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KINLEY CORP. v. ANCIRA

December 21, 1993

KINLEY CORPORATION, Plaintiff,
v.
GONZALO ANCIRA, Defendant.


FOSCHIO


The opinion of the court was delivered by: LESLIE G. FOSCHIO

JURISDICTION

 This matter was referred to the undersigned by the Hon. Richard J. Arcara on February 4, 1992 for report and recommendation on any dispositive motions. The matter is presently before the court on Plaintiff's motion for partial summary judgment, dated November 30, 1992.

 BACKGROUND

 Plaintiff, Kinley Corporation ("Kinley"), a New York corporation, filed this diversity action against Defendant, Gonzalo Ancira, a resident of Texas, on November 22, 1991, raising two claims for declaratory judgments, and seeking damages for alleged breach of contract and fraud. On January 30, 1992, Ancira answered the complaint, asserting four counterclaims against Kinley seeking declaratory judgments based on a Royalty Agreement previously negotiated between the parties, and the related royalty payments due under the contract, and for a declaratory judgment relating to a Commission Agreement also previously negotiated between the parties.

 A scheduling conference was held with the undersigned on April 8, 1992, and discovery proceeded accordingly. On November 24, 1992, Ancira filed a motion to disqualify the law firm of Jaeckle, Fleischmann & Mugel from representing Kinley as trial counsel in this action. That motion is discussed in a separate Decision and Order.

 On November 30, 1992, Kinley filed a motion for partial summary judgment, requesting summary judgment on Claims One and Two of the Complaint which seek declaratory judgments, declaring the Royalty Agreement unenforceable on the ground that Ancira failed to provide any consideration for the contract. Kinley also requested an order granting a stay of discovery during the pendency of the summary judgment motion. On the same day, Kinley also filed a motion to compel documents and answers to interrogatories by Ancira. On December 31, 1992, Ancira filed a motion to extend the deadline for completion of discovery.

 Oral argument on the matter was held before the court on all outstanding motions on January 15, 1993. At oral argument, Kinley withdrew its claim of misrepresentation based on Ancira's alleged representation to Kinley regarding the tariff rate on a pipeline project in which Kinley was involved.

 For the reasons as set forth below, I recommend that Plaintiff Kinley's motion for partial summary judgment be DENIED.

 FACTS

 Kinley is a corporation in the business of building, owning, and/or operating pipelines to transport and deliver jet fuel to military airbases in the United States. *fn1" Kinley had engaged Ancira, a professional engineer with extensive fuel pipeline experience, as an independent contractor for many years to provide engineering and other services relating to pipeline project acquisitions and operations. (D. 45). *fn2" Ancira worked in such a capacity, billing Kinley monthly for his services and for reimbursable expenses such as travel costs, pursuant to an "unwritten arrangement" Ancira had with James H. Kinley, now the Chairman of the Board of Kinley, over a twenty year period. (D. 126-127, 228).

 Effective October 1, 1988, Kinley and Ancira entered into a Royalty Agreement (the "Agreement"). Paragraph 1 of the Agreement stated as follows:

 
Ancira will continue to locate and present pipeline project opportunities to Kinley; negotiate agreements with the other parties on behalf of Kinley; prepare feasibility studies, cash flow forecasts and other analyses to enable Kinley and its lenders to evaluate proposed projects and to decide whether to acquire, own and operate proposed projects.

 See Exhibit A, Plaintiff's Notice of Motion, Royalty Agreement, dated October 1, 1988, at P 1.

 In exchange for these services, Kinley agreed to pay Ancira a four percent royalty based on the gross revenues of each pipeline project for all periods beginning on or after the latter of April 1, 1989, or the date on which Kinley accepted the project, construction had been completed, its operations had begun, and a positive cash flow for that project had been achieved for six months, except for the Offutt Air Force Base Pipeline. See Royalty Agreement, at P 2. Royalties for the Offutt Air Force Base Pipeline were agreed to for periods beginning on and after November 1, 1989. The Agreement was intended to cover all future projects upon notarized written notice of acceptance of the project by Kinley and upon notice to Ancira. See Royalty Agreement, at P 2.2.

 Pursuant to the Agreement, Ancira had the right to transfer his royalty rights to his spouse or descendants or to a corporation controlled by a trust for the benefit of his spouse or descendants, and also the right to sell his royalty rights to an unrelated third party. See Royalty Agreement, at P 4. However, Kinley retained a right of first refusal to acquire the royalty interests for equal consideration. Additionally, upon Ancira's death, Kinley was to have the right to purchase the royalty interests created by the Agreement. See Royalty Agreement, at P 5.

 On May 18, 1990, Kinley entered into a contract to acquire a majority interest in a partnership to build and operate a pipeline servicing the Lemoore Naval Air Base in Lemoore, California. Ancira assisted in the negotiations regarding this pipeline, and then requested compensation other than that described in the Agreement. According to Ancira, the Royalty Agreement was entered into between the parties to induce Ancira to provide and present Kinley with pipeline opportunities rather than presenting such opportunities to Kinley's competitors, (D. 206-208, 237), and was not meant to represent the entire compensation agreement between the parties. (D. 228). Rather, Ancira states that, in addition to the Royalty Agreement, he was entitled to bill Kinley for all engineering services rendered by him on their behalf in negotiating pipeline projects and for other engineering services. (D. 147-149). In fact, Ancira did bill Kinley for such services after October 1, 1988, and the invoices were paid by Kinley over a period of eighteen months. (D. 240, 244). Some of the submitted invoices are not detailed as to the actual work performed and may have, in fact, included time charged by Ancira related to pipeline procurement and related negotations, in addition to purely engineering services. As to the Lemoore project, Kinley entered into a ...


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