El Paso Natural Gas Co. v. TransAmerican Natural Gas Corp.

• Citation: 669 A.2d 36
• Decision Date: 06 July 1995
• Docket Number: 1994,244,1994 and 505,Nos. 243,504,s. 243
• Parties: EL PASO NATURAL GAS COMPANY, et al., Plaintiffs Below, Appellants, v. TRANSAMERICAN NATURAL GAS CORPORATION, Defendant Below, Appellee. . Submitted:
• Court: United States State Supreme Court of Delaware

Page 36

669 A.2d 36

EL PASO NATURAL GAS COMPANY, et al., Plaintiffs Below, Appellants, v. TRANSAMERICAN NATURAL GAS CORPORATION, Defendant Below, Appellee.

Nos. 243, 1994, 244, 1994, 504, 1994 and 505, 1994.

Supreme Court of Delaware.

Submitted: July 6, 1995.

Decided: Sept. 20, 1995.

Revised: Sept. 21, 1995.

Revised: Oct. 6, 1995.

Upon appeal from the Court of Chancery. AFFIRMED.

Robert K. Payson (argued), James F. Burnett and Stephen C. Norman, Potter Anderson & Corroon, Wilmington, for El Paso Natural Gas Company, Richard M. Bressler, Travis H. Petty and William A. Wise.

Lawrence C. Ashby (argued), Stephen E. Jenkins, Philip Trainer, Jr. and Amy Arnott Quinlan, Ashby & Geddes, Wilmington, for TransAmerican Natural Gas Company.

A. Gilchrist Sparks, III and Kenneth J. Nachbar, Morris Nichols Arsht & Tunnell, Wilmington, for El Paso Production Company, Meridian Oil Inc., Burlington Northern, Inc. and Burlington Resources, Inc.

Richard R. Wier, Jr., Wilmington, for TransAmerican Natural Gas Corporation.

Before WALSH, HOLLAND and HARTNETT, JJ.

HARTNETT, Justice.

In this appeal we find that the Court of Chancery does not have jurisdiction over this controversy because of the existence of an adequate remedy at law. The ruling of the Court of Chancery dismissing the suit is, therefore, affirmed.

I.

This lawsuit arises from a dispute over a December 24, 1989 settlement between Plaintiffs, Appellants, El Paso Natural Gas Company and El Paso Production Company (collectively, "El Paso") and Defendant, Appellee, TransAmerican Natural Gas Corporation ("TransAmerican").

El Paso (a Delaware corporation with its principal place of business in El Paso, Texas) is in the business of gathering and transporting natural gas through pipelines located throughout the United States. TransAmerican (a Texas corporation with its principal place of business in Houston, Texas) is engaged in the production and sale of natural gas in Texas and other states.

During the 1970's and 1980's, El Paso and its affiliates entered into gas purchase and other agreements with TransAmerican's predecessors. Disputes arose as to the parties' respective rights and obligations, and these disputes resulted in litigation. In 1988, a Texas court entered a judgment of $480 million against El Paso in favor of TransAmerican.

During the pendency of the appeal of that judgment, the parties reached a settlement in which they agreed, inter alia: to, (1) terminate all pending litigation; (2) terminate the operating agreements that had been the subject of the litigation; (3) enter into new operative agreements; and (4) release all claims against each other. As part of that settlement, El Paso transferred to TransAmerican cash and assets valued at more than $437 million. Additionally, the parties executed a December 24, 1989 settlement document ("Settlement Agreement"), which contained a forum selection clause that provided: "All actions to enforce or seek damages, specific performance or other remedy for the alleged breach of this agreement or the operative agreements shall be brought in the Chancery Court of the State of Delaware."

On November 5, 1993, TransAmerican initiated a lawsuit in Texas against El Paso and others. The suit alleged that El Paso had created an "unlawful scheme to place TransAmerican under extreme financial difficulty in order to procure the December 24, 1989 agreement, prevent TransAmerican's reorganization in bankruptcy, obtain ownership of TransAmerican's outstanding debt, obtain certain TransAmerican mineral rights, and acquire certain litigation claims against TransAmerican." In its Texas complaint, TransAmerican asserted six causes of action: (1) fraud, fraudulent inducement and fraudulent concealment in connection with the execution of the Settlement Agreement; (2) tortious interference with existing and prospective business relationships; (3) economic duress and coercion that allegedly caused TransAmerican to enter into the Settlement Agreement; (4) breach of the Settlement Agreement; (5) civil conspiracy among various defendants; and (6) violation of the Texas Anti-Trust Act. TransAmerican initially prayed for compensatory and punitive damages as well as a declaratory judgment and a permanent injunction requiring the defendants to cease their unlawful conduct. The prayer for an injunction was later withdrawn.

On December 3, 1993, El Paso brought suit in the Delaware Court of Chancery in response to TransAmerican's filing of the Texas action. ¹ In the Delaware action, El Paso alleges that it is entitled to an injunction to prevent the irreparable harm it will suffer if it is forced to litigate claims relating to the Settlement Agreement in Texas rather than in the Delaware Court of Chancery. El Paso seeks: (1) specific performance of the forum selection clause in the Settlement Agreement through the issuance of an injunction restraining TransAmerican from litigating its claims in any forum other than the Delaware Court of Chancery; (2) a declaratory judgment that the Settlement Agreement is valid and enforceable and that El Paso has not breached it; and (3) monetary damages for injuries allegedly sustained as a result of TransAmerican bringing the Texas action.

II.

The Court of Chancery dismissed this action after concluding, inter alia, that the lawsuit fell outside the limited equitable jurisdiction of that court because El Paso had an adequate remedy at law. ² Because the Court of Chancery did not otherwise have jurisdiction over the controversy, it also did not have jurisdiction to consider the prayer for a declaratory judgment. City of Wilmington v. Delaware Coach Co., Del.Ch., 230 A.2d 762, 766 (1967).

El Paso appealed the Court of Chancery's ruling and also sought to amend its complaint in the Court of Chancery to cure the alleged jurisdictional defect. We stayed the appeal and remanded the case to the Court of Chancery for a ruling on El Paso's motion to amend the complaint. The Chancery Court then held that El Paso's new factual allegations were not materially different from the initial allegations and that they still did not properly state a claim for equitable relief. It therefore dismissed the amended complaint and this appeal went forward. ³

III.

The Delaware Court of Chancery is a courty of equity. It has only that limited jurisdiction that the Court of Chancery in England possessed at the time of the American Revolution, or such jurisdiction as has been conferred upon it by the Delaware General Assembly. duPont v. duPont, Del.Supr., 85 A.2d 724, 729-30 (1951). It does not have jurisdiction over a controversy unless the plaintiff lacks an adequate remedy at law. Glanding v. Industrial Trust Co., Del.Supr., 45 A.2d 553, 559 (1945); Tull v. Turek, Del.Ch., 147 A.2d 658, 664 (1958); 10 Del.C. § 342.

"It is a cardinal principle of the law that jurisdiction of a court over the subject matter cannot be conferred by consent or agreement." Timmons v. Cropper, Del.Ch., 172 A.2d 757, 760 (1961) (citations omitted). "Jurisdiction over a party or subject matter, or venue of a cause, can not be determined by private bargaining where there is no other basis for such jurisdiction or venue." Elia Corp. v. Paul N. Howard Co., Del.Super., 391 A.2d 214, 215-16 (1978) (citing Central Contracting Co. v. C.E. Youngdahl & Co., 418 Pa. 122, 209 A.2d 810 (1963)).

Wholly disregarding this longstanding precept, El Paso asserts that parties can contract for jurisdiction in the Delaware Court of Chancery. El Paso first asserts that the forum selection clause was created by sophisticated parties who, contemplating future litigation, expressly bargained for the right to litigate all future disputes in the Delaware Court of Chancery. In addition, El Paso argues that the choice of the Chancery Court offered important benefits, such as avoidance of a potential jury trial or punitive damages, and that these benefits significantly affected the amount of consideration it paid in settling the initial dispute. These arguments simply miss the point; neither the Court of Chancery nor the parties to a dispute can confer equitable jurisdiction where it is otherwise lacking. Id.

IV.

Although equity operates only in the absence of an adequate remedy elsewhere, "... the mere fact that a litigant may have a remedy at law does not divest Chancery of its jurisdiction. 'The basic jurisdictional fact upon which equity operates is the absence of an adequate remedy in the law courts.' The question is whether the remedy available at law will afford the plaintiff full, fair, and complete relief." Hughes Tool Co. v. Fawcett Publications, Inc., Del.Supr., 315 A.2d 577, 579 (1974) (internal citations omitted).

"A remedy at law must be as practical to the ends of justice and to its prompt administration as the remedy in equity." Elster v. American Airlines, Del.Ch., 100 A.2d 219, 226 (1953) (citations omitted); see also Family Court v. Department of Labor and Indus. Relations, Del.Ch., 320 A.2d 777, 780 (1974). The Court of Chancery, therefore, may exercise jurisdiction over an action in which an injunction is sought to prevent a threatened injury where "the remedy at law, if there...