MRP Trading I A, LLC v. Eberhart
| Decision Date | 12 March 2021 |
| Docket Number | File No. 20-cv-1874 (ECT/KMM) |
| Citation | 526 F.Supp.3d 470 |
| Parties | MRP TRADING I A, LLC; Portfolio Advisors VIII, LLC; Allegiance Capital, LLC, Plaintiffs, v. Dan K. EBERHART; Canary, LLC ; Frontier Energy Group, Inc. ; Canary Drilling Services, LLC; Canary Production Services, LLC; Canary Wellhead Equipment, Inc.; Canary Wellhead Manufacturing, Inc., Defendants. |
| Court | U.S. District Court — District of Minnesota |
Timothy M. Kelley and Kevin P. Kitchen, Stinson LLP, Minneapolis, MN, for Plaintiffs MRP Trading I A, LLC, Portfolio Advisors VIII, LLC, and Allegiance Capital, LLC.
Shawn M. Perry, Perry & Perry, PLLP, Minneapolis, MN, and Robin R. Lambourn, Lambourn Law Firm, PLLC, Denver, CO, for Defendants Dan K. Eberhart, Canary, LLC, Frontier Energy Group, Inc., Canary Drilling Services, LLC, Canary Production Services, LLC, Canary Wellhead Equipment, Inc., and Canary Wellhead Manufacturing, Inc.
This case involves a series of loans that Defendant Canary, LLC and several affiliated companies (the "Canary Defendants") obtained from Plaintiffs MRP Trading I A, LLC, Portfolio Advisors VIII, LLC, and Allegiance Capital, LLC. Plaintiffs claim that the Canary Defendants defaulted on their loans and that Defendant Dan K. Eberhart, Canary's CEO, failed to fulfill his personal guaranty of the Canary Defendants’ obligations. Eberhart and the Canary Defendants have filed motions to dismiss three counts brought by MRP or, in the alternative, to sever those counts and transfer venue. According to Defendants, venue selection clauses1 that apply to the three challenged counts required MRP to pursue its claims in state or federal court in Houston, Texas. Defendants’ motions will be denied because the clauses in question are permissive, not mandatory.
The commercial loan transactions underlying this dispute have a somewhat complicated history, but only the basic facts are necessary to resolve the present motions. In March 2019, MRP and all Defendants entered into a Second Amended and Restated Revolving Credit and Term Loan Agreement. Am. Compl. ¶¶ 20–21 [ECF No. 4], Ex. 2 ("Loan Agreement") [ECF No. 4-1]. The Loan Agreement "amended and restated, without novation," the terms of an earlier loan agreement in which MRP had acquired an interest from another lender, and it "reaffirm[ed] the validity and enforceability" of loan documents associated with that prior agreement. Id. ¶ 20; see id. ¶¶ 14–16. "In connection with, and as a condition to, the execution of the Loan Agreement," Canary executed two promissory notes in MRP's favor. Id. ¶¶ 23–26, Exs. 3 ("Term Note"), 4 ("Revolving Note"). These notes "consolidated the variously acquired promissory notes evidencing" term and revolving loans extended to Canary under the earlier loan agreement. Id. ¶¶ 23, 25. Finally, as part of the Loan Agreement, Eberhart "reaffirmed [a] continuing obligation" he had incurred under a personal guaranty of the earlier loan agreement. Id. ¶ 22; see id. ¶¶ 17–19, Ex. 1 ("Guaranty").
Each of these loan documents—the Loan Agreement, the Term Note, the Revolving Note, and the Guaranty—contains a clause addressing where litigation arising out of the documents might occur. On this topic, the Loan Agreement says the following:
13.2 Consent to Jurisdiction. The Borrower, Parent, the Lender [sic] hereby irrevocably submit to the non-exclusive jurisdiction of any United States Federal Court or Texas state court sitting in Houston, Texas in any action or proceeding arising out of or relating to this Agreement or any of the Loan Documents and the Borrower, Parent, and Lender hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in any such United States Federal Court or Texas state court.... Nothing in this Section shall affect the right of the Lender to serve process in any other manner permitted by law or limit the right of the Lender to bring any such action or proceeding against any Credit Party or any of their property in the courts with subject matter jurisdiction of any other jurisdiction. Each of the Borrower and Parent irrevocably waives any objection to the laying of venue of any such suit or proceeding in the above described courts.3
Loan Agreement § 13.2. Eberhart's Guaranty says something similar:
Guaranty § 9.12. Finally, both the Term Note and the Revolving Note contain the following provision: "This Note shall be interpreted and the rights of the parties hereunder shall be determined under the laws of, and enforceable in, the State of Texas." Term Note at 1; Revolving Note at 1.
In a separate series of transactions—what the Parties call the "Equipment Loans"—MRP and its co-Plaintiffs, Portfolio Advisors and Allegiance Capital, extended an additional 24 loans to Canary to finance equipment for its business. Am. Compl. ¶ 27. Eberhart personally guaranteed some, but not all, of the Equipment Loans. See id. (). In March 2020, Canary ceased making required principal payments on the Equipment Loans. Id. ¶ 29.
The failure to make payments on the Equipment Loans was an event of default under the Loan Agreement. Id. ¶¶ 29–35; see Loan Agreement § 9.1(f). The default gave MRP the right to seek the full outstanding principal indebtedness under the Loan Agreement from Canary and from Eberhart under the Guaranty. Am. Compl. ¶¶ 36, 40; see Loan Agreement § 9.2; Guaranty § 2.2. In August 2020, MRP attempted to exercise that right by sending Canary and Eberhart a notice of default that "included a demand for payment ... of the full accelerated indebtedness owing under the Loan Agreement, the Term Note, the Revolving Note and other Loan Documents." Am. Compl. ¶¶ 37–39, Ex. 6. To date, Eberhart and the Canary Defendants have not cured their default. Id. ¶ 43.
MRP, Portfolio Advisors, and Allegiance Capital brought this lawsuit to recover for the alleged defaults. In Count 1 of the operative complaint, MRP claims that the Canary Defendants breached the Loan Agreement and the associated Term and Revolving Notes. Id. ¶¶ 48–52. In Count 2, MRP claims that Eberhart breached his obligations as Guarantor of those agreements. Id. ¶¶ 53–57. And in Count 3, MRP claims in the alternative that all Defendants were unjustly enriched at its expense. Id. ¶¶ 58–61. In the remaining counts, which are not relevant here, MRP and its co-plaintiffs assert claims for breach of contract and replevin related to the 24 Equipment Loans. Id. ¶¶ 62–102.
Before Eberhart had appeared in the case, the Canary Defendants moved to dismiss Counts 1 and 3 of the Amended Complaint without prejudice or, in the alternative, to sever those counts and transfer venue to the United States District Court for the Southern District of Texas, Houston Division. ECF No. 23; see 28 U.S.C. § 1404(a) ; Fed. R. Civ. P. 12(b)(6). Once Eberhart had appeared, he filed a substantially similar motion to dismiss Counts 2 and 3 without prejudice or, in the alternative, to sever them and transfer venue to the Southern District of Texas. ECF No. 38.4
Although Defendants have filed two separate motions, they depend on the same legal arguments, so it makes sense to address them together. According to Defendants, the loan documents relevant to Counts 1 through 3 contain mandatory venue selection clauses, and those clauses may be enforced through either dismissal or transfer. See Canary Mem. in Supp. at 1–2 [ECF No. 26]; Eberhart Mem. in Supp. at 1–2 [ECF No. 37].
Regardless of which procedural mechanism would ultimately be appropriate,5 Defendants primarily rely on 28 U.S.C. § 1404(a), which allows a district court to "transfer any civil action to any other district or division where it might have been brought" "[f]or the convenience of the parties and witnesses, in the interest of justice." In a typical motion to transfer under § 1404(a), "precedent requires this Court to defer to the Plaintiffs’ choice of Minnesota" as a forum unless a collection of public-interest and private-interest factors "strongly weigh in favor of transfer[.]" Brockman v. Sun Valley Resorts, Inc. , 923 F. Supp. 1176, 1179 (D. Minn. 1996). When a valid forum selection clause is the basis for a transfer request, however, that clause should "be given controlling weight in all but the most exceptional cases." Atl. Marine , 571 U.S. at 59–60, 134 S.Ct. 568 (internal quotation marks and citation omitted). A court deciding whether to...
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