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Billard v. Angrick

United States District Court, District of Columbia

December 15, 2016

THOMAS BILLARD, derivatively and on behalf of LIQUIDITY SERVICES, INC., Plaintiff,
v.
WILLIAM P. ANGRICK, III et al., Defendants.

          MEMORANDUM OPINION

          BERYL A. HOWELL Chief Judge.

         The plaintiff Thomas Billard, a shareholder of Liquidity Services, Inc. (“LSI”), has filed this derivative action, on behalf of LSI, against ten current and former LSI board members and officers, asserting claims of breach of fiduciary duty, waste of corporate assets, and unjust enrichment.[1] The defendants moved to dismiss this action on forum non conveniens grounds, citing LSI's forum-selection bylaw, see generally Defs.' Mot. Dismiss for Forum Non Conveniens Based on Liquidity Services Inc.'s Forum Selection Bylaw (“Defs.' Mot. Dismiss”), ECF No. 14, which specifies that “the sole and exclusive forum” for any claim by a stockholder that is “based upon a violation of a duty by a current or former director [or] officer” “shall be the Court of Chancery of the State of Delaware.” Defs.' Mot. Dismiss, Declaration of LSI Counsel Miranda S. Schiller (“Schiller Decl.”), Ex. 3.2 to Ex. G (“LSI Bylaws”) ¶ 7.1, ECF No. 14-8. For the reasons explained below, the defendants' motion to dismiss on forum non conveniens grounds is granted.

         I. BACKGROUND

         The plaintiff, a shareholder of LSI, brings this derivative action on behalf of LSI, pursuant to Federal Rule of Civil Procedure 23.1, [2] against ten current and former LSI directors and officers asserting claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment.[3] Compl. ¶¶ 1, 23, ECF No. 1. Shortly after the filing of the complaint, the parties filed a stipulation, indicating the defendants' belief that the plaintiff was “required” to file this action in the Delaware Court of Chancery and that the parties agreed that “the interest of efficiency and judicial economy would be served by allowing the parties to brief the issue of forum non conveniens before any pleading-based grounds for dismissal.” Stipulation and Proposed Order at 1-2, ECF No. 5. The Court agreed, see generally Order (dated Aug. 24, 2016), ECF No. 6, and the parties have briefed the forum non conveniens issue. Although resolution of the pending motion turns on the effect of LSI's forum-selection bylaw, the factual allegations underlying the plaintiff's claims are briefly set out to provide context before explaining the timeline of events resulting in LSI's adoption of a forum-selection bylaw, since this timeline features prominently in the parties' briefing.

         A. The Factual Allegations Underlying Plaintiff's Claims

         Founded in 1999, LSI “provides online auction marketplaces for surplus and salvage assets, and derives its revenue from retaining a percentage of the proceeds from the sales.” Compl. ¶ 67. In 2005, LSI obtained “the exclusive right to manage and sell all United States Department of Defense (‘[DOD]') scrap property.” Id. ¶ 3. “[T]he majority of [LSI's] revenue came from its [DOD] contracts.” Id. Although the DOD contracts were lucrative, the contracts did not provide a guaranteed income stream because of “the competitive nature of the mandatory bidding process required under U.S. law.” Id. ¶ 4. LSI recognized the need to diversify its business to decrease its dependence on the DOD revenue and adopted a two-part strategy for diversification. Id. ¶¶ 4-5, 8. First, LSI endeavored to expand into the retail and capital supply markets and, second, LSI began acquiring competitors. Id. The company referred to these strategies as the “organic” and “inorganic” growth strategies respectively. Id. ¶ 68. The company repeatedly touted its success on these fronts notwithstanding evidence to the contrary. Id. ¶¶ 5-7.

         When these strategies failed, LSI “began to manipulate sales numbers while revenues and margins declined through 2013 and 2014.” Id. ¶ 9. “[T]he Company [also] began issuing . . . statements [that] conceal[ed] the operational problems.”[4] Id. While the defendants allegedly concealed LSI's troubles and thereby “artificially inflated” the company's stock price, Mssrs. Angrick, Rallo, Tique, Gross, Ellis, and Kramer collectively sold “more than $106 million worth of [LSI] stock, ” often in the days following a press release reporting the company's growth, which caused a spike in stock prices. Id. ¶¶ 105-06. For example, during the relevant period, Mr. Angrick “sold 1, 642, 979 shares, approximately 25% of his holdings-and reaped . . . proceeds of $68.2 million.” Id. ¶ 104.

         On May 8, 2014, LSI issued a press release finally revealing to the public what the defendants had allegedly known but failed to disclose for some time: “that [LSI] had suffered ‘unforeseen' losses and [would be] forced to drastically reduce its guidance for the remainder of the fiscal year 2014.” Id. ¶¶ 12, 14. The day of the press release, LSI's share price declined 30%, from $17.31 per share on May 7 to $12.17 on May 8, 2014. Id. ¶ 13.

         B. LSI's Adoption of a Forum-Selection Bylaw

         On December 18, 2014, the plaintiff made a books and records demand under 8 Del. C. § 220, which permits shareholders of a Delaware corporation to inspect a company's records. See Pl.'s Opp'n Defs.' Mot. Dismiss (“Pl.'s Opp'n”) at 4, ECF No. 4. After the parties entered into a confidentiality agreement concerning the materials that would be disclosed pursuant to the plaintiff's demand, LSI produced responsive records. Id. More than a year later, on August 2, 2016, at 10:12 A.M., the plaintiff's attorney emailed LSI's attorney a copy of a ready-to-file complaint so that the parties could “resolve any confidentiality issues in advance of filing as contemplated by the parties' confidentiality agreement.” Id. at 5.

         That same day, LSI held its third-quarter board meeting. See Schiller Decl. ¶ 7. Several days before the meeting, on July 27, 2016, LSI's directors were sent, via email, a Board Book providing an overview of what would be discussed at the meeting. Id. The Board Book's table of contents lists “Exclusive Forum Bylaws” as a topic for discussion. Schiller Decl., Ex. C (“Board Book”) at 2, ECF No. 14-4. On August 2-the same day on which the plaintiff send LSI a copy of his complaint-LSI's Board convened from 8:30 A.M. to 4:00 P.M. and, among other things, adopted a forum-selection bylaw, which provides that the Delaware Court of Chancery is the “sole and exclusive forum” for litigating certain claims against LSI's officers and directors. Schiller Decl. ¶ 10; see also Schiller Decl., Ex. E (“Board Meeting Minutes”) at 1, ECF No. 14-6. On August 4, 2016, LSI filed a Form 10-Q with the Securities and Exchange Commission, disclosing that LSI had adopted the forum-selection bylaw. Schiller Decl. ¶ 13. The following day, LSI's attorney notified the plaintiff's lawyer of LSI's forum-selection bylaw and requested that any complaint be filed in the Delaware Court of Chancery. Schiller Decl., Ex. H (“Defs.' Counsel Email to Pl.'s Counsel”), ECF No. 14-9. Notwithstanding the forum-selection bylaw, the plaintiff filed suit in this Court.

         II. LEGAL STANDARD

         “[T]he appropriate way to enforce a forum-selection clause pointing to a state . . . forum is through the doctrine of forum non conveniens.” Atl. Marine Constr. Co. v. U.S. Dist. Ct. for W. Dist. of Texas, 134 S.Ct. 568, 580 (2013).[5] The Supreme Court has articulated a two-step analysis for addressing a defendant's forum non conveniens motion predicated on a forum-selection clause. See Id. at 581-82. The threshold question is whether the forum-selection clause is valid. See Id. at 581 & n.5. Under M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), forum-selection clauses are presumptively valid and enforceable unless the party opposing enforcement makes a “strong showing, ” id. at 15, or meets a “heavy burden of proof, ” id. at 17, that (1) “enforcement would be unreasonable and unjust;” (2) “the clause was invalid for such reasons as fraud or overreaching;” (3) “enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or judicial decision;” or (4) “trial in the contractual forum would be so gravely difficult and inconvenient that [the plaintiff] will for all practical purposes be deprived of his day in court, ” id. at 15. See also Marra v. Papandreou, 216 F.3d 1119, 1124 (D.C. Cir. 2000) (citing Bremen and explaining that the plaintiff had not “point[ed] to factors typically relied on by litigants seeking to avoid enforcement of forum-selection clauses-for instance, that the clause is the product of fraud or that its enforcement would contravene a strong public policy of the forum in which suit is brought”); Cheney v. IPD Analytics, LLC, 583 F.Supp.2d 108, 118 (D.D.C. 2008) (citing the four Bremen factors).

         If the forum-selection clause is valid, the second step of the analysis is to consider whether public interest factors “overwhelmingly disfavor” dismissal. Atl. Marine, 134 S.Ct. at 583. Such factors include “‘the administrative difficulties flowing from court congestion; the local interest in having localized controversies decided at home; and the interest in having the trial of a diversity case in a forum that is at home with the law.'” Id. at 581 n.6 (quoting Piper Aircraft Co. v. Reyno, 454 U.S. 235, 241 n.6 (1981) (internal alteration omitted)). Public interest factors, however, will “rarely” defeat a forum non conveniens motion predicated on a valid forum-selection ...


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