Derby & Co., Inc. v. Seaview Petroleum Co.

• Decision Date: 19 February 1991
• Docket Number: Civ. A. No. 82-2964.
• Citation: 756 F. Supp. 868
• Parties: DERBY & CO., INC., Plaintiff, v. SEAVIEW PETROLEUM COMPANY, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

756 F. Supp. 868

DERBY & CO., INC., Plaintiff, v. SEAVIEW PETROLEUM COMPANY, Defendant.

Civ. A. No. 82-2964.

United States District Court, E.D. Pennsylvania.

February 19, 1991.

Robert J. Lynch, New York City, Thomas P. Preston, Philadelphia, Pa., Jerome E. Sharfman, Newark, N.J., for plaintiff.

William A. Jacobson, Charles R. Jacob, III, New York City, John P. Mason, Philadelphia, Pa., for defendant.

MEMORANDUM AND ORDER

DITTER, District Judge.

Defendant Seaview Petroleum Company moves for summary judgment on the ground that there is no evidence to support plaintiff's claims for negligence, breach of contract, and unjust enrichment. In the alternative, in a supplemental motion for summary judgment, Seaview avers that Derby's complaint is barred by New Jersey's Entire Controversy Doctrine. There is no merit in either motion and both will be denied.

I. Facts

In early January, 1981, Derby contracted to sell Seaview a quantity of Libyan Amna crude oil. To meet its obligations to Seaview, Derby entered into a contract with Cities Service Company for a barrel-forbarrel exchange of Nigerian Forcados crude oil for Libyan Amna crude oil. Cities was to deliver the oil directly to Seaview. Cities was to pay Derby for the difference in market value between the quantity of Nigerian Forcados crude oil it received and the quantity of Libyan Amna crude oil it delivered to Seaview on Derby's behalf. There was no contractual relationship, however, between Cities and Seaview. Section two of the Derby-Seaview contract provided that an independent inspection company, retained jointly by the parties, would perform the appropriate measurements and calculations to determine the quality and quantity of crude oil ultimately delivered to Seaview. The parties agreed that "the independent inspector's determination as to quantity and quality shall be conclusive and binding upon both parties," Derby-Seaview agreement of sale at 2.1; however, the inspector's testing methods were required to be in accordance with standard test methods generally accepted in the petroleum industry. The contract between Derby and Cities contained almost identical language with respect to the conclusiveness of the inspector's test results. The American Society for Testing and Materials (ASTM) and the American Petroleum Institute (API) have published official standards for this purpose.

At Seaview's insistence, the parties retained E.W. Saybolt & Co. to conduct the independent inspection. Cities also agreed in its contract with Derby to be bound by Saybolt's calculations, but nonetheless hired its own inspection company, Caleb Brett & Son, Ltd., to attend the discharge of the oil cargo at Seaview's terminal and to conduct a simultaneous inspection. In both the Derby-Cities Service contract and the Derby-Seaview contract the parties agreed they would be governed by New York law.

The Hellespont Pride loaded the cargo of Amna crude oil, which is the focus of the parties' dispute, at Ras Lanuf, Libya, on February 1, 1981. The ship berthed at the terminal in New Jersey twenty-six days later and began discharge to Seaview's shore tanks. Upon its arrival, Saybolt and Caleb Brett boarded the vessel to commence inspection and sampling of the cargo. The inspectors separately measured free water content and sediment and water ("S & W") content on the ship's tanks.¹ Saybolt deducted these measurements from the overall volume of the cargo and reported to the parties that 408,088.79 barrels of crude oil had been delivered to Seaview. Once the discharge had been completed, Saybolt and Caleb Brett examined the shore tanks and once again gauged the free water content. They both found an increase of 3,879.8 barrels of free water above the quantity measured on the Hellespont Pride. Saybolt adjusted its overall figure accordingly. Following laboratory analysis of the samples of crude oil removed from the ship, Saybolt revised upward its S & W percentages, and thereby reduced its calculation of the net quantity of crude oil Seaview received. Saybolt adjusted its survey report and certified that 401,151.28 — not 408,088.79 — barrels of crude oil had been received. Seaview paid Derby based on the adjusted figure as per the Derby-Seaview contract. Cities paid Derby based on the adjusted figure as per the Derby-Cities contract.

Soon thereafter, Caleb Brett advised Cities that according to its calculations and laboratory analysis, Seaview received 410,625.35 barrels of crude oil — 9,474.07 more barrels than Saybolt had reported. Caleb Brett arrived at a higher net quantity of crude oil because its S & W and free water calculations were significantly lower than Saybolt's. Cities informed Derby of the discrepancy between the two inspector's findings. Derby billed Seaview for an additional 9,474.07 barrels of crude oil. When Seaview refused to pay the additional amount, Derby informed Cities that it would not refund any of the money Cities had paid to it.

Cities sued Derby in the Southern District of New York to recover what it claimed was an overpayment. Cities sought a judicial determination that Saybolt's testing methods deviated from accepted ASTM/API standards, that such deviation was tantamount to the fraud, bad faith, or gross error necessary under New York law to overturn a certification which the parties had previously agreed would be "conclusive and binding." Cities also alleged that Seaview improperly injected a deemulsifier into the cargo lines, causing water to precipitate out of the oil during discharge, and also causing water to be released from sediment in the shore tanks, thereby artificially inflating Saybolt's free water calculation. According to Cities, the use of a deemulsifier before discharge was contrary to accepted industry practice. Cities alleged that Saybolt knew that Seaview had injected a deemulsifier into the cargo, but nonetheless failed to account for this when calculating free water content.

In the New York action, Derby denied that Saybolt's methods were inconsistent with industry standards; however, in the event the court found otherwise, Derby sought to bring Seaview into the action as a third party defendant. Finding that it lacked jurisdiction over Seaview, the New York court granted Seaview's motion to dismiss Derby's third-party complaint against it. Derby then filed an action in this court against Seaview which I stayed pending the outcome of the New York case.

Several years later, while the New York action was still pending, Cities sued Saybolt in New Jersey Superior court. In a separate New Jersey state court action, Derby sued Saybolt, which then filed a third-party complaint against Seaview. The Derby-Saybolt-Seaview action was consolidated with the Cities-Saybolt action in New Jersey Superior Court.

Judge Kram of the Southern District of New York issued extensive findings of fact and conclusions of law following a bench trial in Cities' lawsuit against Derby. Concluding that Saybolt's inspection and testing methods failed to comply with ASTM/API standards as required by the Cities-Derby contract, Judge Kram set aside Saybolt's certification and held that Cities was not bound by them. Cities Service Co. v. Derby & Co., Inc., 654 F.Supp. 492, 502 (S.D.N.Y.1987). The court further concluded that Caleb Brett's calculations were appropriate because the method Caleb Brett employed conformed with industry standards and with the language of the Derby-Cities contract. Judge Kram substituted Caleb Brett's certification of the net quantity of crude oil received by Seaview, and awarded damages to Cities for the value of the discrepancy. Judge Kram's decision was later affirmed by the second Circuit. Cities Service Co. v. Derby & Co., Inc., 835 F.2d 1429 (2d Cir.1987).

Following Judge Kram's verdict and the Second Circuit's affirmance, Cities voluntarily withdrew from the consolidated New Jersey action. At Seaview's request, the stay in this lawsuit was continued pending the outcome of the New Jersey case. Immediately before the stay was issued, however, Seaview filed the within motion for summary judgment based primarily on Derby's contentions in the New York action. Derby and Saybolt eventually reached a settlement in the New Jersey action in which Seaview did not participate. The New Jersey action was dismissed, and I lifted the stay in this case. Seaview then filed a supplemental motion for summary judgment which it requested that I consider first, alleging that Derby's complaint pending before me is barred by the New Jersey Entire Controversy Doctrine.

II. Seaview's Supplemental Motion for Summary Judgment — The Entire Controversy Doctrine

Seaview seeks dismissal of Derby's lawsuit under the New Jersey Entire Controversy Doctrine ("ECD"), a state common law principle codified at New Jersey Civil Practice Rules 4:27-1 (mandatory joinder of claims) and 4:28-1 (mandatory joinder of parties). The ECD is an equitable doctrine designed to avoid the delay and expense of multiple litigation and "claim-splitting." The doctrine requires that a party "who has elected to hold back from the first proceeding a related component of the controversy be barred from thereafter raising it in a subsequent proceeding." Ajamian v. Schlanger, 14 N.J. 483, 103 A.2d 9, 10, cert. denied, 348 U.S. 835, 75 S.Ct. 58, 99 L.Ed. 659 (1954). The ECD bars subsequent causes of action arising out of the same set of facts or events against parties to the original action, Tall Timbers Property Owners Assoc. v. Tall Timbers, Inc., 217 N.J.Super 119, 524 A.2d 1315, 1317 (App.Div.1987), as well as non-parties, Cogdell v. Hospital Center at Orange, 116 N.J. 7, 560 A.2d 1169 (1989). The ECD therefore reaches more broadly than res judicata or collateral estoppel because it precludes subsequent litigation of related claims, regardless of whether they were raised or resolved in the previous action, and even if they are capable of independent adjudication. Printing...