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Pricaspian Development Corp. v. Royal Dutch Shell

June 3, 2009

PRICASPIAN DEVELOPMENT CORPORATION : (TEXAS), PLAINTIFF,
v.
ROYAL DUTCH SHELL, PLC, DEFENDANT.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION & ORDER

Plaintiff Pricaspian Development Corporation ("Pricaspian") brings this declaratory judgment action for expected unjust enrichment against defendant Royal Dutch Shell, plc ("RDS"). Pricaspian alleges that RDS, in violation of an agreement-in-principle "Shell" had with Pricaspian, cut Pricaspian out of a deal for profits from oil exploration in an offshore oil field near northwestern Kazakhstan known as "Greater Kashagan." Defendant moves to dismiss this action pursuant to Fed. R. Civ. P. 12(b)(6), arguing principally that Pricaspian's claims are barred by the doctrine of claim preclusion (also referred to as the doctrine of res judicata). For the following reasons, defendant's motion is granted.

BACKGROUND

The following facts are taken from the complaint in this action, except where noted, and are presumed to be true for the purposes of this motion. Pricaspian is a Texas corporation with its principal place of business in Colorado. RDS was incorporated in 2002, and given the name RDS in 2004. See RDS Certificate of Good Standing.*fn1 RDS operates "a vast vertically integrated enterprise to explore, develop, produce, refine, market and transport," inter alia, oil and natural gas.

Pricaspian's predecessor in interest was Jack J. Grynberg and affiliated corporations. In 1989 and the early 1990s, Grynberg developed a close personal relationship with political leaders in Kazakhstan. As a result of this relationship, Grynberg was given access to certain "top-secret Soviet geophysical data in Moscow," including data on the Caspian Sea.

On or about July 17, 1990, Grynberg told "Shell" that the Republic of Kazakhstan was interested in partnering with a group of western oil companies to be organized by Grynberg, and that a large area in Kazakhstan known as the "Area of Mutual Interest" ("AMI") contained large deposits of oil and natural gas. Specifically, two "Shell-affiliated" representatives went to Grynberg's Colorado offices and were "presented with confidential maps, geologic, seismic, and economic data that persuaded them, on behalf of Shell, to enter into an agreement in principle with Grynberg" related to the development of oil and natural gas in the AMI. As part of the agreement between Shell and Grynberg, in exchange for access to Grynberg's confidential data, Grynberg was to have a right to a share of the profits from oil and natural gas production in accordance with any subsequent agreement made with the government of Kazakhstan. Grynberg has since assigned 99% of this interest to Pricaspian. Grynberg cites industry press to estimate that the oil field within the AMI known as Greater Kashagan will become profitable in 2014.

RDS, however, went around Grynberg and directly to Kazakhstan officials, cutting Grynberg "out of the deal." On October 31, 2008, a group of Western oil companies, including RDS, signed an agreement (the "October 2008 Agreement") concerning the development of Greater Kashagan with the Kazakhstan government. This October 2008 Agreement puts RDS's interest at 16.81%.

Pricaspian claims in this action, a declaratory judgment action for expected unjust enrichment, that it is entitled to 20% of RDS's net profits received pursuant to the October 2008 Agreement. Pricaspian also claims, seeking a declaratory judgment for expected unjust enrichment, that it is entitled, at the time any such profits are realized, to 20% of RDS's net profits related to the Greater Kashagan oil field.

The motion to dismiss is premised on a statute of limitations summary judgment two Shell entities won in Colorado in 2006. In July 2003, Grynberg, Grynberg Production Corporation and its successors, and Grynberg Petroleum Company and its successors (collectively, "Grynberg"), filed suit in the United States District Court for the District of Colorado against Royal Dutch Petroleum Company ("Royal Dutch") and Shell Transport and Trading Company ("Shell Transport"). The original complaint referred to these two defendants collectively as "Shell." In the course of the litigation before the District Court of Colorado, Grynberg added three Shell subsidiaries as defendants. Grynberg's Second Amended Complaint (the "Colorado Complaint") therefore named five defendants: Royal Dutch and Shell Transport (collectively, the "Shell Parent Entities") and three subsidiaries (the "Shell subsidiaries").*fn2 The Colorado Complaint noted that these five defendants were "sometimes referred to altogether as 'Shell.'" The Colorado Complaint alleged that Royal Dutch and Shell Transport jointly controlled approximately 1370 subsidiaries worldwide. It further alleged that the three subsidiary defendants were "wholly owned subsidiaries of Royal Dutch and Shell Transport, and all three are completely dominated and controlled by Royal Dutch and Shell Transport."

In the Colorado Complaint, the plaintiffs claimed against "Shell," which they specifically noted included "all five corporate defendants," for, inter alia, unjust enrichment under Colorado law. The complaint alleged that "Shell appropriated to itself the value of Grynberg's work and confidential information" that led to an oil and natural gas discovery in the Caspian Sea, offshore of Kazakhstan. Specifically, the complaint alleged that as a result of wrongly appropriating Grynberg's confidential data, Shell had acquired "an oil and natural gas interest" in Kazakhstan, known as, inter alia, the Kashagan, as well as other prospects in the AMI.

The Colorado Complaint also recounted how, on or about July 17, 1990, Grynberg presented two representatives of Shell with confidential maps and other data that persuaded them, on behalf of Shell, to enter into an agreement in principle with Grynberg "related to the development of a profitable and potentially gigantic oil and natural gas industry in the AMI in Kazakhstan." The complaint also explained how Shell, after using Grynberg's information, then went around Grynberg to Kazakhstan directly, "cutting Grynberg out of the entire deal."

Specifically, Grynberg alleged that on November 18, 1997, Shell and other oil companies struck a deal with the Republic of Kazakhstan (the "November 1997 Agreement"), a copy of which was attached to Grynberg's complaint, to "take oil and natural gas production from the [AMI], and to therefore profit immensely from Grynberg's efforts on their behalf." The complaint alleged that under Grynberg's agreement with Shell and other oil companies, Grynberg was not entitled to payment until the production of the oil and gas became profitable, and the "earliest time that this could have occurred in the Kashagan field, Kazakhstan, was when Shell and others declared that field 'commercial' in 2002." The complaint alleged that Shell's actions in November 1997 violated the 1990 agreement-in-principle, and that Shell had been unjustly enriched "by acquisition of an asset valued in excess of ten (10) billion dollars that was discovered and delivered to it by Grynberg. To date, Shell has neither paid nor informed Grynberg that it intends to pay for his vital efforts in securing Shell's profitable asset in Kazakhstan."

In the Colorado Complaint, Grynberg alleged that as part of the agreement in principle, he "was to receive a 20% carried working interest in the AMI." He claimed against Shell for unjust enrichment, alleging that Shell had "used a benefit provided by Grynberg in an unauthorized and unfair manner" by using Grynberg's confidential information, and had "retained that benefit conferred on it without paying fair compensation for it." In calculating the value of Shell's interest in the AMI, Grynberg based his computations on, inter alia, the number of barrels of oil estimated to be in the Kashagan field, and Grynberg arrived at an estimate of ten billion dollars for "the gross value of Shell's interest in the AMI including all discoveries." (Emphasis supplied). Grynberg's complaint sought 20% of "the fair market value of Shell's interest." Grynberg noted that he had no knowledge of the split of profits between the five defendants named in the complaint "derived from Shell's wrongful conduct," because such information was controlled by the defendants, and that therefore the causes of action were asserted against "'Shell' for convenience." (Emphasis supplied).

In August 2004, the district court dismissed the Shell Parent Entities and one of the subsidiaries for lack of personal jurisdiction (the "August 2004 Decision"). As to the Shell Parent Entities, they had argued that they were "three levels removed from the corporate entities that operate in Colorado," and the court found that the subsidiaries in Colorado had independent operation and management from the Shell Parent Entities. The Court also found that the plaintiffs had not met with "well-pled allegations or competent evidence the assertion" that the two representatives that were allegedly working for Shell in fact acted on behalf of entities other than the Shell Parent Entities.

In June 2006, the district court ruled on cross-motions for summary judgment, granting the two remaining Shell subsidiaries' motions for summary judgment on statute of limitations grounds. Grynberg v. Shell Exploration B.V., 433 F. Supp. 2d 1229, 1230 (D. Colo. 2006) ("June 2006 Decision"). The court, sitting in diversity and applying Colorado law, found that "[i]t is beyond dispute that the claims accrued, and the three-year limitations period commenced, when Mr. Grynberg and the plaintiffs knew or had reason to know of the existence and cause of the injury which is the basis of their action." Id. at 1233. The court framed the inquiry as follows:

If, as the defendants argue, the plaintiffs were injured when [one of the subsidiaries] used Mr. Grynberg's purportedly confidential information to solicit Kazak sanction, then the claims here accrued on June 9, 1993, or at the latest on December 3, 1993, when reports of a consortium assembled without Mr. Grynberg's involvement circulated in the international press. If the injury occurred when the oil companies agreed with Kazakhstan to exploit the Kashagan Field, then the claims accrued when Mr. Grynberg through the exercise of reasonable diligence should have discovered the existence of the [November 1997 Agreement]. If, as the plaintiffs argue, the injury was inchoate until the oil partners declared the Kashagan Field commercial on June 28, 2002, then the claims are timely.

Id. Reasoning that defendants received a benefit when the oil companies agreed to exploit the Kashagan field and create shares of rights in the November 1997 Agreement, id. at 1234-35, and that Grynberg had admitted to knowing of that agreement in the 1990s, id. at 1235, the court found that the unjust enrichment claims had accrued more than three years before the filing of the 2003 action.

The Tenth Circuit affirmed this conclusion in an August 2008 opinion that addressed Grynberg's claims against Shell and another oil company, Total S.A. Grynberg v. Total, S.A., 538 F.3d 1336 (10th Cir. 2008) ("Tenth Circuit Decision," collectively with the June 2006 Decision, the "Statute of Limitations Decision"), cert. denied, 129 S.Ct. 1585 (2009). The court, in addressing the unjust enrichment claim, first noted that "Grynberg's complaints can only be read as claiming an entitlement to a share of the defendants' benefits throughout the entire AMI, not just the Kashagan Field. . . . Thus, the unjustly retained interest need only be somewhere within the AMI; it is not restricted to the Kashagan Field." Id. at 1352 (emphasis supplied). The court then proceeded to reject Grynberg's argument "that the defendants would not ...


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