Esso Exploration & Prod. Nigeria Ltd. v. Nigerian Nat'l Petroleum Corp.

• Decision Date: 04 September 2019
• Docket Number: 14cv8445
• Citation: 397 F.Supp.3d 323
• Parties: ESSO EXPLORATION AND PRODUCTION NIGERIA LIMITED, et ano., Petitioners, v. NIGERIAN NATIONAL PETROLEUM CORPORATION, Respondent.
• Court: U.S. District Court — Southern District of New York

397 F.Supp.3d 323

ESSO EXPLORATION AND PRODUCTION NIGERIA LIMITED, et ano., Petitioners,

v.NIGERIAN NATIONAL PETROLEUM CORPORATION, Respondent.

14cv8445

United States District Court, S.D. New York.

Signed September 4, 2019

Aaron Robert Marcu, David Yury Livshiz, Elliot Friedman, Rebecca Long Everhardt, Charline Oh Yim, Christian Vandergeest, Megha Hoon, Paige Von Mehren, Shannon Marie Leitner, Stephen Pearson, III, Friedfields Bruckhaus Deringer U.S. LLP, Daniel Martin Sullivan, Matthew Grant Gurgel, Holwell Shuster & Goldberg LLP, New York, NY, Elizabeth Anne Snodgrass, Three Crowns LLP, Washington, DC, for Petitioners.

Cecilia Froelich Moss, Andreas Albert Frischknecht, Joshua Dillon Anders, Peter R. Chaffetz, Chaffetz Lindsey LLP, New York, NY, for Respondent.

OPINION & ORDER

WILLIAM H. PAULEY III, Senior United States District Judge:

Respondent Nigerian National Petroleum Corporation ("NNPC") moves pursuant to Federal Rules of Civil Procedure 12(b)(2) and 12(b)(6) to dismiss Petitioners Esso Exploration and Production Nigeria Limited and Shell Nigeria Exploration and Production Company Limited's (together, "Esso") Third Amended Petition to confirm a Nigerian arbitral award (the "Award"). NNPC argues that the Third Amended Petition should be dismissed for lack of personal jurisdiction, on forum non conveniens grounds, and because the Award was set aside by Nigerian courts. Esso moves for certain facts to be deemed admitted as a sanction for purported discovery violations. It also requests that this Court confirm the $1.799 billion Award and accrued interest.¹ For the reasons that follow, NNPC's motion is granted and Esso's motion is denied.

BACKGROUND

This dispute stems from a 1993 Production Sharing Contract (the "Agreement") between Esso and NNPC related to the Erha oil field off the coast of Nigeria. (Third Am. Pet., ECF No. 182 ("TAP"), ¶ 36.) The Agreement assigned Esso the responsibility for the exploration, development, and extraction of oil from the Erha field, in exchange for the right to share profits. (TAP ¶ 37.) Esso was also given the exclusive right to calculate the oil produced and allocate it into four tranches: (1) Royalty Oil, to cover NNPC's payments to the Nigerian government; (2) Cost Oil, to cover Esso's operating costs; (3) Tax Oil, to cover tax payments to the Nigerian government; and (4) Profit Oil, which is derived from the remaining oil and split between Esso and NNPC pursuant to a formula. (TAP ¶ 37.) In addition, Esso had the exclusive right to prepare tax returns to be filed with the Nigerian government related to those tranches of oil. (TAP ¶ 38.) The Agreement also contained a "Stabilization Clause," which required the parties to modify the terms of the Agreement to compensate Esso for any loss sustained due to changes in Nigerian law, regulations, or policies. (TAP ¶ 39.) Finally, the parties agreed that any dispute arising out of the Agreement would be arbitrated in Nigeria subject to Nigerian law. (TAP ¶ 40.) The arbitration clause was limited to disputes "concerning the interpretation or performance" of the Agreement. (Decl. of Adewale Atake, ECF No. 183 ("Atake Decl."), Ex. 2 at cl. 21.)

After executing the Agreement, Esso explored and developed the Erha oil fields and began production in 2006. (TAP ¶ 42.) Through 2009, Esso had invested over $6 billion in the project. (TAP ¶ 42.) However, due to changing oil prices in 2007, Nigeria and NNPC began to rethink the Agreement. By the latest November 2007, President Umaru Musa Yar'Adua of Nigeria established the Presidential Investment Committee (the "Committee") to determine whether NNPC should be taking—known as "lifting"—more oil than Esso was allocating to NNPC under the Agreement. (Decl. of Megha Hoon in Supp. of Pets.' Third Am. & Suppl. Pet., ECF No. 187 ("First Hoon Decl."), Ex. 10 at 9; Decl. of Mele Kyari, ECF No. 211 ("Kyari Decl."), ¶¶ 2, 6 (explaining that the Committee formed a Technical Subcommittee, which began its work in November 2007); TAP ¶ 45.) In early February 2008, the Committee issued its report, which concluded that Nigeria had been deprived of $646.3 million from the Erha oil field and recommended that NNPC lift that amount of oil from Erha. (First Hoon Decl. Ex. 10 at 20; TAP ¶ 46.) The Committee then met with President Yar'Adua in April 2008 to give its recommendation. (First Hoon Decl. Ex. 15.) On May 20, 2008, President Yar'Adua ordered NNPC to lift more oil per the Committee's recommendation. (TAP ¶ 46; Decl. of Shannon M. Leitner, ECF No. 207 ("Leitner Decl."), Ex. 14 (Press Release).) However, NNPC had begun lifting more oil in December 2007 or January 2008—before President Yar'Adua gave the order. (ECF No. 238, Ex. D ¶ 13 & Ex. E.) In addition, NNPC refused to submit tax returns prepared by Esso to the Nigerian tax authority (the "FIRS") and instead submitted its own returns to FIRS. (TAP ¶ 48.)

Esso objected to what it refers to as the "overlifting" of oil and commenced arbitration against NNPC in July 2009. (TAP ¶ 49.) The parties submitted extensive briefing prior to the arbitration hearings. (TAP ¶ 54.) During those hearings in 2011, NNPC argued that the dispute was not contractual in nature, but rather a tax dispute subject to the exclusive jurisdiction of the Nigerian Tax Appeal Tribunal. (TAP ¶ 56.) NNPC also argued that Nigeria's 1999 Constitution prevented the arbitration of tax disputes. (TAP ¶ 58.) However, the arbitral panel ("Arbitral Panel") found that it had jurisdiction to hear the dispute because it was contractual in nature and awarded Esso $1.799 billion. (TAP ¶¶ 59–61.) Specifically, the Arbitral Panel found that NNPC overlifted Royalty and Tax Oil and reduced the Cost Oil due to Esso. (TAP ¶ 61.) Those actions by NNPC also reduced the Profit Oil available to Esso. (TAP ¶ 61.) The Award represented the difference between what NNPC lifted and what it was entitled to lift. (TAP ¶ 61.)

Thereafter, the Nigeria Federal High Court—a trial level court—issued two decisions: (1) the FIRS Decision, which allowed FIRS to enjoin the arbitration, and (2) the Set Aside Decision, which vacated the Award. (TAP ¶ 63.) In the FIRS Decision, the High Court held that the Arbitral Panel lacked jurisdiction because the dispute affected the amount of revenue received by FIRS, which was akin to a tax. (TAP ¶ 64; Atake Decl. Ex. 3 (FIRS Decision).) Notably, though, because the arbitration had been completed before the FIRS Decision was issued, there was no proceeding to enjoin. (TAP ¶ 64.) Esso maintains that the High Court failed to consider its arguments as to why the matter was not a tax dispute. (TAP ¶ 64.) In the Set Aside Decision, which was issued after Esso sought to confirm the Award, the High Court set aside the Award because of a similar jurisdictional issue—namely, that the case was not arbitrable because requiring NNPC to pay contractual damages would reduce the amount of money received by Nigeria through FIRS. (TAP ¶¶ 65–66; Atake Decl. Ex. 4 (Set Aside Decision).) Esso claims that the Set Aside Decision was essentially a "copy/paste" of the FIRS Decision, which appears, at least in part, to be the case. (Compare Atake Decl. Ex. 3 at 24 ("To say that the claims of the Claimants have nothing to do with tax is akin [to] saying that [s]ix is not half a dozen."), with Atake Decl. Ex. 4 ("To say that the claims of the Claimants have nothing to do with tax is akin to saying that [s]ix is not half a dozen.").) Esso appealed both decisions.

In the Set Aside Appeal, the Nigerian Court of Appeal found that the High Court properly set aside the Award because the matter was primarily a tax dispute. (TAP ¶ 68; Atake Decl. Ex. 5 at 20 (Set Aside Appeal).) However, the Court of Appeal reinstated some of the non-monetary aspects of the Award, finding that the High Court should have severed the claims related to the preparation of Petroleum Profit Tax returns and the calculation of lifting allocations from the rest of the Award because they were contractual in nature. (TAP ¶ 68; Atake Decl. Ex. 5 at 20.) Put another way, the Court of Appeal concluded that NNPC had breached the Agreement by overlifting oil and failing to submit the tax returns prepared by Esso, and that these portions of the Award should be restored. (TAP ¶ 68; Atake Decl. Ex. 5 at 20.) NNPC argues that this only provides prospective relief. Moreover, the Court of Appeal found that Esso had essentially waived its argument regarding the Stabilization Clause. (Atake Decl. Ex. 5 at 29.) Thereafter, the Court of Appeal decided the FIRS Appeal in a separate opinion with virtually the same holding and reasoning. (TAP ¶ 70; Atake Decl. Ex. 6 (FIRS Appeal.)

Esso pursued two separate avenues of relief from these rulings. First, it appealed both rulings. (TAP ¶ 73.) Second, it commenced an action in the High Court, seeking compensation for NNPC's violation of the Agreement. (TAP ¶ 74.) However, it commenced that lawsuit while simultaneously seeking to confirm the Award in Nigeria (apparently to avoid statute of limitations issues). (TAP ¶ 74.) The High Court dismissed that suit with prejudice, finding an "abuse of process" because Esso filed a substantive lawsuit while also seeking to confirm the Award. (TAP ¶ 75.) Esso appealed that decision as well.

Now, Esso seeks to confirm the Award in this Court. At the time Esso filed its Third Amended Petition, the value of the Award was $2,669,405,616. (TAP ¶ 61.) NNPC moves to dismiss on numerous grounds. First, NNPC argues that this Court lacks personal jurisdiction over it. Next, NNPC argues that even if this Court can exercise personal jurisdiction, the action should be dismissed on forum non conveniens grounds. Finally, NNPC argues that this Court cannot confirm the Award because it was set aside by the Nigeria courts. In addition, Esso moves for 12 proposed facts to be ordered established as a discovery sanction.

DISCUSSION

I. Personal Jurisdiction

A. Standard

On a motion to dismiss for lack of...