EXXON MOBIL v. SAUDI BASIC INDUSTRIES CORP

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Docket Number

No. 02-2130.

Attorney(S)

Gregory A. Castanias (Argued), William K. Shirey II, Jones Day, Washington, DC, Kenneth R. Adamo, Michael W. Vary, Leozino Agozzino, Jones Day, North Point, Cleveland, OH, for Appellant. Elizabeth J. Sher, Pitney, Hardin, Kipp Szuch, Morristown, NJ, James W. Quinn (Argued), David J. Lender, Weil, Gotshal Manges LLP, New York City, Andrew S. Pollis, David J. Michalski, Hahn, Loeser Parks, Cleveland, OH, K.C. Johnson, Exxon Mobil Corporation, Houston, for Appellees.

Judges

Thomas L. Ambro

Acts

Judiciary And Judicial Procedure — Supreme Court — Jurisdiction And Venue — State Courts; Certiorari

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Smart Summary

Factual and Procedural Background

In 1980, Saudi Basic Industries Corporation ("SABIC") and two ExxonMobil subsidiaries—Mobil Yanbu Petrochemical Company ("Yanbu") and Exxon Chemical Arabia, Inc. ("ECAI")—formed two joint ventures: Yanpet (between SABIC and Yanbu) and Kemya (between SABIC and ECAI). Decades later, disputes arose regarding royalties SABIC charged for sublicensing a polyethylene manufacturing method (the Unipol® process) to these joint ventures. In September 2000, SABIC sued Yanbu and ECAI in Delaware Superior Court seeking a declaratory judgment that the royalty charges complied with the joint venture agreements. Subsequently, ExxonMobil, Yanbu, and ECAI filed a countersuit in the U.S. District Court for the District of New Jersey seeking a contrary declaratory judgment that SABIC had overcharged the joint ventures.

In January 2002, Yanbu and ECAI answered SABIC’s Delaware state court complaint, asserting counterclaims identical to their federal claims. After a two-week trial in March 2003, a Delaware Superior Court jury returned a $416,880,764 verdict against SABIC in favor of ExxonMobil subsidiaries. SABIC appealed this verdict, with the appeal pending before the Delaware Supreme Court.

Prior to the state court trial, SABIC moved to dismiss the federal action on sovereign immunity grounds. The District Court denied this motion on April 3, 2002. SABIC appeals only the denial of the sovereign immunity motion.

Legal Issues Presented

Whether the District Court erred in denying SABIC’s motion to dismiss based on foreign sovereign immunity.
Whether federal subject matter jurisdiction over ExxonMobil subsidiaries’ claims is barred by the Rooker-Feldman doctrine because those claims were already decided in state court.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923)	Establishes the Rooker-Feldman doctrine barring lower federal courts from reviewing state court judgments.	Foundation for holding that federal courts lack jurisdiction to review claims already decided in state court.
District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983)	Clarifies the Rooker-Feldman doctrine’s scope regarding federal review of state court decisions.	Supports the bar on federal jurisdiction over claims that require overturning state court rulings.
Desi's Pizza, Inc. v. City of Wilkes-Barre, 321 F.3d 411 (3d Cir. 2003)	Explains the "actually litigated" and "inextricably intertwined" triggers for Rooker-Feldman application.	Used to determine that ExxonMobil’s federal claims were barred because they were identical to claims adjudicated in state court.
Parkview Assocs. P'ship v. City of Lebanon, 225 F.3d 321 (3d Cir. 2000)	Defines the narrow scope of Rooker-Feldman and the "inextricably intertwined" test.	Supports the court’s conclusion that ExxonMobil’s claims were barred under both prongs of the doctrine.
FOCUS v. Allegheny County Court of Common Pleas, 75 F.3d 834 (3d Cir. 1996)	Clarifies that lower state court final decisions trigger Rooker-Feldman and explains when federal relief would invalidate state court judgments.	Reinforces the bar on federal claims that would void or undermine state court decisions.
E.B. v. Verniero, 119 F.3d 1077 (3d Cir. 1997)	Provides an example of Rooker-Feldman barring federal claims that seek to overturn state court orders.	Illustrates the "paradigm situation" where federal jurisdiction is precluded due to prior state court adjudication.
In re Montgomery County, 215 F.3d 367 (3d Cir. 2000)	Defines the collateral order doctrine allowing interlocutory appeals of immunity denials.	Supports appellate jurisdiction over denial of SABIC’s sovereign immunity motion.
Nixon v. Fitzgerald, 457 U.S. 731 (1982)	Establishes immunity doctrines and exceptions to final order rule for interlocutory appeals.	Provides authority for appellate review of denial of immunity-based dismissal motions.
Nat'l R.R. Passenger Corp. v. Pa. Pub. Util. Comm'n, 342 F.3d 242 (3d Cir. 2003)	Holds that Rooker-Feldman does not bar claims by parties not involved in state court proceedings.	Distinguished to explain why ExxonMobil’s claims are barred due to privity with subsidiaries who were parties.
Marks v. Stinson, 19 F.3d 873 (3d Cir. 1994)	Similar holding on the limits of Rooker-Feldman barring claims by non-parties to state court cases.	Used to frame the privity principle applied to ExxonMobil and its subsidiaries.
Valenti v. Mitchell, 962 F.2d 288 (3d Cir. 1992)	Discusses the relationship between Rooker-Feldman and claim/issue preclusion among related parties.	Supports binding effect of state court decisions on parties in privity, such as subsidiaries.
Lubrizol Corp. v. Exxon Corp., 929 F.2d 960 (3d Cir. 1991)	Applies claim preclusion principles to bind related entities including subsidiaries.	Justifies applying state court judgment against ExxonMobil through its subsidiaries’ involvement.

Court's Reasoning and Analysis

The court first acknowledged its appellate jurisdiction over SABIC’s interlocutory appeal of the denial of sovereign immunity under the collateral order doctrine, which permits immediate appeal of immunity denials. However, the court then sua sponte raised the question of subject matter jurisdiction under the Rooker-Feldman doctrine, which prohibits lower federal courts from reviewing final state court judgments.

The court explained that the Rooker-Feldman doctrine applies when federal claims are either "actually litigated" in state court or "inextricably intertwined" with a state court adjudication. Here, ExxonMobil’s federal claims were identical to claims that the Delaware Superior Court had already resolved by final judgment. Although ExxonMobil argued that the federal claims were filed before the state court judgment and that ExxonMobil itself was not a party to the state court case, the court rejected these arguments. It clarified that the timing of filing does not shield claims from Rooker-Feldman if the state court judgment precedes any federal judgment on the same claims. Moreover, ExxonMobil’s close relationship and derivative interest with its subsidiaries, who were parties to the state court action, placed it in privity, binding it to the state court judgment.

The court emphasized that allowing ExxonMobil to maintain the federal action as an "insurance policy" to relitigate issues if the state court verdict is overturned would contravene the fundamental principle that state court decisions must be appealed through the state appellate system and ultimately the U.S. Supreme Court, not circumvented by federal suits. Consequently, the court held that the Rooker-Feldman doctrine bars federal jurisdiction over these claims, requiring dismissal.

Holding and Implications

The court VACATED the District Court’s denial of SABIC’s motion to dismiss based on sovereign immunity and REMANDED with instructions to dismiss the federal action for lack of subject matter jurisdiction under the Rooker-Feldman doctrine.

The direct effect is that ExxonMobil and its subsidiaries cannot pursue in federal court claims that have already been finally adjudicated by a state court. The decision enforces the jurisdictional bar preventing federal courts from acting as appellate tribunals over state court judgments. No new precedent beyond the application of the established Rooker-Feldman doctrine was created.

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EXXON MOBIL CORPORATION; Exxon Chemical Arabia, Inc.; Mobil Yanbu Petrochemical Company, Inc. v. SAUDI BASIC INDUSTRIES CORPORATION Appellant.

OPINION OF THE COURT

AMBRO, Circuit Judge.

Saudi Basic Industries Corporation ("SABIC") appeals from the District Court's order denying its motion to dismiss, based on sovereign immunity, the claims of two ExxonMobil subsidiaries, Mobil Yanbu Petrochemical Company ("Yanbu") and Exxon Chemical Arabia, Inc. ("ECAI"). We do not reach the foreign sovereign immunity question, however, because we determine that the Rooker-Feldman doctrine bars federal subject matter jurisdiction over the subsidiaries' claims, which have been already decided in state court.

I. Facts and Procedural Posture

In 1980, SABIC and the Exxon (now ExxonMobil) subsidiaries formed two joint venture entities. One, called Yanpet, was the joint venture between SABIC and Yanbu, and another, called Kemya, was the joint venture between SABIC and ECAI. Two decades later, the parties began to dispute the propriety of royalties SABIC had charged to the joint venture entities for the sublicense to a polyethylene manufacturing method called the Unipol(R) process. In September 2000 SABIC sued Yanbu and ECAI in the Delaware Superior Court seeking a declaratory judgment that these royalty charges did not violate the joint venture agreements with Yanbu and ECAI. Later that same month ExxonMobil, Yanbu, and ECAI countersued SABIC in the United States District Court for the District of New Jersey (Civil Action No. 00-3841), seeking the converse declaratory judgment — that SABIC had overcharged the joint venture entities for the sublicense in violation of the joint venture agreements.

In January 2002, Yanbu and ECAI filed an answer to SABIC's state court complaint, asserting as counterclaims the same claims they had filed in their federal court complaint. In March 2003, after a two-week trial in the Delaware Superior Court, the jury returned a $416,880,764 verdict against SABIC in favor of ExxonMobil. SABIC has appealed the verdict, which is currently pending in the Delaware Supreme Court.

Prior to the state court trial, SABIC moved to dismiss ExxonMobil's federal court action, asserting foreign sovereign immunity. The District Court denied the motion on April 3, 2002. Saudi Basic Indus. Corp. v. ExxonMobil Corp., 194 F.Supp.2d 378 (D.N.J. 2002). Though the order also addressed other issues in that action, SABIC appeals only from the sovereign immunity decision.

II. Jurisdiction

A. Appellate Jurisdiction

We generally do not have jurisdiction to review interlocutory decisions such as the denial of a motion to dismiss. Under the collateral order doctrine, however, we have recognized exceptions to this rule. One well-established exception is for orders denying motions to dismiss for reasons of immunity. See, e.g., In re Montgomery County, 215 F.3d at 373 (citing Nixon v. Fitzgerald, 457 U.S. 731, 102 S.Ct. 2690, 73 L.Ed.2d 349 (1982)). Thus, we have appellate jurisdiction over the District Court's denial of SABIC's motion to dismiss based on sovereign immunity.

The collateral order doctrine excepts a "narrow range" of interlocutory decisions from the general rule that only final orders are appealable. In re Montgomery County, 215 F.3d 367, 373 (3d Cir. 2000) ( citing Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 545-46, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949)). To be an appealable collateral order, it must "conclusively determine the disputed issue, the issue must be completely separate from the merits of the action, and the decision must be effectively unreviewable on appeal from a final judgment." Id. (citing Coopers Lybrand v. Livesay, 437 U.S. 463, 468, 98 S.Ct. 2454, 57 L.Ed.2d 351 (1978)).

B. Rooker-Feldman Doctrine

Determining that appellate jurisdiction is proper in a case does not end our jurisdictional inquiry. We have a "continuing obligation to sua sponte raise the issue of subject matter jurisdiction when it is in question." Desi's Pizza, Inc. v. City of Wilkes-Barre, 321 F.3d 411, 420 (3d Cir. 2003) (citing Bracken v. Matgouranis, 296 F.3d 160, 162 (3d Cir. 2002)). We focused at oral argument on whether federal subject matter jurisdiction over this case fails under the Rooker-Feldman doctrine because ExxonMobil's claims have already been litigated in state court. Aided by post-argument letter briefs submitted by the parties, we conclude the answer is yes.

The Rooker-Feldman doctrine, derived from two Supreme Court cases — Rooker v. Fidelity Trust Co., 263 U.S. 413, 44 S.Ct. 149, 68 L.Ed. 362 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 103 S.Ct. 1303, 75 L.Ed.2d 206 (1983) — prevents lower federal courts from "sit[ting] in direct review of the decisions of a state tribunal." Gulla v. North Strabane Twp., 146 F.3d 168, 171 (3d Cir. 1998). Because Congress has conferred jurisdiction to review a state court's decision only on the Supreme Court, see 28 U.S.C. § 1257, lower federal courts lack the power to decide claims in which "the relief requested . . . requires determining that the state court's decision is wrong or . . . void[ing] the state court's ruling." Desi's Pizza, 321 F.3d at 419 (quoting FOCUS v. Allegheny County Court of Common Pleas, 75 F.3d 834, 840 (3d Cir. 1996)). As we recently explained, "a claim is barred by Rooker-Feldman under two circumstances: first, if the claim was `actually litigated' in state court prior to the filing of the federal action or, second, if the claim is `inextricably intertwined with [the] state adjudication.'" Desi's Pizza, 321 F.3d at 419 (quoting Parkview Assocs. P'ship v. City of Lebanon, 225 F.3d 321, 325 (3d Cir. 2000)).

The state level decision need not be of its highest court. The Rooker-Feldman doctrine applies equally to final decisions of lower state courts. FOCUS, 75 F.3d at 840.

Here there is no dispute that ExxonMobil's claims are identical to the claims upon which the Delaware Superior Court reached a final judgment. Thus, though our Court takes a narrow view of the Rooker-Feldman doctrine, Parkview Assocs. P'ship, 225 F.3d at 326, litigating ExxonMobil's claims to final judgment in state court presents the "paradigm situation in which Rooker-Feldman precludes a federal district court from proceeding." E.B. v. Verniero, 119 F.3d 1077, 1090-91 (3d Cir. 1997) (describing a case in which the federal court plaintiff sought an injunction directing that a state court order not be carried out).

ExxonMobil argues that the "actually litigated" circumstance does not trigger Rooker-Feldman because the March 2003 state court judgment was not reached prior to ExxonMobil's filing of the federal action in August 2000. It cites to Desi's Pizza, in which we said Rooker-Feldman bars a claim "if the claim was `actually litigated' in state court prior to the filing of the federal action," 321 F.3d at 419. But we do not read this language as imposing a new requirement that, in order for the "actually litigated" trigger to apply, the plaintiff's federal claims must be filed after the state claims reach a final judgment. In deciding whether a claim was "actually litigated" in state court for Rooker-Feldman purposes, we have consistently looked to the substance of the state court's judgment compared to the plaintiff's claims in the federal action. See Parkview Assocs. P'ship, 225 F.3d at 335-36; Gulla, 146 F.3d at 173. Filing the latter before the state court judgment does not escape Rooker-Feldman's grasp. The only timing relevant is whether the state judgment precedes a federal judgment on the same claims. Desi's Pizza itself is illustrative because there the state court reached final judgment after the plaintiff filed claims in federal court. Yet we decided that the plaintiff's claims were not "actually litigated" because neither its state court pleadings nor the state court's judgment discussed or referenced the claims it filed in federal court. If in Desi's Pizza we had intended to adopt a new requirement that the state court must reach a final judgment prior to the filing of the federal action in order for the "actually litigated" trigger to apply, we had a full opportunity to do so. Furthermore, were we to find that the Rooker-Feldman "actually litigated" trigger did not apply to federal actions filed prior to the state court's final judgment, we would be encouraging parties to maintain federal actions as "insurance policies" while their state court claims were pending. This defeats an "elementary principle" underpinning the Rooker-Feldman doctrine — "that a party's recourse for an adverse decision in state court is an appeal to the appropriate state appellate court, and ultimately the Supreme Court under § 1257, not a separate action in federal court." Parkview Assocs. P'ship, 225 F.3d at 324.

ExxonMobil also argues that Rooker-Feldman should not apply in this case because it is not a party to the action in Delaware state court, in which only its subsidiaries, Yanbu and ECAI, are defendants. Indeed, we have consistently (and recently) held that Rooker-Feldman does not bar claims of plaintiffs who were not parties to the state court proceeding. See Nat'l R.R. Passenger Corp. v. Pa. Pub. Util. Comm'n, 342 F.3d 242, 257 (3d Cir. 2003); Marks v. Stinson, 19 F.3d 873, 886 n. 11 (3d Cir. 1994). But we have also noted that this limiting principle of the Rooker-Feldman doctrine "has a close affinity to the principles embodied in the legal concepts of claim and issue preclusion." Valenti v. Mitchell, 962 F.2d 288, 297 (3d Cir. 1992). Claims and issues decided against an entity bind also its parties in privity, including subsidiaries. Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 966 (3d Cir. 1991). Underscoring this common sense privity principle is the fact that ExxonMobil's interest in its federal claims is identical to its subsidiaries' interest in their state court claims, because its right to recover is derivative of its subsidiaries' right to recover. Indeed, both Yanbu and ECAI are co-plaintiffs with ExxonMobil in the federal action.

As ExxonMobil's federal claims were "actually litigated" in state court, we need not analyze whether, under the alternative prong of the Rooker-Feldman doctrine, they were "inextricably intertwined with a previous state court adjudication." Parkview Assocs. P'ship, 225 F.3d at 327. We simply note that our case presents an equally clear application of the "inextricably intertwined" circumstance, which exists when "federal relief can only be predicated upon a conviction that the state court was wrong," id. at 325, or when "the federal court must . . . take action that would render [the state court's] judgment ineffectual," FOCUS, 75 F.3d at 840. By its own admission, ExxonMobil seeks to maintain its federal action as an "insurance policy" in order to relitigate the overcharge issue if SABIC prevails in its efforts to overturn the state court verdict in favor of ExxonMobil. If that were to happen, ExxonMobil's federal action would squarely be seeking to invalidate a final judgment of the state court, the very situation contemplated by Rooker-Feldman's "inextricably intertwined" bar.

* * * * * *

Because ExxonMobil's federal claims were identical to the claims in which the Delaware Superior Court reached a final judgment, they are barred by the Rooker-Feldman doctrine. Even within our Court's narrow confines for Rooker-Feldman, this case is easily cabined. We cannot imagine a more classic invocation of the Rooker-Feldman jurisdictional bar than to preclude a party from maintaining a federal action as an "insurance policy" in case the state trial court decision in that party's favor is overturned by an appellate state court. We therefore vacate those aspects of the District Court's order addressing Civil Action No. 00-3841, the subject of this appeal, and remand with instructions to dismiss that action for lack of subject matter jurisdiction.