Exxon Corp. v. Burglin

• Decision Date: 21 October 1993
• Docket Number: No. 92-2415,92-2415
• Citation: 4 F.3d 1294
• Parties: EXXON CORPORATION, Plaintiff-Appellee, v. Cliff BURGLIN, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1294

4 F.3d 1294

EXXON CORPORATION, Plaintiff-Appellee, v. Cliff BURGLIN, et al., Defendants-Appellants.

No. 92-2415.

United States Court of Appeals Fifth Circuit.

Oct. 21, 1993.

G.P. Hardy, III, Billie Pirner Garde, Hardy, Milutin & Johns, Stephen D. Susman, Kenneth S. Marks, Susman, Godfrey, L.L.P., Houston, TX, for defendants-appellants.

David J. Beck, Amy H. Murdock, Beck, Redden & Secrest, Randall Miles Ebner, Tracy S. Berg, Houston, TX, Robert A. Burgoyne, Fulbright & Jaworski, Washington DC, for plaintiff-appellee.

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

Before GARWOOD, DAVIS, and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Cliff Burglin, Charles Hamel, Thomas J. Miklautsch, Weldtest, Inc., and CFM Corp., former limited partners in a limited partnership in which Exxon Corporation ("Exxon") was the general partner, appeal summary judgment in an action by Exxon for declaratory judgment concerning its 1989 purchase of the defendants' interests. Finding no genuine issue of material fact regarding the limited partners' claim that Exxon breached its duty to disclose certain information vital to the evaluation of their interests, we affirm except as to the district court's award of full attorneys' fees.

I.

A.

Miklautsch acquired two North Slope oil and gas leases in the Point McIntyre Field of Alaska, ADL 34622 and 34623 (the "leases"), in 1967 for $4,787. He subsequently assigned partial interests in the leases to each of the defendants. ¹

The defendants sold partial interests in the leases to various third parties over the years. In 1968, Miklautsch and Burglin sold partial interests to General American Oil Company of Texas, which assigned part of its interest to Humble Oil Company (now Exxon). In 1975, the defendants sold an undivided one-half interest to Gulf Oil Company ("Gulf") pending resolution of disputes over the parties' ownership rights. The lawsuits arising from these disputes resulted in the 1977 settlement (the "Settlement Agreement") at issue in this case.

One aspect of the Settlement Agreement was the creation of a limited partnership (the "Partnership Agreement") known as "Gulf MBH-Alaska, Ltd.," consisting of Gulf as general partner with 80% beneficial ownership and Miklautsch, Burglin, and Hamel as limited partners with ownerships of 14.4%, 3.6%, and 2%, respectively. Through 1978, Gulf drilled two wells on the leases, Point McIntyre Wells No. 1 and No. 2, neither of which proved productive.

Chevron Oil Company ("Chevron") acquired Gulf in 1985 and sold its interest as general partner to Exxon in 1987. Exxon offered to purchase the limited partners' interests at that time, but the offer was rejected. Nevertheless, the limited partners consented to Exxon's assuming the role of general partner, provided Exxon assumed Chevron's existing duties. ²

In April 1988, after completing the third well on the field ("Well No. 3"), ARCO ³ filed a "Statement of First Discovery of Oil and Gas in Commercial Quantities in a Geological Structure" (the "Statement"). Exxon confirmed that it was a participant in this find. The initial findings indicated Well No. 3 was capable of producing 1,500 barrels of oil per day. Subsequent testing in February and March 1989 indicated a productive capacity of 3,700 barrels per day. Exxon informed Burglin that it was "encouraged" by Well No. 3 but did not disclose the filing of the Statement, the well's productivity, or estimates of the reserves.

On July 18, 1988, Burglin indicated that he might sell his interest in the leases. On August 12, he requested that Exxon make an offer for his interest or permit him to solicit other offers, pursuant to section 9.02(b) of the Partnership Agreement. For the next seven months, Exxon and Burglin were unable to agree on a purchase price, and Burglin sought outside offers and consulted experts regarding the value of the leases.

On April 7, 1989, Exxon offered Burglin $1.21 million for his interest and proportional amounts for each of the other limited partners' interests. This offer stipulated that the parties entered the transaction "based on data available today without knowing the results" of Well No. 4 then in progress. The offer also granted the limited partners the option (the "Third-Party Option") to "select a mutually acceptable consultant to make an independent assessment of Exxon's offer," the cost of which would be shared by Burglin and Exxon.

Burglin, Miklautsch, and Hamel accepted Exxon's offer without obtaining an independent valuation of their interests or awaiting the results of Well No. 4, ⁴ which Exxon completed in July 1989. The success of this well significantly increased the expected value of the field.

B.

The limited partners brought suit in Alaska, alleging, inter alia, misrepresentation and fraud and charging that Exxon had breached its fiduciary duty by failing to disclose information necessary for the valuation of their interests. Exxon then brought a declaratory action in Texas pursuant to the Texas Uniform Declaratory Judgments Act ("TUDJA"), TEX.CIV.PRAC. & REM.CODE Secs. 37.001-.011 (West 1985), to determine its duties under the Partnership Agreement. The limited partners removed the case to federal court and, after extended discovery, Exxon moved for summary judgment. The district court granted summary judgment, holding that Exxon had no duty to disclose information it considered confidential. The court also awarded full attorneys' fees to Exxon.

II.

This court reviews a grant of summary judgment de novo. Hanks v. Transcontinental Gas Pipe Line Corp., 953 F.2d 996, 997 (5th Cir.1992). Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED.R.CIV.P. 56(c). The party seeking summary judgment carries the burden of demonstrating that there is an absence of evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). After a proper motion for summary judgment is made, the non-movant must set forth specific facts showing that there is a genuine issue for trial. Hanks, 953 F.2d at 997.

We begin our determination by consulting the applicable substantive law to determine what facts and issues are material. King v. Chide, 974 F.2d 653, 655-56 (5th Cir.1992). We then review the evidence relating to those issues, viewing the facts and inferences in the light most favorable to the non-movant. Id. If the non-movant sets forth specific facts in support of allegations essential to his claim, a genuine issue is presented. Celotex, 477 U.S. at 327, 106 S.Ct. at 2555.

A.

Our first concern in this partnership dispute is to determine the applicable law. Where federal court jurisdiction is based solely upon diversity of citizenship, we must follow the forum state's choice of law rules. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Texas choice of law rules recognize the parties' autonomy to select the law to be applied to their contract. DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677 (Tex.1990), cert. denied, 498 U.S. 1048, 111 S.Ct. 755, 112 L.Ed.2d 775 (1991). Section 11.02 of the Partnership Agreement specifically provides that Alaska law governs all rights and liabilities between the parties. Pursuant to this clause, the district court correctly applied Alaska law to the substantive claims. ⁵

B.

Under Alaska law, a general partner stands in a fiduciary relationship with the limited partnership and thereby owes "a fiduciary duty ... to disclose information concerning partnership affairs." Parker v. Northern Mixing Co., 756 P.2d 881, 894 (Alaska 1988); ALASKA STAT. Sec. 32.05.150 ("Partners shall provide on demand true and full information of all things affecting the partnership to any partner...."). The partnership agreement, however, will determine the extent of disclosure required between partners and whether a failure of disclosure constitutes fraud or breach of the agreement.

"Partner fiduciary duties are aspects of the 'standard form' of partnership. As with respect to the other rights and duties among the partners, the partners may alter the standard form fiduciary duties to suit their particular relationship." 2 ALAN R. BROMBERG & LARRY E. RIBSTEIN, BROMBERG AND RIBSTEIN ON PARTNERSHIP Sec. 6.07(h), at 6:89 (1991); id. Sec. 6.06, at 6:67 (arguing that "parties could at least circumscribe the right to information"); id. Sec. 6.05(d), at 6:59 (partners can bargain over access to information).

Courts should allow parties to define the means of disclosure as the management of a partnership necessarily involves "the weighing and balancing of disparate considerations to which the court does not have access." Betz v. Chena Hot Springs Group, 657 P.2d 831, 835 (Alaska 1982). In Betz, a provision in a partnership agreement allowed a majority of the general partners to "involuntarily retire" a fellow general partner without dissolving the partnership if they found "that it is in the best interests of [the partnership] that a general partner be required to retire." Id. at 834 n. 4. Instead of receiving a proportional share of the partnership, the involuntarily retired partner would receive compensation based upon an elaborate valuation formula stated in the partnership agreement. Id. at 836 n. 5. Upholding the provision, the court declared that "[a]bsent bad faith, breach of a fiduciary duty, or acts contrary to public policy, [Alaska courts] will not interfere with the management decisions of the firm." Id. at 835.

The settlement between the limited partners and Gulf sought to prescribe the General Partner's duty to disclose information to the limited partners in a manner consistent with...