Court Opinion

ID: 10882
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:57:53+00
Date Added: 2024-06-11T11:47:19.521506
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS

                            FOR THE FIFTH CIRCUIT
                               _______________

                                  No. 96-40488
                               Summary Calendar
                                _______________

                            MARK PETROLEUM, INC.,

                                                   Plaintiff-Appellant,

                                     VERSUS

              LESTER H. SMITH; SMITH ENERGY COMPANY, INC.;
          STEVEN WOLF; PETROSAKH LIMITED; PETROSAKH USA, INC.;
             MIKE KERR; MARK C. MCKINLEY; LAWRENCE E. GLENN;
              LABRADOR OIL COMPANY; GORDY GAS CORPORATION;
                          and RUSSELL D. GORDY,

                                                   Defendants-Appellees.

                          _________________________

              Appeal from the United States District Court
                    for the Eastern District of Texas
                               (9:94-CV-80)
                        _________________________

                         November 1, 1996
Before SMITH, DUHÉ, and BARKSDALE, Circuit Judges.

JERRY E. SMITH, Circuit Judge:*

      Mark Petroleum, Inc. (“Mark”), appeals the denial of leave to

amend its complaint, and appeals the dismissal of its claims

pursuant    TO   FED. R. CIV. P. 12(b)(6).    We affirm in part and reverse

      *
        Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion
should not be published and is not precedent except under the limited circumstances
set forth in 5TH CIR. R. 47.5.4.
and remand in part.

                                      I.

      Mark filed the instant action alleging fraudulent inducement

in connection with various contracts entered into with defendants

governing a business relationship to develop an oil field on

Sakhalin Island.      Prior to Mark’s filing of this action, Quanto

International Company, Ltd., had filed a similar action in Texas

state court1 and had been compelled to arbitration by court order.2

Although Quanto is a separate entity from Mark, George Mirkin, one

of the two principals and directors of Mark, is Quanto's president

and majority shareholder.       Quanto also had assigned to Mark, under

a previous Declaration of Trust, all prospective benefits to which

Quanto was entitled with respect to the Sakhalin Island project.

At least one of Quanto and Mark is a signatory to each of the

various contracts entered into with defendants in relation to the

project.

      Upon defendants’ motion, the district court issued an order

staying discovery pending resolution of the state court matters.

      1
        The major difference between Quanto’s and Mark’s suits is the documents
to which each alleges the fraud attaches. Similarly, Quanto did not name the
Smith defendants, choosing to name only the Petrosakh defendants, Smith’s
successors in interest.
      2
        Quanto and Mark agreed subsequently that Mark would seek a non-suit in
the state court action to enable Mark to pursue the instant action. The non-suit
was originally granted, but the state court later reinstated both the action and
its original order compelling arbitration and staying the proceedings pending
arbitration.

                                       2
After the case was reassigned to a different judge, the court

requested that the parties provide additional briefing on the stay

and on defendants’ motion to dismiss for collateral estoppel.   The

court subsequently denied Mark’s motion for leave to file a second

amended complaint and granted the motion to dismiss, holding that

Mark was collaterally estopped from relitigating the arbitration

issues that had been adjudicated in state court.

                                II.

     Mark first contends that the district court erred in denying

its motion for leave to file a second amended complaint.    Facing

defendants’ motion to dismiss, which asserted that Mark’s claim was

barred by collateral estoppel, Mark sought to amend his complaint

to conform the allegations contained in the complaint to a party

affidavit that had been submitted some sixteen months earlier. The

district court, after noting properly the standards that govern

disposition of the motion, denied Mark’s motion, citing undue

delay, bad faith, and failure to cure deficiencies by an amendment

allowed previously.

     The decision to grant leave to amend is entrusted to the sound

discretion of the district court, and thus we review for abuse of

discretion only.   See Wimm v. Jack Eckerd Corp., 3 F.3d 137, 139

(5th Cir. 1993).   The district court may consider such factors as

undue delay, bad faith or dilatory motive, repeated failure to cure

                                 3
deficiencies by amendments previously allowed, undue prejudice to

the non-movant, and futility.            See Foman v. Davis, 371 U.S. 178,

182 (1962).

       The district court first cited Mark for undue delay, noting

that       Mark   had   waited   more   than    sixteen   months   to   amend   its

complaint to assert facts that are in direct contradiction to facts

asserted in its two prior complaints.              In particular, Mark sought

to amend its complaint to conform to a party declaration submitted

along with the original complaint asserting that Quanto was acting

without Mark’s consent in filing its state court suit, and thus

Mark could not be estopped collaterally by the state court’s

decision to compel arbitration.

       The district court noted that Mark had been, or should have

been, aware of all facts relevant to such claims, and thus its

failure to amend its complaint sooner, absent any reason for delay,

evinced inexcusable neglect.3             Because the sole purpose of the

amendment was to escape dismissal under collateral estoppel, the

court also found that Mark sought to amend improperly to gain a

tactical advantage.         See Dussouy v. Gulf Coast Inv. Corp., 660 F.2d
594, 597 (Former 5th Cir. 1981).               Furthermore, Mark had failed to

       3
        Mark asserts, for the first time on appeal, reasons for delaySSthat his
clients travel frequently out of town, that they are non-native English speakers,
that the facts are complex, and that it needed to file quickly to prevent a
limitations defense. Although we refuse to review reasons proffered for the
first time on appeal, we caution nonetheless that we do not view such factors as
mitigating an attorney’s ethical and legal duty to make a reasonable
investigation of the facts prior to filing suit. See, e.g., FED. R. CIV. P. 11.

                                          4
correct its pleading when given leave to file its first amended

complaint two months after filing the original action.

      There was no abuse of discretion.                  The court considered

properly the Foman factors and provided “substantial reasons” for

its decision to deny leave.         See Jamieson by and Through Jamieson

v. Shaw, 772 F.2d 1205, 1208 (5th Cir. 1985).4

                                        III.

      Mark next asserts that the district court erred in dismissing

its claim under FED. R. CIV. P. 12(b)(6) because it improperly

applied the Texas collateral estoppel doctrine.                We review de novo

a grant of a motion to dismiss.                See Cinel v. Connick, 15 F.3d
1338, 1341 (5th Cir.), cert. denied, 115 S. Ct. 189 (1994).

      We   are    required,    under    the     Full   Faith   and   Credit   Act,

28   U.S.C.   §   1738,   to   accord    state     court   judgments    the   same

preclusive effect provided by the law of the state in which the

judgment was rendered.         See A.L.T. Corp. v. Small Bus. Admin., 801
F.2d 1451, 1455 (5th Cir. 1986).                 Under Texas law, collateral

      4
        We pause briefly to address directly two of Mark’s asserted errors in the
district court’s ruling. First, citing Corwin v. Marney, Orton Invs., 843 F.2d
194, 199 (5th Cir.), cert. denied, 488 U.S. 924 (1988), Mark contends that the
defendants’ failure to object to the motion requires automatically that the court
grant it. We do not read Corwin so to require, and we note that failure to
object alone, absent a letter evincing defendants’ “clear expression of
acquiescence to an amendment, and their statement in the letter that an amendment
would be for their own benefit,” id., is insufficient to support a claim of abuse
of discretion. We similarly reject Mark’s argument that the denial of leave to
amend, notwithstanding the fact that Mark complied with the court’s deadline for
filing motions to amend, is per se abuse of discretion. See Wimm, 3 F.3d at 141-
42 (same).

                                         5
estoppel “bars relitigation of any ultimate issue of fact actually

litigated and essential to the judgment in a prior suit, regardless

of whether the second suit is based upon the same cause of action.”

Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 818 (Tex. 1984).

A prior adjudication will be given estoppel effect only where (1)

the parties have been fully heard; (2) the court has supported its

decision with a reasoned opinion; and (3) the decision was subject

to appeal or was in fact reviewed on appeal.            See Mower v. Boyer,

811 S.W.2d 560 (Tex. 1991) (citing Scurlock Oil Co. v. Smithwick,

724 S.W.2d 1, 6 (Tex. 1986)).

      The district court recognized the “final judgment” requirement

for collateral estoppel, yet concluded incorrectly that finality

requires only that the issue have been fully litigated, not that a

final judgment have been obtained.            Because we are required to

apply Texas collateral estoppel doctrine when reviewing Texas state

court adjudications, we need not decide whether this is in fact a

correct statement of law in the Fifth Circuit,5 but note only that

it states Texas law incorrectly.              A Texas state court order

compelling arbitration and granting a stay pending arbitration is

      5
        The district court cited in support of its conclusion Chemetron Corp. v.
Business Funds, Inc., 682 F.2d 1149, 1190-91 (5th Cir. 1982), vacated and
remanded, 460 U.S. 1007, initial opinion adhered to on remand, 718 F.2d 725 (5th
Cir.) (adhering to partial dissent), vacated for rehearing en banc, 718 F.2d 730
(5th Cir. 1983) (settled before rehearing en banc).           Chemetron has no
precedential force, because the panel opinion was vacated.          See Avondale
Shipyard, Inc. v. Insured Lloyd’s, 786 F.2d 1265, 1273 n.11 (5th Cir. 1986). The
final judgment requirement for collateral estoppel in the Fifth Circuit remains
in flux. See Marine Shale Processors, Inc. v. United States Envtl. Protection
Agency, 81 F.3d 1371, 1380 n.2 (5th Cir. 1996).

                                       6
an interlocutory order that is not subject to appeal under either

the Texas or federal arbitration acts.   See Bethke v. Polyco, Inc.,

730 S.W.2d 431, 434 (Tex. App.SSDallas 1987, no writ); Purdy v.

Monex Int’l, Ltd., 867 F.2d 1521, 1523 (5th Cir.), cert. denied,

493 U.S. 863 (1989).    An interlocutory order not subject to appeal

(or not in fact reviewed on appeal) is not entitled to preclusive

effect under Texas’s collateral estoppel principles.     See Mower,
811 S.W.2d at 562-63.

      The denial of leave to amend is AFFIRMED.     The judgment of

dismissal is REVERSED, and this matter is REMANDED for further

proceedings.

                                  7