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Lubrizol Corp. v. Exxon Corp.

filed: April 8, 1991.

THE LUBRIZOL CORPORATION, APPELLANT
v.
EXXON CORPORATION AND EXXON RESEARCH AND ENGINEERING COMPANY



On Appeal from the United States District Court for the District of New Jersey (D.C. Civil Action No. 89-04220).

Scirica and Higginbotham, Circuit Judges, and Louis H. Pollak, District Judge.*fn*

Author: Scirica

Opinion OF THE COURT

SCIRICA, Circuit Judge

In this appeal, The Lubrizol Corporation ("Lubrizol") challenges the district court's order dismissing its complaint on the grounds of claim and issue preclusion.*fn1 Because we believe this action is barred by applicable principles of claim preclusion, we will affirm.

I.

In 1982, Lubrizol filed suit in United States District Court for the District of New Jersey against the Exxon Corporation ("Exxon") and the Exxon Research and Engineering Co. ("Exxon Research"), alleging patent infringement. In re Lubrizol/Exxon Patent Controversy, Nos. 82-2049 and 82-2557 (D.N.J. filed Jun. 28, 1982). The district court entered a protective order to prevent disclosure of confidential information. Lubrizol later learned that Exxon had placed protected information on a computer system. In February 1984, Lubrizol moved for sanctions, claiming that this computerization had violated the protective order. In August 1984, Lubrizol learned that the computer center where the information was stored was operated as a joint venture known as GATES. GATES is a litigation support center controlled by five major oil companies, four of whom are competitors of Lubrizol. Lubrizol then renewed its motion for sanctions, alleging that Exxon had exposed protected information to Lubrizol's competitors, and had concealed the nature of the GATES venture.

In September 1984, the parties were engaged in settlement negotiations and requested that the district court postpone the hearing on the renewed motion for sanctions. This request was granted. On September 27, the parties executed a Settlement Agreement in which Lubrizol covenanted that it "releases, and will not assert, any claim or counterclaim made in the consolidated New Jersey action . . . ." App. at 20-21.

In May 1985, Lubrizol filed a diversity action in United States District Court for the Southern District of Texas ("the Texas Action") against Exxon, the GATES Data Center, and two Exxon employees, alleging fraud with respect to the computerization of Lubrizol's confidential information. Lubrizol claimed that the defendants had misrepresented that the information would be protected, and had concealed the fact that it was accessible to Lubrizol's competitors. The Texas Action involved the same evidence Lubrizol had presented in its motions for sanctions in the New Jersey action. Exxon filed a motion to dismiss asserting that Lubrizol's claims were released by the Settlement Agreement, and filed its own counterclaim alleging that Lubrizol breached the Settlement Agreement by suing on this "computer dispute."

The Texas district court converted Exxon's motion to dismiss into a motion for summary judgment and denied it initially. But during trial, the district court reconsidered this ruling. The court held that the computer dispute fell within the definition of "claims" released by the Settlement Agreement, and granted summary judgment to Exxon on Lubrizol's claims. This order was affirmed by the Court of Appeals for the Fifth Circuit. Lubrizol Corp. v. Exxon Corp., 871 F.2d 1279 (5th Cir. 1989). Before the district court, Lubrizol presented extrinsic evidence which it claimed revealed that the parties did not intend for the Settlement Agreement to release the computer dispute. The Court of Appeals held that the parol evidence rule barred consideration of this evidence. Exxon's counterclaim in the Texas Action is still pending.

Relying upon the same evidence presented in the Texas Action, Lubrizol filed the current diversity action in United States District Court for the District of New Jersey against Exxon and Exxon Research, seeking reformation of the Settlement Agreement to reflect the parties' true intent. Lubrizol Corp. v. Exxon Corp., No. 89-4220 (D.N.J. filed Oct. 12, 1989). Lubrizol claims that the parties never intended for the Settlement Agreement to release the computer dispute, and that the Settlement Agreement should be reformed because of "mistake." Lubrizol claims there was a "mutual mistake," because neither party intended to enter into an agreement that would release the computer dispute. App. at 11-14. In the alternative, Lubrizol claims that it made a "unilateral mistake" induced by Exxon's inequitable conduct. Id. at 14-16. Lubrizol also seeks compensatory and exemplary damages. Id. at 17. The district court held that the judgment in the Texas Action precludes Lubrizol's claim. We agree.

II.

Lubrizol admits it is bound by the judgment in the Texas Action holding that the Settlement Agreement encompasses the computer dispute. Hoping to revive its ability to sue on the computer dispute. Lubrizol now seeks to reform the Settlement Agreement to exclude that dispute. The doctrine of claim preclusion bars this type of sequential litigation. Lubrizol could have asserted its reformation claim in the Texas Action. The Settlement Agreement issues were the subject of intense litigation and formed the basis for the eventual judgment. The fact that these issues were first raised by Exxon in a defense does not prevent preclusion.

The district court granted defendants' motion to dismiss under Rule 12(b) of the Federal Rules of Civil Procedure. Consequently, we accept as true all allegations in the complaint and all reasonable inferences that can be drawn from them. Banks v. Wolk, 918 F.2d 418, 419 (3d Cir. 1990). Our review of the district court's legal determinations is plenary. We note that there is some disagreement in the courts of appeal over whether federal or state law of claim preclusion governs in successive diversity actions. See Petromanagement Corp. v. Acme-Thomas Joint Venture, 835 F.2d 1329, 1332-34 (10th Cir. 1988). It appears that the majority of appellate courts apply federal law, at least where the issues are not ...


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