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Rawdon v. Starwood Capital Group

Court of Appeals of Oklahoma, Division I

July 9, 2019

JACK RAWDON; JACK C. RAWDON, as Trustee of the Jack Charles Rawdon Living Trust U/T/A dated April 11, 1999, as amended; and DIANA RAWDON, Plaintiffs/Appellants,
v.
STARWOOD CAPITAL GROUP; STARWOOD VEP CO-INVEST, LLC; EQUITY GROUP INVESTMENTS; EGI-FUND B, LLC; VENTANA EXPLORATION AND PRODUCTION, LLC; ANGRY BEAR INVESTMENTS, LLC; RUSSELL BENNETT, Individually; and HEATHER POWELL, Individually, Defendants/Appellees.

          Mandate Issued: 11/14/2019

          APPEAL FROM THE DISTRICT COURT OF OKLAHOMA COUNTY, OKLAHOMA HONORABLE THOMAS E. PRINCE, JUDGE

          Joe E. White, Jr., Charles C. Weddle III, WHITE & WEDDLE, P.C., Oklahoma City, Oklahoma, and Melissa S. Hedrick, HEDRICK LAW FIRM, Oklahoma City, Oklahoma, for Plaintiffs/Appellants,

          Sam R. Fulkerson, Lori Fixley Winland, OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C., Oklahoma City, Oklahoma, and Benjamin T. Kurtz, Donna M. Welch, Jeffrey L. William, KIRKLAND & ELLIS LLP, Chicago, Illinois, for Defendants/Appellees.

          KENNETH L. BUETTNER, JUDGE

         ¶1 Plaintiffs Jack C. Rawdon (Jack) and Diana Rawdon (Diana) (collectively "the Rawdons") appeal from an order dismissing their suit against Starwood Capital Group, Equity Group Investments, and others that had invested in a company founded by Jack (collectively "Investors"). The Rawdons sought claims including fraud, breach of fiduciary duty, and conspiracy against Investors. The trial court held that a forum selection clause contained in the LLC agreement between the Rawdons and Investors required the controversy be brought in a court seated in New York, New York. Finding that jurisdiction was therefore not proper in Oklahoma, the trial court granted Investors' motion to dismiss. The Rawdons appeal. We affirm the trial court.

         ¶2 In 2015, Jack formed an oil and gas business venture, Ventana Exploration and Production, LLC (VEP), of which he was the sole member. The Rawdons thereafter worked to build VEP and actively sought investors for the company. In 2016, the Rawdons allowed the first investor to join VEP, [1] at which point VEP's company units were distributed in units categorized as "A" and "B" units. The Rawdons continued to seek additional investors for VEP.

         ¶3 In January 2017, VEP and Starwood Capital Group (Starwood) (one of the defendant Investors) entered into a Restricted Unit Award Agreement, where 10, 000 "C" units were issued--5, 000 to VEP and 5, 000 to Starwood. Of the units allocated to VEP, 2, 000 were awarded to Jack and 400 were awarded to Diana, with the rest going to other individual stakeholders in VEP. In return for the issuance of units, Starwood committed $10 million to VEP, with the intention of seeking and procuring additional investors in the company. Starwood then pitched VEP to Equity Group Investments (EGI) (another defendant Investor). During negotiations with EGI, the parties discussed the possibility of the creation of a second business venture--VEP II--in which EGI might have been willing to invest if the first VEP investment faired well.

         ¶4 On March 28, 2017, the Third Amended LLC Agreement (the LLC Agreement) was executed by Starwood, EGI, the Rawdons, and other individual stakeholders of VEP. The Agreement implemented a new "Equity Incentive Plan" whereby VEP's Board could issue additional "C" units to VEP stakeholders and executives. The new incentive plan specified that "C" units granted to executives would vest according to a certain schedule, beginning with 10% vesting at the initial grant (i.e., at the time of execution of the LLC Agreement on March 28, 2017) and an additional 10% vesting every 12 months thereafter. The plan stated that the final 40% would vest immediately upon the sale of VEP. The plan further stated that the units would cease to vest according to the schedule in the event that the "[e]xecutive is no longer a full-time employee of the Company." At the time the Agreement was executed, the "C" units were distributed in the following manner-- Starwood: 5, 000 units (45%), EGI: 1, 111 units (10%), Jack: 2, 000 units (18%), Diana: 400 units (3.6%). [2] Where the Rawdons were "executives" under the definition in the LLC Agreement, however, only 10% of the Rawdons' units vested at the time of the "initial grant." Yet, 100% of EGI and Starwood's units vested at that time. Calculations given in July 2017 gave the potential value for each type of unit upon the successful sale of VEP. According to these calculations, Jack's "C" units were worth approximately $18 million and Diana's were worth approximately $3.5 million.

         ¶5 Following a series of disagreements amongst the parties, the Rawdons were terminated from their positions as executives at VEP June 13, 2018. According to the terms of the Agreement, all of the Rawdons' non-vested "C" units were reacquired by VEP upon their termination. As such, the Rawdons retained only 20% of their "C" units, which were those units that had vested at the time the Rawdons were removed from the company.

         ¶6 The Rawdons filed suit against Starwood, EGI, VEP, and other stakeholders October 31, 2018. In their petition, the Rawdons alleged fraud, breach of fiduciary duty, conspiracy, malicious wrong, interference with business relations, and unjust enrichment. The Rawdons claimed that Investors created and executed a scheme whereby Investors could defraud the Rawdons out of their "C" units, as well as the opportunity to pursue the VEP II venture, thus retaining the profits for themselves. Investors responded by filing a motion to dismiss for failure to state a claim based upon the inclusion of a forum selection clause in the LLC Agreement. The clause cited by Investors in their motion provided that "any action or proceeding arising out of, or relating to, this agreement" shall be subject to the "exclusive jurisdiction of any state or federal court sitting in New York, New York." The Rawdons opposed the motion to dismiss, arguing (1) that their claims were not encompassed by the Agreement; (2) that the LLC Agreement clause was procured by fraud; and (3) enforcing the forum selection clause would be unfair and unreasonable.

         ¶7 A hearing was held on the motion to dismiss February 8, 2019, after which the trial court permitted the filing of additional briefs by both parties. Following review of the additional briefs, the trial court granted Investors' motion to dismiss March 13, 2019. In its order granting dismissal, the trial court held that the Rawdons' claims were encompassed by the Agreement and the Rawdons had failed to demonstrate that the forum selection clause itself had been procured by fraud. The Rawdons appeal.

         ¶8 On appeal, the Rawdons argue the trial court erred in granting Investors' motion to dismiss because (1) the trial court failed to accord the Rawdons' allegations the proper review; (2) the trial court did not allow the Rawdons the opportunity to amend their petition; (3) the trial court erroneously determined that the Rawdons' claims were encompassed by the Third Amended LLC Agreement; and (4) the court failed to consider whether public interest factors weighed against enforcement of the forum selection clause, where the LLC Agreement was allegedly procured by fraud.

         ¶9 The United States Supreme Court has recognized that parties may agree to submit to the jurisdiction of a particular court by way of a contractual forum selection clause. Nat'l Equip. Rental, Ltd. v. Szukhent, 375 U.S. 311, 316 (1964). The United States Supreme Court has acknowledged that parties to a contract may agree in advance to submit to the jurisdiction of a given court. Id. A forum selection clause acts as a stipulation wherein the parties ask the court to give effect to their agreement by declining to exercise its jurisdiction. Adams v. Bay, Ltd., 2002 OK CIV APP 117, ¶ 5, 60 P.3d 509. "Absent compelling reasons otherwise, forum selection clauses are enforceable." Id. (citing Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991); The Bremen v. Zapata Off--Shore Co., 407 U.S. 1, 15 ...


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