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ROBBINS v. OGDEN CORP.

April 28, 1980

BILL ROBBINS, Plaintiff, against OGDEN CORPORATION, OGDEN TRANSPORTATION INC., OGDEN MARINE, INC. and OGDEN MARINE DRILLING, INC., Defendants.


The opinion of the court was delivered by: CONNER

OPINION AND ORDER

This action concerns an aborted venture by plaintiff Bill Robbins ("Robbins"), a resident of Texas, and defendants, a group of related Ogden Corporations including Ogden Transport, Inc. ("OTI"), Ogden Marine, Inc. ("OMI"), and Ogden Marine Drilling, Inc. ("OMDI") (collectively referred to as defendants) *fn1" to engage in the business of chartering oil drillships through defendant OMDI. Jurisdiction is premised upon diversity, 28 U.S.C. § 1332. Defendants move for summary judgment pursuant to Rule 56, F.R.Civ.P., on all nine counts of the amended complaint; plaintiff cross-moves for summary judgment on defendants' first two counterclaims.

The following facts undisputed, except as noted are established by affidavits, deposition testimony or responses to interrogatories: Plaintiff has been involved in the oil drilling business for many years. In 1973, he placed an order with a supplier for the basic components of two drilling rigs (the "drill packs") suitable for use in converting cargo vessels into drillships. The order ensured Robbins of a certain position on the production waiting list for the drill packs, equipment which required very long lead time for production and which was in great demand. In late 1973, Robbins entered into negotiations with a group of Norwegian investors for the purpose of organizing an offshore drilling venture wherein Robbins would supply his expertise in the oil industry and the Norwegians would contribute the capital required to purchase the vessels and to convert them into drillships by utilizing the drill packs. To this end, Robbins contacted Avondale Shipyards, Inc. ("Avondale"), an affiliate of OMI, which owned two older cargo ships suitable for conversion to drillships, to determine whether the cargo ships were for sale. Robbins alleges that a representative of the Ogden Corporation granted him an oral option to purchase the two vessels for a set price by June 1, 1974 in consideration for Robbins' promise either to try to sell the vessels to a third party or to utilize them in his proposed business arrangement with the Norwegians. Shortly thereafter, defendants asked Robbins to enter into an arrangement with them along the same lines as his proposed arrangement with the Norwegian investors. Robbins accepted defendants' offer and on May 30, 1974, Robbins and the defendants executed an "Agreement of Intent" wherein they expressed their "desire to explore the possibility of establishing a corporation (the "Drilling Company') to engage in the drilling of offshore oil wells and the ownerships of drillships." The Agreement of Intent defined each party's role in the Drilling Company: defendants were to supply the capital for the purchase of the drill packs and to "make available and convert vessels into drillships," and plaintiff was to provide "the management and expertise necessary to ensure (a) the timely delivery of equipment (and (b)) staffing, organization, and efficient operation of the Drilling Company." The effectiveness of the Agreement of Intent was made contingent upon "(a) the parties finalizing an Agreement detailing the rights to which (Robbins) will be entitled after the incorporation of the Drilling Company and (b) the incorporation of the Drilling Company." If those two conditions were not met prior to September 1, 1974, the Agreement of Intent would terminate

 
"with no obligations or liabilities by either party to the other, except . . . (i)n such event (defendants) will be entitled to resell any equipment purchased for use by the contemplated Drilling Company . . . (and Robbins) will commit (his) best efforts to assist in obtaining a purchaser."

 Following execution of the Agreement of Intent, the parties sent two telex messages to the Norwegian investors; the first informed the Norwegians that Robbins was terminating his negotiations with them and the second stated that defendants were no longer interested in selling their vessels.

 OMDI was incorporated in July of 1974. In August of 1974, an OMDI office was established in Houston, Texas and Robbins began to engage in various activities on behalf of OMDI in an effort to make the proposed agreement a success. Although no formal agreement was executed by September, the parties agreed not to terminate the Agreement of Intent and sometime in late 1974 or early 1975, they signed an agreement dated November 1, 1974 (the "Drilling Agreement"). That Agreement provided, inter alia, that defendants would (1) arrange to convert the vessels into drillships; (2) transfer the renovated vessels to OMDI in exchange for 80% of OMDI's outstanding common stock and 100% of its preferred stock; (3) cause OMDI to issue to plaintiff 20% of its outstanding common stock (15% to Robbins and 5% to two other key OMDI personnel) for $ 250,000 in cash; and (4) "use (their) best efforts to assist (OMDI) in arranging for charters and financing with responsible parties and (would) advise the Bill Robbins Group of the status of the negotiations from time to time . . .," Drilling Agreement at P 6a (the "best efforts clause").

 Paragraph 17 of the Drilling Agreement, however, stated that:

 
"Notwithstanding any other provisions hereof this Agreement shall not become effective unless (OMDI) enters into a Charter (the "initial charter") for the Vessels in form and in substance acceptable to the Board of Directors of Ogden Corporation (the "Effective Date')."

 At about the same time that the Drilling Agreement was signed, the parties entered into another written agreement (the "Employment Agreement") in which defendants agreed to employ Robbins in a managerial and executive capacity in connection with the operation of OMDI and agreed to pay him a minimum salary of $ 50,000 per annum. The Employment Agreement provided that it was to commence on the "Effective Date," as that term was defined in the Drilling Agreement.

 Although both parties solicited numerous potential charterers on behalf of OMDI, no charter was ever obtained for the two vessels. In June of 1975, defendants concluded that charters might not be obtainable and they decided not to go forward with the conversion of the vessels. Defendants, with the aid of plaintiff, or at least his acquiescence, cancelled outstanding equipment orders, sold the equipment that had already been delivered, and terminated the employment of OMDI personnel.

 In 1977, plaintiff instituted this suit asserting nine causes of action sounding in tort and contract. At the heart of plaintiff's complaint is his belief that the proposed venture "ultimately failed due to defendants' breach of their contractual obligations, primarily their negligent and unsuccessful attempts to find charterers for the drillships." Plaintiff's Memorandum of Law at 2.

 Count I

 In Count I of the amended complaint, plaintiff alleges that defendants breached the Drilling Agreement by failing to perform their obligations thereunder, e.g., to convert the vessels and transfer them to OMDI. Defendants contend that they could not have breached their obligations under the Drilling Agreement because that Agreement never became effective; that paragraph 17 of the Drilling Agreement, which stated that the other provisions of the Agreement did not become effective until after OMDI obtained an initial charter for the two vessels, constituted a condition precedent to the effectiveness of the Drilling Agreement; and that since no acceptable charter was ever obtained for OMDI, defendants' obligations under the Agreement never accrued.

 Plaintiff contends, however, that defendants, by their conduct, waived any condition precedent stated in paragraph 17; that under paragraph 6a of the Drilling Agreement defendants were obligated to use their "best efforts" to obtain an initial charter for OMDI; that defendants breached their obligation under paragraph 6a by improperly employing ship brokers to seek charters for the two vessels whereas it is the custom and practice in the oil drilling industry for the owner of a vessel to negotiate directly with prospective charterers.

 Defendants respond that it was plaintiff's responsibility to arrange for the initial charter since, pursuant to paragraph 17, paragraph 6a did not become operative until after an initial charter was obtained or that even assuming, for purposes of this motion only, that defendants were obligated to use their best efforts to solicit the initial charter for OMDI, that plaintiff's deposition testimony conclusively establishes that defendants acted in good faith and without any malice towards Robbins and that their decision to utilize ship brokers was merely a "business decision" with which plaintiff disagreed.

 The Court concludes that a genuine issue of fact exists with respect to whether defendants were contractually bound to use their best efforts to solicit the initial charter for the vessels. The parties have not cited any contract provision which resolves the issue of which party was to have primary responsibility for the solicitation of the initial charter. Furthermore, plaintiff alleges that in a conversation he had with defendants' representative prior to the execution of the Drilling Agreement, he was led to believe that defendants were to have full control over negotiations for charters.

 Assuming, for purposes of this motion only, that defendants were obligated to use their best efforts to arrange for charters, the Court further concludes that an issue of fact exists with respect to whether defendants fulfilled their duty in this regard. Defendants argue that plaintiff's testimony establishes that they acted in good faith. The case law *fn2" establishes, however, that in determining whether a party has satisfied its obligation under a best efforts clause, a court's inquiry is not limited to a determination of whether that party acted with malice; in most of the cases that defendants rely on to support their contention that no issues of fact exist with respect to the issue of whether defendants fulfilled their alleged duty to exercise their best efforts, the court conducted a trial to explore the full extent of a defendant's efforts to comply with its contractual obligation, as well as the prevailing business practices in the particular field. See, e.g., Bloor v. Falstaff Brewing Corp., 601 F.2d 609 (2d Cir. 1979) (after trial, court found a breach of a best efforts clause); Western Geophysical Co. v. Bolt Associates, Inc., 584 F.2d 1164 (2d Cir. 1978) (trial conducted to determine whether defendant exercised its best efforts, defined as "active exploitation in good faith"); Arnold Productions, Inc. v. Favorite Films Corp., 176 F. Supp. 862, 865-67 (S.D.N.Y.1959), aff'd, 298 F.2d 540, 542 (2d Cir. 1962) (trial on plaintiff's allegation that the method employed by defendant for television distribution of plaintiff's films did not amount to exercise of best efforts). In the case at bar, plaintiff's contention that defendants' method of operation was contrary to the well known method of doing business in the oil drilling industry is supported, at least in part, by the deposition testimony of Michael Klebanoff, defendants' employee, who testified that he was aware that potential charterers resented the interference of brokers in negotiations for charters. On the basis of the record presently before the Court, it appears that plaintiff will have a very difficult case to prove at trial because, despite the efforts of both parties plaintiff, who contacted potential charterers directly, and defendants, who dealt through brokers a charter was never obtained for OMDI. The difficulty of plaintiff's proof is not the test on summary judgment; rather, "(h)owever fragile plaintiff('s) claim may appear summary judgment is not designed to weed out dubious claims, but only those with no basis in material fact." Weight Watchers of Quebec Ltd. v. Weight Watchers International, Inc., 398 F. Supp. 1047, 1055 (E.D.N.Y.1975). Accordingly, defendants' motion for summary judgment on plaintiff's first cause of action is denied.

 Count II

 In Count II, plaintiff asserts a tort claim based upon defendants' alleged breach of the best efforts clause: Robbins contends that by reason of the Drilling Agreement, defendants had a duty to him to use their best efforts to arrange for an acceptable charter and that they negligently performed that duty, resulting in damage to plaintiff in the amount of $ 15,000,000.

 Defendants argue that Count II merely seeks to convert a breach of contract claim into a tort claim by alleging that a "duty" was negligently violated.

 In the absence of special additional allegations of wrongdoing, a breach of contract does not give rise to a tort action. For one party to a contract to sustain a tort claim against another party to the contract, there must be alleged a breach of a legal duty separate and distinct from any contractual obligations, although the genesis of the duty may be the contract itself. Stella Flour & Feed Corp. v. National City Bank, 285 A.D. 182, 136 N.Y.S.2d 139 (1st Dept.1954), aff'd, 308 N.Y. ...


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