Jared C. Fields (10115) Douglas P. Farr (13208) SNELL & WILMER L.L.P. 15 West South Temple, Suite 1200 Salt Lake City, Utah 84101 Telephone: 801.257.1900 Facsimile: 801.257.1800 Email: jfields@swlaw.com dfarr@swlaw.com Stephen B. Crain (pro hac vice pending) Bradley J. Benoit (pro hac vice pending) BRACEWELL & GIULIANI LLP 711 Louisiana St., Suite 2300 Houston, Texas 77002 Telephone: 713.223.2300 Facsimile: 800.404.3970 Email: stephen.crain@bgllp.com bradley.benoit@bgllp.com Attorneys for Defendants FX Energy, Inc., David N. Pierce, Jerzy Maciolek, Dennis B. Goldstein, Arnold S. Grundvig, Jr., and H. Allen Turner 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, MOTION TO CONSOLIDATE AND STAY PROCEEDINGS vs. Plaintiffs, Case No. 150907699 FX ENERGY, INC., ORLEN UPSTREAM Sp. z o.o., KIWI ACQUISITION CORP., DAVID N. PIERCE, JERZY MACIOLEK, DENNIS B. GOLDSTEIN, ARNOLD S. GRUNDVIG, JR., and H. ALLEN TURNER, Judge Todd M. Shaughnessy Defendants.
RELIEF REQUESTED AND GROUNDS FOR MOTION This putative shareholder class action challenges a merger transaction among FX Energy, Inc. ( FX Energy ), ORLEN Upstream Sp. z o.o. ( Orlen ) and Kiwi Acquisition Corp. ( Kiwi ). A day after this suit was initiated, another set of lawyers filed a putative class action in this district purporting to represent the same class bringing the same claims against the same defendants. Yip v. FX Energy, Inc. et al., Case No. 150907745, in the Third District Court (McKelvie, J.) (the Yip Case ). To promote efficiency and avoid the possibility of conflicting decisions, FX Energy and its directors (Defendants David N. Pierce, Jerzy Maciolek, Dennis B. Goldstein, Arnold S. Grundvig, Jr., and H. Allen Turner, collectively, the Director Defendants ) move to consolidate the Yip Case and any other similar case that may be brought into this case. See Utah R. Civ. P. 42(a). Additionally, before either of the two class action suits were brought in Utah, another set of plaintiffs lawyers had already filed four class action lawsuits in Clark County, Nevada asserting the same claims against the same defendants on behalf of the same class of FX Energy shareholders. As plaintiffs have acknowledged, Nevada law will govern this dispute as FX Energy is incorporated in Nevada. See Plaintiffs Motion for Temporary Restraining Order, Preliminary Injunction, Expedited Discovery and Expedited Scheduling, at 2 n.3. To promote efficiency and avoid the possibility of conflicting decisions, FX Energy and the Director Defendants move that, after consolidating the Utah actions, this Court exercise its discretion to stay further proceedings to allow the claims to be determined in Nevada, the state whose law will govern this dispute. 2
FACTUAL AND PROCEDURAL BACKGROUND FX Energy is a Nevada corporation headquartered in Salt Lake City, Utah. Am. Complaint, 15. Kiwi, a subsidiary of Orlen who has initiated a tender offer for shares of FX Energy, is also a Nevada corporation. Id. 21. Orlen is a Polish company. Id. 22. A. The Proposed Transaction On October 13, 2015, FX Energy announced that it had entered into a definitive merger agreement pursuant to which Orlen would acquire all of the outstanding shares of common stock of FX Energy (the Merger Agreement ). Id. 36. Under the terms of the Merger Agreement, Orlen agrees to pay FX Energy shareholders $1.15 per share in cash, which represents a 22% premium over the average closing price for FX Energy s stock for the 60 trading-day period ended on October 12, 2015. Id. The Merger Agreement contemplates that Orlen will commence a cash tender offer to purchase all of FX Energy s outstanding common stock, with a merger following the completion of the tender offer. Id. Shares not tendered in the tender offer would be converted into the right to receive the cash consideration of $1.15 per share. Id. On October 27, 2015, Kiwi and Orlen filed a tender offer statement on Schedule TO announcing a tender offer to purchase shares of FX Energy common stock for $1.15 per share that expires on November 25, 2015. On the same day, FX Energy filed a Schedule 14D-9 disclosing details regarding the proposed transaction and recommending that shareholders accept the tender offer. Id. 37. B. The Nevada and Utah Actions On October 19, 2015, six days after the announcement of the transaction, a class action lawsuit challenging the merger was filed in Clark County district court in Nevada. See 3
Complaint attached as Ex. A, Richards v. FX Energy et al., Case No. A-15-726409-C, in the Eighth Judicial District Court of Clark County, Nevada. 1 Two other class action lawsuits virtually identical to the Richards lawsuit were filed in Nevada on October 23, 2015. See Complaint, attached as Ex. B, Cionti v. FX Energy et al., Case No. A-15-726642-C, in the Eighth Judicial District Court of Clark County, Nevada; Complaint, attached as Ex. C, Kramer v. FX Energy et al., Case No. A-15-726656-C, in the Eighth Judicial District Court of Clark County, Nevada. On October 26, 2015, a day before this suit was filed, a fourth class action lawsuit was filed in Nevada. See Complaint, attached as Ex. D, Roets v. FX Energy et al., Case No. A-15-726734-C, in the Eighth Judicial District Court of Clark County, Nevada. This case was filed on October 27, 2015. The Yip case was filed on October 28, 2015. See Complaint, attached as Ex. E, Yip Case. The Nevada and Utah actions arise from identical facts, assert substantially identical claims, and seek the same relief on behalf of the same purported class of FX Energy shareholders. Each of these six lawsuits: arise out of the proposed acquisition of FX Energy by Orlen; were filed by purported FX Energy shareholders; assert claims on behalf of a putative class consisting of all or substantially all FX Energy public shareholders; name as defendants FX Energy, its directors, Orlen and Kiwi; allege that FX Energy s directors breached their fiduciary duties in connection with the proposed transaction; allege that FX Energy, Orlen and Kiwi aided and abetted the FX Energy directors in the purported breaches of their fiduciary duties; 1 Richards and a new co-plaintiff filed a first amended complaint on November 2, 2015. 4
allege that FX Energy s directors failed to obtain adequate consideration for the proposed transaction; allege that certain provisions of the merger agreement constitute improper deal protection measures; and seek to enjoin the proposed merger. On November 9, 2015, the plaintiffs in Richards, the first-filed case, sought a temporary restraining order and expedited discovery from the Nevada courts. See Plaintiffs Application for Temporary Restraining Order, Motion for Preliminary Injunction and Motion to Expedite Discovery, attached as Ex. F. The Richards plaintiffs have therefore filed a motion pending before the Nevada courts that seeks the same injunctive relief that plaintiffs seek from this Court. ARGUMENT FX Energy and the Director Defendants should have to defend against plaintiffs allegations in only one court. There 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. A. The Court should consolidate the Utah actions. Utah Rule of Civil Procedure 42(a) empowers the Court to consolidate separate actions: When actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated; and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay. Utah. R. Civ. P. 42(a). As this case is the first case filed in Utah, this Court is the proper one to determine a motion to consolidate the Utah actions. Utah R. Civ. P. 42(a)(1). Pursuant to Rule 42, Defendants are giving notice of this motion to the parties in the Yip Case. Id. 5
Rule 42(a) is designed to encourage efficient judicial administration. See Westgate Resorts, Ltd. v. Consumer Protection Group, LLC, 2012 UT 55, 25, 285 P.3d 1219 (citing Lignell v. Berg, 593 P.2d 800, 806 (Utah 1979)). Whether to order consolidation is an issue committed to the sound discretion of the trial court. See id., 9. Consolidation is appropriate in this case. The Utah actions involve the same questions of law and fact, and consolidating therefore will encourage efficient judicial administration. In the absence of consolidation, the parties would face increased costs and burdens due to unnecessary duplication of effort, and two courts would similarly and unnecessarily bear the burden of duplicative litigation. Consolidation would also eliminate the risk of conflicting decisions from courts in Utah. The risk of inconsistent rulings is particularly acute here, where the class actions seek the same injunctive relief. Different rulings on a request for injunctive relief would put all parties in an uncertain and chaotic mess. In fact, the plaintiffs recognize this fact, as they themselves allege that it would be undesirable for each of the members of the Class... to bring separate actions. Complaint, 28; see also Yip Complaint, Ex. E, 53 ( The prosecution of separate actions by individual members of the Class would be impracticable and inefficient as it creates a risk of inconsistent or varying adjudications with respect to individual members of the Class, which would establish incompatible standards of conduct for the party opposing the Class. ). B. The Court should stay the Utah actions in deference to the Nevada actions. When an action is pending in another jurisdiction, the trial court has the discretion to grant a stay by virtue of its right to control the disposition of the causes of its own docket with economy of time and effort for itself, for counsel, and for litigants. Power Train, Inc. v. Stuver, 6
550 P.2d 1293, 1294-95 (Utah 1976). In exercising its discretion, the court should consider the importance of discouraging multiple litigation designed solely to harass an adverse party, the desire to avoid unseemly conflicts with the courts of other jurisdictions, and whether the dispute can best be determined by the court of the other jurisdiction based on the circumstances. Id. at 1295 (quoting Farmland Irrigation Co. Inc. v. Dopplmaier, 308 P.2d 732, 736 (Cal. 1957)). 1. These cases should be decided in one forum. In bringing this Motion, Defendants are not trying to avoid litigating in this Court. The courts in both Utah and Nevada are well-equipped to hear and determine this dispute. The issue of primary importance to the defendants is ensuring that this dispute is heard and determined in only one forum. Separate proceedings in different jurisdictions will waste judicial resources, multiply the expenses for all parties, and create the risk of inconsistent rulings. The Delaware Court of Chancery described the problems attendant to duplicative litigation in this context: Defense counsel is forced to litigate the same case often identical claims in multiple courts. Judicial resources are wasted as judges in two or more jurisdictions review the same documents and at times are asked to decide the exact same motions. Worse still, if a case does not settle or consolidate in one forum, there is the possibility that two judges would apply the law differently or otherwise reach different outcomes, which would then leave the law in a confused state and pose full faith and credit problems for all involved. In re Allion Healthcare Inc. S holders Litig., C.A. No. 5022-CC, 2011 WL 1135016, at *4 (Del. Ch. Mar. 29, 2011). For these reasons, [e]fficiency and comity would be better served if these cases were litigated in one jurisdiction. Id. at *4. 2. The Court should stay the case in favor of Nevada. If litigation proceeds in only one forum, the question remains: which forum should it be? The Utah Supreme Court has cited several factors to consider when evaluating a motion to stay 7
in favor of proceedings in another jurisdiction, including: (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; and (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, 550 P.2d at 1295. The first four factors do not particularly favor either Utah or Nevada as the preferred forum. The most significant factor favoring one forum over the other in this case is the controlling law of the case. The claims in this suit are shareholder claims of breach of fiduciary duty and aiding and abetting breach of fiduciary duty. Complaint, 50-66. Under the internal affairs doctrine, Nevada law will govern the determination of these claims. See Restatement (Second) of Conflict of Laws 309 (1971). As noted previously, plaintiffs agree that Nevada law will apply. The United States Supreme Court has noted the importance of the internal affairs doctrine as a basis for declining to exercise jurisdiction in similar cases: It has long been settled doctrine that a court state or federal sitting in one State will as a general rule decline to interfere with or control by injunction or otherwise the management of the internal affairs of a corporation organized under the laws of another state but will leave controversies as to such matters to the court of the state of the domicile. While the District Court had jurisdiction to adjudge the rights of the parties, it does not follow that it was bound to exert that power. It was free in the exercise of sound discretion to decline to pass upon the merits of the controversy and to relegate plaintiff to an appropriate forum. Obviously no definite rule of general application can be formulated by which it may be determined under what circumstances a court will assume jurisdiction of stockholders suits relating to the conduct of internal affairs of foreign corporations. But it safely may be said that jurisdiction will be declined whenever considerations of convenience, efficiency, and justice point to the courts of the 8
state of the domicile as appropriate tribunals for the determination of the particular case. Rogers v. Guaranty Trust Co. of N.Y., 288 U.S. 123, 130-31 (1933) (internal citations omitted). While this Court has the ability and power to determine laws of other jurisdictions such as Nevada in cases pending before it, good cause exists for declining to do so in this case. Here, four cases were filed in Nevada raising these same claims before any claims were filed in Utah. Because Nevada already has these same issues before it, judicial efficiency and comity support allowing Nevada to determine issues of Nevada law. See, e.g., Simmons v. Superior Court, 214 P.2d 844, 852 (Cal. Dist. Ct. App. 1950) ( Where, as here, a correct decision calls for the construction of the laws of a foreign jurisdiction and an action between the same parties involving the same subject matter is pending therein, our courts should await the decision in such action. ). Counsel in the Utah actions may note that FX Energy adopted bylaws that contain a provision specifying Utah as the sole and exclusive forum for this type of case. Bylaws of FX Energy, Inc., attached as Ex. G, at Art. XII. This provision is, however, at the option of FX Energy. See id. (noting that the venue provision applies [u]nless the corporation consents in writing to the selection of an alternative forum ). Given that four cases were originally filed in Nevada, and given that the issues require application of Nevada law, FX Energy believes it is most appropriate for Nevada to determine these issues. FX Energy will therefore consent to venue in Nevada if this stay is granted. WHEREFORE, Defendants FX Energy, Inc., David N. Pierce, Jerzy Maciolek, Dennis B. Goldstein, Arnold S. Grundvig, Jr., and H. Allen Turner respectfully request that the Court enter 9
an order (1) consolidating the Yip Case with this one and (2) staying this case pending the determination of the Nevada actions. DATED this day of November, 2015. SNELL & WILMER L.L.P. /s/ Jared C. Fields Jared C. Fields (#10115) Douglas P. Farr (#13208) BRACEWELL & GIULIANI LLP /s/ Stephen B. Crain Stephen B. Crain (pro hac vice pending) Bradley J. Benoit (pro hac vice pending) Attorneys for Defendants FX Energy, Inc., David N. Pierce, Jerzy Maciolek, Dennis B. Goldstein, Arnold S. Grundvig, Jr., and H. Allen Turner 10
CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing has been forwarded to counsel of record by electronic service on this th day of November, 2015. Jon V. Harper Anderson & Karrenberg 50 West Broadway, Suite 700 Salt Lake City, UT 84101 jharper@aklawfirm.com David T. Wissbroecker Edward Gergosian Robbins Geller Rudman & Dowd LLP 655 West Broadway, Suite 1900 San Diego CA 92101 Attorneys for Plaintiff Donald Haworth /s/ Jared C. Fields Jared C. Fields 11