ORDER ON DEFENDANT'S
RULE 12(b)(3) MOTION
(Doc. No. 5)
Plaintiff Justin Gennock ("Gennock") filed suit against Defendant Lucas Energy, Inc. ("LEI") based on a purchase of stocks that went awry. LEI moves to dismiss or transfer this case to the District of Nevada under Rule 12(b)((3) based on a forum selection clause. For the reasons that follow, the motion will be denied.
From the Complaint, in August 2009, Gennock entered into a written agreement ("Written Agreement") whereby he acquired 100,000 warrants/the option to acquire 100,000 shares of LEI stock with a per share stake price of $1. Gennock also obtained 10,000 shares of restricted stock for $6,000. Nothing in the Written Agreement mandated that any shares acquired in the future were to be restricted.
On December 6, 2010, Gennock contacted LEI's CFO, John O'Keefe ("O'Keefe"), about exercising his option to purchase additional shares of stock. Gennock thought that there may have been an error in the Written Agreement concerning the 100,000 figure, but O'Keefe confirmed that all 100,000 warrants could be converted into shares. O'Keefe also confirmed that Gennock could exercise a portion of the warrants, specifically 30,000 shares for $30,000. In reliance on O'Keefe's statements, Gennock tendered $30,000 to LEI.
On December 13, 2010, O'Keefe told Gennock that there was in fact a clerical error in the Written Agreement, and that the warrants should have only been for 10,000 shares instead of 100,000. Despite the error, LEI kept Gennock's $30,000. From December 13, 2010, to January 13, 2011, Gennock and O'Keefe negotiated regarding the sale of the 30,000 shares, as well as for the purchase of additional warrants and shares.
On January 13, 2011, O'Keefe informed Gennock that LEI had obtained additional funding and that the "cleanest" transaction was for Gennock to keep the 30,000 shares of stock, and for LEI to keep the $30,000. Gennock agreed, and also agreed to abandon his claims to the additional 70,000 warrants. However, when Gennock obtained the stock certificates from LEI, the stock certificates contained restrictions. As a result of the restrictions, the stocks are not marketable or fungible.
Gennock contacted LEI and spoke with the new CFO, Andrew Lai ("Lai"), about the restrictions on the 30,000 shares of stock. Lai said the stock was restricted, and that Gennock should talk to LEI's attorneys. However, Gennock never agreed that the 30,000 shares were to be restricted. An LEI attorney told Gennock that the shares could be sold pursuant Rule 144 of the Securities Act, but that the agreement with O'Keefe might affect the holding period required by Rule 144. Gennock again contacted Lai to confirm that the shares could be sold, but Lai took the position that Gennock was not entitled to the 30,000 shares and that Gennock needed to return the shares. LEI attorneys later confirmed this position.
Gennock filed suit in this Court on June 13, 2011, for breach of oral contract, promissory estoppel, declaratory relief, violation of § 10(b) of the Securities Exchange Act, fraud, and unjust enrichment.
Defendant's Argument LEI argues that the Written Agreement contains a mandatory forum selection clause which sets venue in Nevada. The clause also establishes that the Written Agreement is to be construed under the laws of Nevada. Gennock's filing suit in the Eastern District of California was improper, and the court does not have jurisdiction pursuant to the forum selection clause. Dismissal or transfer of this case to the District of Nevada is appropriate.
Additionally, in reply, LEI argues inter alia that Gennock's attempts to circumvent the mandatory forum selection clause are spurious. Other courts have rejected the argument that a subsequent oral agreement supercedes a prior written agreement with a forum selection clause. See, e.g., Sixty-Two First St., LLC v. CapitalSource Finance, LLC, 2011 WL 2182915 (N.D. Cal. Jun. 6, 2011). The Complaint's allegations show that Gennock's causes of action concern and relate to the Written Agreement. Thus, the forum selection clause governs this matter.
Gennock argues that LEI's motion is meritless because the Complaint clearly alleges a breach of oral contract. The oral contract was different from the Written Agreement. The oral contract contained no forum selection clause. Because the oral contract at issue contained no ...