Summary
noting great respect given to plaintiff's choice of forum
Summary of this case from Aveta v. ColónOpinion
C.A. No. 19406
Submitted: March 25, 2002
Decided: April 29, 2002
David C. McBride, Esquire, Richard H. Morse, Esquire, Martin S. Lessner, Esquire, YOUNG CONAWAY STARGATT TAYLOR, LLP, Wilmington, Delaware; John Payton, Esquire, Patrick J. Carome, Esquire, David W. Ogden, Esquire, WILMER, CUTLER PICKERING, Washington, D.C.; Thomas P. McGonigle, Esquire, John L. Reed, Esquire, DUANE MORRIS, LLP, Wilmington, Delaware; Ellen Vargyas, Esquire, AMERICAN LEGACY FOUNDATION, Washington, D.C., Attorneys for Plaintiff.
Stephen E. Herrmann, Esquire, Robert W. Whetzel, Esquire, Steven J. Fineman, Esquire, RICHARDS, LAYTON FINGER, Wilmington, Delaware; Jim W. Phillips, Jr., Esquire, Robert J. King, III, Esquire, Charles E. Coble, Esquire, BROOKS, PIERCE, McLENDON, HUMPHREY LEONARD, LLP, Greensboro, North Carolina, Attorneys for Defendant.
MEMORANDUM OPINION
Defendant moves to dismiss or stay the pending Delaware complaint for declaratory and injunctive relief in favor of its North Carolina state court action. For the reasons herein stated, the motion to stay or dismiss is denied.
I.
Plaintiff American Legacy Foundation ("the Foundation") was formed in 1999 as a Delaware non-profit corporation with the stated goal of creating advertising to reduce youth tobacco product usage in the United States. The Foundation exists by virtue of a Master Settlement Agreement ("MSA") reached in 1998, whereby the nation's largest cigarette companies settled lawsuits brought against them by the attorneys general of 46 states (the "Settling States") seeking monetary and injunctive relief for the injuries inflicted upon the states and their citizens by tobacco products. Defendant Lorillard Tobacco Company ("Lorillard") is the oldest tobacco company in the United States and is a party to the MSA.
The Foundation is funded in part by payments "made at the direction and on behalf of Settling States," which funds represent a part of the settlement payments to the Settling States made by Lorillard and the other tobacco companies that are signatories to the MSA. The Foundation is not a signatory to the MSA and is not identified therein as an intended beneficiary. Nevertheless, organizational documents of the Foundation incorporate sections of the MSA in a manner contemplated by that agreement. Notably, § 12.2 of Article XII of the Foundation's bylaws provides as follows:
The Foundation shall establish a Fund within the Foundation to be known as the National Public Education Fund. The National Public Education Fund shall be used only for public education and advertising regarding the addictiveness, health effects, and social costs related to the use of Tobacco Products, as defined in the Master Settlement Agreement, and shall not be used for any personal attack on, or vilification of, any person (whether by name or business affiliation), company, or government agency, whether individually or collectively.
American Legacy Foundation Bylaws, Article XII, § 12.2 (emphasis added).
The second sentence above is based on similar language found in Section VI(h) of the MSA.
Since its formation, the Foundation has run "a nationwide public health campaign to educate the public, with a particular emphasis on youth, about the harms associated with tobacco products." The Foundation's primary advertising campaign, entitled "the truth," includes the use of trade and service marks including "truth," "the truth," "infect truth," the truth.com and the like. As part of this ad campaign, the Foundation produced a radio advertisement entitled "Dog Walker." The advertisement consists of a recorded telephone conversation involving an actor hired by the producers of the advertisement and two real-life Lorillard employees who were unaware they were speaking with an actor. The actor claims to be a dog walker and offers to sell dog urine he has collected to "you tobacco people" because dog urine contains urea, which is "one of the chemicals you guys put in cigarettes." During the summer of 2001, the Foundation ran the "Dog Walker" ad for six weeks.
Vargyas Aff. ¶ 4.
Id. ¶ 6.
In response to this ad, in July 2001 Lorillard threatened to take legal action against the Foundation. On July 3, 2001, Lorillard's outside counsel sent a letter to the Chairman and CEO of the Foundation's lead advertising agency — based in Massachusetts — claiming that the "Dog Walker" ad ran afoul of a Massachusetts law which prohibits the taping of a telephone conversation without the consent of all parties to the conversation. The letter stated other potential legal claims but did not mention the MSA. On July 6, 2001, outside counsel for the advertising agency responded by letter stating that the telephone call was not unlawful because it had been made from New York and received in North Carolina and both states allow one-party consent for recording telephone conversations.
On July 18, 2001, a Lorillard vice president wrote to the Foundation's president and CEO complaining of, among other things, the "false and misleading" content of the "Dog Walker" ad, because "[u]rea is a compound that naturally occurs in tobacco leaf" and Lorillard "does not add urea to its cigarettes." In that letter, Lorillard also threatened to file a formal complaint with the Federal Communication Commission ("FCC") objecting to the broadcast of the telephone call recorded without its employees' knowledge. The Foundation's outside counsel responded with a letter stating that the recording of the "Dog Walker" ad had not violated any state or federal laws or regulations and asking a number of questions regarding urea and Lorillard products. A July 24, 2001 letter response from Lorillard stated that it intended to "seek redress elsewhere." In October 2001, Lorillard filed a Motion for a Declaratory Ruling with the FCC which focused on the "Dog Walker" ad. The FCC has yet to issue a ruling on the motion.
Id. ¶ 9.
Id. ¶ 11.
In a November 13, 2001 letter, Lorillard threatened the Foundation with suit in North Carolina. A draft complaint attached to the letter set forth claims that the "Dog Walker" ad was defamatory and violated a North Carolina law against unfair or deceptive trade practices. The draft complaint did not assert any claim under the MSA, although the letter did state that, if filed, the complaint might be amended to include claims for breach of the MSA. Two telephone conversations between representatives of Lorillard and the Foundation ensued in December 2001 during which the possibility of an out-of-court resolution to the threatened North Carolina action was discussed.
In the new year, Lorillard's approach changed. On January 10, 2002, Lorillard suggested that, as a condition of settlement, the Foundation meet with all of the major tobacco manufacturers to ensure that its advertisements are in compliance with the MSA. In a January 18, 2002 letter ("the January 18 Letter"), Lorillard for the first time suggested that it intended to abandon its defamation and unfair and deceptive trade practices claims in favor of contract claims based on the MSA. The January 18 Letter was delivered to the Foundation and copies were sent to the Settling States, the National Association of Attorneys General, and the signatory tobacco companies.
In the January 18 Letter, Lorillard communicated its intent to bring suit against the Foundation, following the expiration of a 30-day notice of suit provision of the MSA. Citing the anti-vilification language of the MSA, since incorporated in the Foundation's bylaws, Lorillard claimed that "it has become abundantly clear that [the Foundation]'s `truth campaign' is not about conveying the truth about tobacco products to the American public, so much as vilifying and personally attacking tobacco companies and their employees." While the January 18 Letter gave notice of Lorillard's intent to initiate a proceeding, it did not state where the action would be filed and did not include a draft complaint.
Id. ¶ 20.
On January 23, 2002, newspaper articles appeared in The New York Times and via the Associated Press newswire which quoted a Lorillard spokesman as saying, "it is conceivable that Lorillard might have to sue in all [46 states], which it has not yet decided to do." On February 7, 2002, Foundation attorneys called Lorillard's counsel to ask where and when the suit would be filed. Lorillard's counsel reaffirmed its intent to seek enforcement of the MSA but refused to say where or when it would file suit.
Bernard Stamler, Lorillard Tobacco Threatens Legal Action Against a Foundation for Its Tough Antismoking Campaign, N.Y. TIMES, Jan. 23, 2002, at C10.
On February 13, 2002, the Foundation filed suit in this court, seeking declaratory and injunctive relief. The Foundation is not a signatory to the MSA and, thus, argues that it is not subject to the provision of that contract requiring 30 days' notice of an intent to file suit. The Foundation's complaint alleges that because Lorillard refused to identify the forum or fora in which Lorillard intended to proceed against the Foundation, it left the Foundation "exposed to the possibility that Lorillard is about to sue it in any or all of the 46 state courts that have continuing jurisdiction with respect to the MSA and the related consent decrees." In light of the potential deleterious effects the continuing treat of litigation would have on the Foundation's day-to-day operations — including its future decisions regarding the content of its anti-smoking ad campaigns — the Foundation seeks from this court a judicial declaration that it is not subject to enforcement actions under the MSA. The Foundation asserts that an injunction is necessary to spare it from the burden and expense of having to defend litigation in multiple jurisdictions throughout the country, as well as from the risk of being subjected to multiple and conflicting court rulings regarding its legal rights and obligations.
Foundation Compl. ¶ 7.
The 30-day period prescribed by the MSA expired on Sunday, February 17, 2002. Despite the fact that the courts in North Carolina were open the following day, Lorillard, which was closed for Presidents' Day, waited until Tuesday, February 19, 2002 to file its suit against the Foundation in North Carolina. That complaint alleges both that the Foundation is in breach of the anti-vilification provisions of the MSA through that provision's adoption in the Foundation's bylaws, and that harassing and vulgar e-mails from the Foundation to Lorillard's employees violate North Carolina's Cyberstalking Act. Lorillard seeks relief for the Foundation's alleged breach of the MSA through a Declaratory Order defining the Foundation's obligations under the MSA and an award of $1. It also seeks damages in the amount of $1 for the Foundation's alleged breach of the duty and covenant of good faith and fair dealing. Finally, Lorillard seeks preliminary and permanent injunctions requiring the Foundation to comply with its alleged obligations under the MSA, prohibiting it from sending and assisting others to send harassing e-mails to Lorillard employees, and defining the Foundation's obligations under the MSA.
Lorillard then filed this motion to stay or dismiss the Delaware complaint in favor of its North Carolina action.
II.
A plaintiff's choice of Delaware as a forum will not ordinarily be overturned. This is especially true when there is no other action pending in another jurisdiction or where the Delaware action is "first filed." In order to obtain "the drastic relief of dismissal" in the face of the respect traditionally accorded to a plaintiff's choice of forum, a defendant must establish that it will "suffer overwhelming hardship and inconvenience if forced to litigate in Delaware."
Mar-Land Indus. Contrs., Inc. v. Caribbean Petroleum Ref., L.P., 777 A.2d 774, 778 (Del. 2001).
Id. at 778.
Ison v. E.I. duPont de Nemours Co., 729 A.2d 832, 842 (Del. 1999); Chrysler First Business Credit Corp. v. 1500 Locust Ltd. Partnership, 669 A.2d 104, 108 (Del. 1995).
Chrysler, 669 A.2d at 108.
The crux of Lorillard's argument is that this court should not accord first-filed status to the Foundation's complaint because the Foundation acted inequitably by filing suit during the 30-day notice period required under the MSA. This claim of inequitable or unfair conduct is wide of the mark, for several reasons. First, the 30-day notice period does not apply to the non-MSA claims asserted in Lorillard's North Carolina complaint; moreover, it would not seem to apply at all to claims asserted by the Foundation, which is not a signatory to the MSA. Second, even if a declaratory judgment action is filed to "defeat defendant['s] choice of forum when [it was] on the verge of filing their own case . . . it does not disentitle plaintiff from the use of this forum, where justice may be had without hardship to any party." Thus, the Foundation's decision to preempt Lorillard's choice of forum by filing first in Delaware was merely strategic, not inequitable.
Household Int'l v. Eljer Indus., 1993 Del. Ch. LEXIS 67, at *2 (Del.Ch.).
Williams Natural Gas Co. v. Amoco Prod. Co., 1990 Del. Ch. LEXIS 13, at *28 (Del.Ch.).
More fundamentally, no principle of equity required the Foundation to sit idly by when confronted with a double peril; namely, that (1) Lorillard would institute suits in multiple jurisdictions, or (2) having once again threatened suit and cast doubt on the legality of the Foundation's activities, Lorillard would further postpone filing a coercive action. The Foundation has an interest in and the right to vindicate its position that Lorillard has no basis to assert claims against it under the MSA and that Lorillard has no right to enforce the Foundation's bylaws. It has a similar right to seek a declaration, in the alternative, that the components of the Foundation's ad campaign do not constitute "personal attack[s]" or "vilification" within the meaning of the MSA and the Foundation's bylaws. Finally, the Foundation also has the right to seek equitable relief preventing Lorillard from suing it in multiple or numerous jurisdictions on the same claims. Therefore, I do not find the Foundation's decision to file suit in this court to be either inequitable or illegitimate.
See, 1 DONALD J. WOLFE, JR. MICHAEL A. PITTENGER, CORPORATE AND COMMERCIAL PRACTICE IN THE DELAWARE COURT OF CHANCERY, § 2-3[b] at 2-46.1 (2001).
For these reasons, the Foundation is entitled to rely on the first-filed status of this action. Thus, the motion to stay or dismiss will be granted only if Lorillard is able to establish with particularity that one or more of certain specified factors imposes "overwhelming hardship and inconvenience if forced to litigate in Delaware." The factors are as follows:
Chrysler, 669 A.2d at 108.
General Foods Corp. v. Cryo-Maid, Inc., 198 A.2d 681, 684 (Del. 1964), overruled in part sub nom. Pepsico, Inc. v. Pepsi-Cola Bottling Co., 261 A.2d 520 (Del. 1969).
1. The applicability of Delaware law;
2. The ease of access to proof;
3. The availability of compulsory process for witnesses;
4. The pendency or nonpendency of a similar action or actions in another jurisdiction;
5. The possibility of a need to view the premises; and
6. All other practical considerations.
As a brief consideration of each factor makes clear, Lorillard cannot meet this burden.
Because both Lorillard and the Foundation are Delaware entities and the interpretation and enforcement of the Foundation's bylaws is an issue in this case, Delaware law is clearly applicable to at least some of the claims. In addition, while the ease of access to proof is greater for Lorillard in North Carolina, Lorillard has not identified "specific pieces of evidence necessary to its defense that it will not be able to produce in Delaware" or that its access to the testimony of witnesses would be "impeded" if required to proceed in Delaware. Moreover, Lorillard concedes that the availability of compulsory process for witnesses is equal as between Delaware and North Carolina. The Delaware action has been determined first-filed and Lorillard concedes a view of the premises is not necessary. Finally, Lorillard has raised no other practical consideration which would impose upon it extraordinary hardship were this case to proceed in Delaware.
See e.g. First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 621 (1983) ("As a general matter, the law of the state of incorporation normally determines issues relating to the internal affairs of a corporation.").
Mar-Land at 781.
In addition, as a Delaware corporation, Lorillard cannot claim serious inconvenience by having to litigate in this court. See, e.g., Asten v. Wangner, 1997 Del. Ch. LEXIS 135, at *3 (Del.Ch.) ("No Delaware corporation can, absent unusual circumstances, claim surprise or inconvenience of litigating against another Delaware corporation in the state of incorporation of both parties.").