Gunvor SA v. Arman Kayablian

948 F.3d 214

• Court: Court of Appeals for the Fourth Circuit
• Decided: January 22, 2020
• Docket: 18-2366
• Status: Published

Opinion

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.

“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.