Kern Oil & Refining Co. v. Tenneco Oil Co.

• Decision Date: 07 March 1988
• Docket Number: Nos. 86-6674,87-5743,s. 86-6674
• Citation: 840 F.2d 730
• Parties: , 5 UCC Rep.Serv.2d 1380 KERN OIL & REFINING CO., Plaintiff/Counter-Defendant/Appellee, v. TENNECO OIL COMPANY, Defendant/Counter-Claimant/Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 730

840 F.2d 730

10 Fed.R.Serv.3d 962, 5 UCC Rep.Serv.2d 1380

KERN OIL & REFINING CO., Plaintiff/Counter-Defendant/Appellee, v. TENNECO OIL COMPANY, Defendant/Counter-Claimant/Appellant.

Nos. 86-6674, 87-5743.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 10, 1987.

Decided March 7, 1988.

James R. Martin, Gibson, Dunn & Crutcher, Los Angeles, Cal., for defendant/counter-claimant/appellant.

Richard E. Sherwood, Suzanne F. Duff, O'Melveny & Myers, Los Angeles, Cal., for plaintiff/counter-defendant/appellee.

Appeal from the United States District Court for the Central District of California.

Before SNEED and PREGERSON, Circuit Judges, and INGRAM, ^* District Judge.

SNEED, Circuit Judge:

Tenneco Oil Company appeals from a district court judgment awarding $32 million in damages, interest, and attorneys' fees to Kern Oil & Refining Company for Tenneco's breach of contract and fraud. We affirm.

I. FACTS AND PROCEEDINGS BELOW

Kern Oil & Refining Company (Kern) is a crude oil refiner whose refinery is located in Bakersfield, California. Kern has no crude oil production of its own and therefore must acquire from others the crude it runs through its refinery. Tenneco Oil Company (Tenneco) is an "integrated" oil company with crude production in California and elsewhere, a refinery in Louisiana, and marketing facilities around the country.

In October 1975, Kern and Tenneco agreed that Kern would purchase oil from Tenneco's fields in Yowlumne, California. As Tenneco brought new Yowlumne fields into production, it sold most of that oil to Kern as well. In May 1977, Kern and Tenneco entered into a contract that formally committed Tenneco to sell Kern all crude produced by Yowlumne properties from which Kern was already purchasing crude. ¹ The trial court found that at about the same time, "Kern and Tenneco orally agreed that Tenneco would sell to Kern, under the terms of the May 1977 contract, crude from all Yowlumne properties coming into production after May 1977." Findings of Fact and Conclusions of Law, Excerpt of Record (E.R.) at 263.

Circumstances changed in the spring of 1978. Tenneco then learned that a pipeline would soon be open which could transport Tenneco's Yowlumne crude across the Rockies. From east of the Rockies, the oil could be easily traded for crude supply for Tenneco's Louisiana refinery. The court found that "Tenneco wanted to keep for itself the Yowlumne crude that it had agreed to sell to Kern." E.R. at 265. Tenneco faced two obstacles in attempting to keep the Yowlumne oil for itself.

The first obstacle was a practical one pertaining to Tenneco's access to the new pipeline. Tenneco's only way to the new pipeline was through a small Texaco pipeline, to which Tenneco did not have access. Kern, however, did have a contractual right to use the Texaco pipeline. Therefore, Tenneco proposed to Kern that Kern transport Tenneco's oil through the Texaco pipeline. This proposal also brought into focus the second obstacle--Kern's contractual and regulatory claims to Tenneco's Yowlumne oil. Because at the time of this proposal Tenneco's Yowlumne fields were producing more oil than Kern could refine, it did not meet with a flat rejection. Kern argued at trial that Tenneco met its concerns by fraudulently promising Kern that Tenneco would not leave Kern without a sufficient supply for Kern's refinery. Relying on that promise, and believing that it was not jeopardizing its own supply, Kern agreed in July 1978 to transport some of Tenneco's Yowlumne crude through the Texaco pipeline. Tenneco's interpretation of the July 1978 contract substantially differs from Kern's. Tenneco argued at trial that the May 1977 contract already gave Kern title to Tenneco's Yowlumne oil, and that the July 1978 contract was not a transportation agreement but a straight sale of some of the Yowlumne oil back to Tenneco. The district court agreed with Kern, and found that the July 1978 contract was a transportation agreement, which Tenneco fraudulently induced Kern to sign.

By January 1979, Kern was aware that Tenneco did not agree with Kern's interpretation of the May 1977 and July 1978 contracts, and did not intend to supply the Kern refinery's needs. This became of greater importance to Kern than previously because it contemplated expanding its refinery capacity. In February 1979, Kern filed a complaint with the U.S. Department of Energy alleging that Tenneco had violated federal regulations. In the same month, Kern and Tenneco replaced the July 1978 agreement with an explicit transportation agreement, "fulfilling the same function and serving the same purpose as the July 1978 agreement." E.R. at 269. The February 1979 agreement was not intended to affect any claims either party might have under the earlier agreements. It remained in effect until 1981.

Tenneco's conduct did not damage Kern until April 1979, when Kern completed the expansion of its refinery. From April 1979 through November 1980, Kern would have processed nearly two million barrels of the Yowlumne crude that Tenneco failed to deliver. As a result, it lost nearly $17 million in profit.

In July 1981, five months after the filing by Kern of a suit against Tenneco alleging that Tenneco overcharged Kern under the May 1977 contract, Kern filed a complaint against Tenneco in the Central District of California alleging violations of federal regulations. In December 1982, Kern filed a complaint based on the same acts and alleging contractual breaches. In 1983, the district court consolidated the two latter complaints. The overcharge case proceeded separately.

This case was tried in December 1985 and January 1986. In November 1986, the court entered judgment for Kern and awarded it some $32 million in damages, interest, and attorneys' fees, including sanctions under Federal Rule of Civil Procedure 11. The court held that by failing to sell Kern all of the oil produced by the Yowlumne fields in question, Tenneco violated the Mandatory Petroleum Allocation Regulations, 10 C.F.R.Pt. 211 (1987), and breached the May 1977 contract. E.R. at 276-85. In addition, the court held that Tenneco had committed fraud and misrepresentation in convincing Kern to sign the July 1978 contract. E.R. at 285-86.

Tenneco appealed the decision on the regulatory cause of action to the Temporary Emergency Court of Appeals and the decision on the contractual causes of action to this court.

II. JURISDICTION

The district court had diversity jurisdiction under 28 U.S.C. Sec. 1332 (1982). This court's jurisdiction rests on 28 U.S.C. Sec. 1291 (1982).

III. DISCUSSION

Tenneco presents numerous arguments. Their descriptive designations, which this opinion will employ, are as follows:

A. Absence of Jurisdiction of District Court to Enter Findings of Fact and Conclusions of Law.

B. Grounds for Dismissal of Kern's Claims.

1. Res Judicata.

2. Statute of Limitations.

3. Waiver by Kern's Course of Performance.

C. Damages Erroneously Determined.

1. 90-Day Notice Period as a Limitation on Damages.

2. Kern's Duty to Mitigate.

3. Evidentiary Support for Damages.

D. Prejudgment Interest Not Allowable.

E. Rule 11 Sanctions Not Proper.

We now turn to these arguments in the order set out above.

A. Absence of Jurisdiction of District Court to Enter Findings of Fact and Conclusions of Law

On October 10, 1986, the district judge signed his findings of fact and conclusions of law, as well as his final judgment. The latter was filed on November 5 but the findings of fact and conclusions of law were not entered until November 24, 1986. Tenneco's notice of appeal was filed on November 21, three days before the findings and conclusions were entered.

Tenneco argues that filing its notice of appeal stripped the district court of its jurisdiction to enter findings of fact and conclusions of law. It is true that filing a notice of appeal usually divests the district court of jurisdiction over the matters appealed. McClatchy Newspapers v. Central Valley Typographical Union No. 46, 686 F.2d 731, 734 (9th Cir.), cert. denied, 459 U.S. 1071, 103 S.Ct. 491, 74 L.Ed.2d 633 (1982). We have, for example, refused to consider amended findings of fact and conclusions of law filed after a notice of appeal. See Sumida v. Yumen, 409 F.2d 654, 656-57 (9th Cir.1969).

This divestiture of district court jurisdiction does not rest on a statute. See Hoffman v. Beer Drivers & Salesmen's Local Union No. 888, 536 F.2d 1268, 1276 (9th Cir.1976). Rather, it is a "judge-made doctrine designed to avoid the confusion and waste of time that might flow from putting the same issues before two courts at the same time. It should not be employed to defeat its purposes nor to induce needless paper shuffling." 9 J. Moore, B. Ward & J. Lucas, Moore's Federal Practice p 203.11, at 3-45 n. 1 (2d ed. 1987). Tenneco's argument would "induce needless paper shuffling." Our acceptance of Tenneco's position would not lead to a decision on the merits for Tenneco but only to a remand to the district court to file its findings and conclusions. Another appeal would then be taken by Tenneco and next year, perhaps, we would get the case back. A better example of "needless paper shuffling" would be hard to imagine.

This case differs from Sumida, supra, in which the district court filed both an order and findings and conclusions, and, after the notice of appeal was filed, attempted to amend both. We properly treated the appeal as one from the earlier filed order. The appellate court is entitled to review a fixed, rather than a mobile, record. Here the district court did not attempt to move the target; it merely set one in place. It is clear to us that the findings and conclusions were intended to be filed at the same time as the final judgment. We will treat them as having been so filed.

Tenneco insists that it was deprived of its opportunity to move for amended findings and conclusions, Fed.R.Civ.P. 52(b), and to move for a...