Phoenix Canada Oil Co., Ltd. v. Texaco Inc.

• Decision Date: 23 October 1990
• Docket Number: No. 89 Civ. 7074(KC).,89 Civ. 7074(KC).
• Citation: 749 F. Supp. 525
• Parties: PHOENIX CANADA OIL COMPANY, LTD., Plaintiff, v. TEXACO INC. and Texaco Petroleum Co., Defendants.
• Court: U.S. District Court — Southern District of New York

749 F. Supp. 525

PHOENIX CANADA OIL COMPANY, LTD., Plaintiff, v. TEXACO INC. and Texaco Petroleum Co., Defendants.

No. 89 Civ. 7074(KC).

United States District Court, S.D. New York.

October 23, 1990.

Victor Muskin, Munves, Tanenhaus & Storck, P.C., New York City, for plaintiff.

Milton Sherman, Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendants.

MEMORANDUM OPINION AND ORDER

CONBOY, District Judge:

Phoenix Canada Oil Company, Ltd. ("Phoenix"), a Canadian corporation, brings this diversity action for breach of contract and fraud against Texaco Inc. and its subsidiary Texaco Petroleum Company (together, "Texaco"), both Delaware corporations. In essence, Phoenix alleges that Texaco owes Phoenix royalty payments dating back to 1976 for oil production from an Ecuadorian oil well. It seeks contract damages and a declaration that it is entitled to royalties for future production. Phoenix also alleges that Texaco fraudulently induced Phoenix to refrain from filing an action for breach of contract in the 1970's when Phoenix first became aware of the alleged breach. Now pending before the Court are Texaco's motion to dismiss the fraud claim, and cross-motions for partial summary adjudication of the contract and declaratory judgment claims.

I. FACTUAL BACKGROUND

The following facts are not in dispute. In 1961 the Government of Ecuador granted to Minas y Petroleos del Ecuador, S.A. ("Minas") a concession to explore for and extract oil in a large area of eastern Ecuador (the "Pastaza" concession). In 1964, the Ecuadorian government granted a neighboring concession, the "Napo" concession, to a consortium made up of subsidiaries of Gulf Oil Corporation and Texaco Inc. ("Gulf/Texaco"). The Napo concession bordered the Pastaza concession on the north. In a contract dated July 16, 1965 (Cmpl't Ex. A), Minas transferred a northern portion of the Pastaza concession to Gulf/Texaco. This portion, the "Coca" concession, was intended to abut the Napo concession. In exchange for the transfer of oil rights, Gulf/Texaco paid Minas a lump sum and agreed to pay Minas, quarterly, upon commencement of commercial production, a sum equal to 2% of the value of the oil taken by Gulf/Texaco from the wells within the Coca concession. Eventually, Phoenix and Norsul Oil and Mining Company, Ltd. ("Norsul") each obtained a 50% interest in Minas' rights to the 2% payments (i.e., Phoenix became entitled to a 1% royalty on Gulf/Texaco's Coca concession production).¹

Although the Coca concession was intended to abut the Napo concession, due to imprecise descriptions of the concession boundaries there was an apparent overlap of several hundred meters in the northern boundary of the Coca concession and the southern boundary of the Napo concession. In the late 1960's, Gulf/Texaco drilled an oil-producing well known as Shushufindi No. 1 (the "S-1" well) in or near the overlap area. Norsul announced, in early 1969, that the well was within the Coca concession, and that Norsul would therefore be entitled to royalty payments. Texaco/Gulf announced that the well was in the Napo concession and that no royalties would be paid to Norsul. Norsul then filed a federal securities action against Texaco Inc. and Gulf Oil Corporation in the Southern District of New York ("the New York action"). In June 1969 the Ecuadorian Government redefined the concession boundaries to eliminate the overlap. On May 5, 1970, Judge Pollack signed a stipulation dismissing the New York action. (Cmpl't Ex. B.) The stipulation provided:

Defendants Texaco Inc. and Gulf Oil Corporation shall and hereby do acknowledge that the well known as Shushufindi No. 1 is presently located within the area which is commonly known as the "Coca Concession"; and that by reason of the above, Minas y Petroleos del Ecuador, S.A., its successors and assigns, are entitled to two percent of the net production of said well as defined in their private contract dated July 16, 1965 with Compania Texaco de Petroleos del Ecuador, C.A. and Gulf Ecuatoriana de Petroleo, S.A.

Commercial production of oil from the S-1 well began in May 1972. From then until January 1976 Gulf/Texaco made quarterly payments to Phoenix and Norsul. On March 26, 1976, Texaco Petroleum, on behalf of Gulf/Texaco, sent Norsul a survey "monograph" prepared by Ecuador's Military Institute of Geography (the "1976 survey") which set forth coordinates for the S-1 well. These coordinates located the S-1 well within the Napo concession, and not the Coca concession. (Cmpl't Ex. C.) Phoenix states that the 1976 survey was not sent to them at that time, and that they learned of it from Norsul (Moore affidavit of May 16, 1990, ¶ 14 at 6-7); no evidence has been introduced to dispute this statement. The royalty payments for the first quarter of 1976, due in April 1976, did not include payments for production from the S-1 well, and Texaco has not paid any royalties to Phoenix for S-1 production since that time.

In September, 1976, Norsul filed suit against Texaco and Gulf in the Southern District of Florida, Norsul Oil & Mining Co., Ltd. v. Texaco, Inc., et al., 76-1629 (WMH) (the "Florida action"), for breach of contract, breach of fiduciary duty, and unjust enrichment. Norsul claimed that the royalty payments were deficient for a number of reasons, including that S-1 production had been improperly excluded. Twelve years later, the Florida action was tried, and in December 1988 the court issued a Memorandum Opinion (Cmpl't Ex. D.), which, inter alia, held that the 1976 survey did not negate Texaco's obligation under the 1970 stipulation to pay royalties on S-1 production.

Phoenix also commenced litigation in 1976. Its action, brought in Federal District Court in Delaware, Phoenix Canada Oil Co., Ltd. v. Texaco, Inc., 76-421 (the "Delaware action"), was filed some two months after Norsul's and asserted claims similar to those asserted by Norsul in the Florida action. Phoenix's complaint did not expressly assert a claim for the withheld S-1 royalties. The Delaware action was dispatched within twelve years, following a bench trial and decision, 658 F.Supp. 1061 (D.Del.1987), and an affirmance by the Third Circuit, 842 F.2d 1466 (3d Cir.1988), cert. denied, 488 U.S. 908, 109 S.Ct. 259, 273, 102 L.Ed.2d 247 (1988). In the end, Phoenix prevailed on a portion of its breach of contract claim, but lost on the balance of that claim as well as on its claims for unjust enrichment and intentional infliction of economic injury. The Delaware court did not rule on the S-1 claim.

In this action, Phoenix's breach of contract and declaratory judgment claims are based on Texaco's obligation to pay Phoenix the 1% royalty on S-1 production, pursuant to the 1965 contract and the 1970 stipulation. Phoenix seeks to invoke offensive collateral estoppel and contends that the Florida court's holding that the 1970 stipulation continues in force is binding here. Texaco counters that Phoenix's claim accrued in 1976 and is therefore bared by the statute of limitations. Texaco also contends that Phoenix's S-1 claim could and should have been included in Phoenix's 1976 action and is therefore barred by res judicata. Texaco further counters that the Florida decision does not have any preclusive effect here.

Phoenix's fraud claim is based on certain omissions by Texaco early in the Delaware litigation. Phoenix alleges that after it learned that the S-1 payments were being withheld, and as it was considering whether to include a claim for those payments in its suit, Texaco dissuaded it from doing so. Texaco allegedly accomplished this by asserting that such a claim would fail in the face of a defense based on the Act of State doctrine, representing that the 1976 survey was an official governmental act. Texaco allegedly did not inform Phoenix, however, that Texaco itself had solicited the survey. Because of this omission, Phoenix claims, it did not include a claim for S-1 royalties in the Delaware action, and only became aware of the viability of such a claim in 1988, when the Florida court rendered its decision in the Norsul action. Texaco counters that its statements constituted merely a legal opinion offered by an opponent during litigation, and as such did not entitle Phoenix to rely on them.

II. DISCUSSION

A. Motion to Dismiss the Fraud Claim²

1. The Allegations

The operative allegations of Phoenix's fraud claim are set forth in its complaint as follows:

53. Defendants' repeated representations that an official Ecuadorian government survey had definitively located the Shushufindi No. 1 well in the Napo concession were false and fraudulent.

54. Defendants' representations were intended to and did cause Plaintiff to believe that the survey in question was a binding sovereign act of the Ecuadorian government that was immune from review under the act of state doctrine, and to conceal the fact that the survey was nothing of the sort but had, upon information and belief, been unilaterally procured by and performed at the behest of the Defendants.

55. Plaintiff relied on Defendants' misrepresentations to its detriment by not interposing a Shushufindi claim in the 1976 Phoenix Action.

Cmpl't at 18-19.

Phoenix's complaint alleges four specific statements made by Texaco. Only one of these statements was made to Phoenix. The others were made to Norsul in the course of the Florida litigation.³ The fraudulent statements specifically alleged are as follows:

(1) In a December 1976 memorandum of law in support of its motion to dismiss in the Florida action, Texaco stated

"On January 12, 1976 Texaco Petroleum received from the Ecuadorian Institute of Military Geography its conclusive determination that the well does not lie within the Coca concession. Accordingly, Plaintiff's present factual assertion that Shushufindi No. 1 is located within the Coca concession area has been foreclosed by the contrary Ecuadorian determination."

Cmpl't ¶ 42(a) at 14.

(2) In that...