# Opposition Brief — Sun Drilling Products Corp. v. Rayborn

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1998
- **Citation:** 525 U.S. 1000

## Text

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
TAR GIR FAUT EERIE 6 bcc cs tc cesccscccsccocce ii
I. STATEMENT OF THE CASE .................. ]

Il. REASONS WHY THE PETITION SHOULD BE
ee ee ee yr ree eee ee +

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386006_1680%3A2. Public record. Not legal advice.