Seven Seas Petroleum, Inc. v. CIBC World Markets Corp.
| Decision Date | 20 January 2012 |
| Docket Number | CIVIL ACTION NO. 4:08-3048 |
| Parties | SEVEN SEAS PETROLEUM, INC., Plaintiff, v. CIBC WORLD MARKETS CORP. Defendant. |
| Court | U.S. District Court — Southern District of Texas |
This is a commercial dispute between Plaintiff Seven Seas Petroleum, Inc. ("Seven Seas"), an oil and gas exploration company, and Defendant CIBC World Markets Corporation ("CIBC"), a firm retained by Seven Seas to provide financial advice and assistance. Seven Seas brings claims against CIBC for breach of fiduciary duty, aiding and abetting breach of fiduciary duty by certain directors of Seven Seas, conspiracy, gross negligence and fraud. Defendant CIBC has filed a "Motion to Enforce the Parties' Contractual Waiver of Trial by Jury and to Strike Plaintiff's Jury Demand" [Doc. # 108] ("Defendant's Motion"), to which Plaintiff has responded [Doc. # 111] and CIBC has replied [Doc. # 114]. In addition, Plaintiff Seven Seas has brought a "Motion to Empanel an Advisory Jury Panel Pursuant to Fed. R. Civ. P. 39(c)" [Doc. # 111] ("Plaintiff's Motion"), to which Defendant has responded [Doc.# 115] and Plaintiff has replied [Doc. # 116]. Both motions are ripe for decision. Having considered the parties' briefing, the applicable legal authorities, and all matters of record, the Court concludes that Defendant's Motion should be granted and Plaintiff's Motion should be denied.
In its pleadings, Seven Seas demanded a jury trial.1 CIBC moves to strike Plaintiff's demand, relying on the engagement agreement between Seven Seas and CIBC dated March 8, 2001 ("Agreement").2 The Agreement contains the following language:
Each of the Company [Seven Seas] and CIBC World Markets hereby waives any right it may have to a trial by jury in respect of any claim brought by or on behalf of either party based upon, arising out of or in connection with this letter agreement, the engagement of CIBC World Markets hereunder or the transactions contemplated hereby.3
CIBC emphasizes that the Agreement's wording is broad, waiving "any right" to ajury trial for "any claim" that arises out of or in connection with the Agreement. The parties' execution of the Agreement culminated more than six months of negotiations, during which Seven Seas was represented by Larry A. Ray, its President and Chief Operating Officer, and that numerous drafts were exchanged and were reviewed by Seven Seas' counsel at McAfee & Taft.4 The drafts contained the jury waiver but Seven Seas made no objection, despite the fact that other provisions in the drafts were negotiated and modified.5 Seven Seas does not contest CIBC's evidence on this point.6
However, Seven Seas argues that the Agreement is void ab initio under New York law,7 and that the jury waiver is therefore unenforceable. In support of its argument, Seven Seas cites to the Second Circuit's opinion in Sphere Drake Insurance Limited v. Clarendon National Insurance Company, which sets forth the following rule regarding void contracts:
[I]f an agent that has been charged with negotiating a contract on behalfof the principal acts outside the scope of its agency, and the opposing party knows this, then the agent lacks both actual and apparent authority, and the principal is not bound to the contract, for the contract is void—it never came into existence.8
A void contract is one that produces no legal obligation because, for example, there was no meeting of the minds about essential terms. By contrast, a voidable contract is one that is subject to rescission but otherwise creates legal obligations.9
Seven Seas alleges that the Agreement is void because the Seven Seas directors who entered into the Agreement were conspiring with CIBC and acted outside the scope of their authority. In particular, Seven Seas alleges that CIBC conspired with certain Seven Seas directors to make decisions that were not in Seven Seas' best interest, manipulated Seven Seas' financial data to create apparent business justification for secured financing, and issued a defective fairness opinion in order to facilitate the secured financing.10 It further alleges that its Directors acted outside the scope of their authority by authorizing the secured financing, by allowing representation by counsel who had a conflict of interest, and by retaining CIBC to facilitate the transaction when CIBC actually was a "hired gun" that was retained "tosay or do whatever the Directors wanted."11 It argues that it is entitled to a jury trial on the issue of the Agreement's enforceability because the foregoing evidence that the Directors acted outside the scope of their authority is "overwhelming."12
Seven Seas has not alleged facts that would demonstrate a void contract under the rule set forth in Sphere Drake. Seven Seas does not allege that Larry Ray, who negotiated the Agreement on behalf of Seven Seas, acted outside the scope of his agency, nor does Seven Seas allege that CIBC was aware that Ray was acting outside the scope of his agency. In fact, Seven Seas does not allege in its briefing, or in its Second Amended Complaint, that Ray was one of the Directors who had a conflict of interest due to participation in the financing.13 The burden is on Seven Seas toprovide evidence showing that the Agreement is void,14 and Seven Seas has not met this burden. Moreover, CIBC has presented evidence countering the suggestion that Ray acted outside the scope of his agency, in particular, evidence that the full board authorized Ray to negotiate the Agreement with CIBC,15 and evidence that Ray's negotiations with CIBC were on the agenda at Seven Seas' regular staff meetings between October 2001 and March 2001.16 The Court rejects Seven Seas' argumentthat the Agreement was void ab initio.17
Because Seven Seas has not shown that the Agreement was void, the Court turns to the enforceability of the waiver. Jury waivers are enforceable in federal court, particularly in contracts between sophisticated commercial parties, when the waiver is made knowingly, intentionally, and voluntarily.18 When deciding whether thewaiver was knowing, voluntary, and intelligent, federal courts consider (1) whether there was a gross disparity in bargaining power between the parties; (2) the business or professional experience of the party opposing the waiver; (3) whether the opposing party had an opportunity to negotiate contract terms; and (4) whether the clause containing the waiver was inconspicious.19
CIBC argues that all of the factors in this case support the enforceability of the waiver because both parties are corporations, Seven Seas had sophisticated management and legal counsel, the parties negotiated the Agreement over six months, and the Agreement's jury waiver was not inconspicuous.20 Seven Seas does not specifically argue any of the four factors, but argues instead that the four-part test for enforceability is misplaced because such a test assumes an agreement between two principals acting in their own interests, whereas in this case Seven Seas' agents actually were conspiring with CIBC to commit wrongful acts against Seven Seas.21 For the reasons stated above, Seven Seas' argument fails. The Agreement was negotiated by Ray, as authorized by Seven Seas' full board of directors, and SevenSeas has not alleged or presented evidence that Ray conspired against Seven Seas. The Court holds that all four factors weigh in favor of enforceability in this case, and therefore that the jury waiver in the Agreement is enforceable. CIBC is entitled to its bargained-for agreement.22
Seven Seas argues, alternatively, that the Agreement's jury waiver provision does not encompass Seven Seas' conspiracy and aiding and abetting claims.23 Seven Seas alleges that certain services provided by CIBC (in particular, services related to the American Stock Exchange and a "Distressed Company" exemption, the "Sniper Report," and the fairness opinion) were not contemplated by the parties at the time they entered the Agreement and therefore are not governed by the Agreement. The plain language of the Agreement defeats Seven Seas' argument. Seven Seas' conspiracy and aiding and abetting claims are premised on alleged actions by CIBCthat clearly relate to the secured financing contemplated by the Agreement and, as stated above, the waiver is broadly worded to apply to any right to a jury trial regarding "any claim" in connection with the Agreement.24 Courts construing New York law have held that such broad waivers encompass tort claims that are related to contract claims.25
Finally, Seven Seas argues that the Court has the discretion to set aside the Agreement's jury waiver because enforcement would be unconscionable or against public policy.26 The Court does not find enforcement of the jury waiver to be unconscionable or contrary to public policy. The Court declines to set aside thewaiver.
For all of the foregoing reasons, CIBC's Motion to Strike Plaintiff's Jury Demand is granted.
Plaintiff alternatively suggests that, if the Court grants CIBC's motion to strike Seven Seas' jury demand, the Court should empanel an advisory jury pursuant to Federal Rule of Civil Procedure 39(c).27 Rule 39(c) provides:
Advisory Jury; Jury Trial by Consent. In an action not triable of right by a jury, the court, on motion or on its own: (1) may try any issue with an advisory jury; or (2) may, with the parties' consent, try any issue by a jury whose verdict has the same effect as if a jury trial had been a matter of right, unless the action is against the United States and a federal statute provides for a nonjury trial.28
Because CIBC does not consent to an advisory jury, only the first prong of Rule 39(c) is relevant.
Rule 39(c)(1) gra...
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