Sterling Oil of Oklahoma, Inc. v. Pack, X--1

CourtSupreme Court of Alabama
Writing for the CourtPER CURIAM; MADDOX; HEFLIN; MADDOX
Citation287 So.2d 847,291 Ala. 727
PartiesSTERLING OIL OF OKLAHOMA, INC., et al. v. Howard M. PACK et al. Bart B. CHAMBERLAIN, Jr., et al. v. STERLING OIL OF OKLAHOMA, INC., et al. SC 69, 69X, 69
Docket Number69X--2,X--1,69X--3,69X--4
Decision Date15 November 1973
Willis C. Darby, Jr., Mobile, for appellant and cross-appellee, Sterling Oil of Oklahoma, Inc., and for appellants, Herbert C. Smyth and W. H. James, Jr

Sam. W. Pipes, III, Mobile, for appellees and cross-appellants, Howard M. Pack and Joseph Kahn.

Champ Lyons, Jr., Montgomery, for appellees and cross-appellants, The Equity Corp., Richard E. Peck, as trustee for The Equity Corp. and Cornwall Trading Corp.

Joseph M. Matranga, Mobile, for appellee and cross-appellant, George H. Jett.

PER CURIAM.

Ten years of litigation culminate in this appeal. This total litigation between the parties consists of three separate law suits arising out of the purchase as of May 1, 1959, of Gulf Oil Company's and Gulf Refining Company's interests in the Citronelle oil field and gathering system in Mobile County, Alabama. Each of these three actions has a long, intertwined, and convoluted history.

FACTUAL BACKGROUND

In 1956, Bart B. Chamberlain, Jr. and some associates formed a corporation to acquire oil and gas leases from the State As a result of the above transaction, Chamberlain acquired 200,000 shares of Sterling stock, began to take an active interest in Sterling's business activities, and to represent Sterling as one of its attorneys.

of Alabama on submerged lands off the Alabama coast. The corporation so formed was Tidelands Development Corporation and from the start it was the intention of its creators to sell the corporation to Sterling Oil Company of Oklahoma. Early in 1957, Chamberlain met in Miami, Florida, with Jesse A. True, the President of Sterling, and it was agreed that Sterling would buy Tidelands for 250,000 shares of Sterling stock, $5,000 in cash, and the payment of the initial rental fee to the State of Alabama, being $121,500.

During this same period of time (early 1957), there was pending in the U.S. District Court for the Southern District of New York anti-trust litigation against Gulf Oil Corporation and several other oil companies. The plaintiff was Gerald B. Waldron who alleged anti-trust violations on the part of the defendants arising out of a Middle East oil transaction. True of Sterling had received information, and he in turn informed Chamberlain, that Gulf and Waldron were each separately interested in settling the litigation by creating or finding a 'normal' business transaction through which Gulf could buy or sell properties, with Waldron indirectly benefiting therefrom. This benefit would induce Waldron to dismiss Gulf as a party defendant in the anti-trust suit.

True solicited Chamberlain's assistance in arranging for Sterling to be the third party to the business deal sought by Gulf and Waldron. Chamberlain agreed and, during the spring and summer of 1957, Chamberlain and True presented several possible transactions involving foreign properties, each of which was rejected by Gulf. Then Chamberlain hit on the idea of purchasing the Gulf properties in the Citronelle oil field in Mobile County, Alabama, as the transaction to accomplish the settlement. The interests owned by Gulf in Citronelle consisted of producing leases and non-producing leases. Gulf Refining Company, a wholly owned subsidiary, owned an oil pipeline and gathering system which served the Citronelle field. As originally contemplated, the transaction with Gulf was to be a 50/50 proposition with Chamberlain in charge of the negotiations and Sterling to handle the financing and to provide the operational expertise required to manage and operate the Citronelle properties to be purchased from Gulf.

The negotiations went on for several months before Gulf determined that it would not deal with Sterling. It was Gulf's intention to retain an overriding royalty interest in the producing leases as part of the consideration for the sale. After a careful study of Sterling's financial condition and technical operating experience and ability, Gulf determined that there would be no deal if Sterling was to be the operating company.

Still anxious to deal with Chamberlain, Gulf suggested George H. Jett's company as a substitute for Sterling as the operating company and Chamberlain was able to interest Jett in the transaction. Jett was brought into the deal with Chamberlain and Sterling under a written agreement dated April 16, 1958. Because this agreement gave Sterling a certain amount of operational control over the properties, Gulf still refused to come to terms. To remove this objection, it was decided that Sterling's interests would thereafter be held in trust and Sterling would not have any direct control over the operation of the Citronelle properties after they were acquired from Gulf.

With Gulf's concern over Sterling's participation resolved, Chamberlain continued intense, but intermittent, negotiations during the remainder of 1958. Gulf was considering the sale of its Citronelle interests very carefully and as a means of fixing its value was awaiting the results of an engineering As the first step to complete the deal, Sterling assigned to Chamberlain and Jett an agreement Sterling had obtained from Waldron in March, 1958. The 'Waldron Agreement' provided tat on the date Sterling acquired the producing properties of Gulf at Citronelle, Waldron would dismiss Gulf as a defendant in the anti-trust suit and Sterling would pay to Waldron $150,000 and a like amount each successive year for nine years. Although this agreement was assigned to Chamberlain and Jett, Sterling was not released from its obligations under the agreement. Additionally, Sterling was instrumental in obtaining month to month extensions of the Waldron Agreement pending negotiations with Gulf.

study which was being done at Citronelle by Core Laboratories. Finally, in February, 1959, Chamberlain and Jett met with representatives of Gulf in Houston, Texas, and the terms of an agreement were settled by which Gulf would sell its Citronelle holdings.

The next step was to arrange for the financing of the acquisition. Sterling's promises of providing the financing did not materialize and Chamberlain and Jett were forced to obtain the necessary funds themselves. The basic financing was ultimately arranged with the Chase Manhattan Bank through the assistance of Howard M. Pack and Joseph Kahn, friends of Chamberlain. The bank agreed to lend only $4,000,000 on a production payment without recourse, $500,000 on the production mortgage, and $1,250,000 on a pipeline mortgage with recourse to Jett and Chamberlain. Since the total cash price to Gulf was $6,750,000 (the balance of the full purchase price was to be paid on a production basis), this left Jett and Chamberlain short by $1,000,000 in equity money and $500,000 in necessary working capital.

While Chamberlain and Jett were in the process of trying to obtain the additional financing, a dispute arose as to the extent and character of Sterling's interest in the deal as it then stood. Chamberlain had a trust agreement drawn up which provided that Sterling would have a 1/3 interest held in trust with Chamberlain as the trustee. True objected to Chamberlain as Sterling's trustee and a meeting was set up at the St. Regis Hotel in New York on April 8, 1959. At this meeting were Chamberlain, Jett, True, Albert B. Zink, a director and attorney for Sterling, and Raymond A. Corcoran, a lawyer representing Gulf, who insisted that Gulf's offer to sell would not be extended beyond the contract deadline of May 1, 1959.

During the meeting, heated words were exchanged between True and Chamberlain. True wanted Sterling to take title to its interest in its own name and Chamberlain insisted that because of Gulf's objection, that was impossible. True refused to allow Chamberlain to act as Sterling's trustee and threatened to sue Gulf to which Corcoran replied, 'Go ahead.' Zink then said something to the effect that perhaps the Chase Bank will have a different attitude about a law suit. At this point, Chamberlain ordered True and Zink out of his room and they left. Zink returned later that same evening and told Chamberlain that something could be worked out rather than 'blow the deal'.

The next day there was a meeting at the office of Waldron's attorney between Chamberlain, Jett, Zink, and Corcoran. At this meeting an agreement was reached whereby Sterling, through Zink as trustee, would get an interest in the deal, and True would not go to the bank and destroy the financial arrangements. On this same day, Zink got Jett to sell him a 2 1/2% Interest in the transaction for which Zink later paid Jett $2,000. This little side deal was concluded without Sterling's knowledge or consent.

With the Sterling problem temporarily resolved, Jett and Chamberlain renewed their efforts to obtain the additional financing. Again, with the help of Pack and Kahn, the sum of $1,500,000 was borrowed from The Equity Corporation, secured The acquisition from Gulf was concluded on May 1, 1959. The agreement reached between Chamberlain, Jett, and Sterling bears that same date although it was not completely executed and delivered in its final form until August 18, 1959. Sterling qualified to do business as a foreign corporation in Alabama on August 6, 1959.

by a limited guarantee of Pack and Kahn and a second mortgage on all the assets being purchased from Gulf. Also, as part of this financing arrangement, Jett and Chamberlain were required to convey a 5% Interest to Pack and Kahn...

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