Qwest Communications International, Inc. v. Thomas, Civ.A. 99-K-431.

• Decision Date: 10 June 1999
• Docket Number: No. Civ.A. 99-K-431.,Civ.A. 99-K-431.
• Citation: 52 F.Supp.2d 1200
• Parties: QWEST COMMUNICATIONS INTERNATIONAL, INC., and Qwest Communications Corporation, Plaintiffs, v. William E. THOMAS, Terence Maher, and Ronald Kraemer, Defendants.
• Court: U.S. District Court — District of Colorado

52 F.Supp.2d 1200

QWEST COMMUNICATIONS INTERNATIONAL, INC., and Qwest Communications Corporation, Plaintiffs, v. William E. THOMAS, Terence Maher, and Ronald Kraemer, Defendants.

No. Civ.A. 99-K-431.

United States District Court, D. Colorado.

June 10, 1999.

Steven J. Merger, Dorsey & Whitney LLP, Denver, CO, James S. Mowery, Jr.,

Fred Michael Speed, Jr., Law Offices of Mowery & Youell, Worthington, OH, for plaintiff.

Sandra L. Spencer, White and Steele, Denver, CO, for defendant.

MEMORANDUM OPINION AND ORDER

KANE, Senior District Judge.

I. Introduction.

Plaintiffs Qwest Communications International and Qwest Communications Corporation (a wholly owned subsidiary of Qwest Communications International) (collectively "Qwest") filed a complaint for Declaratory Judgment against two former executive employees of Qwest, William Thomas and Terrence Maher. Thomas and Maher were formerly employed by LCI International before it merged with Qwest, and continued their employment with Qwest for approximately six months following the merger. Both employees later left Qwest although under slightly different circumstances. They now contend they are entitled to stock options originally promised to them in an employment contract entered into with LCI that was continued, albeit it in modified form, after LCI merged with Qwest. Qwest asserts the modifications to these employment contracts at the time of the merger effectively eliminate Thomas' and Maher's entitlement to the stock options given the timing and circumstances of their departure from Qwest. It is this contractual dispute over the ownership to the stock options that forms the substantive dispute of the Declaratory Judgment action filed by Qwest against the former executives.

After this action was filed, Defendants filed a claim for breach of contract against Qwest in state court in Ohio which was removed to the United States District Court for the Southern District of Ohio. Defendants in that case have moved to remand the case to state court and that motion is pending. The parties and the issues in dispute in that case are identical to the parties and issues in this case although realigned in the opposite stance, i.e. plaintiffs in that case are defendants here and vice versa.

Pending before me is Defendant Thomas' motion to dismiss based on discretion afforded by the Declaratory Judgment Act, lack of personal jurisdiction, and improper venue. This motion was filed simultaneously with both Thomas' and Maher's filing of the breach of contract claim in Ohio state court. Notably, at this time only Defendant Thomas has been served in this action. Qwest has filed an amended complaint to include Ronald Kraemer, a current employee of Qwest residing in Texas, to the defendants in this case. I heard oral argument on Thomas' motion to dismiss on June 4, 1999. This opinion follows.

II. Background.

The facts relevant to the disposition of the pending motion to dismiss are mostly procedural in nature and contested by the parties through affidavits appended to the complaint, motion, answer, and reply brief. Qwest contends both former executives requested an explanation of their rights with respect to their stock options under the employment contracts before leaving employment with Qwest. After their departure, Thomas made a demand, through counsel, to exercise the stock options he believes he is entitled to under the contract. Upon consideration of the matter, Qwest's counsel realized there were two potential lawsuits regarding stock options under the contracts based on very similar fact patterns — the first with Thomas (residing in Ohio), and the second with Maher (a resident of Illinois). Qwest however, claims at the time, it had not been informed that Maher was represented or was seeking representation for a lawsuit against Qwest. As such, Qwest retained outside counsel and filed this action for declaratory judgment in Colorado based on diversity jurisdiction.

Defendant Thomas contends the filing of this suit was procedural fencing on the part of Qwest to make the lawsuit more expensive and inconvenient to the natural plaintiffs in this case. Specifically, Thomas alleges his counsel sent a demand letter to Qwest on January 28, 1999 and later contacted in-house counsel for Qwest via telephone seeking a response to the demand letter on February 8, 26, and March 15. On the first two occasions, Qwest indicated there was a delay due to personnel vacations and a response would be forthcoming. In the last phone call, counsel for Qwest informed Thomas that Qwest had retained outside counsel, had filed this suit for declaratory judgment on March 4, and that Qwest considered this suit to be its response to the demand letter. On the same day as the last phone contact, Thomas and Maher filed suit in state court in Columbus, Ohio. Qwest removed that case to District Court for the Southern District of Ohio, and Thomas and Maher have moved to remand it back to the state court.

Qwest now adds defendant Kraemer, a current employee of Qwest residing in Texas. Like Thomas and Maher, Kraemer was employed by LCI before LCI's merger with Qwest. Kraemer, however, is still employed by Qwest although the Amended Complaint does not specify what position Kraemer presently holds with the company. Similar to the dispute with Thomas and Maher, Qwest alleges an ongoing dispute with Kraemer over the vesting of his stock options under the terms of the Non-Qualified Stock Option Agreement. The similarities with Thomas and Maher, however, end there. The dispute with Kraemer revolves around his refusal to sign away rights to certain vesting options under the Non-Qualified Stock Option Agreement as a condition of his continued employment with Qwest. As a result of this refusal, Qwest now alleges Kraemer is impliedly asserting he is entitled to full vesting of his stock options upon ending his employment with Qwest. Characterizing this situation as another dispute over stock options under the Non-Qualified Stock Option Agreement, Qwest has amended its complaint to include a declaration that Kraemer will not be entitled to a grant of fully vested options upon leaving Qwest.

The contracts at issue in this dispute are the Continuity Agreements which covered the stock options owed to the employees while they were at LCI and the Non-Qualified Stock Option Agreements which were signed by both employees shortly after the LCI merger with Qwest. The Continuity Agreements contain a clause titled "Governing Law: Venue," stating that the governing law is New York State law and that both parties to the agreement consent to jurisdiction and venue in "any state in which the Executive resides at the commencement of such suit, action or proceeding and waives any objection, challenge or dispute as to such jurisdiction or venue being proper." The Non-Qualified Stock Option Agreements do not contain a similar consent to venue and jurisdiction but specify Delaware state law as the applicable law governing all interpretations of that contract. As such, when the case between Qwest and the former employees proceeds on the merits, it will be Delaware or New York state law that governs the different contract disputes.

III. Applicable Standard of Review for the Motion to Dismiss.

The Declaratory Judgment Act, codified at 28 U.S.C. § 2201 (1993) and Fed. R.Civ.P. 57, has been interpreted to grant extensive discretion to the district court to stay or dismiss the action;

By the Declaratory Judgment Act, Congress ... created an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants. Consistent with the nonobligatory nature of the remedy, a district court is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory judgment before trial or after all arguments have drawn to a close. In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration.

Wilton v. Seven Falls Company, 515 U.S. 277, 288, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). A district court's decision to grant, stay, or dismiss a declaratory judgment action will be reviewed only for abuse of discretion. Id. at 288-89, 115 S.Ct. 2137.

IV. Merits.

Thomas asserts three grounds for dismissal, namely, lack of personal jurisdiction, improper venue, and equitable consideration of where this case is best heard under the broad discretion to stay or dismiss the case granted to the court by the Declaratory Judgment Act. While the Declaratory Judgment Act expanded the remedies available to the federal courts, it did not expand our jurisdiction to include cases that we could not otherwise hear. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-72, 70 S.Ct. 876, 94 L.Ed. 1194 (1950). As such, I must first determine jurisdiction and venue are proper before I can decide to hear or dismiss a case over which I may not initially have jurisdiction. Scott v. Chevron U.S.A., Inc., 824 F.Supp. 613, 614 (1993).

A. Personal Jurisdiction.

"`Because a court without jurisdiction over the parties cannot render a valid judgment, we must address Defendants' personal jurisdiction argument before reaching the merits of the case.'" OMI Holdings, Inc. v. Royal Insurance Co. of Canada, 149 F.3d 1086, 1090 (10th Cir. 1998) (quoting Leney v. Plum Grove Bank, 670 F.2d 878, 879 (10th Cir.1982)). In a case such as this, where a defendant moves to dismiss for lack of personal jurisdiction without holding an evidentiary hearing, the plaintiff need only make a prima facie showing of personal jurisdiction to defeat the motion. Rambo v. American Southern Ins. Co., 839 F.2d 1415, 1417 (10th Cir.1988). Such prima facie case can be established via affidavit alleging facts that would support jurisdiction over the defendant. Inconsistencies between the parties' affidavits must be resolved...