Article

Note: Big Rivers Electric Corporation (Buyer/Beneficiary), a Kentucky corporation, engaged ADA-ES, Inc. (Manufacturer/Applicant), a Colorado company, to manufacture, deliver, and install a Dry Sorbent Injection System at Buyer/Beneficiary’s Kentucky power plant. To assure performance of the new system, Manufacturer/Applicant obtained a USD 807,651 standby letter of credit in favor of Buyer/Beneficiary. “[U]nder conditions that were set forth in [Manufacturer/Applicant]'s Performance Guarantee”, the new system would reduce certain emission levels below five parts per million when combined with a particular amount of sorbent.

Following a failed performance test conducted by Buyer/Beneficiary using “basic hydrated lime”, Manufacturer/ Applicant insisted that Buyer/Beneficiary use “high reactivity hydrated lime”. When the second test failed, purportedly done without the alternative lime, Buyer/Beneficiary alleged breach of contract and demanded USD 605,458.78 from Manufacturer/Applicant. After Manufacturer/Applicant denied it was in breach, Buyer/Beneficiary drew on the standby and was paid the full USD 807,651.00. Subsequently, Manufacturer/Applicant sued Buyer/Beneficiary for fraud, unjust enrichment, breach of U.S. U.C.C. warranties, and breach of contract. The United States District Court for the District of Colorado, Martinez, J., sua sponte, ordered the case transferred to the United States District Court for the Western District of Kentucky.

After indicating that the court could exercise pendent personal jurisdiction over Buyer/Beneficiary and that the “central issue in this litigation is whether [Buyer/Beneficiary] … breached the Contract for the installation of a DSI system in Kentucky, which is governed by Kentucky law, when it withheld funds and withdrew Letter of Credit funds”, the Judge addressed whether the forum was appropriate. As a threshold matter, the case “might have been brought in the proposed transferee district” because Buyer/Beneficiary is located there and the events giving rise to the case occurred there. The Judge then considered whether a venue change would be appropriate under the nine “competing equities” found in Chrysler Credit Corp. v. Country Chrysler, Inc., 928 F.2d 1509, 1516 (10th Cir. 1991); namely: “(1) plaintiff's choice of forum; (2) the accessibility of witnesses and other sources of proof, including the availability of compulsory process to insure attendance of witnesses; (3) the cost of making the necessary proof; (4) questions as to the enforceability of a judgment if one is obtained; (5) relative advantages and obstacles to a fair trial; (6) difficulties that may arise from congested dockets; (7) the possibility of the existence of questions arising in the area of conflict of laws; (8) the advantage of having a local court determine questions of local law; and (9) all other considerations of a practical nature that make a trial easy, expeditious and economical.”

The Judge explained that although the Manufacturer/Applicant’s choice of forum weighs heavily, most witnesses and other evidence would be in Kentucky. The Judge then explained that a judgment rendered in one federal court may be enforceable in another by a simple registration process and that both courts could provide a fair trial. The Judge then considered the congestion of each docket and concluded that Kentucky was less congested. As the contract stipulated that Colorado law governed the performance guarantee and that Kentucky law governed the underlying contract, the Judge observed that there were no conflict of law issues. The Judge stated that the contract issues would have to be resolved before the performance guarantee issues, and so using the performance guarantee to secure personal jurisdiction would not be proper.

In explaining the ruling the Judge stated, “[t]he Court finds that using the Letter of Credit as a hook to assert personal jurisdiction over [Buyer/Beneficiary] for claims arising pursuant to the underlying contract is the legal equivalent of the Letter of Credit tail wagging the breach of contract dog, and the Chrysler factors need to be evaluated with this context firmly in mind. As such, in its discretion, the Court finds that sua sponte transfer of this case to the Western District of Kentucky is warranted and appropriate.”

[WMIV]

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