GAR Energy & Assocs. Inc. v. Ivanhoe Energy Inc.

• Decision Date: 23 December 2011
• Docket Number: Doc. 51,Doc. 33,Case No.: 1:11-CV-00907 AWI JLT
• Court: U.S. District Court — Eastern District of California
• Parties: GAR ENERGY AND ASSOCIATES, INC., et al., Plaintiffs, v. IVANHOE ENERGY INC., et al., Defendants.

GAR ENERGY AND ASSOCIATES, INC., et al., Plaintiffs,

v.IVANHOE ENERGY INC., et al., Defendants.

Case No.: 1:11-CV-00907 AWI JLT

Doc. 33

Doc. 51

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA

Dated: December 23, 2011

ORDER DENYING PLAINTIFFS' MOTION TO REMAND

FINDINGS AND RECOMMENDATION GRANTING MOTION TO COMPEL ARBITRATION

Plaintiffs GAR Energy and Associates, Inc.; Gonzalo A. Ruiz and Janis S. Ruiz, as successors in interests to and assignees of GAR Energy (collectively, "Plaintiffs") seek an order remanding the action to Kern County Superior Court, which Defendants oppose. Defendant Ivanhoe Energy (Latin America), Inc. seeks to compel arbitration in the matter, which Plaintiffs oppose. Pursuant to 28 U.S.C. §636(b)(1)(A), the motions to remand the action and to compel arbitration were referred to the Magistrate Judge assigned to this matter.

For the following reasons, the Court recommends Plaintiffs' motion to remand be DENIED and the motion to compel arbitration be GRANTED.

I. FACTUAL AND PROCEDURAL HISTORY¹

In November 2004, Ivanhoe Energy executed a Consulting Agreement for GAR Energy to serve as a consultant for the purpose of obtaining rights to develop oil reserves in Columbia. (Doc. 33-1 at 2). On April 28, 2005, Ivanhoe notified GAR,

Ivanhoe is arranging, for accounting and other reasons, its various operations under different Ivanhoe subsidiaries on a geographical basis. In the case of Latin America, Ivanhoe has organized Ivanhoe Energy (Latin America) Inc.

(Doc. 49-1 at 49) Also, Ivanhoe notified GAR that it was assigning the rights and obligations under the Consulting Agreement to Ivanhoe Energy (Latin America) ("IE(LA)." Id. This same writing, the parties' memorialized their agreement that the Consulting Agreement would be expanded to other "new areas" in Columbia. Id. In the meantime, on February 3, 2005, the parties had entered into a separate confidentiality agreement related to the "new areas." Id. at 50. However, the April 28, 2005 amendment to the Consulting Agreement, activated the confidentiality agreement set forth in the Consulting Agreement as to the "new areas." Id. As a result, the parties terminated the February 3, 2005 confidentiality agreement. Id.

On June 2, 2005, Ivanhoe Energy and GAR Energy agreed that the terms of the Consulting Agreement would extend to specified oil fields in Ecuador. (Doc. 49-1 at 53) In this amendment, the parties agreed that the confidentiality provisions of the Consulting Agreement would apply to the efforts made in Ecuador. Id.

As relevant here, the Consulting Agreement as amended, sets forth the services GAR was to provide to Ivanhoe. (Doc. 49-1 at 39-40.) In particular, GAR was to provide information to establish business contacts in Ecuador including contacts within "key departments, agencies within Ecopetrol and the Government of [Ecuador] and their officials, personnel, ministries and departments in the areas of oil and gas exploration, development and productions." Id., Id. at 53. The Agreement's confidentiality agreement required the parties to "keep strictly confidential and shall not disclose any information concerning this agreement of the confidential business, operations,or affairs of the other Party, regardless of how or when the other Party acquires such information, except" in certain instances including disclosure to "an Affiliate of the Company or Consultant." (Doc. 49-1 at 43) The parties agreed that each would "act in good faith towards one another." Id at 42. In exchange for GAR's services, Ivanhoe Energy agreed to pay GAR for its "material" assistance in gaining permission to explore for heavy oil in certain parts of Ecuador. (Doc. 49-1 at 40) Payment was due upon the effective date of Ivanhoe entering into a venture with Ecopetrol. Id. Notably, the agreement allowed itself to be modified "only by a written instrument duly signed by both the Company and Consultant." (Doc. 49-1 at 45.)

On June 2, 2005 and again on June 8, 2005, IE(LA) issued GAR a letter attesting that GAR had the right to represent it as well as the "affiliated companies" of Ivanhoe to obtain oil and gas exploration opportunities in Ecuador. (Doc. 49-1 at 56; Doc. 49-1 at 58) In particular, this authorization reads,

This letter will evidence that GAR Energy & Associates, Inc. has contracted to represent Ivanhoe Energy (Latin America) Inc., and affiliated companies ("Ivanhoe") in connection with Ivanhoe, either alone or with other companies, obtaining opportunities and rights for exploration, development and exploitation of oil and gas in Colombia and Ecuador.

You are permitted to show this letter to persons and organizations that you may contact for purposes of evidencing your representation of Ivanhoe Energy (Latin America) Inc. as stated.

Id., emphasis added.

On June 8, 2005, much like they had done as to the "new areas" identified in Columbia, the parties executed a separate Confidentiality Agreement as to the Ecuadorean efforts. (Doc. 49-1 at 60) The Agreement specified that it was between GAR and IE(LA) but noted that IE(LA) "is a wholly-owned subsidiary of Ivanhoe Energy Inc., a Yukon, Canada corporation." Id. The Confidentiality Agreement restricted IE(LA)'s ability to disclose information received from GAR related to the efforts to locate oil and gas exploration opportunities in Ecuador. Id. Moreover, the parties agreed that IE(LA) could disclose the information to "affiliated" companies provided that IE(LA) guaranteed that those receiving the information would adhere to the confidentiality requirements. Id. at 60-61. Interestingly, though IE(LA) gained no ownership interest in the confidential information, it could be shared with "employees, officers and directors" of IE(LA) or any affiliated company or to"any entity funding or proposing to fund" IE(LA)'s oil and gas exploration opportunities in Ecudaor. Id. Before doing so, however, IE(LA) had to "obtain an undertaking of confidentiality, enforceable by both the Disclosing Party and the Receiving Party, substantially in the same form and content as this Agreement . . ." Id., emphasis added.

Moreover, the agreement contains a "non circumvention" agreement in which the parties agreed that neither would circumvent the other "regarding obtaining or acquiring an interest or rights in petroleum exploration and exploitation in the Area without the express written permission of the other Party." Doc. 49-1 at 61. This confidentiality agreement "supersedes [sic] and cancels all prior communications, understandings and agreement between the Parties hereto relating to the Confidential Information, whether written or oral, expressed or implied. Id. at 61-62.

Keenly at issue here is the agreement to arbitrate set forth in the confidentiality agreement which reads,

Any dispute arising out of or relating to this Agreement, including any question regarding its existence, validity or termination, which cannot be amicably resolved by the Parties, shall be settled before a panel of three arbitrators, one selected by each of the Parties and the third by the arbitrators selected by the Parties, in accordance with the Arbitration Rules of the American Arbitration Society in Bakersfield, California. The resulting arbitral award shall be final and binding without right of appeal, and judgment upon such award may be entered in any court having jurisdiction thereof. A dispute shall be deemed to have arisen when either Party notifies the other Party in writing to that effect.

(Doc. 49-1 at 61).

According to Plaintiffs, "GAR Energy fulfilled its side of the bargain by providing advice and assistance concerning the opportunity in Ecuador, identifying key contacts, establishing business contacts, providing advice in business and negotiation strategy in obtaining negotiating agreements, and providing Ivanhoe with important technical and commercial information concerning oil fields in Ecuador." (Doc. 33-1 at 3). Plaintiffs assert Ivanhoe Energy breached the consulting agreement, and "created two new, wholly-owned subsidiaries, Ivanhoe Energy Latin America Inc. and Ivanhoe Energy Ecuador Inc., as a part of a claim to circumvent and evade its obligations to GAR Energy." Id. at 3-4.

Believing the agreements between the parties were breached, Plaintiff served an arbitration demand on Defendants on December 30, 2010. (Doc. 33-1 at 4; Doc. 51-1 at 5). In the demand forarbitration, Plaintiffs alleged Defendants breached the Consulting Agreement and the Confidentiality Agreement, and "alleged claims for declaratory judgment, fraud, and breach of the implied covenant of good faith and fair dealing." (Doc. 55-1 at 5). Finding the American Arbitration Society did not exist, the parties attempted to reach an agreement on an arbitration procedure. (Doc. 33-1 at 4; Doc. 51-1 at 6). On March 11, 2022, Plaintiffs sent Defendant a written notice withdrawing the arbitration demand, and filed a complaint in Kern County Superior Court in Case No. S-1500-CV-273163.²

On June 3, 2011, Defendants filed a notice of removal of the action, thereby commencing the action in this Court. (Doc. 1). On July 5, 2011, Plaintiffs filed a motion to remand the action to the state court, asserting the Court lacks jurisdiction. (Doc. 33). Defendants filed an opposition on August 17, 2011 (Doc. 49), to which Plaintiff replied on September 8, 2011 (Doc. 56). Defendant Ivanhoe Energy (Latin America), Inc. filed a motion to compel arbitration (Doc. 51), to which Plaintiff filed an opposition on December 6, 2011 (Doc. 66). Ivanhoe Energy (Latin America) filed its reply on December 13, 2011 (Doc. 67).

II. MOTION TO REMAND

Defendants assert that removal of the matter is proper pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("FAA"), 9 U.S.C. §§ 203 and 205.³ (Doc. 1 at 3-5). Importantly, "[b]efore considering [a] motion to compel arbitration, the court must consider whether removal under section 205 was proper. If removal was...