Japan Petroleum Co.(Nigeria) Ltd. v. Ashland Oil

• Decision Date: 11 August 1978
• Docket Number: Civ. A. No. 76-146.
• Citation: 456 F. Supp. 831
• Parties: JAPAN PETROLEUM CO. (NIGERIA) LTD., a corporation, Plaintiff, v. ASHLAND OIL, INC., a corporation, Ashland of Nigeria, Ltd., a corporation, and Ashland Nigerian Development Company, a corporation, Defendants.
• Court: U.S. District Court — District of Delaware

456 F. Supp. 831

JAPAN PETROLEUM CO. (NIGERIA) LTD., a corporation, Plaintiff, v. ASHLAND OIL, INC., a corporation, Ashland of Nigeria, Ltd., a corporation, and Ashland Nigerian Development Company, a corporation, Defendants.

Civ. A. No. 76-146.

United States District Court, D. Delaware.

August 11, 1978.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David F. Anderson of Potter, Anderson & Corroon, Wilmington, Del., for plaintiff; Robert H. Buchanan and Robert L. Tollefsen of Buchanan, Tollefsen & Besser, Los Angeles, Cal., of counsel.

Lewis S. Black, Jr., William O. LaMotte, III, and Lawrence A. Hamermesh of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., for defendants; L. Linton Morgan of Liskow & Lewis, New Orleans, La., of counsel.

OPINION

CALEB M. WRIGHT, Senior District Judge.

The present case is an action for breach of a contract entered into by the plaintiff, Japan Petroleum Co. (Nigeria) Ltd. ("Japan Petroleum"), and Ashland Oil (Nigeria) Company ("AON"). Both Japan Petroleum and AON are Nigerian corporations. The defendants are Ashland Oil, Inc. ("AOI"), a Kentucky corporation, and two of its wholly-owned subsidiaries, Ashland of Nigeria, Ltd., and Ashland Nigerian Development Company, both Delaware corporations. The complaint alleges diversity jurisdiction under 28 U.S.C. § 1332.

In June 1976, the defendants filed a Motion to Dismiss for failure to join AON, a subsidiary of the two Delaware corporate defendants, as an indispensable party under Fed.R.Civ.P. 19(b). Following oral argument on the Motion to Dismiss, the Court deferred its ruling in order to permit the parties to conduct discovery on certain issues raised by the briefs. That discovery now has been completed. Presently before the Court is Plaintiff's Motion for Further Consideration and Determination of Defendants' Motion to Dismiss.

I. FACTUAL BACKGROUND

AON, which is alleged to be an indispensable party which cannot be joined, was formed as a result of defendant AOI's interest in petroleum exploration and production in Nigeria. In 1968, AOI hired a Nigerian consultant to advise it concerning the possibility of Nigerian petroleum operations. AOI then proceeded to collect geological data relating to Nigeria and to send personnel to confer with Nigerian officials. Ashland Exploration, a division of AOI,¹ submitted a formal proposed to the Nigerian Ministry of Mines and Power in 1972. Following a series of negotiations between Mr. George Hardin (President of Ashland Exploration and Senior Vice President of AOI), and representatives of the Nigerian government, a document entitled "Production Sharing Contract — Heads of Agreement between Nigerian National Oil Corporation (NNOC) and Ashland Oil, Inc." (hereinafter "Heads of Agreement"), was executed.

In the Heads of Agreement, AOI obligated itself to incorporate a company in Nigeria for the purposes of carrying out petroleum operations in accordance with a contemplated Production Sharing Contract, the terms of which were contained in the Heads of Agreement. This provision was included in order to comply with the Petroleum Decree 1969 of Nigeria, which provides that a license or lease for oil exploration, prospecting or production of petroleum may be granted only to a citizen of Nigeria or to a company incorporated in Nigeria under the Nigerian Companies Decree 1968.

On April 27, 1972, the defendants Ashland Oil of Nigeria, Ltd., and Ashland Nigerian Development Company, incorporated AON as a Nigerian corporation. Each of the incorporators owns a 50% interest in AON.² On June 12, 1973, representatives of the Nigerian National Oil Corporation (NNOC), and Mr. Hardin, as president of AON, signed an agreement entitled "Production Sharing Contract between Nigerian National Oil Corporation and Ashland Oil (Nigeria) Company". Neither AOI nor the two incorporators of AON signed the Production Sharing Contract, and it contains no reference to them. Under the Production Sharing Contract AON obtained rights and undertook obligations in connection with exploration, production and disposition of petroleum owned by the Nigerian government.

AON commenced drilling operations after the signing of the Production Sharing Contract. In connection with its drilling program, AON contracted with Japan Petroleum on February 22, 1974, for the use by AON of a petroleum offshore drilling unit known as Meteorite-Tender No. 3, to be provided by Japan Petroleum.³ This contract was signed only by AON and Japan Petroleum and made no reference to AOI or to the two incorporators of AON. The contract provides that the drilling unit to be supplied must be redelivered to Japan Petroleum in "an equivalent operational condition, normal wear and tear excepted". The complaint in this case alleges, inter alia, that this provision was breached because the drilling rig was lost as a result of AON's negligent conduct of its operations. Japan Petroleum claims approximately $6.3 million in damages.⁴

II. MOTION TO DISMISS UNDER FED. R.CIV.P. 19

A. Application of Rule 19 Criteria

In their Motion to Dismiss, defendants aver that under Fed.R.Civ.P. 19⁵, AON is an indispensable party which must be joined, but whose presence would destroy the diversity of citizenship which now exists and thereby would deprive the Court of jurisdiction over the subject matter of this action.⁶ In order to be an indispensable party within the terms of Rule 19(b), AON first must fit one of the descriptions of "persons to be joined if feasible", contained in Rule 19(a). See, Wylain, Inc. v. Kidde Consumer Durables Corp., 74 F.R.D. 434, 436 (D.Del.1977). Section (1) of Rule 19(a) refers to a person in whose absence complete relief cannot be accorded among those who are already parties to the action. This basis for compulsory joinder is designed to protect the interests of the parties by affording them a complete adjudication of their dispute. It serves the interest of judicial economy by avoiding repeated lawsuits involving the same subject matter. See 7 Wright & Miller, Federal Practice and Procedure § 1604 at 36-37 (1972). Section (2) of Rule 19(a) covers a person who claims an interest relating to the subject of the action.

On the face of the present complaint, AON appears to meet the description in Section (1) of Rule 19(a), in that it is a person in whose absence complete relief cannot be accorded among the present parties, for the reason that AON alone may be held liable for breach of the contract with Japan Petroleum.⁷ AON alone signed the contract and normally would be liable for the obligations which it assumed. The complaint alleges that it was AON's negligence which was responsible for loss of the drilling rig and the resulting damage. Assuming these allegations of the complaint to be true, it appears that AON, not the defendant in this case, would be liable on the contract. Since no judgment could be rendered against AON in its absence, no relief could be granted to the plaintiff without the joinder of AON. Compare, Prestenback v. Employers' Insurance Co., 47 F.R.D. 163 (E.D.Pa.1969).⁸

Plaintiff advanced two theories under which liability might be found to rest on some or all of the present defendants rather than on AON. Paragraph 4 of the complaint alleges that AON acted as the agent of the three named defendants and "was at all times acting within the course and scope of its authority as such agent".⁹ If AON were acting as the agent of the present defendants in executing the contract with Japan Petroleum, the defendants, as principals, would be liable for damages for breach of the contract. See, Restatement (Second) of Agency § 140 (1958); W. Seavey, Handbook of the Law of Agency § 56 (1964) (hereinafter Seavey). Japan Petroleum would be entitled to sue the principals without joining the agent. See, Milligan v. Anderson, 522 F.2d 1202, 1204-05 (10th Cir. 1975); Wylain, Inc., supra, 74 F.R.D. at 436; Cone Mills Corp. v. Hurdle, 369 F.Supp. 426, 438 (N.D.Miss.1974); Golden v. Kentile Floors, Inc., 52 F.R.D. 386, 388 (N.D.Ga.1971); Cass v. Sonnenblick-Goldman Corp., 287 F.Supp. 815, 818 (E.D.Pa. 1968); Townsend v. Walter Kidde & Co., 7 F.R.D. 166, 167 (D.Mass.1945). An alternative theory put forward by Japan Petroleum in the third count of its complaint is that under Nigerian law the two shareholders of AON, defendants Ashland of Nigeria, Ltd., and Ashland Nigerian Development Company, are jointly and severally liable for the liabilities and indebtedness of AON.

On a motion to dismiss, the complaint must be viewed in the light most favorable to the plaintiff. See, Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Helstoski v. Goldstein, 552 F.2d 564, 565 (3d Cir. 1977), and cases cited therein at n. 4. Therefore, following oral argument on defendant's Motion to Dismiss, the Court granted leave for further discovery with respect to the theory of agency and the theory of joint and several liability. The Court concluded that if the plaintiff could not succeed on either of these theories, the action should be dismissed for inability to join an indispensable party, AON. Plaintiff now has withdrawn its contentions with respect to the theory of joint and several liability, and is resting its present Motion for Further Consideration and Determination of Defendants' Motion to Dismiss solely on the ground of the agency theory.

It is proper to treat the Defendants' Motion to Dismiss and the Plaintiff's Motion for Further Consideration as cross-motions for summary judgment.¹⁰ Both parties have had full opportunity for discovery on the question of agency. In their briefs, both have referred extensively to material outside the complaint. Courts generally permit "speaking motions" under Fed.R. Civ.P. 12(b)(7). See, 5 Wright & Miller, supra §§ 1364, 1366; 2A J. Moore, Federal Practice ¶ 12.09 (1975). To the extent that defendants' objection to plaintiff's theory of agency has caused its motion under Fed. R.Civ.P....