Saudi Basic Industries Corp. v. Exxonmobil Corp., No. CIV.A. 98-4897(WHW).

• Decision Date: 14 November 2005
• Docket Number: No. CIV.A. 98-4897(WHW).
• Citation: 401 F.Supp.2d 383
• Parties: SAUDI BASIC INDUSTRIES CORPORATION, Individually and in the Name of, and on Behalf of, Al-Jubail Petrochemical Company, a Partnership, Plaintiff, v. EXXONMOBIL CORPORATION, Defendant.
• Court: U.S. District Court — District of New Jersey

401 F.Supp.2d 383

SAUDI BASIC INDUSTRIES CORPORATION, Individually and in the Name of, and on Behalf of, Al-Jubail Petrochemical Company, a Partnership, Plaintiff, v. EXXONMOBIL CORPORATION, Defendant.

No. CIV.A. 98-4897(WHW).

United States District Court, D. New Jersey.

November 14, 2005.

Jeffrey W. Lorrell, Marc C. Singer, Saiber Schlesinger Satz & Goldstein, LLC, Newark, NJ, Kenneth R. Adamo, Jones Day, Cleveland, OH, Gregory A. Catanias, Lawrence D. Rosenberg, William K. Shirley II, Esther Slater McDonald, Jones Day, Washington, DC, for Plaintiff Saudi Basic Industries Corporation.

Elizabeth J. Sher, Pitney Hardin LLP, Morristown, NJ, James W. Quinn, David Lender, Weil, Gotshal & Manges LLP, New York, NY, Andrew S. Pollis, David J. Michalski, Hahn Loeser + Parks, Cleveland, OH, Kenneth C. Johnson, Exxon Mobil Corporation, Houston, TX, for Defendant Exxon Mobil Corporation.

OPINION

WALLS, District Judge.

Defendant Exxon Mobil Corporation ("ExxonMobil") moves to dismiss Plaintiff's Amended Complaint based on the unclean hands doctrine. The Court heard oral arguments on the motion on May 10, 2005. Because Plaintiff then had a pending petition for certiorari to the United States Supreme Court arising from an adverse Delaware judgment involving the parties, this Court deferred ruling on the motion until the Supreme Court determined its petition. The Supreme Court denied the petition and this Court now decides the motion. Defendant's motion to dismiss the Amended Complaint is granted.

FACTS AND PROCEDURAL BACKGROUND

As the facts and procedural posture of this case are in this Court's earlier opinion at Saudi Basic Industries Corp. v. Exxonmobil Corp., 194 F.Supp.2d 378 (D.N.J.2002), they need not be recited at length again. In brief, this matter involves two lawsuits which were consolidated in 2002. In the first, "NJ-I," Saudi Basic Industries Corporation ("SABIC") is suing on behalf of KEMYA, a joint venture between SABIC and Exxon Chemical Arabia, Inc. ("ECAI"), a subsidiary of defendant ExxonMobil. This suit is for breach of a Service Agreement and implied covenants, specific performance, misappropriation of trade secrets, conversion, tortious interference with prospective economic advantage, unfair competition, and unjust enrichment. In the second suit, "NJ-II," plaintiffs ExxonMobil, ECAI, and Mobil-Yanbu (another entity that entered into a partnership with SABIC) claim that SABIC overcharged the partnerships by collecting royalties at higher rate than agreed. ExxonMobil previously moved to consolidate NJ-I and NJ-II, and the Court granted the motion. Id. at 415-416. In addition to the lawsuits filed in this district, SABIC also filed a complaint in the Superior Court of Delaware seeking declaratory relief against Mobil-Yanbu and ECAI on whether the royalty charges were proper.

Since 2002, the Delaware action has been adjudicated with a jury verdict rendered in favor of ExxonMobil. Specifically, the jury found that SABIC was liable for usurpation. The Delaware Superior Court gave the following jury instruction with regard to the usurpation claim: "In order to establish a claim for usurpation, Mobil or Exxon must show, by a preponderance of the evidence, that SABIC wrongfully exercised ownership or possessory rights over the property of another without consent, which means with blatant or reckless disregard for those property rights. The conduct need not be intentional." (Singer Decl. at Ex. 9, 4.4). On March 21, 2003, the Delaware Superior Court entered a judgment against SABIC in the amount of $416,880,764.

On May 16, 2003, ExxonMobil moved to dismiss the Amended Complaint on the basis of the unclean hands doctrine. The Court heard oral arguments on the matter on June 23, 2003 and decided to stay the action pending the outcome of SABIC's appeal of the verdict against it. On January 14, 2005, the Delaware Supreme Court affirmed the judgment against SABIC. SABIC filed a motion for reargument which the Delaware Supreme Court denied on February 22, 2005. On January 21, 2005, ExxonMobil promptly renewed its motion to dismiss the Amended Complaint in light of the Delaware Supreme Court's decision. On May 10, 2005, this Court heard oral argument on ExxonMobil's motion but refrained from ruling on the matter as SABIC confirmed its intention to petition the United States Supreme Court for a writ of certiorari appealing the Delaware judgment. Certiorari has been denied. Saudi Basic Indus. Corp. v. Mobil Yanbu Petrochem. Co., ___ U.S. ___, 126 S.Ct. 422, 163 L.Ed.2d 322, 2005 WL 2493908 (2005).¹

DISCUSSION

The issue before the Court is whether the usurpation found in the Delaware action renders SABIC's hands unclean in equity. The doctrine of unclean hands will deny equitable relief "when the party seeking relief is guilty of fraud, unconscionable conduct, or bad faith directly related to the matter at issue that injures the other party and affects the balance of equities." Paramount Aviation Corp. v. Agusta, 178 F.3d 132, 147 n. 12 (3d Cir.1999).

As an initial matter, the Court must determine whether collateral estoppel applies to the issues decided in the Delaware action. Under the doctrine of collateral estoppel or issue preclusion, "once an issue is actually and necessarily determined by a court of competent jurisdiction, that determination is conclusive in subsequent suits based on a different cause of action involving a party to the prior litigation." Hercules Inc. v. AIU Ins. Co., 783 A.2d 1275, 1278 (Del.2000) (citing Montana v. United States, 440 U.S. 147, 153, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979)). In Delaware, the elements of collateral estoppel are:

(1) the issue previously decided is identical with the one presented in the action in question;

(2) the prior action has been finally adjudicated on the merits;

(3) the party against whom the doctrine is invoked was a party or in privity with a party to the prior adjudication; and

(4) the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action.

Betts v. Townsends, Inc., 765 A.2d 531, 535 (Del.2000). Delaware law controls whether and to what extent the Delaware judgment has preclusive effect in the matter before the Court. See Grimes v. Vitalink Comm. Corp., 17 F.3d 1553, 1563 (3d Cir.1994).

At this point, the Delaware action has been fully adjudicated on the merits. That SABIC was a party to the Delaware action and had "a full and fair opportunity to litigate" the royalty issue before that court satisfies the last two elements. The Court must determine whether the Delaware court's finding that SABIC acted with blatant or reckless disregard of ExxonMobil's property rights amounts to unclean hands in NJ-I.

In its April 3, 2002 opinion, this Court said that the royalty overcharges were "directly relevant" to SABIC's allegations in NJ-I and that "this alleged conduct by SABIC could be considered unconscionable conduct that permeates the transaction as a whole." Saudi Basic Indus. Corp., 194 F.Supp.2d at 392 (emphasis added). Now that there has been a final adjudication of the Delaware litigation in ExxonMobil's favor, the Court must decide whether the Delaware verdict conclusively demonstrates that SABIC's conduct was unconscionable: ExxonMobil says yes; SABIC says no. SABIC raises four arguments as to why its Amended Complaint should not be dismissed.

I. Purging Unclean Hands

SABIC first claims that because it has paid the judgment in the Delaware litigation, it has purged itself of its unclean hands, meaning that it can now seek equitable relief in this Court. SABIC advances several cases and treatises for the proposition that a person's right to relief can be restored if a person guilty of wrongful conduct purges himself of his wrong. See Wedgewood Community Ass'n v. Nash, 781 N.E.2d 1172, 1179 (Ind.Ct.App.2003), clarified on rehearing, 789 N.E.2d 495 (Ind.Ct.App.2003) ("Indiana recognizes the ability of a party to purge itself of wrongdoing, which restores that party's right to seek equitable relief."); Beavers v. Walters, 537 N.W.2d 647, 650-51 (N.D.1995) ("One who purges himself of his wrongdoing will have his right to relief restored."); Hlista v. Altevogt, 239 Md. 43, 210 A.2d 153, 156 (1965) ("[An] impropriety which has been purged is not, under the [unclean hands] maxim, fatal to plaintiff's suit."); Sixty-Third & Halsted State Savings Bank v. Martin, 313 Ill.App. 44, 38 N.E.2d 989, 992-93 (1942) (holding unclean hands purged by payment of a judgment); General Electric Co. v. Klein, 129 A.2d 250, 252 (Del.Ch.1956) ("The repentant sinner, especially where he has been duly punished, is not unwelcome in equity."); 27A Am.Jur.2d, Equity § 135 (2004) ("If a person guilty of unconscionable or wrongful conduct purges himself or herself by adequate and effective renunciation and repudiation, the right to relief will be restored."); 2 J. Pomeroy, Equity Jurisprudence § 399 (5th ed. 1941) ("A wrong which has been righted may not be pleaded against a party to a suit in equity, on the theory that the party charged therewith is in court with `unclean hands.' Therefore, one who has asserted the wrongful nature of an act, and recovered from the perpetrator damages in a court of law, cannot, under the principle of this maxim, set up the wrong in a suit in equity arising out of the transaction in connection with which the wrong was committed.").

ExxonMobil counters SABIC's purging argument by contending that the Court must evaluate SABIC's unclean hands as of the time SABIC first sought equitable relief, when this action was filed. ExxonMobil advances several cases to support its point. In Nakahara v. NS 1991 American Trust, 718 A.2d 518, 519 (Del.Ch.1998), the issue before the chancellor was whether it "should permit a party to avoid the impact of their inequitable conduct by attempting to undo that conduct after an adverse verdict." The court denied the plaintiffs' Rule 60(b) motion...