Antitrust Law Daily Wrap Up, RICO—5thCir: Res Judicata Required Dismissal of RICO Claims Relating to Development of Kazakhstan Oil Field, (Jun 10, 2013)

By Peter Reap, J.D., LL.M.

Res judicata barred the civil RICO claims brought against BP, P.L.C. and two related entities, STATOIL A.S.A.; and John Browne because the same claims were unsuccessfully advanced by the plaintiffs in a prior arbitration proceeding, the U.S. Court of Appeals in New Orleans has decided (Grynberg v. B.P. plc., June 7, 2013, Per curiam). The plaintiffs’ contention on appeal that the arbitrator did not exercise jurisdiction over the RICO claims was rejected.

Background. In 1989 and 1990, plaintiff Jack Grynberg was instrumental in bringing representatives of the Kazakh government together with various oil and gas companies, including BP, to discuss the potential development of the Greater Kashagan Oil Field (“GKOF”). Federal litigation, involving the plaintiffs’ claim that they were entitled to a share of the proceeds from the GKOF based on their role in facilitating the meetings that occurred in 1989 and 1990, ensued between the plaintiffs, BP, and Statoil. Years of mediation and negotiation eventually resulted in two virtually identical settlement agreements between the plaintiffs and BP and the plaintiffs and Statoil.

Within several weeks of BP and Statoil’s sale of their GKOF interests, the plaintiffs commenced an arbitration proceeding against BP and Statoil claiming, generally, that they were not being paid the appropriate share of the actual value of the GKOF interests sold. While the arbitration was ongoing, the plaintiffs sued BP and Statoil in the United States District Court in the District of Columbia.

The district court granted the motions to dismiss and compel arbitration. Following the district court’s dismissal of their claim, Plaintiffs filed the same claim—the “DC Based RICO Claim”—in the Arbitration. In the Final Award, the arbitrator dismissed Plaintiffs’ “DC Based RICO Claim” based on its finding that Plaintiffs “did not suffer any damages as a result of [Defendants’] alleged RICO violations.”

In May 2011, the plaintiffs filed the instant complaint in the District Court for the Southern District of Texas. The complaint seeks monetary relief under 18 U.S.C. § 1964(c) based upon allegations that: (1) BP and Statoil procured their GKOF interests by paying bribes to the Kazakh government; and (2) BP and Statoil entered into side deals connected with their sale of their GKOF interests in an attempt to decrease the amounts owed to Plaintiffs under the Settlement Agreements. These allegations are based on the same legal and factual theories underlying the “DC Based RICO Claim,” and other claims that Plaintiffs advanced in the Arbitration.

The district court held that res judicata barred the plaintiffs’ civil RICO claims against BP and Statoil. Separately, the district court dismissed the plaintiffs’ complaint as to Browne and another individual, concluding that general personal jurisdiction did not exist over either defendant.

Res Judicata. Res judicata, or claim preclusion, bars the litigation of claims that either have been litigated or should have been raised in an earlier suit. Four elements must be satisfied for res judicata to bar a claim: (1) the parties in the subsequent action are identical to, or in privity with, the parties in the prior action; (2) the prior judgment was rendered by a court of competent jurisdiction; (3) the prior action concluded with a final judgment on the merits; and (4) the same claim or cause of action is involved in both cases.

Here, the first and final elements of res judicata were not in dispute, the court noted. The parties disputed, however, whether the second and third elements of res judicata were satisfied.

While it was undisputed that the arbitrator had the power under the Settlement Agreements to render a final judgment on the merits of the plaintiffs’ civil RICO claims, the plaintiffs contend that the arbitrator mistakenly believed that it lacked power to decide one of the elements of the “DC Based RICO Claim” and, therefore, did not exercise jurisdiction over that claim. The appellate court, however, disagreed.

To successfully advance a claim under civil RICO, a plaintiff must demonstrate: (1) that the defendant violated 18 U.S.C. § 1962, a statutory provision that contains RICO’s prohibited activities; and (2) that the RICO predicate offense not only was a but for cause of his injury, but was the proximate cause as well. A plaintiff advancing a claim under civil RICO is not required to establish that the defendant was or will be criminally convicted under RICO, according to the court.

The arbitrator dismissed the plaintiffs’ “DC Based RICO Claim” based on its finding that the plaintiffs did not suffer an injury as a result of the defendants’ alleged RICO violations. The arbitrator did not decide whether the defendants’ actions constituted a violation of § 1962.

In addition to discussing the plaintiffs’ failure to prove damages, the arbitrator’s discussion of the plaintiffs’ “DC Based RICO Claim” also included the following statement: “Although under the broad arbitration provisions contained in the Settlement Agreements the undersigned has the authority to decide civil RICO claims, neither an arbitrator nor an independent auditor has the power or authority to decide whether [Defendants], either directly or indirectly, committed a crime.”

While this statement showed that the arbitrator believed that it could not decide whether the defendants were guilty of committing a crime, it did not suggest that the arbitrator mistakenly believed that it could not decide whether the defendants’ actions constituted a violation of 18 U.S.C. § 1962, subjecting them to civil consequences under 18 U.S.C. § 1964, the court determined. Instead, the arbitrator exercised jurisdiction over the plaintiffs’ “DC Based RICO Claim” and rendered a final judgment on the merits.

Accordingly, res judicata barred the plaintiffs’ civil RICO claims against the defendants. Because the court could affirm solely on the basis of res judicata, it did not address the other grounds that could have supported the dismissal of the plaintiffs’ claims against the defendants.

The case is No. 12-20291.

Attorneys: Martin Jonathan Siegel for Jack J. Grynberg. John L. Hardiman (Sullivan & Cromwell, LLP) for BP, P.L.C.

Companies: BP, P.L.C.; STATOIL A.S.A.

Cases: RICO LouisianaNews MississippiNews TexasNews