Amoco Rocmount Co. v. Anschutz Corp., 92-8024

• Citation: 7 F.3d 909
• Decision Date: 13 September 1993
• Docket Number: 92-8027,No. 92-8024,92-8024
• Parties: 38 Fed. R. Evid. Serv. 1276 AMOCO ROCMOUNT COMPANY, a Delaware corporation, as Unit Operator of, and as an individual interest owner in the Anschutz Ranch East Unit; Champlin Petroleum Company, a Delaware corporation, as an individual interest owner in the Anschutz Ranch East Unit, Plaintiffs-Appellees, v. The ANSCHUTZ CORPORATION, a Kansas corporation, Defendant/Third Party Plaintiff-Appellant, v. Jerry D. ARMSTRONG; J.H. Bander; Ray O. Brownlie; James B. Wallace; BWAB, Inc.; Chevron U.S.A., Inc.; Mesa Petroleum Company; MTS Limited Partnership; Mobil Rocky Mountain, Inc.; Pan Canadian Petroleum, Inc., Third Party Defendants-Appellees. Amoco Rocmount Company, a Delaware corporation, as Unit Operator of, and as an individual interest owner in the Anschutz Ranch East Unit, Plaintiff-Appellant, and Champlin Petroleum Company, a Delaware corporation, as an individual interest owner in the Anschutz Ranch East Unit, Plaintiff, v. The ANSCHUTZ CORPORATION, a Kansas corporation, Defendant-Appellee, v. Jerry D. ARMSTRONG; J.H. Bander; Ray O. Brownlie; James B. Wallace; BWAB, Inc.; Chevron U.S.A., Inc.; Mesa Petroleum Company; MTS Limited Partnership; Mobil Rocky Mountain, Inc.; Pan Canadian Petroleum, Inc., Third Party Defendants.
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 909

7 F.3d 909

38 Fed. R. Evid. Serv. 1276

AMOCO ROCMOUNT COMPANY, a Delaware corporation, as Unit

Operator of, and as an individual interest owner in the

Anschutz Ranch East Unit; Champlin Petroleum Company, a

Delaware corporation, as an individual interest owner in the

Anschutz Ranch East Unit, Plaintiffs-Appellees, v. The ANSCHUTZ CORPORATION, a Kansas corporation, Defendant/Third Party Plaintiff-Appellant, v. Jerry D. ARMSTRONG; J.H. Bander; Ray O. Brownlie; James

B. Wallace; BWAB, Inc.; Chevron U.S.A., Inc.; Mesa

Petroleum Company; MTS Limited Partnership; Mobil Rocky

Mountain, Inc.; Pan Canadian Petroleum, Inc., Third Party

Defendants-Appellees.

Amoco Rocmount Company, a Delaware corporation, as Unit

Operator of, and as an individual interest owner

in the Anschutz Ranch East Unit,

Plaintiff-Appellant,

and

Champlin Petroleum Company, a Delaware corporation, as an

individual interest owner in the Anschutz Ranch

East Unit, Plaintiff, v. The ANSCHUTZ CORPORATION, a Kansas corporation, Defendant-Appellee, v. Jerry D. ARMSTRONG; J.H. Bander; Ray O. Brownlie; James

B. Wallace; BWAB, Inc.; Chevron U.S.A., Inc.; Mesa

Petroleum Company; MTS Limited Partnership; Mobil Rocky

Mountain, Inc.; Pan Canadian Petroleum, Inc., Third Party Defendants.

No. 92-8024, 92-8027.

United States Court of Appeals, Tenth Circuit.

Sept. 13, 1993.

Order on Petition for Rehearing

for Clarification Oct. 22, 1993.

James M. Lyons (Frederick J. Baumann and Brent R. Cohen also of Rothgerber, Appel, Powers & Johnson, Denver, CO, and James E. Applegate and Alan B. Minier of Hirst & Applegate, Cheyenne, WY, with him on the briefs), for defendant-appellant/cross-appellee Anschutz Corp.

James A. Clark and Timothy R. Beyer (Fred M. Winner and Peter J. Korneffel, Jr., also of Baker & Hostetler, with them on the briefs), Denver, CO, for plaintiff-appellee/cross-appellant Amoco Rocmount Co.

Before LOGAN, RONEY, ^* and SEYMOUR, Circuit Judges.

LOGAN, Circuit Judge.

In No. 92-8024, defendant The Anschutz Corporation (Anschutz) appeals the judgment of the district court ruling that it breached a Unit Operating Agreement with plaintiffs Amoco Rocmount Company (Amoco), Champlin Petroleum Company n/k/a Union Pacific Resources Company, and other working interest owners, ¹ and ordering it to pay damages of $29,324,113.31. In No. 92-8027, Amoco appeals the judgment of the same court finding in favor of Anschutz on a number of Anschutz's counterclaims against it, and ordering Amoco to pay damages totalling $4,940,585.03.

I

This complex and protracted litigation stems from the discovery in 1979 of a reservoir known as the Anschutz Ranch East Unit (AREU), which Anschutz characterizes as "one of the most significant domestic oil and gas reserve finds since Prudhoe Bay." Opening Br. of Defendant-Appellant at 5. Soon thereafter, the various working interest owners (WIOs) of the AREU commenced negotiations regarding unitization of the field, and the lawyers for the WIOs met frequently over the next two years in an attempt to draft an acceptable agreement. Eventually the parties signed a Unit Agreement and a Unit Operating Agreement, the latter of which is at issue in these cases.

The claim against Anschutz centers on § 5.11 of the thirty-one page Unit Operating Agreement, which we reproduce in its entirety:

Inability to Market All Gas. If at any time a Party's share of the gas available for sale exceeds the quantity of gas such Party's gas purchaser will take (excess gas), then every other Party, if requested to do so by the Party owning such excess gas, shall be obligated to share its market for gas with the Party owning such excess. However, if all excess gas cannot be sold, and the Plan of Depletion then in effect will not permit a reduction in the volume of gas produced, then any of such excess gas that must be reinjected or otherwise disposed of will be deemed to be the gas of all Parties such that all Parties will share ratably (in proportion to their ownership of the total volume of gas available for sale) in any deferral of sales or loss which might result from the reinjection or disposal of such excess gas and the costs thereof. The Parties sharing a market for excess gas shall settle their accounts for excess gas sold on a monthly basis. Sales of excess gas by a Party to other than that Party's gas purchaser shall be only for such reasonable periods of time as are consistent with the minimum needs of the industry under the circumstances, but not to exceed one year. Any such sale shall always be subject to the right of the owner of such excess gas to exercise at any time its right to take in kind, or separately dispose of, its share of such excess gas not previously delivered to a gas purchaser. A Party (hereafter called "Selling Party") who, pursuant to this Section 5.11, shall dispose of another Party's excess gas, shall dispose of such gas in accordance with the terms of the Selling Party's gas sales contract and the Party whose excess gas is being sold agrees to accept and be bound by all terms and conditions of such contract. Further, the Party whose excess gas is being sold agrees to indemnify, defend and hold harmless the Selling Party from all claims, demands, suits or causes of action which might arise by reason of such sale of such excess gas.

I Supp.App. of Appellees and Cross-Appellant (hereafter Amoco's Supp.App.) 189.

Before the AREU was discovered, Anschutz had entered into a long-term take-or-pay natural gas sales contract with Natural Gas Pipeline Company of America (NGPL). This contract encompassed the area in which the AREU was eventually found. Anschutz later assigned one-half of its interest in the AREU to Mobil Rocky Mountain, Inc. (Mobil), including a share of the contract with NGPL. Natural gas from the AREU was delivered to NGPL under the contract from June 1984 to May 1987. Because the price of natural gas plummeted during that period, NGPL curtailed its AREU gas purchases beginning in 1986, and both Anschutz and Mobil eventually sued NGPL for breach of the take-or-pay contract. Both suits were settled out of court.

Amoco and the smaller WIOs of the AREU did not enter into gas sales contracts during this period, nor did they sell their shares of gas from the AREU. In 1986 Amoco sued Anschutz, arguing that § 5.11 of the Unit Operating Agreement required Anschutz to share the proceeds of its sales to and settlement with NGPL with all the WIOs of the AREU. Anschutz filed a number of unrelated counterclaims, and the district court, after ruling on various pretrial motions, held a three-phase trial. In its pretrial order, the district court denied Anschutz's motions to dismiss for failure to join indispensable parties and for partial summary judgment.

In the Phase I trial, the district court ruled that § 5.11 required Anschutz to share the proceeds of its natural gas sales with the other WIOs, and rejected Anschutz's contentions that Amoco and the other WIOs had misrepresented to Anschutz that they would obtain separate gas purchasers for themselves. Phase II resolved issues of prejudgment interest, apportionment of Anschutz's settlement with NGPL among the WIOs, and the proper calculation of the WIOs' pro rata shares of Anschutz's gas sales proceeds. Finally, because Anschutz's counterclaims against Amoco were unrelated to the original claim, Phase III addressed them separately.

II

Anschutz raises two jurisdictional challenges, which we must resolve before considering the merits. First, it alleges that Amoco has its principal place of business in Colorado, and because Anschutz also has its principal place of business in that state, there is no diversity between them. Second, Anschutz argues that Amoco and the smaller WIOs agreed that the smaller WIOs, some based in Colorado, would not join the suit because to do so would destroy diversity, and that Amoco thereby violated the 28 U.S.C. § 1359 prohibition against the collusive manufacture of federal jurisdiction.

A

Under 28 U.S.C. § 1332(c)(1), for purposes of diversity jurisdiction "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business." The party asserting jurisdiction, here Amoco, bears the burden of proving its existence once it is challenged. Media Duplication Servs. v. HDG Software, Inc., 928 F.2d 1228, 1235 (1st Cir.1991). Further, because the determination of a corporation's principal place of business is a question of fact, we review the district court's ruling under the clearly erroneous standard. Id. at 1237. This court has not considered the proper method for determining a corporation's principal place of business since 1966, see United Nuclear Corp. v. Moki Oil & Rare Metals Co., 364 F.2d 568 (10th Cir.), cert. denied, 385 U.S. 960, 87 S.Ct. 393, 17 L.Ed.2d 306 (1966), so it is appropriate for us to analyze the various approaches courts have developed since that time for making this determination.

"[T]he courts of appeal now use three tests to determine a corporation's principal place of business: the 'nerve center' test, the 'corporate activities' test, and, most recently (and increasingly popular), the 'total activity' test." 13B Charles A. Wright et al., Federal Practice and Procedure § 3625, at 129 (2d ed. Supp.1993). Under the "nerve center" approach, "a corporation has a single principal place of business where its executive headquarters are located." Metropolitan Life Ins. Co. v. Estate of Cammon, 929 F.2d 1220, 1223 (7th Cir.1991). The "corporate activities" test (also known as the "place of operations" or "place of activities" test) "focuses on the state where a substantial portion of the corporation's business is located." Danjaq, S.A. v. Pathe Communications Corp., 979 F.2d 772, 776 (9th Cir.1992). Finally, the "total activity" approach "considers a variety of factors, such as the location of the corporation's nerve center,...