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Darby Trading Inc. v. Shell International Trading and Shipping Co. Limited

March 28, 2008


The opinion of the court was delivered by: Kenneth M. Karas, District Judge


On January 18, 2007, Plaintiff Darby Trading Inc. ("Darby") commenced this diversity action against Defendants Shell International Trading and Shipping Company ("STASCO"), Motiva Enterprises LLC ("Motiva"), and Shell Oil Company ("Shell Oil"). Plaintiff's Complaint alleges that Defendant Motiva breached an oral contract with Plaintiff, that STASCO and Shell Oil tortiously interfered with the contract between Plaintiff and Motiva, and that STASCO and Shell Oil tortiously interfered with the business relationship between Plaintiff and Motiva.

Motiva and Shell Oil each filed a Motion to Dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, and STASCO filed a Motion to Dismiss for lack of personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. All three motions were referred to Magistrate Judge George A. Yanthis for a report and recommendation.*fn1 On December 13, 2007, Magistrate Judge Yanthis issued a Report and Recommendation which concluded that this Court should grant Defendants' Motions to dismiss. Plaintiff subsequently filed timely objections to the Report and Recommendation.

For the reasons stated below, the Court agrees with the Report and Recommendation and grants Defendants' Motions.

I. Factual Background

Although the Court will assume a general familiarity with the facts as discussed in Magistrate Judge Yanthis's Report and Recommendation, the Court will briefly summarize the facts most salient to these Motions. As the Motions before the Court are motions to dismiss, the facts taken from Plaintiff's Complaint are assumed to be true.

Plaintiff Darby is in the business of buying and selling petroleum products. (Compl. ¶ 9.) In 1994, Plaintiff began supplying base oil products to Commercial Importadora S.A. ("CISA"), a Mexican company that supplies roughly 30% of the lubricating oil market in Mexico. (Id. ¶¶ 9-10.) The base oils that Plaintiff provided to CISA were of the "Group 1" variety, and were acquired from various points of origin. (Id. ¶ 11.)

In 1998, Defendant Motiva converted its "Group 1" base oil refinery into a "Group 2" refinery.*fn2 (Id. ¶ 11.) Starting in 1999, Motiva began aggressively marketing its "Group 2" base oils (hereinafter "STAR base oils"), encouraging its customers to use the "Group 2" base oils on an exclusive basis. (Id. ¶ 13.) As part of this aggressive marketing program, Motiva approached Darby and "requested Darby to convince Darby's customer CISA to modify its supply chain and to begin to use various grades of base oils manufactured by Motiva, and specifically the STAR Group 2 base oils." (Id.) "In return, Motiva promised to continue to supply Plaintiff with STAR Group 2 base oils, which were not widely available, so that Plaintiff could continue to service the CISA account." (Id.) This "arrangement" between Darby and Motiva continued through 2005. (Id.)

In 2006, however, Motiva informed Plaintiff that it would no longer sell its STAR base oils to Plaintiff, and instead would sell the STAR base oils to STASCO, which in turn would market the STAR base oils to CISA directly. (Id. ¶ 14.) Motiva made this decision "at the urging of its affiliate STASCO and its 'parent' Shell Oil and/or other Shell Group companies." (Id.) This decision troubled Plaintiff, as Motiva continued to supply other companies with the STAR base oils, even companies that serviced Mexican companies like CISA. (Id.) As a result of Motiva's decision, Plaintiff was compelled to use its limited supply of STAR base oils to service CISA, its largest customer, thereby preventing Plaintiff from providing the STAR base oils to other customers that it had developed in the preceding years, and thus allegedly causing Plaintiff to lose millions of dollars in sales. (Id. at ¶ 15.)

According to Plaintiff, a similar dynamic emerged in regard to Plaintiff's sale of feedstock to Motiva. Toward the end of 2005, Plaintiff offered to sell Motiva hydrocracker bottoms to use as feedstock for Motiva's STAR base oil refinery. (Id. ¶ 16.) This feedstock was offered at very competitive prices. (Id.) Motiva tested samples of the feedstock and reviewed technical information relating to the feedstock. (Id. ¶¶ 17-18.) Satisfied with the samples, Motiva requested a full shipment for a trial run. (Id. ¶ 19.) The shipment was delivered in January 2006. (Id.) Motiva ran the feedstock through the system and informed Darby that the tests were successful and produced excellent results. (Id.)

Shortly after the first successful delivery, Plaintiff received reports from Motiva indicating that STASCO did not approve of Motiva's purchases from Plaintiff. (Id. ¶ 20.) Motiva conveyed this information to Plaintiff, but did not discourage Plaintiff from offering the feedstock whenever it came available. (Id. ¶ 21.) Thus, Plaintiff again offered feedstock to Motiva in February 2006. (Id. ¶ 22.) Although STASCO was offering the same feedstock to Motiva, Motiva chose to purchase from Plaintiff, responding to Plaintiff's lower prices and quality product. (Id. ¶¶ 22-23.)

Shortly after the second shipment was delivered, "STASCO and Shell Oil applied direct and indirect pressure on Motiva to stop the purchase of these hydrocracker bottoms from Darby and to purchase only from STASCO, regardless of how the feedstock was presented and approved within the Motiva system, and regardless of the higher STASCO price." (Id. ¶ 24.) Motiva bowed to this pressure from "'higher up' in the STASCO/Shell Oil group structure," and declared that it could no longer purchase from Plaintiff in the future. (Id. ¶ 25.)

II. Discussion

A. Standard of Review

1. Fed. R. Civ. P. 12(b)(2)

"[R]esolution of a [12(b)(2)] motion to dismiss for lack of personal jurisdiction made in the Southern District of New York requires a two-step analysis." See Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120, 124 (2d Cir. 2002). "First, the court must determine if New York law would confer upon its courts the jurisdiction to reach the defendant," such as under the New York long-arm statute. Id. Second, if such a basis for jurisdiction exists, the court must then determine whether the extension of jurisdiction is permissible under the Due Process Clause of the Fourteenth Amendment. See id.

On a Rule 12(b)(2) motion, the plaintiff has the burden of establishing that the court maintains jurisdiction over the defendant. See Kernan v. Kurz-Hastings, Inc., 175 F.3d 236, 240 (2d Cir. 1999). However, "[p]rior to discovery, a plaintiff challenged by a jurisdiction testing motion may defeat the motion by pleading in good faith legally sufficient allegations of jurisdiction, i.e., by making a prima facie showing of jurisdiction." Jazini v. Nissan Motor Co., 148 F.3d 181, 184 (2d Cir. 1998) (internal quotation marks and citations omitted) (alteration in original); accord Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996). "[A] prima facie showing of jurisdiction does not mean that plaintiff must show only some evidence that defendant is subject to jurisdiction; it means that plaintiff must plead facts which, if true, are sufficient in themselves to establish jurisdiction." Bellepointe, Inc. v. Kohl's Dep't Stores, Inc., 975 F. Supp. 562, 564 (S.D.N.Y. 1997). A plaintiff may "make this showing through [its] own affidavits and supporting materials[,] containing an averment of facts that, if credited . . . , would suffice to establish jurisdiction over the defendant." Whitaker v. Am. Telecasting, Inc., 261 F.3d 196, 208 (2d Cir. 2001) (internal quotation marks and citations omitted) (alterations in original). While a court may consider materials beyond the pleadings, the court must credit a plaintiff's allegations in support of jurisdiction. See A.I. Trade Fin., Inc. v. Petra Bank, 989 F.2d 76, 79-80 (2d Cir. 1993) ("[W]here the issue is addressed on affidavits, all allegations are construed in the light most favorable to the plaintiff and doubts are resolved in the plaintiff's favor, notwithstanding a controverting presentation by the moving party.").

2. Fed. R. Civ. P. 12(b)(6)

The Supreme Court has held that "[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 127 S.Ct. 1955, 1964-65 (2007) (citations omitted and second alteration in original). In Twombly, id. at 1964-69, the Supreme Court also abandoned reliance on the oft-cited line from Conley v. Gibson, 355 U.S. 41, 45-46 (1957), that, "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." As the Court explained, a literal application of Conley's "no set of facts" rationale is improper because "a wholly conclusory statement of claim would survive a motion to dismiss whenever the pleadings left open the possibility that a plaintiff might later establish some 'set of [undisclosed] facts' to support recovery." Twombly, 127 S.Ct. at 1968 (alteration in original). Instead, the Court emphasized that "[f]actual allegations must be enough to raise a right to relief above the speculative level . . . [,]" id. at 1965, and "once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint[,]" id. at 1969. Plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Id. at 1974. If Plaintiff "ha[s] not nudged [its] claims across the line from conceivable to plausible, [its] complaint must be dismissed." Id.; see also Iqbal v. Hasty,490 F.3d 143, 157-58 (2d Cir. 2007) ("After careful consideration of the Court's opinion and the conflicting signals from it that we have identified, we believe the Court is not requiring a universal standard of heightened fact pleading, but is instead requiring a flexible 'plausibility standard,' which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible." (emphasis in original)).*fn3

A Rule 12(b)(6) motion to dismiss requires a court to "accept as true the factual allegations made in the complaint and draw all inferences in favor of the plaintiffs." Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir. 1998); see also Blimpie Int'l, Inc. v. Blimpie of the Keys, 371 F. Supp. 2d 469, 470-71 (S.D.N.Y. 2005). "'In adjudicating a Rule 12(b)(6) motion, a district court must confine its consideration 'to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken.'" Glidepath Holding B.V. v. Spherion Corp., No. 04-CV-9758, 2007 WL 2176072, at *10 (S.D.N.Y. July 26, 2007) (quoting Leonard F. v. Israel Disc. Bank of N.Y.,199 F.3d 99, 107 (2d Cir. 1999)).

3. Review of the Magistrate Judge's Report and Recommendation

A district court reviewing a report and recommendation addressing a dispositive motion "'may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.'" Donahue v. Global Home Loans & Fin., Inc., No. 05-CV-8362, 2007 WL 831816, at *1 (S.D.N.Y. Mar. 15, 2007) (quoting 28 U.S.C. § 636(b)(1)(C)). Under 28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72(b), parties may submit objections to the magistrate judge's report and recommendation. The objections must be "specific" and "written," and must be made "within 10 days after being served with a copy of the recommended disposition." Fed. R. Civ. P. 72(b)(2); see also 28 U.S.C. § 636(b)(1)(C).

Where a party submits timely objections to a report and recommendation, as Plaintiff has here, the district court reviews the parts of the report and recommendation to which the party objected under a de novo standard of review. See 28 U.S.C. ยง 636(b)(1)(C) ("A judge of the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made."); Fed. R. Civ. P. 72(b)(3) ("The district judge must determine de novo any part of the magistrate judge's disposition that has been properly objected to. The district judge may accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions."); see also Donahue, 2007 WL 831816, at *1. The ...

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