Gunvor SA v. Arman Kayablian ( 2020 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 18-2366
GUNVOR SA,
Plaintiff - Appellant,
v.
ARMAN KAYABLIAN; LAWRENCE KAYABLIAN; AMIRA GROUP
COMPANY, LLC,
Defendants - Appellees.
Appeal from the United States District Court for the Eastern District of Virginia, at
Alexandria. Leonie M. Brinkema, District Judge. (1:18-cv-00934-LMB-MSN)
Argued: December 10, 2019 Decided: January 22, 2020
Before MOTZ and KEENAN, Circuit Judges, and TRAXLER, Senior Circuit Judge.
Affirmed by published opinion. Judge Motz wrote the opinion, in which Judge Keenan
and Senior Judge Traxler joined.
ARGUED: William Robert Bennett, III, BLANK ROME LLP, New York, New York, for
Appellant. William T. O’Brien, DENTONS US LLP, Washington, D.C., for Appellees.
ON BRIEF: Lauren B. Wilgus, New York, New York, Kierstan L. Carlson, BLANK
ROME LLP, Washington, D.C., for Appellant. John W. Lomas, Jr., Daniel G. Morris,
DENTONS US LLP, Washington, D.C., for Appellees.
DIANA GRIBBON MOTZ, Circuit Judge:
Gunvor SA, a Swiss corporate business entity, sued United States citizens Arman
and Lawrence Kayablian and the Amira Group Company, LLC, in the Eastern District of
Virginia. Invoking the court’s alienage diversity jurisdiction, Gunvor asserted various
state-law claims. The defendants moved to dismiss pursuant to Federal Rule of Civil
Procedure 12(b)(7) on the ground that Gunvor had failed to join Nemsss Petroleum Ltd., a
British Virgin Islands corporation, which the defendants asserted was necessary and
indispensable to the action. The district court agreed and, because joining Nemsss, another
foreign entity, as a defendant would have destroyed complete diversity and so subject
matter jurisdiction, dismissed the complaint without prejudice. Gunvor now appeals that
order. For the reasons that follow, we affirm.
I.
A.
We set forth the facts as alleged in Gunvor’s verified complaint and in the contracts
at issue here. Gunvor is a global commodities firm that trades crude oil and refined oil
products. The Kayablians are officers of Amira and officers and directors of Nemsss, a
subsidiary of Amira.
In spring 2016, the Kayablians approached Gunvor about a possible business
relationship involving sales of Iraqi fuel oil. The Kayablians had access to Iraqi fuel oil
through Gulf Energy for Petroleum Services, an Iraqi subsidiary of Nemsss. As an Iraqi
company, Gulf Energy was able to purchase Iraqi fuel oil at the below-market domestic
2
price from the Iraqi Oil Tankers Corporation, a state-owned Iraqi company. But the
Kayablians lacked the capacity and expertise to sell the fuel oil on the international market,
where it would command a higher price. The Kayablians sought out Gunvor as a financing
partner to provide upfront capital and logistical support to purchase the fuel oil in volume
and resell it on the international market. The proposal envisioned both parties profiting
from the transactions.
The parties discussed how best to structure the deal. Gunvor alleges in its complaint
that the parties considered forming a joint venture, but ultimately decided to use “a series
of one-off contracts that mimicked the structure of a [joint venture] without the formality.”
The contracts that enabled the deal included: (1) a contract for the Iraqi Oil Tankers Corp.
to sell fuel to Gulf Energy; (2) a contract for Gulf Energy to sell the fuel to Nemsss; and
(3) four contracts (the “Fuel Oil Contracts”) for Nemsss to sell the fuel to Gunvor. In this
way, the fuel would pass from the Iraqi Oil Tankers Corp., which would convey it at the
lower Iraqi domestic price, through Gulf Energy and Nemsss to Gunvor, which would sell
it to third parties at the higher international market price.
The Fuel Oil Contracts are especially relevant here. Each included an integration
clause:
This contract contains the entire agreement between the parties and
supersedes all previous negotiations, representations, agreements or
commitments with regard to its subject matter.
Each party acknowledges that in entering into this contract it has not relied
on any representations, warranties, statements or undertakings except those
which are expressly set out herein.
3
Each Fuel Oil Contract also included a dispute resolution clause:
This contract shall be governed by and construed in accordance with English
law. Any controversy, dispute or claim whatsoever arising out of or in
connection with this contract or the breach thereof shall be referred to
arbitration in London . . . . For the avoidance of doubt this will not prevent
either party from taking proceedings in any other jurisdiction to obtain
security or ancillary relief or to enforce any order or award.
Gunvor drafted the Fuel Oil Contracts, including both the integration and dispute resolution
clauses.
The Fuel Oil Contracts required Gunvor to provide the upfront capital for the
arrangement in the form of “prepayments,” in amounts ranging from $3 million to $12
million. Gunvor was to remit the prepayments to Nemsss, which would remit the funds to
Gulf Energy, which would in turn remit them to the Iraqi Oil Tankers Corp. in order to
procure the fuel. Gunvor alleges in its complaint that these prepayments were to function
as “credit [that] would be applied against the sale price of the fuel charged to Gunvor.”
Gunvor made its contractually obligated payments to Nemsss, in total remitting
nearly $125 million. Gunvor alleges, however, that it received only about $101 million
worth of fuel oil. Increasingly concerned, Gunvor asked the Kayablians to account for the
missing $24 million, to no avail. When Gunvor then asked the Kayablians to refund the
disputed funds, they refused.
B.
Maintaining that the Kayablians and Amira had defrauded it, Gunvor brought this
action in federal court in Virginia. Gunvor invoked the court’s diversity jurisdiction for
suits between citizens of a U.S. state and a citizen of a foreign state. Gunvor asserted state-
4
law claims for fraud, fraudulent inducement, conversion, unjust enrichment, negligent
misrepresentation, and civil conspiracy. The complaint identified Nemsss and Gulf Energy
as nonparties and sought to impose alter ego liability on the defendants for these
nonparties’ acts.
The Kayablians and Amira moved to dismiss the suit for nonjoinder of a necessary
and indispensable party — Nemsss — that, as another foreign entity, would destroy
complete diversity. In the alternative, they moved to compel arbitration.
The district court granted the motion to dismiss. In an oral ruling, the court held
“that Nemsss . . . would be a necessary and indispensable party,” notwithstanding Gunvor’s
“artful pleading . . . to try to avoid that reality.” The court reasoned that the “core” of the
parties’ arrangement was the “agreement . . . for Gunvor to purchase quantities of oil from
Iraq,” which Gunvor was to do “through Nemsss.” The district court found it “significant”
that the Fuel Oil Contracts included “a complete integration clause, which contains very
broad language indicating that any and all prior understandings or agreements, etc., are
subsumed or integrated into these individual contracts.” The court noted that these
contracts “are between Gunvor and Nemsss, not the individuals who are named as
defendants.” Because joining Nemsss, a foreign corporation, would “destroy the diversity
jurisdiction,” the district court dismissed the complaint without prejudice. 1
1
Because Gunvor could not cure the defect in its complaint without destroying
jurisdiction, we may consider its appeal even though the dismissal was without prejudice.
See Domino Sugar Corp. v. Sugar Workers Local Union 392, 10 F.3d 1064, 1066–67 (4th
Cir. 1993); see also Teamsters Local Union No. 171 v. Keal Driveaway Co., 173 F.3d 915,
916 (4th Cir. 1999).
5
In addition, the district court stated “for the record that if I had jurisdiction, I would
have granted the motion to compel arbitration.” The court continued, “[I]t’s crystal clear
the parties’ contemplation was that English law would apply, that arbitration of any
disputes in any respect related to these oil contracts would be governed by English law and
would be resolved in arbitration in London.”
Gunvor timely appealed.
II.
When adjudicating a motion under Federal Rule of Civil Procedure 19, a district
court asks first whether the nonjoined party is necessary under Rule 19(a) and then whether
the party is indispensable under Rule 19(b). See Nat’l Union Fire Ins. Co. v. Rite Aid of
S.C., Inc., 210 F.3d 246, 249 (4th Cir. 2000). If the nonjoined party is necessary and
indispensable to the action, but joinder would destroy subject matter jurisdiction, the court
must dismiss the action. See Owens-Illinois, Inc. v. Meade, 186 F.3d 435, 440 (4th Cir.
1999). Dismissal, though “a drastic remedy that should be employed only sparingly,” is
“required” if the nonjoined party “is both necessary and indispensable.” Home Buyers
Warranty Corp. v. Hanna, 750 F.3d 427, 433 (4th Cir. 2014) (alteration and internal
quotation marks omitted). That determination “must be made pragmatically, in the context
of the ‘substance’ of each case, rather than by procedural formula.” Provident Tradesmens
Bank & Tr. Co. v. Patterson, 390 U.S. 102, 119 n.16 (1968).
We review a district court’s Rule 19 dismissal for abuse of discretion, reviewing the
underlying findings of fact for clear error. Nat’l Union, 210 F.3d at 250.
6
A.
This case hinges on a factual finding by the district court. The court found that the
parties’ “core agreement was for Gunvor to purchase quantities of oil from Iraq,” which
Gunvor was to do “through Nemsss.”
In its appellate briefs, Gunvor disputes this characterization. Gunvor’s briefing
instead describes its agreement as a broad joint venture with the Kayablians and Amira,
with Nemsss as one small cog in a much bigger machine. Gunvor claims that “the common
purpose was for the parties to the [joint venture] — the Kayablians, Amira, and Gunvor —
to share the profits from the sale of Iraqi fuel oil and the losses incurred to transport and
ship the oil.” Opening Br. at 16. Gunvor further contends in its briefs that the Fuel Oil
Contracts between Gunvor and Nemsss “were only four of many contracts executed in
furtherance of the [joint venture],” alongside other contracts between the Iraqi Oil Tankers
Corp. and Gulf Energy, between Gulf Energy and Nemsss, and between Gunvor and its
shipping charter parties. Id. at 17–18.
But Gunvor’s briefs on appeal lie at odds with its complaint. Gunvor’s opening
brief, for example, describes its fuel oil arrangement as involving a fourteen-step plan,
eleven steps of which involve Amira “direct[ing]” its subsidiaries to take various actions.
Id. at 5–6. Gunvor’s complaint, however, paints a different picture. The complaint alleges
that by “the terms of the proposed joint venture[,] (1) Gunvor would remit the prepayment
funds to Nemsss; (2) Nemsss would remit the prepayment funds to [Gulf Energy]; and (3)
[Gulf Energy] would deposit the prepayment funds in full into [the Iraqi Oil Tanker
Corp.]’s bank account in order to lift fuel from the Iraqi refinery.” Pursuant to this
7
agreement, “Nemsss would make all arrangements and incur all expenses on the shore-
side . . . and Gunvor would make all shipping arrangements and incur all the shipping-
related expenses.” “Nemsss and Gunvor,” the complaint continues, “would then share their
expenses and their income from their respective sales of the fuel oil on a 50:50 basis.”
Thus, pursuant to the allegations in the complaint, the Fuel Oil Contracts were
indeed the core of the parties’ agreement, as the district court found. Nemsss, pursuant to
the Fuel Oil Contracts, acted as the middleman, enabling the flow of money from Gunvor
to the Iraqi-based companies and facilitating the flow of fuel oil from the refinery back to
Gunvor in exchange. Even construing the agreement as a broader joint venture, Nemsss
was its keystone.
The remainder of Gunvor’s complaint also comports with this account. The
complaint articulates Gunvor’s fundamental grievance: that it made the payments required
by the Fuel Oil Contracts but did not receive the benefit of its bargain. The sole parties to
those contracts were Gunvor and Nemsss. Despite Gunvor’s current efforts to reframe the
agreement as a joint venture, Gunvor stated in its complaint that it declined to form a joint
venture and instead freely chose to enter “a series of one-off contracts.” And the complaint
lays bare that the Fuel Oil Contracts and Nemsss were the linchpin of that arrangement.
For instance, the complaint describes in its first sentence Gunvor’s intent “to recover
damages suffered as a result of Defendants’ fraudulent conduct in connection with
purported fuel oil contracts”; notes that the Kayablians’ initial proposal sought investments
in Nemsss; and lists disputed payments Gunvor made, all pursuant to the Fuel Oil
Contracts. Given that Gunvor peppered its complaint with claims against Nemsss,
8
Gunvor’s attempt in its appellate briefs to downplay Nemsss’s role in the scheme strains
credulity.
In short, Gunvor’s own complaint places Nemsss at the heart of this case, and the
district court’s factual findings follow inexorably from that account. Taking Gunvor at its
word in its complaint, its present about-face notwithstanding, we find no error (let alone
clear error) in the district court’s factual findings and proceed to the Rule 19 inquiry.
B.
“The first question under Rule 19(a) is whether a party is necessary to a proceeding
because of its relationship to the matter under consideration.” Home Buyers, 750 F.3d at
433 (internal quotation marks omitted). “A party might be necessary under either Rule
19(a)(1)(A) or (B).” Id. at 434. In this case, we look to the latter. Nemsss is necessary if
it “claims an interest relating to the subject of the action,” Fed R. Civ. P. 19(a)(1)(B), and
adjudicating the matter in Nemsss’s absence could either “as a practical matter impair or
impede [its] ability to protect the interest,” id. 19(a)(1)(B)(i), or “leave an existing party
subject to a substantial risk of incurring double, multiple, or otherwise inconsistent
obligations because of the interest,” id. 19(a)(1)(B)(ii).
Nemsss claims an interest in the Fuel Oil Contracts, which the district court
correctly found to be the “core” of the parties’ agreement and dispute, as explained above.
Though a nonparty may formally claim an interest in an action, a “court with proper
jurisdiction may also consider sua sponte the absence of a required person and dismiss for
failure to join.” Republic of Philippines v. Pimentel, 553 U.S. 851, 861 (2008). To the
extent that Rule 19(a) requires any affirmative action from the nonjoined party at issue, the
9
declaration submitted by Lawrence Kayablian, Nemsss’s chief executive officer, was
sufficient for Nemss to claim an interest. That affidavit described Nemsss’s agreements
and relationship with Gunvor and emphasized that “[a]t no time did Nemsss Petroleum
waive its right to arbitrate, which right arises from the [Fuel Oil C]ontracts.” Nemsss
asserted an interest in the enforcement of the Fuel Oil Contracts, thus satisfying Rule
19(a)(1)(B)’s first requirement.
Turning to the second requirement — found in Rule 19(a)(1)(B)(i) — litigating this
action in Nemsss’s absence could certainly impair its interest in the Fuel Oil Contracts.
Gunvor now claims that “the damages and rights at issue here relate exclusively to the
relationship between the Kayablians, Amira, and Gunvor” and that it does not seek to attack
the Fuel Oil Contracts. Opening Br. at 24. Once again, Gunvor sings a different tune now
than it did in its complaint. Gunvor’s complaint alleges that the Kayablians owe it “the
missing prepayment funds” — that is, the difference between the payments Gunvor made
and the value of the fuel oil it received. Gunvor made these payments to Nemsss, pursuant
to the Fuel Oil Contracts, under which Nemsss was to supply Gunvor with the volume of
fuel in question.
Behind the smoke and mirrors of Gunvor’s “artful pleading,” as the district court
put it, Gunvor signed contracts with Nemsss and now seeks damages from the Kayablians
and Amira for Nemsss’s alleged failure to perform under those contracts. See F&M
Distribs., Inc. v. Am. Hardware Supply Co., 129 F.R.D. 494, 498 (W.D. Pa. 1990).
Litigating this dispute would require the court to adjudicate Nemsss’s rights and
obligations under the Fuel Oil Contracts, and the outcome would turn on Nemsss’s conduct
10
pursuant to them. Consequently, “fairness dictates” that Nemsss “be given the opportunity
to protect its separate and distinct interest as a party.” Nat’l Union, 210 F.3d at 251.
Nemsss is therefore necessary under Rule 19(a)(1)(B)(i).
Aside from the substance of the inquiry, Gunvor protests that the district court failed
to expressly evaluate the Rule 19(a) factors. We have seen no authority suggesting that
such explicit and detailed consideration is required. 2 A Rule 19 dismissal requires
explanation, but demanding a talismanic recitation from the district court would run afoul
of the “pragmatic analysis” Rule 19 requires. Provident Tradesmens, 390 U.S. at 119 n.16.
The district court did not abuse its discretion in deeming Nemsss a necessary party
under Rule 19(a).
C.
“[I]f the party is necessary but joining it to the action would destroy complete
diversity, the court must decide under Rule 19(b) whether the proceeding can continue in
that party’s absence.” Home Buyers, 750 F.3d at 433 (internal quotation marks omitted).
Because Nemsss is a necessary party to the action and, as a foreign corporation, its joinder
would destroy the complete diversity necessary for alienage jurisdiction, see Slavchev v.
Royal Caribbean Cruises, Ltd., 559 F.3d 251, 254 (4th Cir. 2009), we ask whether Nemsss
2
The only case Gunvor cites in support of its contrary view, In re Lloyd’s Register
N. Am., Inc., 780 F.3d 283 (5th Cir. 2015), is clearly inapposite. There, the court denied a
defendant’s motion to dismiss for forum non conveniens without offering any rationale.
See id. at 288. Here, the district court addressed a very different question and offered
concise but sound reasoning for rejecting Gunvor’s argument: the Fuel Oil Contracts were
the “core agreement” at issue in the dispute, and only Gunvor and Nemsss were parties to
those contracts.
11
is an indispensable party under Rule 19(b). “At the outset, we note that precedent supports
the proposition that a contracting party is the paradigm of an indispensable party.” Nat’l
Union, 210 F.3d at 252 (internal quotation marks omitted). Keeping that in mind, we
consider, “in equity and good conscience,” the four factors set forth in Rule 19(b). The
“analysis is not mechanical; rather it is conducted in light of the equities at the particular
case at bar.” Schlumberger Indus., Inc., v. Nat’l Sur. Corp., 36 F.3d 1274, 1287 (4th Cir.
1994).
The first factor, which concerns “the extent to which a judgment rendered in the
person’s absence might prejudice that person or the existing parties,” Fed. R. Civ. P.
19(b)(1), “speaks to many of the same concerns addressed by the necessity analysis under
Rule 19(a)(1)(B),” Home Buyers, 750 F.3d at 435. For the reasons discussed above, an
adverse judgment rendered in Nemsss’s absence would surely prejudice Nemsss.
The second factor addresses “the extent to which any prejudice could be lessened
or avoided by” “protective provisions in the judgment,” “shaping the relief,” or “other
measures.” Fed. R. Civ. P. 19(b)(2). Gunvor contends that the district court “certainly
could structure any judgment” to avoid prejudice to Nemsss. Opening Br. at 28. But
Gunvor offers no support for this proposition or explanation of just how the court could
structure a judgment, and we do not see how the court could grant the judgment Gunvor
requests without prejudicing Nemsss.
The third factor asks “whether a judgment rendered in the person’s absence would
be adequate.” Fed R. Civ. P. 19(b)(3). This factor “focuses on the interest of the courts
and the public in complete, consistent, and efficient settlement of controversies.” Home
12
Buyers, 750 F.3d at 436 (internal quotation marks omitted). Given the allegations against
Nemsss in Gunvor’s complaint, not joining Nemsss here could lead to parallel or
subsequent litigation or indemnification actions, all of which could produce incomplete,
inconsistent, and inefficient settlement of this dispute.
The fourth and final factor looks to “whether the plaintiff would have an adequate
remedy if the action were dismissed for nonjoinder.” Fed. R. Civ. P. 19(b)(4). Gunvor has
an adequate remedy in the absence of federal litigation: Gunvor is free to seek relief in
state court, as Gunvor’s counsel admitted at oral argument. See Home Buyers, 750 F.3d at
436; Schlumberger, 36 F.3d at 1288.
In sum, all four factors support the district court’s determination. The court
therefore did not abuse its discretion in concluding that Nemsss is an indispensable party
and accordingly did not err in dismissing the complaint.
III.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
13