase, "in a like manner as other process of the court." Thus, Reed & Martin does not even address the issue of whether notice of Defendants' Application had to be served a marshal.1
1

In actual fact, a subsequent Second Circuit decision makes clear that the requirement of service by a marshal under § 9 of the FAA has not been eliminated. In Smiga v. Dean Witter Reynolds, Inc., 766 F.2d 698, 707 (2nd Cir. 1985), the Second Circuit concluded that the respondent waived the requirement of service by a marshal. Obviously, if there was no such requirement, there would be nothing for the respondent to have waived.

6

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 7 of 14

Another case the Committee anticipates Defendants will cite on reply is In re InterCarbon Bermuda, Ltd. V. Caltex Trading and Transp. Corp., 146 F.R.D. 64 (S.D.N.Y. 1993). InterCarbon provides no more support for Defendants' anticipated position than Reed & Martin. This case concerned a motion to vacate an arbitration award under § 12 of the FAA where both parties were foreign companies. The court held: Instead, for a nonresident of the district where an award is made, Section 12 requires service by a marshal in any district where the nonresident is found. The problem is that foreign parties will not necessarily be found in any district. Requiring parties to satisfy Section 12 might amount to requiring them to do the impossible. ... In these circumstances, Section 12 cannot be taken as the proper standard for service of process. Recourse must be had to the Federal Rules of Civil Procedure. The parties, however, disagree as to which of the Federal Rules is the proper fallback provision: Rule 4 or Rule 5. Id. at 67 [emphasis in original] [footnote omitted]. Ultimately, the court concluded that Rule 4 was the appropriate fall back provision. The Committee is not a foreign entity. Therefore, the decision in InterCarbon has no bearing on the matter at hand. To be sure, InterCarbon does refer to Section 12 of the FAA as an anachronism because, "it cannot account for the subsequent abandonment of United States marshals as routine process servers." Id. at 67, fn. 3. However, this footnote was just dicta that had no bearing on the ultimate decision rendered by the court. Furthermore, InterCarbon merely notes that that service by a marshal is an anachronism. It does not state that the requirement has been eliminated or that parties seeking confirmation of an arbitration award under § 9 of the FAA do not have to comply with it. To similar effect is Dobco, Inc. v. Mery Gates, Inc., 2006 WL 2056799, * 2 (D.N.J., July 21, 2006) where the court stated:

7

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 8 of 14

Because Mery Gates is not a resident of New Jersey, the district in which the award was made, Dobco was not permitted by the FAA to serve Mery Gates through its attorney by way of a notice of motion. Rather, Dobco had an obligation to have Mery Gates served by a marshal, as the strict language of the statute provides. In the alternative, in light of recent federal jurisprudence recognizing the elimination of the use of marshals for service of original process,2 Dobco has the obligation to serve Mery Gates in the same manner as if performing initial service of process under Federal Rule of Civil Procedure 4. Id. [Emphasis added]. Dobco then continued on to conclude that the party seeking confirmation of an arbitration award failed to satisfy either of these service standards. Since the service of process at issue in Dobco satisfied neither of these alternatives, its discussion of the role of marshals under § 9 of the FAA was mere dicta. Finally, Defendants may cite Hancor, Inc. v. R & R Engineering Products, Inc., 381 F.Supp. 2d 12 (D.P.R. 2005). There, the court stated: Although there is scant case law interpreting the FAA's § 9 service requirement, the Court is not entirely without guidance. Some courts have questioned the continued validity of §9's service requirement following later amendments to the Federal Rules of Civil Procedure. Section 9 is an anachronism not only because it cannot account for the internationalization of arbitration law subsequent to its enactment, but also because it cannot account for the subsequent abandonment of the United States marshals as routine process servers ... The "ostensibly principal purpose" of the amendments [to the Federal Rules of Civil Procedure] was to "tak[e] the marshals out of summons service almost entirely." Matter of the Arbitration Between InterCarbon Bermuda, Ltd. & Caltex Trading and Transport Corporation, 146 F.R.D. 64, 67, n. 3 (S.D.N.Y. 1983)) .... "In these circumstances, Section [9] cannot be taken as the proper standard for service of process. Recourse must be had to the Federal Rules of Civil Procedure." Id. at 67. The phrase "in like manner as other process of the court" found in § 9 of the
Dobco incorrectly claims that service by marshals has been eliminated from the federal rules. The fallacy of the Dobco's position is revealed by the fact that it cites Reed & Martin for this proposition. Of course, Reed & Martin was decided more than ten years before the 1983 amendments to Rule 4 that reduced (but did not eliminate) the role of marshals in service of process. It is hard to see how the Second Circuit in Reed & Martin recognized the "elimination of the use of marshals for service of original process" twelve years before it happened.
2

8

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 9 of 14

Arbitration Act refers to Fed.R.Civ.P. 4 on the accomplishment of appropriate service. ..." Reed & Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268, 1277 (2nd Cir. 1971). Hancor, 381 F.Supp.2d at 15 [footnote omitted]. This conclusion is clearly erroneous. Hancor cites InterCarbon, and only InterCarbon, for the proposition that service under §9 of the FAA need not be accomplished by a marshal. Of course, the "circumstances" to which InterCarbon was referring was the fact that the adverse party was a foreign company, not service by a marshal. In other words, to support its conclusion that service by a marshal is not required, Hancor relied on a statement that from an earlier decision that had nothing to do with service by a marshal. It is undisputed that Defendants failed to comply with the plain terms of § 9 of the FAA in attempting to serve notice of their Application on the Committee. The cases the Committee anticipates Defendants will cite on reply do not assist them. Quite simply, because Defendants chose not to comply with § 9's service requirements, the New Mexico Court has not obtained jurisdiction over the Committee. By contrast, there is no dispute that this Court has jurisdiction over both the parties and issues implicated by the Committee's Motion to Vacate Arbitration Award. As such, this Court, not the New Mexico Court, has priority to resolve this matter and ultimately decide the merits of the Arbitration Award under the first to file rule. Therefore, given this reality, there is no reason why this Court should deny the Committee's Motion to Vacate Arbitration Award, transfer this matter to the New Mexico Court, or stay further proceedings in this Court.

9

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 10 of 14

2.

The Motion to Vacate Arbitration Award was properly filed.

Defendants' Joint Motion is further premised on the assertion that the Committee's Motion to Vacate Arbitration Award is procedurally deficient. First, they contend that these cases have been closed and the Court does not have continuing jurisdiction to review subsequent arbitration awards. Second, they argue that the Committee is not a party to these cases, and therefore, cannot file motions in these actions. Defendants are wrong on both counts. By entering into the Settlement Agreement, Defendants agreed to future obligations concerning the calculation and payment of royalty and revenue payments and calculation of the Cortez pipeline tariff. As noted by Defendants, the Court retained continuing jurisdiction over implementation of the Settlement. See Defendants' Joint Response at 5; Defendants' Exhibit 1 at ¶¶ 10. Implementation of the Settlement necessarily includes enforcement of the Defendants' future obligations concerning calculation of the Cortez pipeline tariff. The arbitration giving rise to the Arbitration Award specifically concerned the obligations imposed on Petitioners concerning calculation of the Cortez tariff. Thus, it is evident, contrary to Petitioners' claims, that the Colorado Court specifically retained jurisdiction over the exact matter at issue in the arbitration. Furthermore, contrary to Defendants' claim, these cases have not been closed. While it is true that Plaintiffs filed a Notice of Completion with the Court on September 8, 2006, it is evident that the Notice of Completion applied to and concerned the administration and disbursement of the settlement fund. The Notice of Completion does not state that all future obligations imposed on Defendants through the Settlement Agreement have been completed. In fact, it would be impossible for either Plaintiffs or the Court to conclude that Defendants had

10

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 11 of 14

satisfied their future obligation with respect to calculating the Cortez tariff when that obligation was still ongoing. Of course, the Notice of Completion says nothing about Defendants' future allegations concerning calculation of the Cortez tariff. Thus, the Notice of Completion had no bearing on the Court's continuing jurisdiction over implementation of the Settlement Agreement at least insofar as it concerns Defendants' future obligations. The Court should conclude that not only did it retain continuing jurisdiction over matters such as those posed by the Committee's Motion to Vacate Arbitration Award, these cases were not administratively closed by Plaintiffs' Notice of Completion. By extension, the Committee's Motion to Vacate Arbitration Award is not procedurally defective. The Court should also have no difficulty rejecting Defendants' assertions concerning the authority of the Committee to file motions in these actions. Initially, the Court should find that Defendants are estopped from denying that the Committee is a proper party. Under the plain terms of the Settlement Agreement, the Committee was not authorized, empowered or allowed to commence arbitration proceedings. Instead, the agreement to binding arbitration included and extended to any and all disputes, disagreements, or claims asserted by, "Plaintiffs, the Crowley Plaintiff, Class Members, or Plaintiffs' counsel, or any of them, against Defendants, or any of them ...." Defendants' Exhibit 2 at ¶ 14.2. Furthermore, under the Settlement Agreement, arbitration was to be commenced through, "notice by one party to the other of its demand for arbitration ...." Id. at ¶ 14.3 [emphasis added]. Clearly, if the Court accepts Defendants' contention that the Committee is not a party to this litigation or the Settlement Agreement, it had no authority or ability to commence arbitration under the Settlement Agreement.

11

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 12 of 14

Nevertheless, despite this clear language, the Committee did, in fact, commence arbitration in accordance with the Settlement Agreement in November 2005, without objection from Defendants. Even after the arbitration was commenced and throughout the arbitration process, Defendants have not ever questioned the Committee's right to pursue arbitration. Having accepted the Committee as the proper party to pursue arbitration under the Settlement Agreement, it would be fundamentally unfair and inequitable to now allow Defendants to argue that the Committee is not a proper party to seek vacation of the Arbitration Award. Giving their behavior throughout the arbitration process, the Court should conclude that Defendants are estopped from denying that the Committee is a proper party to pursue vacation of the Arbitration Award in this Court in these cases. More fundamentally, Defendants' argument to this effect demonstrates that they have entirely lost sight of the bigger picture in their zeal to shield their behavior from this Court. If Defendants are correct that the Committee is not the proper party to seek vacation of the Arbitration Award, it stands to reason and logically follows that the Committee was not and could not be a proper party to the arbitration itself, in which case the arbitration and Arbitration Award are a nullity. Put another way, if the Committee is not a proper party to seek relief in this Court in these cases, it was not a proper party to seek relief through arbitration under the Settlement Agreement. Conversely, if Defendants concede that the Committee was a proper party to pursue binding arbitration notwithstanding the plain language of the Settlement Agreement, the Committee must also be a proper party to seek vacation of the Arbitration Award in these cases. Defendants cannot have it both ways. Either the Committee is a proper party for all purposes or for none.

12

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 13 of 14

In conclusion, the Court should find that it retains continuing jurisdiction over implementation of the future obligations imposed on Defendants by the Settlement Agreement, that these cases have not been closed, as least insofar as they pertain to Defendants' future obligations, and that the Committee is a proper party to pursue relief in this Court in these cases. Given these findings, the Court should further conclude that the Committee's Motion to Vacate Arbitration Award is not deficient. CONCLUSION Based on the foregoing, the Court should deny Defendants' Joint Motion to Deny, Transfer, or Stay CO2 Committee, Inc.'s Motion to Vacate Arbitration Award in its entirety. This Court, not the New Mexico Court, has priority in ultimately determining the merits of the Arbitration Award under the first to file rule. This conclusion is all the more compelling because the Court specifically retained jurisdiction over matters such as this when it entered Final Judgments in each of the underlying cases. Finally, despite Defendants' protests to the contrary, the Court should have little difficultly concluding that the Committee's Motion to Vacate Arbitration Award was properly filed. SIGNED this 20th day of December, 2006.

S/ Michael J. Heaphy ____________________________________ Michael J. Heaphy, Esq. Michael J. Heaphy, P.C. P.O. Box 1490 Vail, CO 81658 Telephone: (970) 476-2300 Facsimile: (970) 476-2301 Email: [email protected] Attorney for Plaintiff CO2 Committee, Inc. 13

Case 1:00-cv-01854-ZLW-MJW

Document 335

Filed 12/20/2006

Page 14 of 14

CERTIFICATE OF SERVICE I HEREBY CERTIFY that on this 20th day of December, 2006, I electronically filed the foregoing PLAINTIFF'S RESPONSE TO DEFENDANTS' JOINT MOTION TO DENY, TRANSFER, OR STAY MOTION TO VACATE ARBITRATION AWARD with the Clerk of the Court using the CM/ECF system and caused a true and correct copy of the same to be served via electronic filing system and U.S. first class mail on the following: Kent Sullivan Matthew J. Salzman Nicole M. Graham Stinson Morrison Hecker LLP 1201 Walnut Kansas City, MO 64106-2150 Andrew W. McCollam III Mark Rodriguez Vinson & Elkins LLP 2300 First City Tower 1001 Fannin Street Houston, TX 77002-6760 John F. Shepherd Holland & Hart L.L.P. 555 17th Street, Suite 3200 Denver, CO 80202 Shannon H. Ratliff Ratliff Law Firm, PLLC 600 Congress Avenue, Suite 3100 Austin, TX 78701 Brian G. Eberle Sherman & Howard, LLC 633 17th Street, Suite 3000 Denver, CO 80202 S/ Michael J. Heaphy ____________________________________ Michael J. Heaphy, Esq. Attorney for Plaintiff CO2 Committee, Inc.
C:\...\MJH, PC\Clients\722\2071\CO Resp RE Mot to Deny, Transfer or Stay.doc

14