ANDERSON & KARRENBERG

Jon V. Harper (#1378)

50 West Broadway, Suite 700
Salt Lake City, UT 84101
Telephone: (801) 534-1700
Facsimile: (801) 364-7697
jharper@aklawfirm.com

ROBBINS GELLER RUDMAN

& DOWD LLP
Randall J. Baron (admitted pro hac vice)
David T. Wissbroecker (admitted pro hac vice)
Edward M. Gergosian
655 West Broadway, Suite 1900
San Diego, CA 92101

Attorneys for Plaintiff

[Additional counsel appear on signature page]

IN THE THIRD JUDICIAL DISTRICT COURT

IN AND FOR SALT LAKE COUNTY, STATE OF UTAH

DONALD HAWORTH and JOHN CAPELA,

on Behalf of Themselves and All Others
Similarly Situated,
Plaintiff,
vs.

PLAINTIFFS OPPOSITION TO
DEFENDANTS MOTION TO STAY
PROCEEDINGS
CLASS ACTION
TIER 3

FX ENERGY, INC., ORLEN UPSTREAM Sp.

z o.o., KIWI ACQUISITION CORP., DAVID Case No. 150907699
N. PIERCE, JERZY MACIOLEK, DENNIS B.
GOLDSTEIN, ARNOLD S. GRUNDVIG, JR. Judge Todd M. Shaughnessy
and H. ALLEN TURNER,
Defendants.

The whole point of adopting the Forum Selection Bylaw was to solve the issue of
multi-forum litigation such that this Court (and courts in other jurisdictions)
would not need to divine the appropriate forum.
Delaware Chancellor Andre G. Bouchard in rejecting a challenge to the validity of an
outbound forum selection provision that designated North Carolina as the sole forum for
shareholder litigation involving a Delaware corporation in City of Providence v. First Citizens
Bancshares, Inc., 99 A.3d 229, 239 (Del. 2014).
I.

INTRODUCTION
Through their motion, Defendants1 are asking this Court to sanction an unprecedented

attempt at a reverse auction, a litigation tactic wherein the defendant[s] in a series of class
actions pick the most ineffectual class lawyers to negotiate a settlement with in the hope that the
district court will approve a weak settlement that will preclude other claims against the
defendant[s]. See Blyden v. Mancusi, 186 F.3d 252, 270 n.9 (2d Cir. 1999).
On March 12, 2014, FX Energy amended its bylaws to adopt a forum selection provision
(the Venue Provision) in connection with claims for breach of fiduciary duty, or any other
actions governed by the internal affairs doctrine or otherwise controlled by Nevada law,
brought against the members of the Companys Board of Directors (the Board). As FX Energy
maintains its corporate headquarters in Salt Lake City, Utah, the Venue Provision requires such
actions to be brought in a state or federal court located within the state of Utah, unless the
Company consents in writing to the selection of an alternate forum. Following the public
announcement of the proposed sale of FX Energy (the Proposed Transaction), plaintiffs

Defendants collectively refer to FX Energy, Inc. ("FX Energy" or the "Company"), David N.
Pierce, Jerzy Maciolek, Dennis B. Goldstein, Arnold S. Grundvig, Jr., and H. Allen Turner.

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Donald Haworth and John Capela (together, the Utah Plaintiffs) brought their action before
this Court (the Utah Action) in accordance with the Venue Provision and are actively litigating
their claims.
Following the announcement of the Proposed Transaction and without the Company
waiving the requirements of its Venue Provision, four shareholders of FX Energy filed similar
actions in the District Court of Clark County, Nevada (the Nevada Actions). Rather than
seeking to enforce the Venue Provision, which would eliminate any concerns over parallel
litigation, Defendants are asking this Court to stand down and allow the litigation to proceed in
Nevada.
Defendants motivation for this nonsensical approach becomes clear when considering
the law firms representing the shareholders in the Utah Action and the Nevada Actions. Under
every available metric, there are two tiers of plaintiffs firms that regularly file claims
challenging merger transactions on behalf of shareholders of public companies one tier that
aggressively litigate these actions and pursue claims for monetary damages, and another tier that
often settle these cases quickly and give away shareholders claims as part of a global release
while providing no material benefits to the class. Although counsel for the Utah Plaintiffs are
among the former tier, having secured a majority of the largest monetary recoveries on record in
this type of action, counsel in the Nevada actions are among the latter tier and do not have the
same track record or approach to litigation. See Joel Edan Friendlander, How Rural/Metro
Exposes the Systemic Problem of Disclosure Settlements, Social Science Research Network,
Nov. 12, 2015 (attached hereto as Exhibit A).

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For these reasons and those stated herein, the Court should deny Defendants motion,
reject their attempt at a reverse action, and act to protect the interests of all shareholders of FX
Energy by ensuring that their claims are litigated by a top tier plaintiffs firm.
II.

ARGUMENT
A.

The Court Does Not Have the Discretion to Stay the Utah Action

While the decision to stay an action in favor of related litigation taking place in another
forum is normally within the discretion of the trial court, that is not the case here. As the Utah
Supreme Court has explained, it is well established precedent that the bylaws of a corporation,
together with the articles of incorporation, the statute under which it was incorporated, and the
[shareholders] application, constitute a contract between the [shareholder] and the corporation,
and that a covenant of good faith and fair dealing exists between [a corporation] and [its
shareholders]. See Ute Indian Tribe of the Uintah & Ouray Reservation v Ute Distrib. Corp.,
2012 U.S. App. LEXIS 245, at *41 (10th Cir. 5 Jan. 2012); see also Boilermakers Local 154 Ret.
Fund v. Chevron Corp., 73 A.3d 934, 939 (Del. Ch. 2013) (finding that the bylaws of a
corporation constitute a binding broader contract among the directors, officers, and
stockholders of the corporation). Although the terms of that contract may be amended, even
unilaterally under certain circumstances, the parties to the contract must abide by its terms. See
First Citizens, 99 A.3d at 231 (upholding a forum selection clause of a Delaware corporation that
designated the state and federal courts of North Carolina as the sole venues in which the
companys shareholders could bring claims for breach of fiduciary duty against corporate
officers and directors).

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Here, all actions brought by FX Energy shareholders concerning the Proposed

Transaction, both in Utah and Nevada, were filed without the Company providing a written
waiver of the requirement of the Venue Provision to bring such claims only in the courts of Utah.
Consequently, only the Utah Action was properly filed, and the Nevada Actions are a violation
of the Venue Provision and a breach of the contractual bylaws existing between FX Energy
shareholders and the Company. Under these circumstances, granting of Defendants motion will
equate to a sanctioning of a breach of contract and punish those shareholders who respected their
contractual obligations.
B.

Even If a Stay Is Discretionary, Defendants Sole Argument Ring Hollow

In instances where the trial court has the discretion to stay an action in favor of parallel
litigation pending in another forum, the Supreme Court of Utah has identified five factors to be
considered in determining whether a stay should be granted: (1) The relative ease of access to
proof; (2) the availability of compulsory process for witnesses; (3) the possibility of the view of
the premises, if appropriate; (4) all other practical problems that would make the trial of the case
easy, expeditious and inexpensive; (5) whether the controversy is dependent upon the application
of the law of this State which the courts herein more properly should decide than those of
another jurisdiction. See Power Train v. Stuver, 550 P.2d 1293, 1295 (1976) (refusing to stay
an action pending in Utah in favor of litigation in California).
Here, while conceding that the remaining factors do not support a stay, Defendants
contend that Nevada is the appropriate forum for the actions concerning the Proposed
Transaction because Nevada law will be applied to the underlying claims. See Defendants

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Motion to Consolidate and Stay Proceedings (Defs. Motion) at 7-9. This argument rings
hollow for two primary reasons.
First, at the time that the Venue Provision was adopted, Nevada law applied to any
claims by FX Energy shareholders to claims for breach of fiduciary duty brought against the
members of the Board, as they do now.

Nonetheless, Defendants designated Utah as the

appropriate forum in which to litigate claims for breach of fiduciary duty, as well as all other
actions arising under Nevada law. Defendants have not identified any emerging issues of
Nevada law that arise in these actions that would undermine their earlier decision to designate
Utah as the appropriate venue. To the contrary, Defendants acknowledge in their motion that
[t]he courts in both Utah and Nevada are well-equipped to hear and determine this dispute. Id.
at 7. In fact, courts throughout the country will routinely apply the law of other jurisdictions
when adjudicating claims of breach of fiduciary duty in the context of a merger dispute. See,
e.g., Matter of Topps Co. Sholder Litig., 859 N.Y.S.2d 907, 2007 N.Y. Misc. LEXIS 8973, at
*19 (2007) (denying motion to stay proceedings in favor of a parallel action pending in the
Delaware Court of Chancery); State Farm Mut. Auto. Ins. Co v. Super Ct., 114 Cal. App. 4th
434, 455 (Cal. App. 2003) (There is no rule of law which requires dismissal of a suitor from
the forum on a mere showing that the trial will involve issues which relate to the internal affairs
of a foreign corporation.).
Second, the issue of assessing the best forum to apply the substantive law becomes moot
when the company has adopted a forum selection provision. In rejecting the same argument in
First Citizens that Defendants make now, the Delaware Court of Chancery found that the issue of
whether the state of incorporation is better positioned to apply the underlying substantive law is

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not a relevant consideration where there is a designated forum for resolving intra-corporate
disputes by virtue of a forum selection clause. 99 A.3d at 239. Accordingly, Defendants
contention that Nevada is a more appropriate forum because the claims will require the
application of Nevada law lacks merit.2
C.

Any Concerns over Parallel Litigation Will Be Eliminated by the

Enforcement of the Venue Provision

As a basis for bringing their motion, Defendants assert that they should not be burdened
by parallel litigation, claiming [t]here is no justification for burdening multiple courts and the
parties with identical challenges to a merger, pressed by identical putative classes of plaintiffs
against identical defendants. Id. at 5. However, the forum selection clauses within corporate
bylaws, like the Venue Provision, are intended to eliminate these exact concerns. As Chancellor
Bouchard explained in rejecting a challenge to the validity of an outbound forum selection
provision that designated North Carolina as the sole forum for litigation concerning a Delaware
corporation, [t]he whole point of adopting the Forum Selection Bylaw was to solve the issue of
multi-forum litigation such that this Court (and courts in other jurisdictions) would not need to
divine the appropriate forum. First Citizens, 99 A.3d at 239; Boilermakers, 73 A.3d at 952
([F]orum selection bylaws are designed to bring order to what boards ... say they perceive to
be a chaotic filing of duplicative and inefficient derivative and corporate suits against the
directors and the corporations.). Indeed, if boards of directors and stockholders believe that a

Although it is not a factor identified in Power Train, Defendants imply that this Court should
yield to the actions pending in Nevada because those actions were filed first. See Defs. Motion
at 5. However, this ignores that all actions were filed at the same procedural stage, and [the
Supreme Court of Utah] is wary of embracing statutory interpretations that confer legal rights
based on victories in races to the courthouse. CCD, L.C. v. Millsap, 116 P.3d 366, 372 (2005).

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particular forum would provide an efficient and value-promoting locus for dispute resolution,
then corporations are free to respond with charter provisions selecting an exclusive forum for
intra-entity disputes. In re Revlon, Inc. Sholders Litig., 990 A.2d 940, 960 (Del. Ch. 2010).
Here, Defendants adopted the very tool intended to eliminate their precise concerns
regarding a multi-forum litigation a forum selection provision that requires shareholders
claims to be litigated in a particular forum.

In order to eliminate any potential problems

regarding inefficiency or inconsistency, Defendants need only enforce the Venue Provision that
they adopted over a year ago. As recent research shows, more than 300 public companies have
adopted forum selection provisions in their charter or bylaws.

Robert M. Daires & Olga

Koumrian, Shareholder Litigation Involving Acquisitions of Public Companies, Cornerstone

Research, 2014 (attached hereto as Exhibit B), at 3. However, to the knowledge of counsel for
the Utah Plaintiffs, this is the first instance in which a company has ever sought to repudiate its
own form selection provision and seek a stay of an action filed in the companys chosen forum,
and no court has ever rejected such a bylaw through an as-applied challenge when adopted this
far in advance of the approval of the disputed merger transaction.
III.

CONCLUSION
For the reasons stated herein, the Utah Plaintiffs respectfully respect that Defendants

motion to stay proceedings be denied.

DATED: November 16, 2015

ANDERSON & KARRENBERG

/s/ Jon V. Harper
Jon V. Harper
50 West Broadway, Suite 700
Salt Lake City, Utah 84101
Telephone: 801/534-1700
Fax: 801/364-7697

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ROBBINS GELLER RUDMAN

& DOWD LLP
RANDALL J. BARON
DAVID T. WISSBROECKER
EDWARD M. GERGOSIAN
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax)
THE BRISCOE LAW FIRM, PLLC
WILLIE C. BRISCOE
8150 N. Central Expressway, Suite 1575
Dallas, TX 75206
Telephone: 214/239-4568
281/254-7789 (fax)
POWERS TAYLOR LLP
PATRICK W. POWERS
Campbell Centre II
8150 North Central Expressway, Suite 1575
Dallas, TX 75206
Telephone: 214/239-8900
214/239-8901 (fax)

ROBBINS ARROYO LLP

BRIAN J. ROBBINS
STEPHEN J. ODDO
600 B Street, Suite 1900
San Diego, CA 92101
Telephone: 619/525-3990
619-525/3991 (fax)
Attorneys for Plaintiffs

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CERTIFICATE OF SERVICE
I hereby certify that on the 16th day of November 2015, I caused a true and correct copy of
the foregoing OPPOSITION TO DEFENDANTS MOTION TO STAY PROCEEDINGS to be
served upon the following via Electronic Mail:
Bradley J. Benoit
BRACEWELL & GIULIANI LLP
711 Louisiana Street, Suite 2300
Houston, TX 77002-2770
Telephone: 713-221-1224
Bradley.Benoit@bgllp.com

ANDERSON & KARRENBERG

/s/ Jon V. Harper______________

JON V. HARPER

EXHIBIT A

EXHIBIT B