pleading." 5A CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE: CIVIL 2D § 1391, at 752 (1990).
As plaintiff recognizes, the critical questions are whether and in what circumstances the district court may permit a defendant who omits a defense from such a motion to cure the omission by supplementing the motion.
Plaintiff's first hurdle is MacNeil v. Whittemore, 254 F.2d 820 (2d Cir. 1958), in which the Second Circuit held that an amendment of a Rule 12 motion two days after filing to include a previously omitted defense of improper venue was sufficient to avoid waiver. If MacNeil is good law, then the district court's power to permit supplementation of the motion is clear.
Plaintiff contends that MacNeil did not survive the 1966 amendment of Rule 12(h)(1). That amendment, however, resolved the distinct questions whether a waivable Rule 12 defense (a) omitted from a motion nevertheless could be asserted subsequently by answer, and (b) omitted from an answer could be resurrected by an amended answer. While the solutions to those problems took a broad pro-waiver position, they did not address the issue at bar. The Court therefore assumes, in the absence of a contrary indication from the Court of Appeals, that it has the power in an appropriate case to permit supplementation of a motion to avoid a Rule 12(h)(1) waiver.
The circumstances in which such amendment or supplementation ought to be permitted are less clear. MacNeil articulates one consideration: the application must be made in advance of the hearing of the motion. MacNeil, 254 F.2d 820. Another factor appropriately considered is the time interval between the omission and the attempted correction. See Friedman v. World Transp., Inc., 636 F. Supp. 685, 688 (N.D. Ill. 1986). As intent frequently is relevant to issues of waiver, the likelihood that the omission of the defense sought to be added to the motion was inadvertent also should play a role in the analysis, as should the defendant's good or bad faith. See Britton v. Cann, 682 F. Supp. 110, 113 (D. N.H. 1988).
In this case, Inoco meets the sine qua non that its application be made prior to the hearing of the motion. Nevertheless, other circumstances cut in favor of a different result. It is difficult to imagine that the omission of the jurisdictional defense from the original motion was inadvertent. Defendants, both foreign corporations, were represented by able and esteemed counsel who could not possibly have failed to focus on the issue and who, indeed, referred in their opening brief to the consent to jurisdiction clause in the SPA (Def. Mem. 14 n.8), circumstances strongly suggesting that the omission was deliberate. Significantly, defendants have offered no affidavit or other evidence to the contrary. Moreover, there is a ready tactical explanation for defendants' omission of the defense from their motion which has been laid out in plaintiff's papers and not denied by the defendants.
The defendants admittedly wish to avoid the deposition of Mr. Rowland.
They acknowledge also that the Court, under Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 72 L. Ed. 2d 492, 102 S. Ct. 2099 (1982), has the power to order a foreign defendant who is contesting personal jurisdiction to submit to discovery for the purpose of litigation of the jurisdictional issue. (Tr., Dec. 26, 1996, 3-4) In consequence, assertion of the jurisdictional defense in the motion risked an early ruling requiring Mr. Rowland to submit to examination at least on the jurisdictional issue. By moving to dismiss or stay in favor of the foreign litigation, however, the defendants were in a position to seek a stay of all discovery, as indeed they did. The jurisdictional defense first was raised only after (a) the Court rejected defendants' effort to stay discovery and entered a scheduling order requiring merits discovery to go forward, and (b) defendants reneged on a commitment to produce Mr. Rowland for deposition. It was raised on the same day that defendants advised the Court that Mr. Rowland had resigned from the board in what the Court regards as an effort to avoid being deposed in this action.
In these circumstances, the Court declines to permit defendants to supplement their motion to assert the defense of lack of jurisdiction over the person. The Court concludes that the omission of the defense -- given the caliber of counsel, the motion that was filed, and the lack of any evidence or contention to the contrary -- was deliberate. Moreover, the evidence indicates that defendants intentionally omitted the defense in an effort to gain a tactical advantage and now are trying to reverse direction after their initial ploy failed.
The Merits of the Jurisdictional Defense
Given the clear and unequivocal submission to jurisdiction contained in the SPA, the defendants' only basis for contesting personal jurisdiction in this Court is the assertion that the Settlement Agreement discharged all provisions of the SPA. Even if the Court were prepared to permit the belated assertion of the defense, it would reject defendants' contention.
Defendants certainly are correct in asserting that parties who resolve a dispute concerning a contract may discharge that contract by substituting a new agreement for the old. See generally Blair & Co. v. Otto V., 5 A.D.2d 276, 171 N.Y.S.2d 203 (1st Dept. 1958) (Breitel, J.); Goldbard v. Empire State Mut. Life Ins. Co., 5 A.D.2d 230, 171 N.Y.S.2d 194 (1st Dept. 1958) (Breitel, J.). The question whether the subsequent agreement does so, however, depends on "the intention of the parties, as objectively manifested." Goldbard, 5 A.D.2d at 234, 171 N.Y.S.2d at 199. Sometimes "the intention may be determined from documents exclusively" while on other occasions it will "depend upon conversation, surrounding circumstances, or extrinsic proof in addition to documentation ..." Id., 5 A.D.2d at 234, 171 N.Y.S.2d at 199-200.
Defendants' contention here is that the Settlement Agreement quoted above unambiguously discharges the SPA. Although they do not so acknowledge, they effectively seek judgment on the pleadings or summary judgment on that proposition. The difficulty with defendants' position is that the Settlement Agreement, unlike the contract at issue in Blair, is not dispositive irrespective of whether one approaches the determination of the parties' intention within the four comers of the instrument or considers, in addition, the circumstances in which it was executed. See generally Fireman's Fund Ins. Cos. v. Siemens Energy & Automation, Inc., 948 F. Supp. 1227, 1996 WL 737200, at *6 (S.D.N.Y. 1996).
The language of the Settlement Agreement, while concededly very broad, does not in terms discharge the post-closing obligations of the parties under the SPA. Indeed, its waiver is limited to "farther claims arising out of" the SPA -- language which, if read in pristine isolation, reasonably might be construed as extending only to claims of breach of the SPA and not claims of fraud in the inducement of the SPA, although the broader reading is at least equally tenable. And it is no answer, if one limits one's view to the four corners of the instrument, to say that the narrow construction makes no sense given the fact that the Settlement Agreement was created to dispose of claims for fraud in the inducement as well as for breach of the SPA. To do so would be to expand the frame of the analysis beyond the instrument itself to the attendant circumstances, which would require consideration of other facts as well. As an agreement is ambiguous if it "is reasonably susceptible of more than one interpretation,"
the Settlement Agreement, considered alone, does not establish as a matter of law that the parties intended to discharge the entire SPA.
Expansion of the frame of analysis to consider the circumstances in which the Settlement Agreement was executed yields the same result. To be sure, the fact that the Settlement Agreement disposed of a controversy in which plaintiff asserted a fraudulent inducement claim suggests that the waiver in that document is properly construed as reaching beyond claims for breach of contract. On the other hand, consideration of the terms of the SPA and the overall transaction afford substantial reason to suppose that the parties intended at least some of the obligations undertaken in the SPA to survive the settlement.
The transaction to which the SPA relates involved the purchase by plaintiff of shares of Gulf in exchange for cash and shares of its own common stock. The SPA contained the usual covenants, representations and warranties for a transaction of that character. But it contained also other provisions of importance. For one thing, the transactions made the defendants significant stockholders in the plaintiff. The plaintiff therefore bargained for and obtained both a right of first refusal should the defendants have sought to dispose of shares they acquired and a standstill agreement limiting the proportion of plaintiff's shares that the defendants might hold. (Rowland Aff. Ex. A, §§ 12-13) For another, the transaction was structured in a manner designed to avoid registration and potential future liability under the U.S. securities laws, an objective very much in the interests of both sides and the attainment of which required that each adhere to certain covenants restricting its post-closing activities. (E.g., id. § 5.2) (buyer covenant not to dispose of Gulf shares unless transfer registered under the Securities Act or exempt from registration).
It is far from clear -- in the absence of a fully developed record -- that the one page settlement agreement was intended to discharge the obligations of the parties under the SPA with respect to the provisions referred to above or anything else not involved in the dispute that the Settlement Agreement resolved, including the consent to jurisdiction. Such a conclusion would require a leap of faith and the turning of a blind eye to the fact that there is no reason to believe that either party even thought of whether the Settlement Agreement would have any such effect, much less that the "objectively manifested" intentions of the parties comprehended such an object.
Defendants rely principally on Blair & Co., asserting that the case stands for the proposition that the Settlement Agreement here is dispositive. The case, however, does not support their position.
In that case, Blair had agreed to assist the defendant in financing certain oil concessions in exchange for the defendant's agreement to pay Blair 30 percent of the net profits derived. A dispute later arose. The parties thereupon entered into an agreement consisting of two documents. The first provided that a new entity would make certain payments to Blair in lieu of the obligations of the defendant. In the second, Blair expressly advised the defendant that "we no longer have any interest in" the original agreement. In time, the new entity failed to pay Blair, and Blair sued the defendant on the original contract. The issue presented to the Appellate Division therefore was whether court below had erred in dismissing Blair's complaint on the ground that the settlement agreement had discharged the original agreement.
The Appellate Division, per Justice Breitel, held that the language of the settlement agreement, especially the second document, unequivocally manifested the parties' intention to discharge the original agreement. In consequence, it concluded that the complaint before the motion court was insufficient. In nevertheless reversed on the ground that Blair should have been given leave to amend to allege facts sufficient to raise an issue of fact as to the intention of the parties.
Blair & Co. does not help defendants here both because the facts are so different and because the disposition in that case does not support defendants' desired result. While the Appellate Division concluded that the facts recited in the complaint in Blair & Co. raised no issue of fact as to the parties' intention, there was nothing comparable in that case to the provisions of the SPA discussed above, the continued importance of which following the settlement in this case suggest that the parties did not intend to discharge the SPA entirely. Moreover, the Appellate Division held that Blair was entitled to an opportunity to demonstrate, notwithstanding the apparently unambiguous language of the settlement documents there at issue, that the parties did not intend to displace the original agreement. Hence, Blair & Co. is entirely consistent with -- indeed, it supports -- this Court's view that the uncertainty as to the proper interpretation of the Settlement Agreement here precludes a conclusion at this stage that the consent to jurisdiction contained in the SPA was discharged by the Settlement Agreement.
There are two additional problems with the defendants' position. First, plaintiff here has alleged that the Settlement Agreement was procured by fraud. In consequence, even if the Settlement Agreement unambiguously discharged the SPA in its entirety, plaintiff would be entitled to an opportunity to litigate that issue before the Court.
Second, defendants' position overlooks the fact that one who appears before a court, even solely for the purpose of contesting the court's jurisdiction, "agrees to abide by that court's determination on the issue of jurisdiction ..." Insurance Corp. of Ireland, 456 U.S. at 706. That agreement requires compliance with "a variety of legal rules and presumptions, as well as straightforward factfinding." Id. at 707. Among those rules is FED. R. CIV. P. 12(d), which permits the Court to defer determination of a jurisdictional challenge, in appropriate circumstances, even as late as trial. Where, as here, the jurisdictional defense depends upon the determination of the merits of the plaintiff's claim, deferral pending development of an appropriate record is particularly appropriate. See 5A WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE§ 1373, at 549-51.
For all of these reasons, the Court simply would not be prepared to say at this early stage that the Settlement Agreement abrogated the defendants' consent to jurisdiction in this forum even if defendants had not waived the defense.
The application for leave to supplement the pending motion to dismiss or stay by adding the defense of lack of jurisdiction over the person is denied. Even if leave were granted, the Court would deny defendants' motion insofar as it seeks to dismiss for lack of jurisdiction over the person.
Dated: January 13, 1997
Lewis A. Kaplan
United States District Judge