Compania de Gas de Nuevo Laredo, S. A. v. Entex, Inc.

• Decision Date: 24 September 1982
• Docket Number: No. 81-2176,81-2176
• Citation: 686 F.2d 322
• Parties: 34 UCC Rep.Serv. 1113 COMPANIA DE GAS DE NUEVO LAREDO, S. A., Plaintiff-Appellant, v. ENTEX, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 322

686 F.2d 322

34 UCC Rep.Serv. 1113

COMPANIA DE GAS DE NUEVO LAREDO, S. A., Plaintiff-Appellant, v. ENTEX, INC., Defendant-Appellee.

No. 81-2176.

United States Court of Appeals, Fifth Circuit.

Sept. 24, 1982.

C. M. Zaffirini, Laredo, Tex., for plaintiff-appellant.

Raymond J. Goodman, Laredo, Tex., Walter E. Workman, Hebert Gentry, Houston, Tex., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before THORNBERRY, REAVLEY and GARWOOD, Circuit Judges.

THORNBERRY, Circuit Judge:

I. INTRODUCTION

This is a diversity action relating to a tort claim and a contractual dispute under the Texas Business and Commerce Code, section 2.302, between Compania de Gas de Nuevo Laredo, S.A. ("CGNL") and Entex, Inc. ("Entex"). The district court dismissed the tort claim, which alleged that Entex conspired with the Mexican government to unlawfully take control of CGNL assets in Mexico, on the basis of the act of state doctrine. The district court also found CGNL liable on its contract dispute in the amount of.$1,235,658.88 plus attorney's fees. We affirm.

II. FACTS AND DISPOSITION BELOW

At the time the suit arose, CGNL was a privately owned company organized under the laws of Mexico, and was engaged in supplying gas to the City of Nuevo Laredo in the Republic of Mexico. Entex, an American natural gas distributing company operating mainly in intrastate commerce in Texas, Louisiana, and Mississippi, had a long-standing contract to export gas to CGNL. CGNL and Entex's predecessor, United Gas Corporation, entered into a contract on May 26, 1944. By order of the Federal Power Commission ("Commission") ¹ under section 3 of the Natural Gas Act, 15 U.S.C. § 717b (1976), Entex's predecessor was authorized to export gas to CGNL "in accordance with the terms and provisions" of the 1944 contract, and upon the "terms and conditions" of the order itself. United Gas Corp., 4 F.P.C. 840, 841 (1945). The contract was subsequently assigned by United Gas Corporation to United Gas, Inc., which later changed its name to Entex, Inc.

The parties (or their predecessors) amended the contract on numerous occasions. ² As amended, section VII of the contract, which governed the rate to be paid for the gas sold under the terms of the contract, called for a "base rate." ³ Any increase or decrease in the base rate was to become effective sixty days after the seller advised the buyer to that effect in writing. The buyer had the right, after February 1, 1973, to terminate the contract by written notice to seller not less than thirty days prior to the date the increase was to take effect. The seller also had the right to suspend deliveries of gas upon a breach by giving the buyer a similar notice in writing.

A 1968 amendment included "pass through" provisions which allowed the seller to adjust the base rate upward or downward to reflect, inter alia, the cost of its gas purchases. These pass through adjustments were included in the fixed rate automatically, and did not require the sixty days written notice for a rate increase or decrease. CGNL accepted this amendment without objection, and at no time prior to the suit challenged its validity or legality.

In 1973, the Texas Railroad Commission, in Docket 500, voided Entex's contracts with its supplier, the Lo-Vaca Gathering Company ("Lo-Vaca"), and substituted a price formula substantially raising the cost of gas to all of Lo-Vaca's customers, including Entex. Entex in turn "passed through" these increases to CGNL, resulting in a substantial rise in the cost of gas to CGNL. CGNL became delinquent in its account with Entex beginning in 1974, apparently because it could not pass through all of these rate increases to its customers. By 1976, the arrearage had become significant, and Entex sent a letter to CGNL and to various officials of the Mexican government on the federal and state levels informing them that, unless the account was paid for, Entex intended to suspend deliveries in accordance with the terms of its contract.

On the day before Entex was to suspend service, CGNL filed suit in the United States District Court for the Southern District of Texas to enjoin Entex from suspending gas deliveries. Although the court refused to issue a preliminary injunction, it temporarily restrained Entex from discontinuing its gas deliveries. CGNL, however, was required to post bond to cover such future deliveries of gas. In the meantime, Pemex, Mexico's government-owned and operated petroleum gas corporation, began supplying gas to CGNL, thereby reducing the demand for imported gas. Moreover, on July 13, 1976, the Mexican government appointed an "interventor" and took immediate, total, and temporary possession of CGNL assets and rights in Mexico. On July 23, 1976, CGNL filed a complaint with the Commission seeking to prohibit Entex from terminating service and requesting the Commission to determine the currently effective rate for the sale of gas to CGNL. On August 18, 1976, the District Court for the Southern District of Texas stayed the suit against Entex pending the outcome of the administrative proceeding.

The Administrative Law Judge ("ALJ") held hearings, and on February 15, 1977, concluded that, as a matter of regulatory law, the contract rate as amended was the currently effective rate, and that the 1944 rate did not apply despite Entex's failure to comply with the required filing of the price changes. On appeal, the District of Columbia Court of Appeals affirmed the ALJ's holding on this issue. Compania de Gas, etc. v. Federal Energy Regulatory Commission, 606 F.2d 1024 (D.C.Cir.1979).

Following resolution of the proceedings in the District of Columbia, the initial suit in Texas proceeded on both the tort and the contract claims. CGNL claimed below that: (1) Entex conspired unlawfully with various officials of the Republic of Mexico to obtain control of CGNL assets. (2) The Texas Railroad Commission had no authority to regulate CGNL's trade with Entex, and therefore, its order in Docket 500 had no effect on the price of gas charged to CGNL. (3) The pass-through provision was unconscionably in violation of Texas commercial law. (4) Entex had a duty to seek and collect the rate increases from Lo-Vaca's predecessor, United Gas Pipeline, before it passed them on to CGNL.

On October 7, 1980, the district court granted Entex's motion to dismiss the tort claim, holding that the act of state doctrine barred all inquiries into the alleged conspiracy. Following a trial on the contract claims, the court, on February 17, 1981, denied all relief to CGNL, and granted Entex's counterclaim for $937,935.18 for overdue payment, together with $297,723.70 in accrued interest, and $5,000 in attorney's fees.

III. ANALYSIS

A. The Act of State Issue

CGNL claims on appeal that the act of state doctrine does not apply to the present case, and furthermore, that the Hickenlooper amendment, 22 U.S.C. § 2370(e)(2) (1976), precludes Entex from invoking the doctrine.

The district court relied on Hunt v. Mobil Oil Corp., 550 F.2d 68 (2d Cir.), cert. denied, 434 U.S. 984, 98 S.Ct. 608, 54 L.Ed.2d 477 (1977), in disposing of this issue. Under the holding of Hunt, the district court concluded that "the plaintiff would have to prove that 'but for' the acts of the Defendant, the Mexican government would not have put a Mexican corporation whose assets are located in Mexico into receivership. This court would thus be forced to scrutinize the motives of the Mexican officials. Such an inquiry is clearly barred by the act-of-state doctrine."

The most recent pronouncement of the act of state doctrine in this circuit is found in Industrial Investment Development Corp. v. Mitsui Co., Ltd., 594 F.2d 48 (5th Cir. 1979), cert. denied, 445 U.S. 903, 100 S.Ct. 1078, 63 L.Ed.2d 318 (1980). In Mitsui, we noted that the analysis in Hunt was unduly broad, and held that, in establishing a causal relation between the private violations alleged and the injuries suffered, a plaintiff was not required to establish that the defendant's acts were the sole cause of the injury. "(I)nquiry beyond the fact of some damage flowing from the unlawful conspiracy relates only to the amount and not the fact of damage." Id. at 55. We also held that an inquiry into the motivation of a foreign government was not as protected by the act of state doctrine as an inquiry into the validity of the foreign government's law or regulation. Id.

Even such a narrow interpretation of the act of state doctrine, however, would require the court to refrain from examining the claim of conspiracy here. As we noted in Mitsui, application of the doctrine is determined by balancing several factors, namely, the degree of involvement of the foreign state, whether the validity of its law or regulation was an issue, whether the foreign state was a named defendant, and whether there was a showing of harm to American commerce. 594 F.2d at 52-53.

Although the Government of Mexico is not a named defendant here, consideration of the remaining factors shows that the district court did not err in dismissing the conspiracy claim. Resolution of the charges made by CGNL would require a determination of the legality of the Mexican government's action in appointing an "interventor" to take over CGNL's operations in Nuevo Laredo, and the validity of such action under Mexican law. Furthermore, unlike the plaintiff in Mitsui, CGNL has not demonstrated that the conspiracy in any way affected United States commerce. A balancing of the competing interests involved shows that any analysis by this court would have an adverse effect on the relations between this country and Mexico.

The Restatement (Second) of Foreign Relations Law of the United States section 41 further supports this conclusion:

(A) court in the United States ... will refrain from examining the validity of an act of a foreign state by which that state has exercised its...