Al-Qarqani v. ARAB American Oil Company
Filing
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MEMORANDUM OPINION AND ORDER GRANTING 16 MOTION to Dismiss, DENYING 26 MOTION for Sanctions, DENYING AS MOOT 43 MOTION in limine. Attorney Robert Ellison Meadows terminated, Aramco Services Company terminated.(Signed by Judge Gray H Miller) Parties notified.(rkonieczny, 4)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
WALEED BIN KHALID ABU AL-WALEED
AL-QARQANI, et. al.,
Petitioners,
v.
ARABIAN AMERICAN OIL COMPANY AND
ARAMCO SERVICES COMPANY,
Respondents.
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CIVIL ACTION H-18-1807
MEMORANDUM OPINION AND ORDER
Pending before this court is respondent Aramco Services Company’s (“ASC”) motion to
dismiss. Dkt. 16 Petitioners responded. Dkt. 28. ASC replied. Dkt. 32. Having considered the
motion, response, reply, and applicable law, the court is of the opinion that the motion to dismiss
should be GRANTED.
I. BACKGROUND
In 1933, the Saudi Arabian government and Standard Oil Company of California (“SoCal”),
now Chevron, signed a Concession Agreement (“Concession Agreement”). Dkt. 9 at 5. The
Concession Agreement gave SoCal surface rights to land in Saudi Arabia to search for oil. Id. at 6.
Arabian American Oil Company (“Aramco”) was organized during this time as a subsidiary of
SoCal. Dkt. 28 at 11. ASC, once known as Aramco Realty Company, was organized in 1950 and
was a subsidiary of Aramco, which was a subsidiary of SoCal. Dkt. 28 at 10; Dkt. 29-4; Dkt. 29-3.
By 1988, the Saudi government had bought all of Aramco’s assets and established the Saudi
Arabian Oil Company (“Saudi Aramco”). Dkt. 9 at 6; Dkt. 28 at 11. Two years later, in 1990,
Aramco dissolved. Dkt. 16-4; Dkt. 16-3 (Horton Declaration).
Petitioners are the heirs, beneficiaries and titleholders of the lands that were subject to the
Concession Agreement. Dkt. 9 at 4. In June 2015, Petitioners obtained an arbitral award against
Chevron entities, which included Chevron U.S.A. and Chevron Saudi Arabia, for failure to
compensate Petitioners for the use of the land subject to the Concession Agreement. Dkt. 9-2 at 6.
The arbitral award also purported to bind Aramco, which at that time had already dissolved. Id.
Petitioners brought the present suit seeking to confirm the arbitral award against ASC. Id. at 7.
Petitioners allege that ASC is a subsidiary of Aramco. Id. at 2. ASC has moved to dismiss the
enforcement of this arbitral award under FRCP 12(b)(1) and FRCP 12(b)(6) because it was not a
party to the arbitration agreement. Dkt. 16.
II. STANDARD OF REVIEW
A.
Lack of Subject Matter Jurisdiction
Rule 12(b)(1) allows a party to seek dismissal of an action for lack of subject matter
jurisdiction. Fed. R. Civ. P. 12(b)(1). Federal courts “have original jurisdiction of all civil actions
arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331 (2013).
Federal-question jurisdiction “exists only in those cases in which a well-pleaded complaint
establishes either that federal law creates the cause of action or that the plaintiff's right to relief
necessarily depends on resolution of a substantial question of federal law.” Willis of Tex., Inc. v.
Stevenson, No. H-09-cv-0404, 2009 WL 7809247, at *4 (S.D. Tex. May 26, 2009) (Ellison, J.).
“In determining whether the court has subject matter jurisdiction, [it] must accept as true the
allegations set forth in the complaint.” Crane v. Johnson, 783 F.3d 244, 250–51 (5th Cir. 2015).
“A trial court may find that subject matter jurisdiction is lacking based on ‘(1) the complaint alone;
(2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint
supplemented by undisputed facts plus the court’s resolution of disputed facts.’” Wolcott v. Sebelius,
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635 F.3d 757, 762 (5th Cir. 2011) (quoting Barrera-Montenegro v. United States, 74 F.3d 657, 659
(5th Cir. 1996)).
B.
Failure to State a Claim
Rule 8(a)(2) requires that the pleading contain “a short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A party against whom claims
are asserted may move to dismiss those claims when the nonmovant has failed “to state a claim upon
which relief can be granted.” Fed. R. Civ. P. 12(b)(6).
“To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead ‘enough facts to state
a claim to relief that is plausible on its face.’” In re Katrina Canal Breaches Litig., 495 F.3d 191,
205 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955 (2007)).
“Factual allegations must be enough to raise a right to relief above the speculative level on the
assumption that all the allegations in the complaint are true (even if doubtful in fact).” Twombly,
550 U.S. at 555 (citations omitted). While the allegations need not be overly detailed, a plaintiff’s
pleading must provide the grounds for his entitlement to relief. Id. That “requires more than labels
and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id.; see
also Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S. Ct. 1937 (2009). “[C]onclusory allegations or legal
conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss.”
Fernandez-Montes v. Allied Pilots Ass’n, 987 F.2d 278, 284 (5th Cir. 1993). Instead, “[a] claim has
facial plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678.
Evaluating a motion to dismiss is “a context-specific task that requires the reviewing court
to draw on its judicial experience and common sense.” Id. at 679. “Ultimately, the question for a
court to decide is whether the complaint states a valid claim when viewed in the light most favorable
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to the plaintiff.” NuVasive, Inc. v. Renaissance Surgical Ctr. N., L.P., 853 F. Supp. 2d 654, 658
(S.D. Tex. 2012) (Ellison, J.).
III. ANALYSIS
A.
Subject Matter Jurisdiction
The Federal Arbitration Act provides federal courts with subject matter jurisdiction over any
“action or proceeding falling under” the Convention on the Recognition and Enforcement of Foreign
Arbitral Awards (the “Convention”). 9 U.S.C. § 203. For a federal court to have jurisdiction under
the Convention: “(1) there must be an arbitration agreement or award that falls under the
Convention, and (2) the dispute must relate to that arbitration agreement.” Stemcor USA Inc. v. CIA
Siderurgica do Para Cosipar, 927 F.3d 906, 909 (5th Cir. 2019).
An arbitration agreement falls under the Convention if: (1) there is a written agreement to
arbitrate the dispute; (2) the agreement provides for arbitration in the territory of a Convention
signatory; (3) the agreement to arbitrate must arise out of a commercial legal relationship; and (4)
at least one party to the agreement is an American citizen. Stemcor USA Inc., 927 F.3d at 909–10.
ASC argues that the court lacks subject matter jurisdiction because there is no agreement to
arbitrate with ASC. Dkt. 16 at 11–12. Petitioners argue that the arbitral award binds all Chevron
entities and that “Chevron entities include Aramco, Chevron of USA and Chevron Saudia Arabia
and affiliate companies.” Dkt. 28 at 30 n. 27. However, the arbitral award only lists three Chevron
entities: “Chevron Company of USA, Chevron Saudi Arabia and Aramco.” Dkt. 9-2 at 6, 26. ASC
is not a named entity in the arbitral award or in the agreement to arbitrate in the Concession
Agreement.
A non-signatory may be bound by an arbitration agreement under the following six theories:
(1) incorporation by reference; (2) assumption; (3) agency; (4) veil-piercing/alter ego; (5) estoppel;
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and (6) third-party beneficiary. Bridas S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347, 356 (5th
Cir. 2003); see also Westmoreland v. Sadoux, 299 F.3d 462, 465 (5th Cir. 2002) (holding that
arbitration agreements may apply to nonsignatories only “in rare circumstances”). Petitioners argue
that ASC is a subsidiary of Aramco, and thus bound by the arbitral award. Dkt. 28 at 35. However,
as petitioners themselves have acknowledged, ASC is Saudi Aramco’s subsidiary, not Aramco’s.
See Dkt. 9 at 1, 5. At one point, ASC was a subsidiary of Aramco, but Aramco dissolved in 1990
and ASC is now a wholly owned subsidiary of Saudi Aramco. See Dkt. 16-4; Dkt. 16-3. ASC did
not exist at the time of the Concession Agreement that included the arbitration agreement. Dkt. 16-3
(noting that ASC, then known as Aramco Realty Company, was not established until 1950). Further,
ASC had already been bought by the Saudi government at the time of the 2015 arbitral award. Dkt. 9
at 6. ASC is not affiliated with Aramco. Dkt. 29-3. If the court were to accept Petitioners’
argument that ASC is bound to the arbitral award because it was once a subsidiary of Aramco, that
would mean that every single company that has ever been a subsidiary of another company at one
time would be liable for the actions of its past parent company even though it is no longer affiliated.
Petitioners also point to portions of the arbitral award that address successor and affiliate
liability as evidence that ASC is liable. Dkt. 28 at 36. However, the cited portions do not support
Petitioners’ argument. First, the section addressing successor liability only addresses the issue of
why Chevron Company was subject to arbitration despite the fact that the Concession Agreement
was between So-Cal and Saudi Arabia. Dkt. 9-2 at 25–26. Second, the section addressing affiliate
liability simply provides a statement of law. Specifically, it states that “it is established under
jurisprudence and judicial principles that the Arbitration Clause provided for in a contract concluded
with some company extends to the other companies affiliated with such company, and is deemed one
of its entities, if all such entities shared in the execution of such contract.” Dkt. 9-2 at 26. Such a
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statement does not provide that ASC is liable or otherwise bound to any arbitral award because ASC
is not affiliated with any of the parties bound to the arbitration agreement nor did it share in the
execution of the contract. Because there is no written arbitration agreement that lists ASC as a party
and none of the exceptions to bind nonsignatories apply, the court does not have subject matter
jurisdiction to hear this case.
Petitioners point to Sarhank Grp. v. Oracle Corp., 404 F.3d 657 (2d Cir. 2005) for the
proposition that the court must assume subject matter jurisdiction even though ASC is not a
signatory to the arbitration agreement. In Sarhank Group, a subsidiary had entered into an agreement
that included an arbitration clause against the petitioners. Id. at 658. When a dispute arose,
petitioners sought to arbitrate against the subsidiary and the parent company. Id. The parent
company objected to the arbitration because it had not signed an arbitration agreement. Id. The
arbitration panel rejected that argument and issued an arbitral award against the parent company and
the subsidiary. Id. Petitioners sought enforcement of the arbitration award in a federal court in New
York. Id. at 659. The parent corporation argued that the district court lacked subject matter
jurisdiction because it was not a party to any arbitration agreement. Id. The Second Circuit held that
a district court must assume subject matter jurisdiction when a party challenges the district court’s
jurisdiction based upon the merits of the case. Id. at 660.
Here, ASC’s subject matter jurisdiction arguments do not depend on its view of the merits
of the case. Unlike the parent corporation in Sarhank Group, there is no arbitral finding that ASC
is liable. ASC is not one of the listed entities in the arbitral award and this is the first time ASC is
contesting whether it should be forced to arbitrate. As such, the court will not assume subject matter
jurisdiction.
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B. Failure to State a Claim
Even if the court had subject matter jurisdiction, Petitioners’ claim still fails under Rule
12(b)(6) because, under the facts, ASC is not bound to the arbitration agreement and none of the
theories to bind a nonsignatory apply.
IV. CONCLUSION
ASC’s motion to dismiss is GRANTED. Because the court did not rely on the evidence in
the motion in limine (Dkt. 43), the motion in limine is DENIED AS MOOT. Additionally, ASC’s
motion for sanctions (Dkt. 26) is DENIED.
Signed at Houston, Texas on August 2, 2019.
___________________________________
Gray H. Miller
Senior United States District Judge
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