MRP Trading I A, LLC v. Eberhart

Background

MRP Trading I A, LLC, Portfolio Advisors VIII, LLC, and Allegiance Capital, LLC sued 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. The dispute involves loans obtained by Canary and affiliated companies. The plaintiffs alleged that the Canary defendants defaulted and that Eberhart failed to perform under his personal guaranty.

The operative complaint alleged that the Canary defendants breached the Loan Agreement, Term Note, and Revolving Note in Count 1. Count 2 alleged that Eberhart breached his guaranty obligations. Count 3 asserted unjust enrichment in the alternative against all defendants. Other counts, not addressed by these motions, concerned breach-of-contract and replevin claims related to 24 Equipment Loans.

Each of the Loan Agreement, the Guaranty, the Term Note, and the Revolving Note contained language referring to litigation in Texas, including Houston. The Loan Agreement and Guaranty referred to the non-exclusive jurisdiction of Texas state or federal courts in Houston and preserved the right to sue in courts of other jurisdictions. The notes stated that the parties’ rights were enforceable under the laws of, and in, Texas.

Defendants’ Motions

The Canary defendants moved under Federal Rule of Civil Procedure 12(b)(6) for partial dismissal of Counts 1 and 3 or, alternatively, to sever those counts and transfer them to the United States District Court for the Southern District of Texas, Houston Division, under 28 U.S.C. § 1404(a). Eberhart filed a substantially similar motion concerning Counts 2 and 3 and joined the Canary defendants’ partial-dismissal motion.

The defendants argued that the contractual provisions were mandatory venue-selection clauses. A mandatory clause requires litigation in the selected forum; a permissive clause consents to litigation there without excluding other forums. MRP did not challenge the validity of the provisions but argued that they were permissive.

Court’s Analysis

The court applied Texas law because the parties agreed that Texas law governed the mandatory-versus-permissive question and because the relevant documents contained Texas choice-of-law provisions.

The court first rejected the defendants’ argument that Texas Civil Practice and Remedies Code § 15.020 converted the clauses into mandatory provisions. The court found the statute’s wording capable of multiple reasonable interpretations. Considering the statute’s context, judicial treatment, and the potentially difficult consequences of the defendants’ interpretation, the court concluded that § 15.020 applies only when the parties have agreed to a mandatory venue-selection clause.

The court then interpreted the contract language. The Loan Agreement’s reference to “non-exclusive jurisdiction” and its statement that nothing in the provision limited MRP’s ability to sue in courts with jurisdiction elsewhere showed that the clause was permissive. The Guaranty used similar non-exclusive language, stated that claims “may be heard and determined” in Houston, and preserved the right to bring an action in courts of any jurisdiction. The court therefore found that provision permissive as well.

The court reached the same conclusion for the Term Note and Revolving Note. Although those provisions used the word “shall,” they stated that the parties’ rights were enforceable in Texas and did not say that lawsuits could be brought only there. The court held that all four clauses were permissive.

Disposition

The court denied the Canary defendants’ Motion for Partial Dismissal under Rule 12(b)(6), or alternatively to transfer venue under § 1404(a) and sever claims under Rule 21. It also denied Eberhart’s Amended Motion for Partial Dismissal, or alternatively to transfer venue and sever claims, and his joinder in the Canary defendants’ motion.

The opinion decided the venue-clause issue but did not determine whether the defendants defaulted, whether Eberhart breached the guaranty, or whether any defendant was liable on the claims.