Levien v. Sinclair Oil Corp.

• Decision Date: 26 December 1973
• Citation: 314 A.2d 216
• Parties: Francis S. LEVIEN, Plaintiff, v. SINCLAIR OIL CORPORATION and Sinclair Venezuelan Oil Company, Defendants.
• Court: Court of Chancery of Delaware

Page 216

314 A.2d 216

Francis S. LEVIEN, Plaintiff, v. SINCLAIR OIL CORPORATION and Sinclair Venezuelan Oil

Company, Defendants.

Court of Chancery of Delaware.

Dec. 26, 1973.

Richard F. Corroon and Robert K. Payson of Potter, Anderson & Corroon, and Leroy A. Brill of Bayard, Brill & Handelman, Wilmington, and J. Lincoln Morris, Edward S. Cowen and Pollack & Singer, New York City, for plaintiff.

E. N. Carpenter, II, and R. Franklin Balotti of Richards, Layton & Finger, Wilmington, and Paul W. Willims, Floyd Abrams and Eugene R. Scheiman of Cahill, Gordon, Sonnett, Rheindel & Ohl, New York City, for defendant Sinclair Oil Corp.

Victor F. Battaglia of Biggs & Battaglia, Wilmington, for defendant Sinclair Venezuelan Oil Co.

DUFFY, Justice: ¹

This is a derivative action brought on behalf of Sinclair Venezuelan Oil Company (Sinven) against Sinclair Oil Corporation (Sinclair) and certain of its wholly-owned subsidiaries. ² The order entered after a separate trial on the issue of liability was affirmed in part by the Delaware Supreme Court, Levien v. Sinclair Oil Corporation, Del.Ch., 261 A.2d 911 (1969) and 280 A.2d 717 (1971). ³ A full statement of facts appears in the earlier opinions.

This is the decision after trial on the issue of damages.

A.

The pertinent part of this Court's order of February 26, 1970 which provided the basis for the trial on damages reads as follows:

'2. With respect to the contract dated September 28, 1961, between Sinclair International Company ('International') and Venezuelan (Sinven):

(a) As to plaintiff's claims arising from the late payment of invoices during the period from October 1, 1961 through 1966, Sinclair shall account to Venezuelan for interest on the unpaid balance with respect to each sale, at the legal rate prevailing in New York, computed for each sale from the date which is five (5) days after the date of invoice to the date of payment.

(b) As to plaintiff's claims arising out of the failure by International to purchase the minimum contract quantities of crude oil and refined products during the period from October 1, 1961 through 1966, Sinclair shall account to Venezulan for the damages which Venezuelan sustained as a result of such failure.

(c) Sinclair may show as part of its case on the damage issue under subparagraphs (a) and (b) above, any benefit which the contract prices conferred on Venezuelan during the period in question. Judgment is reserved on the question of how much credit, if any, shall be allowed to Sinclair for any such benefits conferred. Any such credit will be limited to derivative claims arising out of the contract with International as set forth in subparagraphs (a) and (b) above and will not be allowed as offsets against any other claim or accounting allowed herein.'

Plaintiff contends that for late payment of invoices, Sinclair is liable in the amount of $711,095.86 plus interest (on this sum) totaling $442,060.39. Plaintiff thus seeks $1,153,156.25 for late payment of invoices.

As to failure by International to purchase minumum contract quantities (underlifting) of crude oil and refined products, plaintiff claims that Sinclair's liability for loss of profits amounts to $7,802,265.52, plus interest of $4,619,951.50, or a total of $12,422,217.02.

In short, plaintiff asks an award of $8,513,361.38 plus interest (as computed to May 31, 1973) of $5,062,011.89, or a judgment totaling $13,575,373.27 in favor of Sinven.

Defendant concedes that the arithmetic as to gross damage figures is correct; that is, there is no factual dispute about the formula which plaintiff uses in computing damages nor as to the arithmetic resulting from application of that formula. The parties are in wide disagreement, however, about the judgment.

Sinclair argues that gross damages should be reduced in three ways. First, it says that $3,326,000 should be deducted from the gross amount calculated as damages for underlifting; this is the profit made by Sinven on sales to third parties of crude oil and refined products which would have been purchased by International and so must be applied, argues Sinclair, in mitigation of the claim. ⁴

Second, Sinclair urges that interest not be allowed. It says that an award of interest is a matter of discretion with the Court in a derivative suit and contends that it would be inequitable because, though Siven may have been denied use of monies not received, nevertheless during the same time it had the benefit of 'over payments' represented by the difference between contract prices paid and prevailing market prices which were lower than contract. Thus it seeks to eliminate interest (the total claimed by plaintiff is $5,062,011.89) on any damages which are awarded.

Finally, Sinclair argues that it is entitled to a set-off exceeding $30,300,000 which it contends represents benefits conferred upon Sinven by the pricing formula of the contract.

B.

I first consider Sinclair's claim to a $30,300,000 set-off which, if allowed, would neutralize any judgment to which Sinven may be entitled. Sinclair calculates this by computing the difference between the contract prices paid to Sinven and the competitive prices at which sales were made in the market during the same period. ⁵

Plaintiff has not disputed the fact that the formula provided for prices above those which prevailed in the world market at the time but he argues that Sinclair is not entitled to any set-off or credit for this.

While I am satisfied that there are equities in Sinclair's favor which should be considered in fixing the relief to be accorded plaintiff, these do not require or permit allowance of $30,300,000 on the premise that Sinclair conferred such sum in 'benefits' upon the subsidiary and, proportionately, the minority stockholders thereof. There was no such gratuitous giving involved. Simply stated, a contract was made between Sinclair and Sinven, its terms and indeed its very creation were dictated by Sinclair. Sinclair received benefits therefrom--an assured source of supply for a specified period, all spelled out in formal documentation, for example. But, of more significance, it provided a basis by which the price of crude coming out of Venezuela, sold by Sinven and bought by International, could be Reduced. Thus, Mr. Lincoln testified:

'Q. Did you participate in the decision whether or not a written contract should be entered into at or about that time? A. Well, I entered into discussions concerning it, and gave my opinion.

Q. Did you make a recommendation? A. Yes.

Q. What was your recommendation? A. My recommendation at that time was that we certainly needed some type of official document to aid us in our discussions with the Venezuelan Government in the handling of the sale of crude and refined products.

Q. What were your reasons for that conclusion? A. Inasmuch as the prices received on the sale of crude and refined products was deteriorating in this period, it was obvious that to meet competition prices would still be reduced, and the Government's attitude was to attempt to pressure anyone from reducing any prices.

One of the points that they did accede to was that in the event that a company could obtain a sale of a sizable volume of crude or refined products over periods of time, they would take this into consideration in their discussion or in their acceptance of specified discounts.

Q. Take this into consideration? A. Take this, which would be a contract or an agreement entered into for relatively large volumes of crude or refined products over an extensive period of time.'

Mr. Drescher's testimony was to the same effect.

There is no dispute as to this because Sinclair states that International was organized in 1961 and one of its purposes was to 'absorb Sinven's available production . . . in a manner advantageous to Sinven and acceptable to the Venezuelan Government.' Indeed, Sinclair concedes that the 'sole purpose of the written contract' was to provide a formal document upon which to negotiate Lower prices with the Venezuelan government.

Thus it is true that Sinven was paid more than world prices for crude and products, but it does not follow that Sinclair thereby conferred a benefit in the legal or equitable sense in the amount of the price differential. The fact is that the Venezuelan government permitted sales only at posted prices ($2.80 per barrel for crude) and that was one of the disadvantages of extracting oil in that Country. But that fact should not be applied here to the disadvantage of Sinven and its minority stockholders. Sinclair saw an opportunity to get the posted price reduced by 5% And for that reason it needed the contract.

In short, Sinven was undoubtedly benefitted by the contract but so was Sinclair. And to now give defendant all it claims in set-off would be, in effect, to ignore Sinclair's admitted purpose in causing the contract to be made and the benefits which it received as a result thereof. Given the contract and the purposes thereof, with the benefits and burdens to each side, it would be grossly unfair to now ignore or weigh lightly what was done and simply say that Sinclair was just conferring a benefit on Sinven.

I conclude that Sinclair should not be allowed on an independent basis any credit for benefits which the contract prices conferred on Sinven during the period in question. These are, however, to be considered in determining the extent of the relief to be awarded as discussed below.

C.

Turning now to specific claims, it is undisputed that interest on late payment of invoices, under the order approved by the Supreme Court, amounts to $711,095.86. Judgment in that amount will be entered against Sinclair with interest thereon in the amount of $442,060.39. Sinclair has argued that interest should not be allowed on this (or any other claim) but, quite clearly, the principal sums were not paid when due, Sinven therefore was deprived of the use of such sums and interest is necessary to make it whole....