Opposition Brief — Sun Drilling Products Corp. v. Rayborn

7 Court, U.S.

~ FILED

JUL 9 1998

No. 97-1993 OFFICE OF THE CLERK

In The

Supreme Court of the United States

October Term, 1997

.

SUN DRILLING PRODUCTS CORPORATION,

HELLER, HICKOX, DIMELING, SCHREIBER AND

PARK, DOUGLAS P. HELLER, GEORGE K. HICKOX,

JR., WILLIAM R. DIMELING, RICHARD R.

SCHREIBER, STEVEN J. PARK, JOHN C. TUTEN,

HYPPOLETE ASTUGUE AND SUSAN REESE,

Petitioners,

JERRY J. RAYBORN, SR.,

Respondent

*

On Petition For Writ Of Certiorari

To The Louisiana Court Of Appeal

For The Fourth Circuit

°

RESPONDENT'S BRIEF IN OPPOSITION

TO PETITION FOR A WRIT OF CERTIORARI

>

Peter J. BuTLer*

RicHARD G. PASSLER

BrREAZEALE, SACHSE & Witson, L.L.P.

909 Poydras Street, Suite 2400

New Orleans, Louisiana 70112

(504) 584-5443

*Counsel of Record Attorneys for Respondent

COCKLE LAW BRIEF PRINTING CO., (800) 225-694

OR CALL COLLECT (402) 342-2831

TABLE OF CONTENTS

Page

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I. STATEMENT OF THE CASE .................. ]

Il. REASONS WHY THE PETITION SHOULD BE

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A. The Merger Agreement (and any arbitration

clause therein) is inapplicable now that the

instruments required for the Transaction

PP EE I AU sho cdasutecasectacds 5

B. If any arbitration clause in the Merger

Agreement were applicable, its application

ee Se OO oa a 5c s WO sas cen econ os 7

C. If any arbitration clause in the Merger

Agreement were applicable, Rayborn may

sue to rescind it on the basis that it is void

De Sik: FUSS ahekie 9 e445 bbds takéoeenbeedes 9

D. Arbitration could only delay final resolu-

tion of this dispute and adversely impact

FE EE Bb G60 tb ieeh saehed ee endetincecss 15

E. The petitioners’ only seek to arbitrate a

small portion of this lawsuit. ............. 17

ty: SEIS £ os deck cckdeececdccctoesdabanee 19

APPENDIX

ne Te et er ee la

Excerpts of Management, Technical Services

and Royalty Agreement........................... 7a

Excerpts from Transcript of August 21, 1997

hearing before the Louisiana state district court .... 9a

TABLE OF AUTHORITIES

Page

CASES

Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265,

BSS &. Ge GS Glee v.06 k.n0 0000400000000 14

Doctor's Associates, Inc v. Casarotto, 517 U.S. 681,

506 G GR De Gee waanwedcccscscvedinesisa 14, 15

First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,

a. es ey ee ee ER eT 6

George Engine Co. v. Southern Shipbuilders Corp.,

350 So.2d 881 (La. 1977)......... 9, 10, 11, 12, 13, 14

Perry v. Thomas, 482 U.S. 483, 107 S. Ct. 2520 (1987) .... 14

Prima Paint Corp. v. Flood & Concklin Mfg. Co., 388

ie FF 28« SS iF 9. peer eer 12

Southland Corp v. Keating, 465 U.S. 1, 104 S. Ct. 852

Pe Peer ry pry te Sh ye 14

Stone v. Stone, 292 So.2d 686 (La. 1974) ............. 11

STATUTES

Federal Arbitration Act, 9 U.S.C. § 1-14.. 12, 13, 14, 15

Louisiana Arbitration Act, La. R.S. 9:4201.....9, 10, 13

Louisiana Unfair Trade Practices and Consumer I

Protection Law, La. R.S. 51:1401, et seq. ........... 19

RESPONDENT'S BRIEF IN OPPOSITION

TO PETITION FOR A WRIT OF CERTIORARI

The respondent Jerry J. Rayborn, Sr. respectfully

requests that this Court deny the petition for a writ of

certiorari, seeking review of the Louisiana Court of

Appeal for the Fourth Circuit’s decision which declined

to disturb the decision of the Louisiana state district court

which refused the petitioners’ request that it decline to

exercise subject matter jurisdiction over only a few of the

interrelated claims in this litigation initiated by one of the

petitioners.

I. STATEMENT OF THE CASE

On December 8, 1994, a contract known as the

Merger Agreement was executed by Jerry J. Rayborn

(“Rayborn”) and the petitioner Heller, Hickox, Dimeling,

Schreiber and Park (“HHDS&P”). The Merger Agreement

provided the blueprint for the sale of the majority interest

in petitioner Sun Drilling Products Corporation (“Sun”).

On February 21, 1995, the instruments required by

the Merger Agreement to consummate the sale of the

majority interest in Sun (the “Transaction”) were exe-

cuted by Rayborn and the individual petitioners who

were actually acquiring the majority interest in Sun.

Those individual petitioners are Douglas Heller, George

Hickox, Jr., William Dimeling, Richard Schreiber, Steven

Park and John Tuten (collectively, the “Acquirers”).

The instruments consummating the Transaction are

numerous and lengthy. See, index to the instruments

making up the Transaction (App., infra, la-6a).

—_—<——————eeu — ——OOOOoOooeoeoo

On March 17, 1997, Sun filed an action against

Rayborn in Louisiana state court (the “Petition”) relating

to one of the instruments executed in the Transaction;

specifically, the Management, Technical Services and Roy-

alty Agreement (“Royalty Agreement”).

On May 1, 1997, Rayborn responded to Sun’s action

by filing a Reconventional [counterclaim] and Third Party

Demand (“Rayborn’s Response”). The claims set forth in

Rayborn’s Response include compulsory counterclaims.

Rayborn’s Response asserts claims to rescind the

Transaction. The rescission claims were brought against

those petitioners who were parties to the Transaction -

that is, the Acquirers.

Rayborn’s Response also asserts other claims against

the Acquirers as well as against the petitioners who were

not parties to the Transaction; specifically, Hyppolete

Astugue, Sun’s president and chief executive officer, and

Susan Reese, Sun’s corporate secretary and Astugue’s

executive assistant.

Rayborn’s Response sets forth the following claims:

I - Recision Based Upon Vitiated Consent;

II - Failure of Cause;

Il - Fraud;

IV - Conspiracy to Commit Fraud;

V - Breach of Fiduciary Duty;

VI - Conspiracy for Breach of Fiduciary

Duty;

Vil - Breach of Contract;

Vill - Conspiracy to Breach Contract;

IX - Louisiana Unfair Trade Practices and

Consumer Protection Law;

X - Conspiracy for Violation of Louisiana

Unfair Trade Practices and Consumer

Protection Law;

XI -- Tortious Interference with Contract;

XII - Conspiracy for Tortious Interference

with Contract;

XIII - Violation of Article 2315 of the Louisi-

ana Civil Code;

XIV - Conspiracy to Violate Article 2315 of

the Louisiana Civil Code;

XV - Reinstatement of Royalty Agreement;

XVI - Mental and Emotional Pain and Suffer-

ing and Humiliation and Anxiety;

XVII - Conspiracy to Obstruct Rayborn from

Discharging His Duties as an Officer

and Director of New Sun and to Pre-

vent Rayborn from Communicating

with Other Officers and Employees of

New Sun; and

XVIII - Damage to Reputation.

The petitioners then sought to have the Louisiana

state district court decline to exercise subject matter juris-

diction as to Counts I-II and VII-XII of Rayborn’s

Response, arguing that those Counts were required to be

arbitrated.

The Louisiana state district court denied the peti-

tioners request on several basis: (1) arbitration was not

applicable; (2) arbitration had been waived; (3) arbitra-

tion would not resolve the disputes between the parties;

and (4) regardless of the Counts sought to be arbitrated,

the other Counts in Rayborn’s Response remained to be

tried.

The Louisiana Court of Appeal for the Fourth Circuit

refused to disturb the ruling of the Louisiana state district

court. Sun Drilling Products Corp. v. Rayborn, 703 So.2d 818

(La. App. 4th Cir. 1997), writ denied, __ So.2d ___ (La.

1998).

The Louisiana Supreme Court declined to consider

the decision below, responding to the petitioners’ request

by stating: “Denied.” Thus, it is unknown on what basis

the Louisiana Supreme Court made its decision.

Il. REASONS WHY THE PETITION SHOULD BE

DENIED.

The petition does not warrant review by this Court.

The decision below was based upon the particular facts

and circumstances in this matter which rendered arbitra-

tion inappropriate. Grounds independent from those set

forth in the petition exist for the basis of the decision

below. Respondent urges this Court not to waste its

resources on a case that does not present any compelling

reasons for review. Enough of this Court’s resources have

already been expended in this matter in connection with )

the June 25, 1998 denial of the petitioners’ application for

a stay pending disposition of the petition. Further, grant-

ing the petition will have no impact on litigants in gen-

eral and will not clarify the law.

ieee”

A. The Merger Agreement (and any arbitration

clause therein) is inapplicable now that the

instruments required for the Transaction have

been executed.

The Merger Agreement set the agenda for the execu-

tion of the other instruments necessary to consummate

the Transaction. The Merger Agreement, however, is not

applicable in this case because it is those later documents

executed by the Acquirers which actually consummated

the Transaction. It is the Transaction which is being

sought to be rescinded by Rayborn as part of his response

to this Sun initiated litigation.

The situation is similar to the purchase of a new

home by an individual. Initially, that person executes an

Agreement to Purchase the home. Later a Contract of Sale

is executed for the home in which the purchase actually

takes place. Once the Contract of Sale is executed, the

Agreement to Purchase would no longer be relevant to an

action to rescind the sale on the home. Instead, any

subsequent action to rescind the sale of the home would

have to be based upon the Contract of Sale. If the Agree-

ment to Purchase contained an arbitration clause, it

would be inapplicable to an action to rescind the sale of

the home.

The same is true in this case. Rayborn seeks, inter

alia, a rescission of the Transaction. While the Merger

Agreement identifying all of the instruments that would

be executed by the parties in order to consummate the

Transaction (like an Agreement to Purchase) set up the

sale, it is those later executed documents such as the

Royalty Agreement sued upon by Sun (like a Contract of

Sale) which actually consummated the Transaction. Thus,

any arbitration clause in the Merger Agreement cannot be

applicable in this case. See, First Options of Chicago, Inc. v.

Kaplan, 514 U.S. 938, 944-45, 115 S. Ct. 1920, 1924-25

(1995) (“When deciding whether the parties agreed to

arbitrate a certain matter (including arbitrability), courts

generally (though with a qualification we discuss below)

should apply ordinary state-law principles that govern

the formation of contracts. The relevant state law here,

for example, would require the court to see whether the

parties objectively revealed an intent to submit the arbi-

trability issue to arbitration. This Court, however, has (as

we just said) added an important qualification, applicable

when courts decide whether a party has agreed that

arbitrators should decide arbitrability: Courts should not

assume that the parties agreed to arbitrate arbitrability

unless there is ‘clea[r] and unmistakabl[e]’ evidence that

they did so. ... [Any other rule] might too often force

unwilling parties to arbitrate a matter they reasonably

would have thought a judge, not an arbitrator, would

decide.”).

If prior to the execution of the instruments making

up the Transaction there had there been a dispute con-

cerning the Merger Agreement, then any arbitration

clause that might exist in the Merger Agreement may

have been applicable. The parties, however, are now one

step removed from the Merger Agreement in that the

parties have executed the instruments necessary to con-

summate the Transaction. Therefore, any arbitration

clause in the Merger Agreement is inapplicable in this

case.

B. If any arbitration clause in the Merger Agree-

ment were applicable, its application has been

waived.

This lawsuit was initiated by the petitioner Sun — not

Rayborn. Thus, Sun judicially acknowledged that any

right to arbitration which may previously have existed

was no longer applicable.

Further, the agreements which make up the Transac-

tion are all inter-related documents, each relying upon

and consideration for each other. For example, the

WHEREAS provisions of the Royalty Agreement (upon

which this litigation was initiated by petitioner Sun) pro-

vides:

WHEREAS, SDP, Heller Hickox Dimeling Schre-

iber and Park, a Pennsylvania general partner-

ship, and Sun Acquisition Corporation, a

Louisiana corporation (“Acquisition”), have

entered into that certain Agreement dated

December 8, 1994 (as amended, the “Merger

Agreement”), pursuant to which Acquisition

will merge with and into SDP and SDP will be

the surviving corporation (the “Merger”); and

» * *

WHEREAS, as a condition to the Merger, Heller,

Hickox, Dimeling, Schreiber and Park and

Acquisition require that JJR be retained as an

employee of SDP after the effective date of the

Merger and that JJR be required to enter into

this Agreement; and

* * *

WHEREAS, JJR and SDP desire to enter into a

management, technical services and royalty

agreement effective as of the date of this Agree-

ment.

NOW, THEREFORE, in consideration of the

premises, mutual covenants and agreements

contained herein, and for the good and valuable

consideration, the receipt and sufficiency of

which are hereby acknowledged, the parties

hereto, intending to be legally bound, agree as

follows ... :

See, excerpts from the Royalty Agreement (App., infra,

7a-8a). Thus, when Sun filed an action against Rayborn in

Louisiana state court relating to one of the instruments

executed in the Transaction (i.e., the Royalty Agreement),

whatever right to arbitration which may have existed was

waived.

In explaining his reasons for denying the petitioners’

request to have certain of Rayborn’s claims against the

petitioners determined by arbitration, the Louisiana trial

court recognized this waiver, stating:

But, as Mr. Butler pointed out, the initial con-

tract containing the arbitration provisions cre-

ates in effect all of the other contractual

relationships between the parties, including the

ones sued upon in Case No. 41-857 of the docu-

ment in this court. Sun Drilling sought protec-

tion of this court and sought to have a

contractual provision rescinded and a contrac-

tual relationship between it and Jerry Rayborn,

Sr. terminated judicially, but now when the

other aspects of their relationship are brought at

issue, not in a separate suit, but in a Reconven-

tional Demand [counterclaim] to that initial suit

and now they seek the protection of that con-

tract in terms of the requirement of arbitration.

See, Excerpts from Transcript of August 21, 1997 hearing

before the Louisiana state district court (App., infra, 11a).

C. If any arbitration clause in the Merger Agree-

ment were applicable, Rayborn may sue to res-

cind it on the basis that it is void ab initio.

The Louisiana Supreme Court has held that a party to

a contract containing an arbitration clause can sue to

rescind that contract in a court of competent jurisdiction

on the grounds that it was void ab initio. George Engine Co.

v. Southern Shipbuilders Corp., 350 So.2d 881 (La. 1977).

In George Engine, the parties entered into several

contracts to construct three vessels, one of which con-

tained an arbitration clause. George Engine sued in a

Louisiana state district court to rescind the contract on

the ground that it was void ab initio because of a vice of

consent through error, misrepresentation, and coercion on

the part of Southern Shipbuilding at the time of the

confection of the contract. Southern Shipbuilding filed a

motion to stay the court proceedings, which the trial

court granted, ordering George Engine to proceed to arbi-

tration. On a writ application to the Louisiana Supreme

Court to review the ruling of the trial court, the Louisiana

Supreme Court stated: “The issue thus presented is

whether a party to a contract containing an arbitration

clause may sue to rescind that contract in a court of

competent jurisdiction on the ground that it is, and was,

void ab initio.” 350 So.2d at 884.

Initially, the Louisiana Supreme Court recognized

that the pertinent section of the Louisiana Arbitration

arta

10

Act, La. R.S. 9:4201, presupposes the existence of a valid

contract as a basis for invoking arbitration, providing:

A provision in any written contract to settle by

arbitration a controversy thereafter arising out

of the contract, or out of the refusal to perform

the whole or any part thereof, or an agreement

in writing between two or more persons to sub-

mit to arbitration any controversy existing

between them at the time the agreement to sub-

mit, shall be valid, irrevocable, and enforceable,

save upon such grounds as existing law or in

equity for the revocation of any contract.

La. R.S. 9:4201 (emphasis added).

One such ground recognized by the Louisiana

Supreme Court was a contract being void ab initio. The

Louisiana Supreme Court reasoned that it “i]t would be

an absurdity to compel arbitration of the conditions in a

contract which does not exist in its entirety in legal

contemplation.” George Engine, 350 So.2d at 884

(emphasis added).

The Louisiana Supreme Court further explained:

This Court's jurisdiction cannot be displaced

whenever a contract contains an arbitration

clause. The arbitration law and arbitration

clauses in contracts do not vest in arbitrators the

historic jurisdiction of the courts to determine

fraud or duress in the inception of a contract. It

may be said that courts are far better qualified

to decide issues of this kind.

Nor does Section 4201 of the Arbitration Act

compel arbitration of a question involving the

11

validity ab initio of a contract containing an arbi-

tration clause. While provisions for arbitration

of controversies arising out of contracts are

declared to be valid, irrevocable and enforce-

able, validity, irrevocability and enforceability

are by the terms of Section 4201 made depen-

dent upon ‘such grounds as exist at law or in

equity for the revocation of any contract.’ Stone

v. Stone, 292 So.2d 686 (La. 1974). By its very

terms Section 4201 presupposes the existence of

a valid contract as a basis for invoking arbitra-

tion.

Id. at 884.

In George Engine, the Louisiana Supreme Court found

that: “[t}he case at bar involves the legal issue of the

validity in its inception of the contract itself, based on the

alleged lack of valid consent.” 350 So.2d at 885. The

Louisiana Supreme Court further explained:

Lack of consent, of course, is one of the

grounds for revoking a contract. It is a vice

which rescinds the contract from its inception.

Consequently, without valid consent there is

no contract to be arbitrated. Surely a court

would not be expected to compel arbitration of

the conditions in a contract which does not exist

in legal contemplation. Here the validity of the

entire contract of which the arbitration is part is

called into question by George. If the agreement

lacked the valid consent of George it cannot be

said that George ‘voluntarily’ waived its right to

have the court determine whether the agree-

ment should be rescinded and declared void ab

tmitio.

Id. (emphasis added).

12

The issue faced by the Court in George Engine — that

is, “the legal issue of the validity in its inception of the

contract itself, based on the alleged lack of valid con-

sent,” 350 So.2d 885 — was the identical issue faced in the

instant case. Further, the arbitration clause at issue in

George Engine is substantially similar to the one at issue in

the instant case. In George Engine, the Louisiana Supreme

Court reviewed the arbitration clause at issue and found

that it “evinces no intent of the parties to specifically

arbitrate the issue of error in the inducement of the

agreement; nor is the language in the agreement broad

enough to comprehend arbitration of that issue.” 350

So.2d 884. The same is true in the instant case.

The petitioners argue, based upon Prima Paint Corp.

v. Flood & Concklin Mfg. Co., 388 U.S. 395, 87 S. Ct. 1801

(1967), that the Federal Arbitration Act (9 U.S.C. §§ 1-14)

compels arbitration of this case. The defendant in George

Engine also relied upon the Prima Paint case; however, its

application was expressly rejected therein by the Louisi-

ana Supreme Court. 350 So.2d at 886.

One of the reasons given by the Louisiana Supreme

Court in George Engine for rejecting Prima Paint was that it

was state statutory law to be interpreted in the case. As in

George Engine, it is also state statutory law (i-e., fraud as a

vice of consent) which is being interpreted in this case.

In George Engine, the Louisiana Supreme Court fur-

ther recognized that it was the public policy of the State

of Louisiana to permit parties to a contract to be able to

judicially challenge a contract, including but not limited

to one containing an arbitration provision, on the

grounds that the contract itself is void ab initio, holding:

13

Aside from a natural reluctance to surrender the

historical jurisdiction of courts to decide the

legal issue presented by a petition to rescind a

contract on account of error in its inducement,

arbitrators are designated to arbitrate and

resolve factual controversies arising out of valid

contracts between the parties. They need not be

lawyers and in all probability are wholly

unqualified to decide legal issues. Indeed, they

are not bound to apply the law. Arbitration,

moreover, deprives a party of a jury trial and

the right to appeal, substantial rights which

should not be denied unless voluntarily and

knowingly waived. It was in all probability to

preserve these rights and to limit arbitration

within proper bounds that the Legislature cre-

ated an exception to the enforceability of arbi-

tration provisions in contract where

“grounds . . . exist at law or in equity for the

revocation of any contract”. La. Rev. Stat. 9:4201.

George Engine, 350 So.2d at 885.

Not uncoincidently, Section 2 of the Federal Arbitra-

tion Act is substantially similar to Section 4201 of the

Louisiana Arbitration Act, providing:

A written provision in . . . a contract evidencing

a transaction involving commerce to settle by

arbitration a controversy thereafter arising out

of such contract or transaction, or the refusal to

perform the whole or any part thereof . . . shall

be valid, irrevocable, and enforceable, save

upon such grounds as exist at law or in equity

for the revocation of any contract.

14

9 U.S.C. § 2 (emphasis added). Thus, both the Louisiana

Arbitration Act and the Federal Arbitration Act presup-

pose the existence of a valid contract as a basis for

invoking arbitration as they both contain the same lan-

guage providing: “save upon such grounds as existing at

law or in equity for the revocation of any contract.”

The latest pronouncement of this Court as to the

applicability of the Federal Arbitration Act in this case

supports the decision of the Louisiana Supreme Court in

George Engine. In that case, this Court explained:

In Allied-Bruce [Terminix.Cos. v. Dobson 513 US.

265, 115 S. Ct. 834 (1995)| we restated what our

decisions in Southland [Corp v. Keating, 465 U.S.

1, 104 S. Ct. 852 (1984)] and Perry [v. Thomas, 482

U.S. 483, 107 S. Ct. 2520 (1987)] had established:

“States may regulate contracts, including

arbitration clauses, under general contract

law principles and they may invalidate an

arbitration clause ‘upon such grounds as

exist at law or in equity for the revocation

of any contract." 9 U.S.C. § 2 (emphasis

added). What States may not do is decide

that a contract is fair enough to enforce all

its basic terms (price, service, credit), but

not fair enough to enforce its arbitration

clause. The Act makes any such state policy

unlawful, for that kind of policy would

place arbitration clauses on an unequal

‘footing,’ directly contrary to the Act's lan-

guage and Congress's intent.”

Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 685-86,

116 S. Ct. 1652, 1655 (1996) (quoting Allied-Bruce Terminix

15

Cos. v. Dobson, 115 S. Ct. 834, 843 (1995) (emphasis in

original)).

This Court then went on to explain that:

the text of § 2 [of the Federal Arbitration Act]

declares that state law may be applied “if that

law arose to govern issues concerning the val-

idity, revocability, and enforceability of con-

tracts generally. Thus, generally applicable

contract defenses, such as fraud, duress or

unconscionability, may be applied to invalidate

arbitration agreements without contravening

§ 2.

Doctor’s Associates, 517 U.S. at 686-87, 116 S. Ct. at 1656

(citations omitted) (emphasis in original).

Thus, what the Federal Arbitration Act actually pre-

cludes is “invalidat[ing] arbitration agreements under

state laws applicable only to arbitration provisions.” Id. at

687, 116 S. Ct. at 1656 (emphasis in original). In other

words, states are only precluded “from singling out arbi-

tration provisions for suspect status, requiring instead

that such provisions be placed ‘upon the same footing as

other contracts.’” Id. (citations omitted.) In the instant

case, the Louisiana state laws sought to be applied

include generally applicable contract defenses such as

fraud and, thus, the Federal Arbitration Act is inapplica-

ble.

D. Arbitration could only delay final resolution of

this dispute and adversely impact the parties.

In explaining his reasons for ruling, the Louisiana

state district court recognized that arbitration in this case

16

would have little (if any) impact on what would be tried

before him:

I am convinced that arbitration in this context,

in the context of the litigation that is presented

to this court, is obviously wery complicated;

obviously multi-faceted and involving a number

of contractual relationships between these par-

ties, would in fact lend little to the Court in

terms of dispute resolution. It would resolve

very little. It would be fruitless, pointless and

the only rssue that might be resolved by arbitra-

tion can be resolved by this Court in the context

of the presentation of evidence and witnesses,

which would proceed in the context of all of the

claims between the parties.

* * >

... Lam going to proceed as if this litigation

were going to proceed with or without the [Lou-

isiana Court of Appeal for the] Fourth Circuit's

interference. Additionally, there are other issues

in this litigation that need not be stayed whether

I am right or wrong.

See, Excerpts from Transcript (App., infra, 12a-14a).

The normal advantage which arbitration provides -

speedy resolution of disputes — will not occur in this case

if arbitration were required. To the contrary, arbitration

would delay the ultimate resolution of the disputes

between the parties. Discovery, which was initiated by

the petitioners, is virtually complete. The trial of this

matter is set for July 20, 1998. The trial court informed

counsel for the parties that this is the only matter that

will be set for trial on that date. A final resolution of all

disputes betwwen the parties will occur at that time.

17

Moreover, Rayborn would be prejudiced if the peti-

tioners were permitted to arbitrate a mere portion of this

multi-faceted litigation in Philadelphia, Pennsylvania. As

recognized by the Louisiana state trial court in its Rea-

sons for Judgment (quoted above) arbitration would not

advance the resolution of this dispute because most of

this lawsuit would not be arbitrated and would remain

ongoing before the Louisiana state court. Thus, regardless

of any outcome in arbitration, the parties would continue

to expend resources in litigation because a trial will

occur. Further, the facts underlying Rayborn’s defense to

this Sun-initiated litigation are substantially similar to

those portions of Rayborn’s Response on which the peti-

tioners sought arbitration. Therefore, arbitration will only

needlessly delay a resolution of not only the matters

sought to be arbitrated by the petitioners, but also of

those matters which the petitioners acknowledge cannot

possibly be subject to arbitration and of the matters

brought at issue by the litigation initiated by them.

E. The petitioners’ only seek to arbitrate a small

portion of this lawsuit.

The pleadings filed by the petitioners in the Louisi-

ana state trial court seeking arbitration was not directed

towards the entirety of Rayborn’s claims against them.

See, Excerpts from Transcript (App., infra, 13a) (“There-

fore and for those reasons the Exceptions of Lack of

Subject Matter Jurisdiction as to Counts I, II, VII, VIIL, IX,

X, XI and XII of the Reconventional Demand [Case No.]

41-857 are denied.”).

18

In the Application for Writ filed in the Louisiana

Supreme Court, the petitioners expanded their argument

as to what could be arbitrated to Counts I-IV and IX-XIl

of Rayborn’s Response. Thus, even the petitioners

acknowledge that there will be a trial in the Louisiana

state district on over one-half (i.e., ten out of eighteen) of

the Counts set forth in Rayborn’s Response.

Counts III and IV of Rayborn’s Response, however,

were not at issue before the Louisiana state trial court

and, accordingly, were not an issue before the Louisiana

Supreme Court. Thus, those Counts cannot be at issue in

this Court.

Similarly, because Counts VII and VIII of Rayborn’s

Response (which were at issue in the Louisiana state trial

court) were not a part of the petitioners’ Application for

Writ in the Louisiana Supreme Court, they too were not

at issue before that Court. Thus, those Counts cannot be

at issue in this Court.

Regardless, even if Counts VII and VIII had been

before the Louisiana Supreme Court, those Counts could

not be subject to arbitration even under the petitioners’

arguments. Those Counts relate to claims relating to

breaches of contract. One of those contracts at issue in

those Counts is the Royalty Agreement sued upon which

initiated this action and the petitioners acknowledge that

disputes relating to that instrument are not subject to

arbitration.

Similarly, even the entirety of Counts IX-XIl of

Rayborn’s Response cannot be subject to arbitration

under the petitioners’ argument. Counts IX and X, which

19

relate to the Louisiana Unfair Trade Practices and Con-

sumer Protection Law, La. R.S. 51;1401, et seq., alleges

claims relating to violations of that statute concerning,

inter alia, the Royalty Agreement sued upon which initi-

ated this action. Likewise, Counts X{ and XII which relate

to tortious interference with a contract, allege claims

relating to tortiously interfering with, inter alia, the Roy-

alty Agreement sued upon which initiated this action. As

aforesaid, the petitioners acknowledge that disputes

relating to the Royalty Agreement are not subject to arbi-

tration. Moreover, the only two named defendants in

Count XI, Astugue and Reese (the non-Acquirer peti-

tioners), were not parties to the Transaction. Therefore,

even accepting the petitioners’ arguments to be true,

arbitration is precluded.

Il. CONCLUSION

Accordingly, for all the foregoing reasons, Rayborn

respectfully requests that the petition for a writ of cer-

tiorari be denied.

Respectfully submitted,

Peter J. BUTLER

RicHARD G. PASSLER

BREAZEALE, SACHSE & WILSON, L.L.P.

909 Poydras Street, Suite 2400

New Orleans, Louisiana 70112

Telephone: (504) 584-5443

Attorneys for Respondent,

Jerry J. Rayborn, Sr.

la

APPENDIX

MERGER OF SUN ACQUISITION CORPORATION

(“SAC”) into SUN DRILLING PRODUCTS

CORPORATION (“SUN”) pursuant to that certain

Agreement dated as of December 8, 1994, as

amended, by and among Jerry J. Rayborn, Sr., Jerry J.

Rayborn, Jr., Jeffrey Rayborn, Sun, Heller, Hickox,

Dimeling, Schreiber & Park, a Pennsylvania general

partnership (“HHDS&P”) and SAC

February 21, 1995

Agreement dated as of December 8, 1994

Amendment No. 1 to Agreement

Amendment No. 2 to Agreement

Jean Rayborn’s Consent to Agreement

Letter Agreement and Waiver

Pe FY PP YP PY

Employment Agreement between Sun and Hyp-

polete J. Astugue

7. Employment Agreement between Sun and Bailey

Fridge

8. Employment Agreement between Sun and Raymond

Griffin

9. Employment Agreement/Consulting Agreement

between Sun and Buddy Parker

10. Management, Technical Services and Royalty Agree-

ment between Sun and Jerry |. Rayborn, Sr

11. Real Property Lease from Jerry |. Rayborn, Sr. to Sun

- Alvin, Texas

12. Memorandum of Lease Alvin, Texas

13. Commitment for Owner's and Mortgagee’s Policy of

Title Insurance — Leasehold Estate, Alvin, Texas

SS

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

2a

Owner’s Policy of Title Insurance — Leasehold

Estate, Alvin, Texas

Real Property Lease from Jerry J. Rayborn, Sr. to Sun

~ Belle Chasse, Louisiana

Jean F. Rayborn’s Consent to Belle Chasse, Louisiana

Lease

Subscription Agreement between Sun and Jerry J.

Rayborn, Sr.

Registration Rights Agreement between Sun and

Messrs. Rayborn, Heller, Hickox, Dimeling, Schrei-

ber, Park and Tuten

Subordinate Note in the original principal amount of

$2,800,000 from Sun to Jerry J. Rayborn, Sr., Jerry J.

Rayborn, Jr., Jeffrey Rayborn and Joel Rayborn, ana

Letters appointing Jerry J. Rayborn, Sr. as agent for

the Subordinate Note

Subordinate Pledge Agreen ents between each

Pledgor listed below, Sun, Jerry J. Rayborn, Sr., Jerry

J. Rayborn, Jr., Jeffrey Rayborn and Joel Rayborn,

and blank stock powers

Douglas P. Heller

George K. Hickox, Jr.

William R. Dimeling

Richard R. Schreiber

Steven G. Park

John C. Tuten

Shareholders Agreement between Sun, Banc One,

Capital Partners II, Limited Partnership and the

individuals listed on Schedule A annexed thereto

me oop

Pilko Environmental Assessment

Environmental Indemnity Agreement between

Messrs. Heller, Hickox, Dimeling, Schreiber, Park

and Tuten, HHDS&P, Sun and Jerry J. Rayborn, Sr.

24.

25.

26.

af.

28.

29.

30.

31.

32.

33.

34.

3a

Supplementation of Schedule 3.16 (product formu-

lae) and certificate of Bailey Fridge

Documents Evidencing Vesting of Title to Excluded

Assets from Sun to Jerry J. Rayborn, Sr.

a. Vehicles

b. Assignment of Lafayette Lease

c. Transfer of Property - Intracoastal

d. Assignment of All Products Supply Com-

pany Lease

e. Quitclaim of Improvements

Intellectual Property Assignments

a. United States

b. Venezuela

Documents evidencing Barge transfer from Jerry J.

Rayborn, Sr. to Sun

Interdrill Nigeria Termination Documents

Agreement of Merger

Documents Evidencing Cancellation of Guarantee of

Jerry J. Rayborn, Sr. to First NBC Letter of Credit

pursuant to Section 9.15 of Agreement

Agreement Regarding Extinguishment of Indebted-

ness of Jerry J. Rayborn, Sr. pursuant to Section

2.2(d) of Agreement

$318,738 Promissory Note by Jerry J. Rayborn, Sr. to

Sun marked “Paid in Full” and copy of canceled

check from Jerry J. Rayborn, Sr. to Sun pursuant to

Section 2.2(e) of Agreement

Assignment of Sun Investment Portfolio Account to

Jerry J. Rayborn, Sr.

Powers of Attorney from Jerry J. Rayborn, Jr., Jeffrey

Rayborn and Joel Rayborn to Jerry J. Rayborn, Sr.

48.

RP ee ee ee ee Oy ee ee ae eg ees Oe Pe? eR Ne ee Ne OS a SN a eS) ee Oe oon Tes See a) Cet 2 ae

Letter Agreement from Messrs. Heller, Dimeling,

Schreiber, Park and Tuten

Pro Forma Beginning Balance Sheet of Sun

Landlord Waiver — North Post Oak Business Center,

Houston, Texas

Guaranty Agreement by HHDS&P in favor of Jerry J.

Rayborn, Sr. regarding payments under Royalty

Agreement

Management Agreement between HHDS&P and Sun

Certificate of Jerry J. Rayborn, Sr., as President of

Sun and in his individual capacity, Re: Representa-

tions and Warranties

Officer’s Certificate from HHDS&P Re: Representa-

tions and Warranties

Officer’s Certificate from SAC Re: Representations

and Warranties

Legal Opinion of Reed, Smith, Shaw & McClay

delivered pursuant to Agreement

Legal Opinion of Sessions & Fishman, L.L.P. deliv-

ered pursuant to Agreement and Certificate of Sun

to Sessions & Fishman, L.L.P.

Letter from Alaskan counsel regarding statute of

limitations for tort claims

Sun’s Secretary’s Certificate

Proxy of Jean F. Rayborn, as Director of Sun, to Jerry

J. Rayborn, Sr.

Proxies of John Jeffrey Rayborn, Joel Parker Rayborn

and Jerry J. Rayborn, Jr., as Shareholders of Sun, to

Jerry J. Rayborn, Sr.

49.

50.

51.

52.

53.

61.

62.

5a

Certified Copy of Articles of Incorporation of Sun

issued by the Secretary of State of the State of Loui-

siana

Certified Copy of Amended and Restated Articles of

Incorporation of Sun issued by the Secretary of State

of the State of Louisiana

By-Laws of Sun, as amended by Amendment No. 1

to By-Laws of Sun

Waiver Agreement regarding Section 11 of By-Laws

of Sun between Jerry J. Rayborn, Sr., Jerry J.

Rayborn, Jr., Joel Rayborn, Jeffrey Rayborn and Sun

Certificate of Existence for Sun issued by the Secre-

tary of State of the State of Louisiana

Certificate of Good Standing for Sun issued by the

Department of Revenue and Taxation, State of Loui-

siana

Certificate of Foreign Qualification for Sun issued by

the Secretary of State of the State of Texas

Certificate of Good Standing for Sun issued by the

Comptroller of Public Accounts for the State of Texas

Certificate of Compliance for Sun issued by the Sec-

retary of State of the State of Alaska

Certificate of Status for Sun from Alberta, Canada

Certificate of Good Standing for Sun from Scotland

Certificate of Good Standing for Sun Drilling Prod-

ucts Corporation de Venezuela, C.A. (“Sun de Ven-

ezuela”)

Director’s Certificate Re: Articles of Incorporation of

Sun de Venezuela

Copy of Certificate No. 1 representing Sun’s shares

of Sun de Venezuela

63.

72.

73.

6a

Certified copy of Articles of Incorporation and Mod-

ifications of Sun de Venezuela from the Department

of Registry, Caracas, Venezuela

SAC Secretary’s Certificate

Certificate of Existence for SAC issued by the Secre-

tary of State of the State of Louisiana

Certificate of Good Standing for SAC issued by the

Department of Revenue and Taxation, State of Loui-

siana

Unanimous Consent of Board of Directors of SAC

Incumbency Certificate of HHDS&P and Certified

Partnership: Agreement from HHDS&P

Written Consent in Lieu of Meeting of General Part-

ners of HHDS&P

Cancelled shares of SAC

Affidavit and Indemnification Agreement by Jerry J.

Rayborn, Sr. as to lost shares of Sun

Cancelled shares ot Sun pre-merger stock

Copies of share certificates of Messrs. Heller,

Hickox, Dimeling, Schreiber, Park and Tuten repre-

senting their respective shares of Sun

$% ROE R eae Me Se CNR RRR Oe a Ace Oe Ren) Secor oe

SRE ee eh ek” ES Sale ngs Rata! Soe AE hy gee NRE Be AEs a RS wine TT

Pe ae

7a

See Signature Page for Legend

MANAGEMENT, TECHNICAL

SERVICES AND ROYALTY AGREEMENT

THIS AGREEMENT is entered into as of this 21st day

of February, 1995, between SUN DRILLING PRODUCTS

CORPORATION, a Louisiana corporation, (“SDP”), and

JERRY J. RAYBORN, SR. (“JJR”).

WHEREAS, SDP, Heller Hickox Dimeling Schreiber

& Park, a Pennsylvania general partnership, and Sun

Acquisition Corporation, a Louisiana corporation

(“Acquisition”), have entered into that certain Agreement

dated December 8, 1994 (as amended, the “Merger Agree-

ment”), pursuant to which Acquisition will merge with

and into SDP and SDP will be the surviving corporation

(the “Merger”); and

WHEREAS, as a result of the Merger, JJR will receive

total consideration in cash and notes of $10,200,000.00

and certain debts of JJR and his affiliates owed to SDP

aggregating approximately $2,200,000.00 will be forgiven;

WHEREAS, as a condition to the Merger, Heller,

Hickox, Dimeling, Schreiber & Park and Acquisition

required that JJR be retained as an employee of SDP after

the effective date of the Merger and that JJR be required

to enter into this Agreement; and

WHEREAS, immediately subsequent to the effective

date of the Merger, JJR will own twenty-five percent

(25%) of the issued and outstanding stock of SDP;

WHEREAS, prior to the effective date of the Merger,

JJR had been President of SDP; and

WHEREAS, JJR and SDP desire to enter into a man-

agement, technical services and royalty agreement effec-

tive as of the date of this Agreement.

8a

* * *

IN WITNESS WHEREOEF, SDP has caused this Agree-

ment,to be duly executed in duplicate, and JJR has here-

unto set his hand, on the day and year first above written.

SUN DRILLING PRODUCTS CORPO-

RATION

a Louisiana Corporation

By: /s/_ Hyppolete J. Astugue

Name:

Title:

/s/ Jerry J. Rayborn, Sr.

Jerry J. Rayborn, Sr.

LEGEND

THE RIGHTS, TITLE AMD INTEREST OF ANY HOLDER

OF THIS ROYALTY AGREEMENT ARE SECONDARY,

SUBORDINATE AND INFERIOR TO THE RIGHTS,

TITLE AND INTEREST OF THE HOLDERS OF THOSE

TWO CERTAIN PROMISSORY NOTES DATED FEBRU-

ARY 21, 1995, EXECUTED BY SUN DRILLING PROD-

UCTS CORPORATION, PAYABLE TO THE ORDER OF

BANC ONE CAPITAL PARTNERS II, LIMITED PART-

NERSHIP IN THE PRINCIPAL AMOUNTS OF $2,000,000

AND $4,000,000 RESPECTFULLY AS THE SAME MAY BE

MODIFIED, AMENDED, RENEWED, EXTENDED, RES-

TATED OR REPLACED FROM TIME TO TIME PUR-

SUANT TO A SUBORDINATION AND

INTERCREDITOR AGREEMENT AMONG BANC ONE

CAPITAL PARTNERS II, LIMITED PARTNERSHIP AND

JERRY J. RAYBORN, SR., JERRY J. RAYBORN, JR.,

JEFFREY RAYBORN AND JOEL RAYBORN.

9a

TWENTY-FIFTH JUDICIAL DISTRICT COURT

PARISH OF PLAQUEMINES

STATE OF LOUISIANA

SUN DRILLING PRODUCTS CORPORATION NO. 41-857

VERSUS

JERRY J. RAYBORN, SR. DIVISION “B”

AND

JERRY J. RAYBORN, SR. | NO. 42-278

VERSUS

SUN DRILLING PRODUCTS DIVISION “B”

CORPORATION, HYPPOLETE ASTUGUE

AND SUSAN REESE

AND

JERRY J. RAYBORN, SR. NO. 42-330

VERSUS

SUN DRILLING PRODUCTS DIVISION “B”

CORPORATION HELLER, HICKOX

DIMELING, SCHREIBER AND PARK,

DOUGLAS P. HELLER, GEORGE K.

HICKOX, JR., STEPHEN G. PARK, HYPPLOETE

ASTUGUE AND SUSAN REESE

Argument and Notes of Evidence taken before the HON-

ORABLE WILLIAM A. ROE, Judge, presiding on Thurs-

day, the 21st day of August, 1997.

10a

PRESENT:

GEORGE PIVACH, Il, ESQ.

DOUGLAS CHRISTIAN, ESQ.

ROBERT KAUFMAN, ESQ.

Attorneys for Sun Drilling Products

Corporation; Heller, Hickox, Dimeling,

Schreiber and Park, Douglas P. Heller,

George K. Hickox, Jr., Stephen G. Park,

Hyppolete Astugue and Susan Reese

EDWARD D. WEGMANN, ESQ.

Attorney for Hyppolete Astugue and Susan

Reese

PHILIP F. COSSICH, JR., ESQ.

PETER J. BUTLER, ESQ.

RICHARD PASSLER, ESQ.

LES MARTIN, ESQ.

Attorneys for Jerry J. Rayborn, Sr.

REPORTED BY:

PETER P. BORRELLO, JR.

Official Court Reporter

lla

And in that context, several things struck me as

significant. One is the issue of waiver in terms of the

initial litigation being filed in this court. I understand

that there are separate contracts in connection with the

relationship between Mr. Rayborn and the other parties

in this litigation. I understand that the plaintiffs in the

initial suit were careful to make that controversy, one

apparently dealing with only one contract, which itself

did not contain an arbitration provision. But, as Mr. But-

ler pointed out, the initial contract containing the arbitra-

tion provision creates in effect all of the other contractual

relationships between the parties, including the one sued

upon in 41-857 of the document of this court. Sun Drilling

sought the protection of this court and sought to have a

contiactual provision rescinded and a contractual rela-

tionship between it and Jerry Rayborn, Sr. terminated

judicially, but now when the other aspects of their rela-

tionship are brought at issue, not in a separate suit, but in

a Reconventional Demand to that initial suit and now

they seek the protection of that contract in terms of the

requirement of arbitration. The Court has studied

“George Engine versus Southern Ship Building Corpora-

tion” carefully and I agree that it is apparently on point.

I am intrigued by the argument as has been pointed

out in the jurisprudence and in argument in this matter,

that if the contract itself is invalid, then there is a good

argument that the requirement of arbitration in that con-

tract is unenforceable. To suggest that the choice of laws

provision in that contract is enforceable, even absent the

enforceability of the arbitration provision, does not stand

up. If in fact I may relieve the parties of an obligation to

12a

arbitrate because of the possibility — because the issue to

be arbitrated and that is the validity of the contract itself

is not enforceable, then surely a choice of laws provision

in that same enforceable contract is not enforceable. That

again, I believe, is a reasonable position to take in view of

the fact that the parties seeking to enforce arbitration,

first sought the protection of this court. First sought

litigation as a means of addressing the disputes between

them, rather than arbitration.

Finally, as a practical matter, one final compelling

reason for me to believe that arbitration - that these

exceptions should not be granted — well, first of all, back

to the phrase of, “alternative means of dispute resolu-

tion.” I am compelled to disregard the general language

favoring arbitration in the jurisprudence because of the

fact that I am convinced that arbitration in this context, in

the context of the litigation that is presented to this court,

is obviously very complicated; obviously multi-facetted

and involving a number of contractual relationships

between these parties, would in fact lend little to the

Court in terms of dispute resolution. It would resol: »

very little. It would be fruitless, pointless and the only

issue that might be resolved by arbitration can be

resolved by arbitration can be resolved by this Court in

the context of the presentation of evidence and witnesses,

which would proceed in the context of all of the claims

between the parties.

Finally, one compelling aspect of this legal issue is

the issue of appeal. Were I to grant these exceptions and

order or allow the arbitration, the result would be as

follows: “A district court’s refusal to stay its proceedings

pending arbitration of a dispute, is not a final appealable

13a

order.” On the other hand, “The Court of Appeals freely

refute a district court’s refusal to compel parties to return

to arbitration and a refusal to stay a party’s action con-

cerning arbitration is an appealable judgment, which may

be heard by the Court of Appeals.” Gentlemen, not that I

don’t have faith in my own judgment, not that I don’t

trust that you do, but under these circumstances in these

situations, I am giving solace or its [sic] somewhat eases

my mind that the denial of these exceptions, which I

think is the proper ruling in this matter, allows you to

take an appeal, I believe, to the appellate courts. And

thus at the outset resolve the issue on the appellate level

so that we may either proceed with this litigation, as I

believe it should proceed or have the appellate court stay

these proceedings and allow or compel you to arbitrate

the issues of the validity of the contract.

Therefore and for those reasons, the Exception of

Lack of Subject Matter Jurisdiction as to Counts, I, II, VII,

VIII, IX, X, XI, and XII of the Reconventional Demand in

41-857 are denied.

MR. PIVACH: Your Honor, we respectfully object to

the Court’s decision on your denial of our exceptions. We

are mindful of your reasons for denial and we under-

stand the Court’s position. With that in mind, Your

Honor, would we be allowed to have stay of time suffi-

cient enough for us to seek writ to the Court of Appeals?

THE COURT: No. I will not stay these proceedings.

My suggestion is to seek a stay from the Fourth Circuit.

MR. PIVACH: Is there any particular reason, Your

Honor? With the voluminous nature of the pleadings that

l4a

have been filed in this matter so far, if we can get a quick

resolution of that through the Court of Appeals -

THE COURT: Because I am not going to bet against

myself. If 1 thought I was going to be reversed, I would

have ruled the other way. I think I made the right ruling.

I think that the Fourth Circuit is going to affirm me. And

I am not going to bet against myself. 1 am going to

proceed as if this litigation were going to proceed with or

without the Fourth Circuit’s interference. Additionally,

there are other issues in this litigation that need not be

stayed whether I am right or wrong.

* ate oe +

CERTIFICATE

I, PETER P. BORRELLO, JR., Official Court Reporter,

do hereby certify that the foregoing one hundred and one

(101) pages is a true and correct transcript of my stenog-

raphic notes taken down by me and transcribed to the

best of my ability and understanding of the above-enti-

tled and numbered cause.

/s/ Peter P. Borrello, Jr.

PETER P. BORRELLO, JR.

Official Court Reporter