Cunningham v. Bhp Petroleum Great Britain

• Decision Date: 25 October 2005
• Docket Number: No. 03-1356.,03-1356.
• Citation: 427 F.3d 1238
• Parties: Scott A. CUNNINGHAM; P. David Mantor; Eric Loughead; John Bonneville, Plaintiffs-Appellants, v. BHP PETROLEUM GREAT BRITAIN PLC, a United Kingdom Corporation; Hamilton Brothers Petroleum Corporation, a Delaware corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

427 F.3d 1238

Scott A. CUNNINGHAM; P. David Mantor; Eric Loughead; John Bonneville, Plaintiffs-Appellants, v. BHP PETROLEUM GREAT BRITAIN PLC, a United Kingdom Corporation; Hamilton Brothers Petroleum Corporation, a Delaware corporation, Defendants-Appellees.

No. 03-1356.

United States Court of Appeals, Tenth Circuit.

October 25, 2005.

Submitted on the briefs: Charles F. Brega, Stuart N. Bennett, Eric B. Liebman, Brega & Winters P.C., Denver, CO, for Plaintiffs-Appellants.

Bruce A. Featherstone and Frank C. Porada, Denver, CO, for Defendants-Appellees.

Before HENRY, MURPHY, and TYMKOVICH, Circuit Judges.

TYMKOVICH, Circuit Judge.

Plaintiffs appeal the district court's judgment of July 31, 2003, which, among other things, dismissed their second amended complaint for lack of subject matter jurisdiction. Plaintiffs do not contest the district court's judgment of dismissal; rather they challenge additional substantive rulings made by the district court. We conclude that once the district court determined it lacked jurisdiction, it should have vacated its previous substantive rulings and remanded the case to state court in accordance with 28 U.S.C. § 1447(c).^*

The State Court Complaint

In June 1999, plaintiffs Scott Cunningham and David Mantor brought suit in Colorado state court against BHP Petroleum Great Britain PLC (BHP) and Hamilton Brothers Petroleum Corp. (HB PetCorp.). Both plaintiffs had been key employees of Hamilton International Oil Company (HIOC), whose successor in interest was BHP. They asserted a number of contract-based claims arising out of their employment with HIOC. The dispute centers on a key employee incentive plan providing for key employees to be given net profit interests (NPIs) in certain petroleum properties. Pursuant to that plan, HIOC and Hamilton Brothers (U.K.) Petroleum Corp. assigned interests in a North Sea petroleum license known as license P. 380 to a trust for the benefit of the key employees. The assignments provided that plaintiffs would share in the NPIs once payout was reached. The complaint alleged that HB PetCorp. a subsidiary of BHP, also owned an interest in license P. 380.

Although the plan was adopted in 1981, payout on license P. 380 did not occur until 1997, when plaintiffs began getting payments on their NPIs. In their complaint, Cunningham and Mantor alleged that the payments they received were not calculated properly. Further, they contended that another license, P. 686, was an outgrowth of license P. 380 and that they were due payments on the NPIs from license P. 686 in proportion to defendants' interests in license P. 380. Plaintiffs asserted claims for declaratory judgment, breach of contract, promissory estoppel, and unjust enrichment.

Proceedings in Federal Court

1.

Relying on diversity of citizenship as the basis of federal jurisdiction, HB PetCorp. removed the state court action to federal court in July 1999, where it became Civil Case No. 99-RB-1245. BHP consented to the removal. In January 2000, Cunningham and Mantor moved to amend and supplement their complaint, and though defendants objected to the request, plaintiffs were permitted to file an amended complaint in February 2000. The amended complaint added Eric Loughead and John Bonneville, also former key employees of HIOC, as plaintiffs and it added claims by all plaintiffs arising from the recent sale of defendants' interests in license P. 380. The amended complaint averred that the court had jurisdiction based on diversity of citizenship. Both defendants answered the amended complaint and BHP filed two counterclaims, one against Cunningham for breach of his duty of loyalty and one against all four plaintiffs for reformation of the NPI assignments.

Thereafter, the parties filed numerous motions for partial summary judgment. In one of their joint motions filed in March 2001, BHP and HB PetCorp. argued that the case should be dismissed for failure to comply with Rule 17(a) because the four plaintiffs were not the real parties in interest on any of the claims asserted in their amended complaint. See Fed.R.Civ.P. 17(a) ("Every action shall be prosecuted in the name of the real party in interest.") Defendants alleged that immediately upon receiving the NPIs, plaintiffs assigned all their interest in them to Hamilton Brothers International Associates (HBIA), a partnership that plaintiffs and other key employees created for the purposes of acquiring, holding, managing, conserving, and dealing with the NPIs. Therefore, defendants argued, all the claims plaintiffs asserted were really claims of HBIA, not of the individual plaintiffs, and plaintiffs were not entitled to pursue any of those claims.

Plaintiffs contested defendants' motion, arguing that they had not relinquished all ownership rights in the NPIs to HBIA and, in any event, that they had standing to sue on behalf of their partnership interests in HBIA. They argued that they were "suing on their own interests in HBIA, and correspondingly in the NPIs." Suppl. App. at 178. In a report and recommendation issued in September 2002, the magistrate judge rejected plaintiffs' arguments that they had not relinquished all their rights in the NPIs to HBIA. The magistrate judge concluded that all the claims asserted in the amended complaint belonged to the partnership, which was a real party in interest under Rule 17(a). The magistrate judge further concluded that plaintiffs also were real parties in interest under Rule 17(a) and that Colorado law would permit plaintiffs to pursue the claims asserted in the amended complaint without having to name HBIA itself or all the other partners as party-plaintiffs.

Nonetheless, the magistrate judge stated, plaintiffs would still have to satisfy the demands of diversity jurisdiction under 28 U.S.C. § 1332. Because HBIA actually owned the claims plaintiffs were asserting, the magistrate judge ruled that plaintiffs would have to establish jurisdiction based on the citizenship of HBIA. See Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 461, 100 S.Ct. 1779, 64 L.Ed.2d 425 (1980) ("[A] federal court must . . . rest jurisdiction only upon the citizenship of real parties to the controversy."). Noting that a partnership is considered a citizen of every state in which its partners are citizens, the magistrate judge determined that plaintiffs would have to show that defendants were completely diverse from every person who was a partner in HBIA at the time the action was commenced. See Depex Reina 9 P'ship v. Tex. Int'l Petroleum Corp., 897 F.2d 461, 463 (10th Cir.1990). The magistrate judge recommended that plaintiffs be given thirty days to file an amended complaint that would identify and allege the citizenship of everyone who was a partner at the outset of the case. If plaintiffs could not do so, then the magistrate judge recommended that the action be dismissed for lack of subject matter jurisdiction.

2.

In the meantime, plaintiffs filed suit in federal court against BHP Petroleum (UK) Corp., as the successor to Hamilton Brothers U.K. Petroleum Corp. This suit, which became Civil Case No. 01-RB-777, alleged essentially the same claims against BHP Petroleum (UK) Corp. as plaintiffs had alleged against BHP and HB PetCorp. in the removed action. Plaintiffs moved to consolidate the two cases, which the district court did in October 2002.

3.

On March 27, 2003, the district court entered an order adopting the magistrate judge's report and recommendation on the real party in interest issue.¹ Accordingly, the district court directed plaintiffs to file an amended complaint within thirty days in which they should "plead specifically the state of citizenship of every partner of Hamilton Brothers International Associates at the time of the commencement of the action." Suppl. App. at 267 (emphasis and capitalization omitted). The court warned plaintiffs that if they failed to comply, the action would be subject to dismissal for lack of prosecution.

Meanwhile, during the two years that had passed since defendants filed the motion raising the issue of who was the real party in interest, the parties had filed numerous substantive motions on which the magistrate judge had issued reports and recommendations. On March 21 and March 28, 2003, the district court entered orders ruling on some of those motions. Among other things, the district court granted summary judgment to BHP and HB PetCorp. on plaintiffs' claim to an interest in license P. 686, granted summary judgment to Cunningham on BHP's first counterclaim, granted summary judgment to HB PetCorp. on all claims on the ground that it was not a proper party, and ordered HB PetCorp. stricken from the caption of the case.

4.

On April 25, 2003, plaintiffs filed their second amended complaint, in which they attempted to aver the identity and citizenship of all the HBIA partners.² In addition to the four named plaintiffs, the complaint provided the names of fifteen other people who, upon information and belief, were partners in HBIA at the time the suit was commenced. The complaint averred the citizenship of some of these additional partners, upon information and belief, but stated that the citizenship of the others was unknown. At least one of the newly identified partners was averred to be a citizen of the United Kingdom. Defendant BHP was averred to be a corporation registered in and having its principal place of business in London, England.

Shortly thereafter, BHP filed a motion to dismiss the second amended complaint with prejudice for failure to comply with the court's order of March 28. In the alternative, BHP renewed its request for summary judgment on the claims contained in the first amended complaint on the ground that plaintiffs were not the real parties in interest on those claims.

5.

In his subsequent report and recommendation, the magistrate judge treated BHP's motion as "an attack on the facial sufficiency of the Second Amended Complaint," and concluded that the ...