IN RE: Ecuadorian Oil Concession Litigation

: Case MDL No. 424 Document 2 Filed 05/18/15 Page 1 of 8
JALAL PANDT a a	Fla eee pr id HHT PUR ’ : . Sof
. FCLEMRIRICT [02	Ti0n IRR
FILED AU
2 AR 24 gg Coy
A P T A h SU a Zz £ a ’ ol _	3 : BEFORE THE JUDICIAL PANEL CER A L, Roving YAY,on SERK OF THERE
1 MULTIDISTRICT LITIGATION
3 IN RE ECUADORIAN OIL CONCESSION ) DOCKET NO. 424
LITIGATION ) AR
’ OPINION AND ORDER aid abn
BEFORE ANDREW A. CAFFREY,* CHAIRMAN, AND ROY W. HARPER, EE
} CHARLES R. WEINER, EDWARD S. NORTHROP, ROBERT H. SCHNACKE, :
FREDERICK A. DAUGHERTY,* AND SAM C. POINTER, JR., JUDGES :
OF THE PANEL.
PER CURIAM oo :
This litigation consists of one action pending in RB
the District of Delaware and one action pending in the Co
Southern District of Florida. Texaco, Inc. (Texaco): its
subsidiary, Texaco Petroleum Company (Texaco Ecuador); :
Gulf 0il Corporation (Gulf); and its subsidiary, Ecuadorian : Po
Gulf 0il Company (Gulf Ecuador) are the same four defendants Co
named in both actions. Phoenix Canada 0il Company Limited
(Phoenix) is the plaintiff in the Delaware action, and
Norsul 0il and Mining Company, Ltd. (Norsul) is the plaintiff REE
in the Florida action. EE
The Delaware action was brought by Phoenix in November,
1976. The Honorable Murray M. Schwartz, to whom the Delaware
action has been assigned, has described the background RE Bn
and allegations of the complaint in the Delaware action :
as follows: EE
* Judges Caffrey and Daugherty took no part in the decision
of this matter. N
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1 In 1961, Minas Y Petroleos del Ecuador ("Minas"), SEE
a wholly owned subsidiary of [Norsul], obtained a HEART ER
ki concession contract from the government of Ecuador : Co :
! for the exploration, development, and marketing of ]
| petroleum and natural gas deposits in Oriente Province, Co
[the easternmost province in Ecuador, mountainous :
in nature and located about 300 miles from the shore].
4 Minas agreed to pay a royalty on each barrel of oil
produced, to make substantial investments for development
5 of the concession area, and to construct a pipeline
and other facilities. Subsequently, Minas realized EE oo
5 that it could not fulfill the financial and exploration [EUR
requirements of the 1961 concession contract. As RANE
7 a consequence, in 1963 Norsul entered into an agreement IE
with [Phoenix] under which [Phoenix] acquired a fifty Lo
percent interest in Minas in exchange for providing EE
3 technical assistance and funds to defray preliminary
exploration and maintenance costs.
3
In 1965, with the subsequent approval of the
p) government of Ecuador, Minas on behalf of [Phoenix] So
and Norsul entered into a written agreement with the :
L Ecuadorian operating subsidiaries of defendants Texaco 0
and Gulf, the predecessors of defendants [Texaco : oo
Ecuador] and [Gulf Ecuador]. The subsidiaries were
2 assigned the rights to develop a portion comprising Ca
approximately fifteen percent of the concession area :
3 in sole exchange for the assignor ("Minas") reserving
a two percent gross royalty interest in crude oil
1 production from the assigned area. 0 )
- Early in 1969, defendants publicly announced
’ their first oil discovery in the concession area.
i Ensuing reports within trade circles indicated that
> the amount of reserves within the concession area
were very substantial.
7 : :
The information heretofore related does not appear : SER
3 to be seriously disputed by the parties. From this Ln
: point onward, however, the parties' versions are at EE Co
) variance. For purposes of evaluation, the succeedingaccount is derived largely from the Complaint. [Phoenix]
claims defendants committed acts and omissions giving
) rise to three legal theories of recovery: (1) breach
of contract; (2) unjust enrichment; and (3) intentional oo
: infliction of economic distress. . As related by [Phoenix], J. N .
the facts justifying legal recovery on these grounds |
; are as follows. Lo
Defendants are alleged to have starting in 1969 -
; and continuing to the present "agreed upon, developed ) So -
and implemented plans, schemes and a conspiracy to
1 eliminate or impair [Phoenix's] gross royalty interest,
to destroy [Phoenix] as a going concern, to remove
3 [Phoenix] as a competitor in Ecuador and elsewhere oo
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1 and to reap whatever financial benefits would flow
therefrom ...." The alleged objective of defendants
® 2 was either to reduce or eliminate the royalty interestor to enable the conversion by the Ecuadorian government
3 of the royalty interest into taxes which could be
credited on United States income tax returns.
4 Proceeding roughly in chronological order, [Phoenix]
first avers defendants falsely and misleadingly claimed
5 a discovery well was not located in the concession
area and not subject to the two percent royalty.
6 This matter was resolved after Norsul instituted a
declaratory judgment action in federal court in New
York by stipulation that the well was within the assigned
7 area and Minas and its successors and assigns were
entitled to a two percent royalty. [Phoenix] claims
8 the publicity surrounding the incident caused it harm
in the financial market.
9 |
In 1971, [Phoenix] and Norsul each obtained an
10 individual one percent royalty interest from Minas.
[Phoenix] avers that defendants subsequently, for
the purpose of harassing and financially and physically
11 wearing down [Phoenix's] and Norsul's resources, began
to request documents purportedly to establish right
12 and title to the gross royalty. [Phoenix] asserts
that providing the "unnecessary documents" and attending
13 meetings caused harm and that defendants were at all
9 times fully aware of the validity of the royalty.
14 In 1972, a military government obtained power
in Ecuador, replacing an elected civilian administration.
15 Allegedly, at this point defendants falsely and mali-
ciously began to publicly attack the original 1961
16 Minas concession agreement, terming it "piratical."
Later in 1972, defendants commenced royalty payments
17 to the government of Ecuador based on a new "reference
price" which was set pursuant to a Hydrocarbons Law
18 established by Ecuador in October 1971. [Phoenix]
: claims at that time it was entitled to receive its
gross royalty payment for the third quarter of 1972,
19 as well as an accounting statement, but that neither
was received when due. Thereafter, a series of delays
20 and extensions was allegedly forced upon [Phoenix] :
under "implied threat." Meetings were held and further
21 delays were requested with respect to subsequent payments.
Some delays were granted, but in at least one case
[Phoenix] asserts it agreed to no delay. In early
22 1973, a new agreement was made, defendants allegedly
having "extracted [Phoenix's] consent to the ... agreement
23 and to repeated payment delays by economic duress."
24 Allegedly, soon after the 1973 agreement, '"substan-
[ tially all of defendants' senior officials and employeespy charged with defendants' Ecuador affairs traveled
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1 to Quito, Ecuador to make further plans for the impairment
of [Phoenix's] gross royalty interest and the destruction
2 of said interest and therewith of [Phoenix's] business.
During this period, defendants continued to fail and (
3 refuse to make any gross royalty payments to [Phoenix]."
On February 26, 1973, [Phoenix] states it was
4 advised by a Texaco official that gross royalty payments
would be withheld until "further notice." The ensuing
5 publicity allegedly harmed [Phoenix] in the business
community. Thereafter, on May 29, 1973, the Ecuadorian
6 government issued a decree imposing a retroactive
86% withholding tax exclusively on [Phoenix's] and
” [Norsul's] royalty interest. [Phoenix] claims thatit was harmed by defendants because even though this
tax would have reduced the amount of its royalty interest
8 after 1972, it was deprived of the carrying value
of the money it would have received if defendants
9 had paid the royalty properly. [Phoenix] further
: declares its other investments in other countries
10 were impaired due to the destruction in financial
credibility and capability defendant allegedly caused.
11 In August 1973, a contract was formed between
the Ecuadorian government oil company ("CEPE'") and
12 defendants Texaco Ecuador and Gulf Ecuador. The contract
granted CEPE the option to acquire up to twenty-five
13 percent of these defendants' oil production rights
in exchange for a negotiated consideration. The option (14 was exercised by CEPE in June 1974. Despite demands
by [Phoenix], defendants since that time allegedly
refuse to pay plaintiff a share of the funds derived
15 from the sale to CEPE. Finally, [Phoenix] declares
that subsequent to 1973, "defendants have threatened
16 plaintiff that they intended not to make any further
gross royalty payments nor to furnish further accounting
17 statements."
18 Although the above is not complete, the account
fairly reflects [Phoenix's] allegations. In sum,
[Phoenix] urges the 1965 agreement was breached by
19 failure and refusal to make timely payments, make
full payments, deposit the payments in the proper
20 place, and render proper accounting statements. The
unjust enrichment claim is predicated on [Phoenix's]
21 failure to receive a royalty or share of the monies
garnered by defendants from the CEPE twenty-five percent
acquisition. Finally, the theory of intentional in-
22 fliction of economic distress is asserted as a catchall
label for the alleged tortious acts of defendants
23 relating to the supposed embarkation on an alleged
plan to weaken or destroy [Phoenix] in order to reduce
24 or eliminate the royalty burden.
25 ®
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1 Phoenix Canada Oil Company Limited v. Texaco, Inc., et
@® al., C. A. No. 76-421, slip op. at 9-16 (D. Del. April
3 10, 1978) (opinion denying motion to stay proceedings and
4 motion to dismiss proceedings) (footnotes omitted).
5 In November, 1978, Phoenix amended its complaint to
allege that in May, 1977, Gulf Ecuador transferred all
© its Ecuadorian interests to CEPE for approximately $117,500,000
7 and that Gulf Ecuador has failed to pay Phoenix from those
8 proceeds the $14,500,000 royalty interest due Phoenix on
9 . the sale. Discovery has been ongoing in the Delaware action,
10 and Judge Schwartz has established a June 30, 1980 discovery
11 cutoff.
12 The Florida action was filed by Norsul on October
22, 1976. The allegations of the complaint generally track
C) 13 those of the complaint in the Delaware action except that
14 the former contains no claims that the defendants conspired
15 to weaken or destroy Norsul. Discovery is ongoing in the
16 Florida action, but no discovery cutoff has been established.
17 This matter is before the Panel on the motion, pursuant
18 to 28 U.S.C. §1407, of the four defendants in both actions
19 | for centralization of the two actions in either the District
of Delaware or the Southern District of Florida for coordinated
20 or consolidated pretrial proceedings. Phoenix and Norsul
21 oppose transfer.
22 We find that, although these actions involve common
23 questions of fact, transfer under Section 1407 would not
24 necessarily serve the convenience of the parties and witnesses
® 25 or promote the just and efficient conduct of the litigation.
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1 Accordingly, we deny the motion to transfer.
2 Movants argue that centralization of the two actions
3 in this litigation is necessary because 1) the actions
4 are virtually identical and involve the same fundamental
breach of contract assertion of two plaintiffs who claim
> precisely the same contractual relationship with the same
6 four defendants, 2) absent coordinated or consolidated
7 pretrial proceedings, burdensome and duplicative deposition
8 discovery will occur, and 3) defendants have exhausted
9 " voluntary alternatives for securing coordination before
10 resorting to Section 1407.
11 We find these arguments unpersuasive. The Delaware
12 action and the Florida action have each been pending for
almost three and one half years. All parties represent
13 that extensive document discovery is virtually complete
14 in both actions; and a June 30, 1980 discovery cutoff has
15 been established in the Delaware action. Under these circum-
16 stances, centralization of the Florida and Delaware actions
17 could delay the termination of the Delaware action without :
18 producing any overriding benefits. See In re Insulin Manu-
19 facturing Antitrust Litigation, __ F. Supp. ____	, _
o (J.P.M.L., filed April 10, 1980) (slip op. at 5).
2 Moreover, only two actions are involved here. Although
21 we recognize the existence of common questions of fact
22 between these two actions, movants have not met their burden
23 :
24
25
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1 of showing that the remaining common factual questions
eo 2 are sufficiently complex and that the remaining accompanying
3 discovery will be so time-consuming as to justify transfer
4 under Section 1407. See In re Scotch Whiskey Antitrust
5 Litigation, 299 F. Supp. 543, 544 (J.P.M.L. 1969).
Finally, we note that suitable alternatives to Section
© 1407 transfer are still available to the parties in this
7 litigation. Even in the absence of agreement by the parties,
8 any party could seek to make discovery completed in the
° ~ Delaware action applicable to the Florida action by requesting
10 the Florida court to order all parties to show cause why
1 that discovery should not be made applicable. See In re
12 Penitentiary Postal Procedure Litigation, 465 F. Supp.
1293, 1294 (J.P.M.L. 1979). Also, notices for any future
@o 13 depositions could be filed in both actions, thereby making
14 the depositions applicable in both actions. See In re
15 Oklahoma Insurance Holding Company Act Litigation, 464
16 F. Supp. 961, 965-66 (J.P.M.L. 1979). See also Manual
17 for Complex Litigation, Parts I and II, §§3.11 (rev. ed.
18 1977). Additionally, consultation and cooperation between |
19 the two concerned district courts, if viewed appropriate
by those courts, coupled with the cooperation of the parties,
20 would minimize the possibility of conflicting pretrial
21 rulings. See In re Raymond Lee Organization Inc. Securities
22 Litigation, 446 F. Supp. 1266, 1268 (J.P.M.L. 1978).
23 IT IS THERFORE ORDERED that the motion pursuant to
24 28 U.S.C. §1407 to transfer the actions listed on the following
@® 95 Schedule A be, and the same hereby is, DENIED.
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1 DOCKET NO. 424
® 2 | SCHEDULE A
3 DISTRICT OF DELAWARE
4 Phoenix Canada 0il Company Limited C.A. No. 76-421
v. Texaco, Inc., et al.
5
6 SOUTHERN DISTRICT OF FLORIDA
7 Norsul 0il & Mining Co., Ltd. v. Texaco C.A. No. 76-1629-Civ.Inc., et al.
8
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