United States District Court, N.D. California
March 22, 2004.
LARRY BOWOTO, et al., Plaintiffs, V. CHEVRON TEXACO CORP., et al. and MOES 1-50, Defendants
The opinion of the court was delivered by: SUSAN ILLSTON, District Judge
ORDER DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
ON PHASE I
Defendants' motion for summary judgment regarding Phase I of this
trial is currently pending before the court. Having carefully considered
the argument of the parties and the papers submitted, the motion for
summary judgment on Phase I is DENIED.
This action was filed on May 27, 1999 by five Nigerian plaintiffs who
alleged that defendant Chevron Texaco. Corporation*fn1 ("ChevronTexaco"
or"CVX") was involved in the commission of human rights abuses in
Nigeria. The complaint has been amended several times, and now includes
as defendants both CVX, a United States-based corporation, and Chevron
Texaco. Overseas Petroleum, Inc. ("CTOP"*fn2), a Delaware corporation
which is a wholly-owned subsidiary of CVX, as well as 500 "Moe"
defendants. Chevron Nigeria
Limited (CNL) operates a joint venture with the Nigerian National
Petroleum Company, the Nigerian state oil company. At the time of the
Parabe incidents, CTOP owned 90% of CNL directly, and owned the other 10%
through a wholly-owned subsidiary.
Plaintiffs allege that the United States defendants, CVX and CTOP, are
liable for their own acts and for the acts of CNL in three incidents that
occurred in Nigeria, in which defendants and CNL allegedly acted
unlawfully and committed human rights abuses.
The first was the Parabe incident, which occurred on May 28,
1998. Plaintiffs allege that CNL, acting in concert with defendants,
recruited the Nigerian military and police to fire weapons at Nigerians
staging a protest on one of Chevron's oil platforms, the Parabe platform.
Two protesters were killed in this incident. Plaintiffs allege that CNL's
management and security forces were involved in the subsequent detainment
and torture of Bola Oyinbo, one ofthe leaders ofthe protest movement on
the Parabe platform.
The second and third were the Opia and likenyan incidents,
which occurred on January 4, 1999. Plaintiffs allege a helicopter flown
by Chevron pilots and transporting Nigerian military and/or police flew
over the community of Opia and opened fire on the villagers, killing one
person and injuring others. Plaintiffs allege that the helicopter then
flew to the Ikenyan community, opened fire and killed one person and
injured several others. Plaintiffs allege that thirty minutes later, CNL
sea trucks containing CNL personneland Nigerian military approached Opia
and opened fire on the villagers, killing several people. Plaintiffs
allege that the soldiers disembarked from the sea trucks and set fire to
buildings and livestock, killing another person.
In October, 2001, the parties stipulated to a bifurcated discovery
schedule which limited Phase I discovery to issues related to the
liability/responsibility of the United States defendants, CVX and CTOP,
for whatever occurred in Nigeria at Parabe, Opia and Ikenyan. It was
contemplated that at the end of Phase I discovery, CVX and CTOP would
move for summary judgment on the limited issue of their direct or
derivative liability for their own acts, or the acts of their employees,
agents, co-conspirators, alter egos, or joint venturers. in the summary
judgment motion currently before the Court, defendants CVX and CTOP seek
summary adjudication that plaintiffs have not presented a triable issue
of fact supporting defendants' liability under any of these theories.
1. Summary judgment
Summary judgment is proper "if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a matter of law."
Fed.R.Civ.P. 56(c). The moving party bears the initialburden of demonstrating
the absence of a genuine issue of material fact. See Celotex Corp.
v. Catrett, 477 U.S. 317, 323 (1986). The moving party, however, has
no burden to negate or disprove matters on which the non-moving party
will have the burden of proof at trial. The moving party need only point
out to the Court that there is an absence of evidence to support the
non-moving party's case. See id. at 325.
The burden then shifts to the non-moving party to "designate `specific
facts showing that there is a genuine issue for trial.'" Id. at
324 (quoting Fed.R.Civ.P. 56(e)). To carry this burden, the non-moving
party must "do more than simply show that there is some metaphysical
doubt as to the material facts." Matsushita Electric
Industrial Co., Ltd, v. Zenith Radio Corp., 475 U.S. 574, 586
(1986). "The mere existence of a scintilla of evidence . . . will be
insufficient; there must be evidence on which the jury could reasonably
find for the non-moving party." Anderson v. Liberty Lobby.
Inc., 477 U.S. 242, 252 (1986).
In deciding a motion for summary judgment, the evidence is viewed in
the light most favorable to the non-moving party, and all justifiable
inferences are to be drawn in its favor. "Credibility determinations, the
weighing of the evidence, and the drawing of legitimate inferences from
the facts are jury functions, not those of a judge ruling on a motion for
summary judgment." Id. at 255.
2. Liability of a parent corporation for the acts of its
The law allows corporations to organize for the purpose ofisolating
liability of related corporate entities. Frank v. U.S. West.
Inc., 3 F.3d 1357, 1362 (10th Cir. 1993). Only in unusual
circumstances will the law permit a parent corporation to be held either
directly or indirectly liable for the acts of its subsidiary. "It is a
general principle of corporate law deeply ingrained in our legal system
that a corporation is not liable for the
acts ofits subsidiaries." U.S. v. Bestfoods, 524 U.S. 51, 68
(2003).*fn3 Courts do disregard the corporate form in some instances
where such disregard is necessary to prevent injustice to a person or
entity that would be harmed by refusing to impose liability on the basis
of the corporate structure. The party seeking to disregard the corporate
form bears the burden of showing that there are good reasons for doing
so. Mobil Oil Co. v. Linear Films Inc., 718 F. Supp. 260,
278 (D.Del. 1989). "Mere ownership of a subsidiary does not justify
the imposition of liability on a parent." Pearson v. Component Tech.
Corporation, 247 F.3d 471, 484 (3d Cir. 2001).
Officers of a parent corporation may be involved in the supervision of
a subsidiary corporation without incurring liability for the parent
corporation. Typical acts of parent corporation officers which are within
the bounds of corporate formalities and do not warrant veil-piercing
include: supervising the acts of the subsidiaries; receiving regular
reports from the subsidiaries; creating general policies and procedures
which the subsidiaries must follow; and overseeing the financial
management of the subsidiaries. "Appropriate parental involvement
includes: `monitoring of the subsidiary's performance, supervision of the
subsidiary's finance and capitalbudget and articulation of general
policies and procedures.'" U.S. v. Bestfoods, 524 U.S. at 69
Officers of a parent may also simultaneously act as officers of the
subsidiary without having their duties as parent corporation officers'
presumed to be effectuated also on behalf of the subsidiary corporation.
Liability will not be imposed "on a parent merely because directors of
the parent corporation also serve as directors of the subsidiary."
Pearson, 247 F.3d at 383, citing Bestfoods, 524 U.S.
Doctrines which courts have employed to analyze the liability of a
parent corporation include "piercing the corporate veil" (which is often
referred to as "alter ego" liability); "single enterprise liability"
(referred to in the employment context as "single employer liability");
agency-based liability; aiding and abetting; and ratification. "The
terminology used by courts in considering whether a parent corporation
will be held liable for
the actions of its subsidiary has not been a model of clarity.
Plaintiff's so-called `alter ego theory' is often used interchangeably
with such expressions as `disregarding the corporate entity' and
`piercing the corporate veil'. . . . In addition, some courts use the
word `agent' describe what is essentially the same relationship
contemplated by the term `alter ego.'" Mobil Oil Co. v. Linear Films
Inc., 718 F. Supp. 260, 266 (D.Del. 1989).*fn4
Whether to hold a parent liable for the acts of its subsidiary is a
highly fact-specific inquiry. "There are no inflexible tests by which
courts determine when to hold corporations liable for the acts of their
subsidiaries. Generally, the corporate separateness is respected unless'
. . . to do so would work an injustice upon innocent third parties.'
Fidelity & Deposit Co. of Maryland v. Usaform Hail Pool.
Inc., 523 F.2d 744, 758 (5th Cir. 1975). But each case must be
considered on its own facts." Edwin K. Williams & Co. v. Edwin
K. Williams, 542 F.2d 1053, 1063 (9th Cir. 1976), cert.
den. 433 U.S. 908 (1977)
The parties have not squarely confronted whether state or federal law
applies to the question of a parent corporation's liability for the
subsidiary's actions in this case, and the answer to the question does
not emerge clearly from the case law. In U.S. v. Bestfoods, the
Supreme Court noted this uncertainty,*fn5 cited cases from several
jurisdictions with differing viewpoints, but declined to rule on the
issue because it had not been presented below. Id. at 68. In
any event, the tests are quite similar.*fn6
In Mobil Oil Co. v. Linear Films Inc., 718 F. Supp. 260, 267
(D.Del. 1989), the court noted the existence of a body of federal common
law which has developed on the veil-piercing question and observed that
federal courts deciding this question in federal cases have often opted
to apply federal common law.
In Seymour v. Hull & Moreland Engineering, 605 F.2d 1105,
1111 (9th Cir. 1979), the federal test for piercing the corporate veil
was articulated as follows: "Viewing the jumble of federal court
decisions together, we find a sort of generalized federal substantive law
on disregard of corporate entity which concentrates on three general
factors: the amount of respect given to the separate identity of the
corporation by its shareholders, the degree of injustice visited on the
litigants by recognition of the corporate entity, and the fraudulent
intent of the incorporators. Federal decisions naturally draw upon state
law for guidance in this field." (footnotes omitted)
Many of the cases analyzing the question of a parent's relationship to
its subsidiary do so for the purpose of determining whether that
relationship is sufficient to find that the minimum contacts requisite to
personaljurisdictionexist over the parent or subsidiary corporation.
Personal jurisdiction disputes are generally resolved with reference to
law of the state in which the action is brought. Bellomo v.
Pennsylvania Life Co., 488 F. Supp. 744, 748 (S.D.N.Y. 1980).
While the question of whether to pierce the corporate veil has
significant overlap with the jurisdictional issue of minimum contacts,
the questions of jurisdiction and liability for the subsidiary's actions
are different. The liability question is less procedural than
substantive, rendering the federal law a more appropriate guide to this
Court's analysis. Where the causes of action in the complaint are federal
in nature, application of federal law will better effectuate the purposes
of those statutes. Finally, state and federal precedent on this issue do
not appear to diverge in any way meaningful to the adjudication of this
case. For these reasons, this Court will apply such federal law as it can
find when determining these questions.
A. Piercing the corporate veil
"Although the tests employed to determine when circumstances justifying
`veil-piercing' exist are variously referred to as `alter ego',
`instrumentality' or `identity' doctrines, the formulations are generally
similar and courts rarely distinguish between them." Pearson v.
Component Tech. Corporation, 247 F.3d 485
(3d Cir. 2001). Pearson, a case decided under the Worker
Adjustment and Retraining Notification (WARN) Act,
29 U.S.C. § 2101-09, noted that the biggest difference across jurisdictions is
whether fraudulent intent in incorporation is necessary for
veil-piercing. Pearson further observed that federal courts are
more likely to pierce the corporate veil where necessary to effectuate a
federal statute that would otherwise be frustrated by the state's
corporate laws. In the Ninth Circuit, cases suggest, at least in contexts
arising from California, that fraudulent intent in incorporation need not
be shown to pierce the veil, as long as it can be shown that the separate
identity of the corporation has not been respected and that respecting
the corporate form would work an injustice on the litigants. RRX
Industries Inc. v. Lab-Con Inc. 772 F.2d 543, 596 (9th Cir. 1985).
The test for alter ego liability appears almost interchangeable with
the veil-piercing test. See Mobil. 718 F. Supp. at 266, defining
alter ego as lack of attention to corporate formalities, commingling of
assets, and intertwining of operations. Alter-ego requires demonstrating
that the two corporations functioned as a single entity.
B. Integrated enterprise theory of liability
Plaintiffs particularly emphasized the "integrated enterprise" theory
of liability at oral argument, citing Kang v. U. Lim,
296 F.3d 810 (2002) (a Title VII case addressing whether a foreign employer
could be liable for employment actions taken against an employee by a
domestic employer) and Pearson v. Component Tech. Corporation,
supra (a case arising under the WARN Act). Under the integrated
enterprise theory, courts have applied a far less stringent standard to
the question of whether related employers can be held liable for one
another's actions. This standard focuses on economic realities, rather
than corporate formalities, and is applied in a variety of employment
contexts, including disputes under the Labor Management Relations Act,
Title VII, the Fair Labor Standards Act, the WARN Act and the Family and
Medical Leave Act. Pearson at 486.
While plaintiffs focused significantly on this theory at oral argument,
the Court has been unable to find cases applying the "integrated
enterprise" theory in a context such as this one. This test, and the
joint employer test, have been applied to questions about employer
liability and, in some cases, to liabilities arising under CERCLA. Courts
applying the test have noted rather carefully that Congress in passing
these statutes had significantremedialpurposes in mind, and that these
standards are less stringent than those applied to traditional
veil-piercing or agency questions. See Pearson, at 486,
noting: "Ultimately `the policy underlying the single employer doctrine
[also referred to as the integrated enterprise theory] is the fairness of
imposing liability for labor infractions where two nominally independent
entities do not act under an arm's length relationship,'" quoting
Murray v. Miner, 74 F.3d 403, 405 (2d Cir. 1996). Pearson
referred to the integrated enterprise test as "a sort of labor-specific
veil-piercing test." Pearson, at 485.
Questions about veil-piercing are context-specific. The relatively
expansive labor and CERCLA context is different from the one faced in
this case, and cannot be imported without examination. Nonetheless, the
decisions are instructive as they are part of the federal body of common
law guiding this Court's decision about when a parent may be liable for
the actions of a subsidiary corporation.*fn7
A parent corporation can be held vicariously liable for the acts of a
subsidiary corporation if an agency relationship exists between the
parent and the subsidiary. The Restatement 2d of Agency § 14 M
A corporation is not the agent of one person, or
of a number of persons, who can direct its conduct
because holding a majority of its voting shares of
stock. Likewise, a corporation does not become the
agent of another corporation merely because the
other has stock control. The policy which permits
individuals to do business by the organization of
corporations permits corporations, authorized to
do so, to do business in the same way and with the
same immunities from liability. However a
corporation may become an agent of an individual
or of another corporation, as it does when it
makes a contract on the other's account. Thus a
subsidiary may become an agent for the corporation
which controls it, or the corporation may become
the agent of the subsidiary. In some situations, a
court may find that the subsidiary has no real
existence or assets, that its formal existence is
to cloak a fraud or other illegal conduct. As in a
similar situation in which an individual is the
offender, it may be found that the parent company
is the real party to a transaction conducted by
the illusory subsidiary and responsible for its
transactions as a principal.
Unlike liability under the alter-ego or veil-piercing test, agency
liability does not require the court to
disregard the corporate form. Agency has been a theory on which
courts in this circuit have allowed plaintiffs to proceed for many
A familiar principle of law has been that a
corporation is an entity, distinct in itself. It
is true that when resourcefulness of man caused a
corporation to be used as a scapegoat for another,
courts checked the evil. A common statement of one
of the rules is that the entity will "be
disregarded . . . where a corporation is so
organized and controlled, and its affairs are so
conducted, as to make it merely an instrumentality
or adjunct of another corporation". . . . There is
just ground for criticism, not of the result
reached, but of the theory upon which the result
is obtained. Some of the early cases, in the
situation described in the statement of the rule,
based the liability on the principles of
agency. . . . Later, the liability seems to have
been based on the theory that the corporate entity
was disregarded. . . . We believe the liability in
most of such cases is based correctly on the rules
of agency. . . . As such it is not a new rule of
law, but an old one applied to new situations.
Where one corporation is controlled by another,
the former acts not for itself but as directed by
the latter, the same as an agent, and the principal
is liable for acts of its agent within the scope
of the agent's authority.
Pacific Can Co. v. Hewes, 95 F.2d 42, 45-46 (9th Cir.
The Restatement has likewise noted the distinction between
veil-piercing and agency theories of liability:
It is useful to distinguish situations in which
liability is imposed on a parent because of the
existence of the agency relation, in our
common-law understanding of that relation, from
cases in which the corporate veil of the
subsidiary is pierced for other reasons of policy.
Unfortunately, however, the courts have not always
observed the distinction between these two
separate bases for parent's liability. When
liability is fastened upon the parent it is said
that the subsidiary is a "mere agent." The result
has been a weakening and muddying of the term
"agent" and a failure by courts to state the real
reasons for their decision.
Restatement (Second) of Agency, Appendix S 14M, Reporter's Notes at
To establish actual agency a party must demonstrate the following
elements: "(1) there must be a manifestation by the principal that the
agent shall act for him; (2) the agent must accept the undertaking; and
(3) there must be an understanding between the parties that the principal
is to be in control of the undertaking." Rubin Bros. Footwear, Inc.
v. Chemical Bank, 119 B.R. 416, 422 (S.D.N.Y. 1990). "There is no
agency relationship where the alleged principalhas no right of
controlover the alleged agent." Morgan Guar. Trust Co. of
N.Y. v. Republic of Palau, 657 F. Supp. 1475, 1481 n. 2
(S.D.N.Y. 1987); see also Rubin
Bros, 119 B.R. at 422.
In Bellomo v. Pennsylvania Life Co., 488 F. Supp. 744
(S.D.N.Y. 1980), a case analyzing whether agency principles could be used
to establish jurisdiction over the defendant corporation, the court asked
whether the multi-national corporation was actually a
"super-corporation." In Gallagher v. Mazda Motor of
America, 781 F. Supp. 1079, 1083-1084 (E.D. Pa. 1982), the court
defined the test for whether agency liability applied as requiring a
determination of whether the subsidiary is functioning as an incorporated
arm of the parent. In Chan v. Society Expeditions. Inc.,
39 F.3d 1398 (9th Cir. 1994), the court asked whether the subsidiary is
involved in activities that, but for the subsidiary's presence, the
parent would be forced to undertake itself. In these cases, however,
these questions were asked for purposes of determining not whether the
parent could be held liable, but whether the parent's contacts with the
forum state could be taken into account for purposes of determining
whether the Court had personal jurisdiction over the subsidiary.
In addition to the need for a close relationship or domination between
the parent and subsidiary, agency liability also requires a finding that
the injury allegedly inflicted by the subsidiary, for which the parent is
being held liable, was within the scope of the subsidiary's authority as
an agent. As was noted in Phoenix Canada Oil v.
Texaco, 842 F.2d 1466, 1477-78 (3d Cir. 1988), the proper inquiry
regarding the existence of an agency relationship focused on the
relationship between the parent and subsidiary corporation as it bore on
plaintiff's breach of contract claim, rather than the more global
question of whether any sort of agency relationship existed between the
parent and the subsidiary; "when customary agency [a opposed to alter
ego] is alleged the proponent must demonstrate a relationship between the
corporations and the cause of action. Not only must an arrangement exist
between the two corporations so that one acts on behalf of the other and
within usual agency principles, but the arrangement must be relevant to
the plaintiff's claim of wrongdoing." See also Scott
v. Ross, 140 F.3d 1275, 1280 (9th Cir. 1997) ("To incur liability
the agent must be acting on the parent's behalf, within the scope of its
authority as agent.").
Plaintiffs assert that defendants CVX and CTOP are liable both directly
and indirectly for the actions of Chevron Nigeria Limited. Having
reviewed the materials submitted by the parties, and the arguments
presented, this Court finds that these defendants cannot be held directly
liable for the events that transpired.
Plaintiffs have submitted no evidence that these defendants
directly commissioned the acts that are the subject of plaintiffs'
complaint, nor any sufficient evidence on which a reasonable jury could
base a finding of direct liability. Thus summary adjudication must be
granted to defendants on this theory of liability.
Whether indirect liability may be imposed is a closer question. At this
point, the only question before the Court is whether plaintiffs have
presented sufficient evidence to survive summary judgment on their claim
that defendants were so integrally involved in the actions and structure
of CNL that CNL's actions in the events that are the subject of the
complaint were undertaken on defendants' behalf. Regardless which test is
applied, plaintiffs will have the burden to persuade the Court to
disregard the corporate form. At this juncture, the Court finds that
plaintiffs have presented facts which, if accepted by a jury, could
warrant finding defendants liable for CNL's actions on an agency theory
orbasedon aiding and abetting or ratification. Consequently, summary
adjudication will be denied to defendants on plaintiffs' theory of
indirect or vicarious liability.
1. Defendants' argument
Defendants' present motion argues that the Court should grant summary
judgment on the question of defendants' liability for the actions at
issue because: (1) plaintiffs' injuries were caused by the Nigerian
military and police; and (2) the military and police were protecting CNL,
not defendants. Defendants argue that plaintiffs have not submitted any
evidence that creates a material issue of disputed fact regarding
defendants' direct or vicarious liability.
Regarding direct liability, defendants argue that there is no evidence
that defendants gave advice about how to handle the "hostage" situation,
including communicating at all with the Nigerian military. They contend
that claims brought under the Alien Tort Claims Act require a
demonstration that the defendants engaged in "state action," which is
absent here. Even if plaintiffs are able to show state action as to CNL,
defendants argue that it may not be imputed to defendants under a
respondeat superior theory.
As to vicarious liability, defendants argue that there is no basis for
claiming that defendants satisfy the alter ego test for liability because
CNL has a distinct and separate corporate existence as marked by the
separation of the companies' board meetings, shareholders' meeting,
corporate minutes, and accounts of each company. Further, they contend
that there is no evidence that injustice would result from the "misuse of
To the extent that plaintiffs separately allege an agency theory,
defendants argue that plaintiffs must fail because there is no evidence
that the defendants directed specific actions of CNL which resulted in
injuries to plaintiffs or took over the performance of CNL's day-to-day
operations; or that CNL functioned as defendants' representative in
performing important services which defendants would otherwise have to
perform themselves. Defendants also argue that plaintiffs produced no
evidence that CNL's top employees were employees or agents of defendants,
or that CNL's actions in the incidents at issue were within the scope of
any agency relationship.
Finally defendants argue that plaintiffs' RICO claims are deficient
because they do not satisfy the jurisdictional requirement that they have
a substantial effect on U.S. commerce.
2. Plaintiffs' response
Plaintiffs rely on numerous theories on which to base defendants'
liability. Plaintiffs argue that there are genuine issues of material
fact as to all the following: (a) whether CNL was an agent of defendants;
(b) whether CNL was defendants' alter ego; (c) whether defendants are
liable under aiding and abetting and ratification theories; and (d)
whether defendants are liable under RICO. Each of plaintiffs' arguments
is analyzed below.
"Whether an agency relationship exists between a parent corporation and
its subsidiary is normally a question of fact." Japan Petroleum Co.
(Nigeria). Ltd, v. Ashland Oil Co., 456 F. Supp. 831 (D.Del. 1978).
The Court looks to the facts specific to this case for indicia of whether
defendants authorized CNL to act as their agent; whether during that
agency relationship defendants retained control over plaintiffs; and
whether the conduct that plaintiffs' allege as the subject of their
complaint was within the scope of that agency relationship.
Plaintiffs argue that they have presented sufficient facts to raise a
genuine issue of material fact regarding whether CNL was acting as
defendants' agent during the Parabe and Opia/Ikenyan incidents.
Plaintiffs argue that such a finding would render defendants liable for
all intentional torts committed by CNL during the scope of that agency.
Plaintiffs suggest that the Court may apply either of two tests for
agency: the first test focuses
on the parent's control of the subsidiary, based on Sonora
Diamond Corp. v. Sup. Ct., 83 Cal.App.4th 523, 541 (2000),*fn8
while the second test focuses on the parent's dependence on the
subsidiary's services, based on Doe v. Unocal Corp.,
248 F.3d 915, 928 (9th Cir. 2001).*fn9 Plaintiffs argue that under either of
these tests, they have adduced sufficient facts to survive summary
Regarding the parent's control of the subsidiary's operations,
plaintiffs submit a laundry list of facts which they urge the Court to
view as indicia of defendants' control over CNL. Plaintiffs argue that
the following facts establish that CNL was acting as defendants' agent:
COPI controlled the appointment of CNL managers and lower level
positions; CNL managers simultaneously served in management positions for
defendants (see Summary*fn10 at 359-373, stating that George Kirkland
was defendants' Personnel Development Representative while at CNL; Thomas
Schull, while at CNL, signed an order from defendants assigning Scott
Davis to CNL); CNL employees were paid according to standards set by
COPI; high-ranking CNL officials simultaneously performed COPI functions;
CNL managers did work for other Nigerian subsidiaries; defendants closely
monitored CNL's oil exploration and production, providing almost daily
reports (Hadsell Decl.); CVX required
all subsidiary companies to obtain authorization for expenditures
in excess of $100,000 (Summary at 404); CNL was audited by defendants
three times per year (Summary at 409-415); the Corporate Security Group
determined the security policies for CNL and other subsidiaries and
influenced CNL policy on security (Summary at 5); the security group
evaluated CNL security in the wake of the attacks (Summary at 349-358);
and the defendants had extensive communications with the plaintiffs
during the Parabe and Opia/Ikenyan incidents. Plaintiffs also argue that
defendants are liable under an agency theory because they set salaries
for CNL representatives; had veto power over decisions made by
high-levelmanagers CNL; and threatened CNL managers with termination if
they did not take jobs as managers.
Under the second test, plaintiffs present evidence which they argue
shows that CNL functioned as defendants' representative in Nigeria by
engaging in activities that, but for the subsidiary's presence,
defendants would have had to undertake themselves. Gallagher v.
Mazda of America. Inc., 781 F. Supp. 1079, 1083-84 (E.D.Pa. 1992).
Plaintiffs argue that the "revolving door" between CNL and COPI for
managerial positions and movement of CNL employees to CVX's other
subsidiaries shows CNL's representative status. Plaintiffs argue that
CNL's performance of duties for CNL and non-CNL companies show defendants
were much more than holding companies. Further, plaintiffs argue that the
communications between the parent company and CNL are evidence of agency.
Modesto City Schools v. Riso Kagaku Corporation, 157 F. Supp.2d 1128,
1135 (E.D.Cal. 2001). Plaintiffs argue that the CVX annual report
portrayed defendants as part of an integrated operation with CNL.
Plaintiffs cite language from the annual report describing CVX as "an
international company that, through its subsidiaries and affiliates
engages in fully integrated petroleum operations, chemical operations and
coalmining in the United States and approximately 90 countries." Summary
at 314. Plaintiffs argue that the facts indicate that CNL was integral to
defendants' business and that CNL's oil production represented 20 percent
of COPI's earnings. Summary at 321-23.
The Court recognizes, as defendants contend, that many of the cases
cited regarding agency are cases in which the issue presented to the
court was jurisdiction. Nonetheless, the Court finds these cases
instructive on the factors courts consider when determining whether an
agency relationship exists. Further, whether plaintiffs have presented
sufficient facts to warrant proceeding to trial on the question of
defendants' liability under an agency theory is necessarily a very
fact-intensive inquiry into the structure of the corporations.
ACORN v. Household Intern., Inc., 211 F. Supp.2d 1160,
1165 (N.D. Cal. 2002) (evaluating whether jurisdiction could be
established based on agency principles and describing the test of general
agency as requiring a "necessarily wide-ranging inquiry" and evaluation
of the "numerous and varied indicia" of the relationship between the
parent and subsidiary.).
Factors to which the Court has given particular consideration in its
analysis include: (1) the degree and content of communications between
CNL and defendants, particularly including the communications during the
incidents at issue; (2) the degree to which defendants set or
participated in setting policy, particularly security policy, for CNL;
(3) the officers and directors which defendants and CNL had in common;
(4) the reliance on CNL for revenue production and acknowledgment of the
importance of CNL and other international operations to the overall
success of defendants' operations; and (5) the extent to which CNL, if
acting as defendants' agent, was acting within the scope of its authority
during the events at issue.
The evidence produced by plaintiffs reflects not that defendants made
decisions during the attacks, but that there was an extraordinarily close
relationship between the parents and the subsidiary prior to, during and
after the attacks. For example, defendants and CNL had regular
communications regarding security measures before and after the attacks.
An analysis of the phone calls between defendants' personnel in the
United States and CNL shows that the volume of calls was higher on May
27, 1998, the first day that the Parabe platform was occupied, than on
any other day in the period from November 19, 1997 to January 18, 1999
but one. Hadsell Decl., Exh. 13, BS 61-62. See also Decl. of
Seth Schoen, Exh. C, attached to Summary. The day with the very highest
call volume was, according to the Hadsell Decl., Exh. 13 BS 61-62,
another day on which an oil platform was taken over by local people.
Summary at 167. Defendants' security, international and public affairs
staff was the contact point for CNL during the communications. Summary
at 203-206. Corporate security had frequent communications with CNL
regarding lijaw unrest and what CNL intended to do about that unrest.
See Summary at 218, communication from Malcolm McLeod, director of
Chevron's internal security body which oversaw security issues for
all subsidiary international Chevron operations, to Mike Uwaka, the
head of CNL security, "Beginning 30 Dec 98 all military forces
stationed in lijawland are expected
to have been withdrawn by the Federal government. All exploration and
exploitation activities of oil companies operating in lijaw area are also
expected to come to a halt . . . What's your read on the situation and
what extra measures, if any, do we or the Federal government intend to
Principal Ilaje negotiators during the Parabe negotiations stated that
the explanation provided by Deji Haastrup (CNL's manager of community
relations) for why George Kirkland (CNL's then-Chairman and Managing
Director) could not meet with them during the May 1998 occupation of the
platform, was that Kirkland was discussing the Ilaje's demands with
Chevron management in the United States. Ajidibo Decl. para. 16 (Ajidbo
was a principal Ilaje negotiator and a founding member of "Concerned
Ilaje Citizens"); Meduoye Decl. para. 8 (involved in Parabe negotiations
and chief of the Beku tribe of Ilajes); Odudu Decl. para. 8 (negotiator
at Parabe, member of the Ilaje tribe and pastor of the Church of Zion)
(all cited in Summary at 148).
2. Policy set by defendants for CNL
The close monitoring of CNL activities through the Upstream Asset
Development Process (UADP) and the Integrated Design Team composed of
personnel from both defendants and CNL could be found to be well beyond
the review of a subsidiary entity which a parent corporation normally
performs. Chevron expressed a commitment to "monitor daily business
operations . . . to ensure consistent compliance with Company policies,
procedures and standards." Summary at 404-406.
3. Common management
The Court is mindful that the Supreme Court has recently outlined the
limited significance of shared management between parent and subsidiary
on the parent's vicarious liability:
It is entirely appropriate for directors of a
parent corporation to serve as directors of its
subsidiary, and that fact alone may not serve to
expose the parent corporation to liability for its
subsidiary's acts. This recognition that the
corporate personalities remain distinct has its
corollary in the well established principle of
corporate law that directors and officers holding
positions with a parent and its subsidiary can and
do "change hats" to represent the two corporations
separately, despite their common ownership.
United States v. Bestfoods, 524 U.S. 51. 69 (1998).
While not sufficient on its own, this overlap between officers and
directors, coupled with other factors tending to show agency, is
probative of the question of whether an agency finding is warranted.
Here, defendant functioned as a multi-national corporation in which CNL
played a significant role. Defendant had much more than the usual degree
of control over CNL's operations, and particularly in setting security
policy. The revolving door of managers and directors at the highest
levels between CNL and defendants is dramatic evidence of the close
relationship that was shared and can be viewed as further evidence of an
agency relationship. See Summary at 335-338. For example, Richard Matzke
sat simultaneously as a member of CNL's Board of Directors while serving
as President of Chevron, USA and director of COPI. See Summary at 335,
Voorhees Decl., Exh. A at 27.
4. Importance of CNL to defendants' overall operations
"[T]he fact that a parent holds out to the public that a subsidiary is
a department of its own business increases the likelihood that the parent
will be held liable for the subsidiary's acts." Japan
Petroleum. 456 F. Supp. at 841. There is significant evidence in the
record that defendant Chevron held itself out as an international company
of which CNL is a significant part. Chevron describes itself in its
annual report as "an international company, that through its subsidiaries
and affiliates, engages in fully integrated petroleum operations,
chemical operations and coal mining in the United States and
approximately 90 countries." Summary at 314. Defendants' annual reports
describe the expansion of Chevron's international production as its main
area of focus. Summary at 321-323. More than 20 percent of defendants'
earnings were accounted for by CNL's production. Hadsell Decl. Exh.
59, 61. "The engine driving Chevron's growth is its collection of
international upstream operations." Hadsell Decl., Exh. 62, BS 177
(Summary at 321).
Although CNL profits did not return directly to the United States
because in the U.S. they would be subject to tax liability, CNL's profits
were used to fund other Chevron subsidiary corporations. Summary at 468.
Thus defendants benefitted in a very direct way from CNL's revenues.
5. Other evidence that CNL was acting within the scope of
its authority as defendants' agent
There is significant evidence that defendants viewed unrest in Nigeria
as directly affecting CNL's oil
production, and consequently defendants' revenues. Defendants' 1997
annual report stated,
In certain locations . . . political conditions have
existed that may threaten the safety of employees
and the company's continued presence in those
countries. Internal unrest or strained relations
between a host government and the company or other
governments may affect the company's operations.
Those developments have, at times, significantly
affected the company's operations and related
results and are carefully considered by management
when evaluating the level of current and future
activity in such countries.
Hadsell Decl., Exh. 58, BS 173.
Defendants' Corporate Security Group, priorto the May incident, held
meetings in London regarding possible developments in the Nigerian
political climate and how those developments would affect CNL. CNL's
public affairs manager Sola Omole attended those meetings. Depos. of
Omole at Voll., January 16, 2003, Summary at 5.
On June 1, 1998, four days following the May incident, Thomas
Schull(CNL'sassets manager)wrote to Joseph Lorenz (one of the San Ramon
International Affairs Group), Ed Chow (defendants' manager of
international relations prior to 1998), James Bates, Ray Wilcox
(GeneralManager of the San Ramon business unit), Scott Taylor (head of
Chevron's Corporate Security Group which was headquartered in London and
oversaw security policy and planning for all Chevron subsidiaries), and
Sarah Loo (an administrative assistant to Richard Matzke, then-president
of COPI) that "full production has been restored" and "all operations are
normal." Summary at 499, Hadsell Decl., Exh. 85 BS 229. The daily
drilling reports which CNL submitted to defendants at midnight of each
day (Summary at 7) documenting the volume of oil drilled during the
Parabe incident, reflected shutdowns in drilling and production due to
"community problems" and the "Parabe situation." Summary at 110. These
daily drilling reports were communicated to James Bates in CNL's Nigeria
Business Unit at COPI headquarters in San Ramon. Summary at 111.
The facts submitted by plaintiff, taken together, are such that a
reasonable juror could find that CVX and CTOP, the U.S.-based defendants,
exercised more than the usual degree of direction and control which a
parent exercises over its subsidiary. The agency relationship alleged by
plaintiffs is directly related to the plaintiffs' causes of action, in
that plaintiffs allege that defendants were significantly involved in
security matters and benefitted directly from CNL's oil production, which
was made possible or at least protected by the military's
wrongful use of force to quell unrest among Nigerians. Plaintiffs'
complaint argues that defendants
and CNL increased their revenues both through the military's
response to Nigerian unrest and through their cover-up in the United
States of the events after they occurred. As was noted in Phoenix
Canada Oil: "The parents and subsidiaries may fully maintain their
separate corporate existences; yet, as any two unrelated companies, they
might have entered into a limited agency relationship for a specific
transaction. Whether this occurred here is a question of fact[.]"
Phoenix Canada Oil v. Texaco. Inc., 842 F.2d 1466, 1478
(3d Cir. 1988).
The representations made about Nigerian oil production as a percentage
of overall revenues; the revolving door of managers and directors between
the parent and subsidiary; the hiring process which involved selection of
CNL officers by United States defendants' Personnel Development
Committees; the daily communications between CNL and defendants, and
particularly the sharp rise in communications during the attacks; and the
corporate security committee which monitored and planned security
operations for the subsidiaries are all evidence from which an agency
relationship could be found and from which it could be determined that
CNL's actions may have been within the scope of that relationship. This
Court finds that the plaintiffs have presented sufficient facts from
which a reasonable jury could find that an agency relationship existed
and that CNL's alleged actions during the incidents at issue were within
the scope of that agency relationship.
B. Alter-Ego Liability
Plaintiffs argue that defendants are the alter egos of CNL for purposes
of liability under the Men Tort Claims Act, because defendants "knew of
and approved CNL's use of and payments to the Nigerian military." Opp. at
15. Plaintiffs argue that the alter ego doctrine may be applied where
doing so comports with the "broad principle that a corporate entity may
be disregarded in the interests of public convenience, fairness and
Plaintiffs' argument for alter-ego liability fails. As the case law of
this Circuit has evolved, "a sort of generalized federal substantive law
on disregard of [the] corporate entity" has developed. Seymour v.
Hull & Moreland Eng'g, 605 F.2d 1105, 1111 (9th Cir.
1979). The test for whether subsidiaries and parent corporations are
alter egos requires a determination whether: (1) there is such a unity of
interest between the
corporate personalities that they do not function as separate
personalities and (2) failure to disregard the separate nature of the
corporate entities would result in fraud or injustice. Doe v. Unocal
Corp., 248 F.3d 915, 926 (9th Cir. 2001). Some courts have included
whether the corporate entities committed fraud in incorporation.
See, e.g., Laborers Clean-up Contract Admin. Trust Fund v. Uriarte
Clean-up Serv., Inc., 736 F.2d 516, 524 (9th Cir. 1984)("To
determine whether stockholders are personally liable for the debts of
their corporations, this court relies on three factors: the amount of
respect given to the separate identity of the corporation by its
shareholders, the fraudulent intent of the incorporators, and the degree
of injustice visited on the litigants by recognition of the corporate
Plaintiffs do not advance the theory that defendants engaged in fraud
in the incorporation of defendants and CNL. Even if this Court were to
apply the less stringent test articulated in Doe v. Unocal
Corp., 248 F.3d 915, 926 (9th Cir. 2001), which does not require
fraud in incorporation, plaintiffs still fail to present a material issue
of disputed fact regarding their alter ego theory of liability.
Plaintiffs have not submitted evidence that demonstrates that inequity
would result from the recognition of the corporate form. The inability of
plaintiffs to recover for their losses is not a sufficient inequity to
justify overlooking the corporate form. See e.g.,
Seymour, 605 F.2d at 1113 ("Lastly, we see no injustice in the
effect of the trial court's findings. While it is true that the trustees
apparently have a judgment for several thousand dollars against an
insolvent defendant, their inability to collect does not, by itself,
constitute an inequitable result."). Here, there is simply no evidence to
support a finding that incorporation was undertaken in bad faith or that
observing the corporate form would achieve an inequitable result. Thus
plaintiffs' alter-ego theory and/or piercing the corporate veil theories
are not bases on which a reasonable jury might disregard the corporate
form to hold defendant liable for the acts of its subsidiary.
C. Aiding and abetting and ratification theories
In the "general allegations" that plaintiffs include in their Fifth
Amended Complaint, plaintiffs state that defendants and CNL "aided and
abetted and/or ratified the attacks on Parabe, Opia and Ikenyan by,
inter alia, knowingly providing substantial assistance
and/or encouragement to the military and/or police that perpetrated the
attacks, and by conducting a knowingly false publicity campaign designed
international criticism of the military and/or police and of
Chevron for their respective roles in the attacks." Fifth Amended Compl.
para. 79. Plaintiffs' opposition brief clarifies at n. 29 that plaintiffs
are asserting the theories of aiding and abetting and ratification "with
respect to all of their claims." Opp. at 27, n. 29.
To the extent that plaintiffs may proceed against defendants on the
theory that CNL was acting as defendants' agent, they may also proceed on
their claims for aiding and abetting and ratification. In addition, even
if plaintiffs' theory that CNL was conducting itself as defendants' agent
during the incidents fails, plaintiffs have an independent claim under
their ratification theory that their subsequent ratification of CNL's
actions created an agency. "An agency may be created, and an authority
may be conferred by a precedent authorization, or a subsequent
ratification." Rakestraw v. Rodrigues, 8 Cal.3d 67, 73 (1977).
Ratification is demonstrated through knowing acceptance after the fact by
the principal of an agent's actions. Plaintiffs claim that defendants'
media campaign defending CNL constituted ratification. Plaintiffs argue
that defendants' media campaign involved dissembling about "the
complicity of CNL" and that defendants "covered up" for their own
personal benefit. Covering up of the misdeeds of an agent can also
constitute ratification. Seymour v. Summa Vista Cinema.
Inc., 809 F.2d 1385, 1388 (9th Cir. 1987). Where the acts by the
agent were not within the scope of the agency relationship, if they are
not disavowed by the principal, failure to disavow may constitute
ratification. Schultz Steel Co. v. Hartford Accident & Indemnity
Co., 187 Cal.App.3d 513, 519, 523 (1986)("A purported agent's act
may be adopted expressly or . . . by implication based on conduct of the
purported principal from which an intention to consent or adopt the act
may be fairly inferred.")
Plaintiffs have pointed to numerous instances in the evidentiary record
in which defendants made conflicting statements to the media about CNL's
involvement in the attacks. These statements could be evidence of a
cover-up, or ratification. The conflicting evidence includes reporting
that the military approached Chevron to provide transportation to the
platform and that CNL did not own helicopters or boats. For example, in a
September 30, 1998 interview on KPFA radio, the then-head of Chevron
Corporation's Media Affairs Department in San Francisco, Michael Libbey,
stated, "When they [Nigerian law enforcement] came to us and said, `Take
us to that project,' we obviously had no choice to comply." Hadsell
Decl., Exh. 108, BS 303-305 at 304 (Summary at 562). In apparent
contradiction to this statement, in an earlier interview Chevron Media
Relations employee stated, "After the protestors failed to release the
hostages . . . police were
asked to intervene." Hadsell Decl., Exh. 81, BS 219-222 at 219-220
(Summary at 264).
There is also evidence that defendants made contradictory statements
about CNL's ownership of the helicopters and boats used to transport the
Nigerian military to the platform. Most of defendants' statements took
great pains to suggest that the helicopters and boats were not CNL's to
loan to the Nigerian military, but rather property of the joint venture.
Nonetheless, some of defendants' statements indicate that these
helicopters and boats were actually viewed by defendants and CNL as CNLs'
property. In a February 26, 1999 email, Billlrwin, who worked for Warner
Williams, COPI's Manager of International Relations in Washington, D.C.,
stated to CNL and Chevron officials that the question of whose
helicopters or boats were used could be addressed by focusing on the fact
that they were owned by the Joint Venture "which can be interpreted,
perhaps as much closer to the Nigerian govt" and that because the
government has a 60 percent ownership interest in the Joint Venture it is
"so much more difficult to refuse access to our equipment." Hadsell
Decl., at Exh. 160, BS 509-510 (Summary at 590-591). While this statement
at least appears to concede that the equipment is "our[s]," other
communications with the media suggest that CNL had no relationship at all
to the equipment. In an email from Joseph Lorenz to Deji Haastrup on
February 23, 1999, responding to Haastrup's email regarding questions
from a journalist about the ownership of the boats and helicopters,
Lorenz advised a response that "Chevron has no involvement whatsoever in
this activity [in the government's use of boats and helicopters leased by
the joint venture.]." Hadsell Decl., Exh. 153, BS 434-438 (Summary at
586). Accordingly, there is sufficient evidence from which a reasonable
jury could infer a cover-up or ratification of CNL's activities.
D. Plaintiffs' RICO claims
Defendants have objected to the inclusion of conspiracy claims in
plaintiffs' complaint. Conspiracy is alleged by plaintiffs as an element
of their RICO claim. In their Seventh Claim for Relief for RICO
violations, plaintiffs allege that defendants were co-conspirators.
Plaintiffs' complaint alleges that defendants "and their agents and
co-conspirators" formed and constituted a RICO enterprise. A conspirator
under RICO "must intend to further an endeavor which, if completed, would
satisfy all of the elements of a substantive criminal offense, but it
sufficient that he adopt the goal of furthering or facilitating the
criminalendeavor." Salinas v. U.S.,
522 U.S. 52, 65 (1997). Defendants argue that plaintiffs have not
properly pled their conspiracy claim. The Court declines to grant summary
judgment on the grounds that the claim was pled improperly.
Defendants' motion also argues that plaintiffs have introduced no
evidence to show that defendants collaborated with CNL or the Nigerian
military or police to commit the predicate acts alleged as part of
plaintiffs' RICO claim. Having allowed the balance of plaintiffs' claims
to proceed against defendants on the grounds that plaintiffs have created
a triable issue of material fact regarding defendants' liability for
CNL's acts under an agency theory, the Court allows plaintiffs' RICO
claims to proceed on this basis as well.
Pursuant to 42 U.S.C. § 1962(c), RICO prohibits (1) conduct (2) of an
enterprise (3) through a pattern of (4) racketeering activity affecting
interstate commerce. Evidence of an agency relationship is a sufficient
basis for a finding of liability under RICO. Brady v. Dairy Fresh
Products, 974 F.2d 1149, 1154-55 (9th Cir. 1992). As this Court has
determined that plaintiffs have created a genuine issue of material fact
with respect to whether CNL was acting as defendants' agent, and the
question of whether CNL committed acts in violation of RICO has been
reserved for Phase II, at this juncture summary judgment on the RICO
claims would be premature.
Defendants' remaining objections to plaintiffs' RICO claims are based
on plaintiffs' alleged failure to demonstrate that their claims had a
substantial impact on United States' commerce (a necessary prerequisite
to jurisdiction over RICO claims based on the extraterritorial
application of the RICO statute). In North South Finance Corp. v.
Al-Turki, 100 F.3d 1046, 1051 (2d Cir. 1996), the court outlined the
conduct test and the effects test, two bases on which jurisdiction may be
asserted under RICO in this action. The question of whether this Court
may assert jurisdiction over defendants under the "effects" test with
respect to plaintiffs' RICO claims was addressed by this Court in its
January 23 Order, at pages 12-13. The Court refers the parties to the
relevant section of that Order and incorporates its analysis by
reference; it will not be repeated here.
E. Defendants' state action argument
Defendants argue that they are not liable under the Alien Tort Claims
Act because plaintiffs have not presented sufficient facts to show that
CNL engaged in state action, as required by the ATCA. Plaintiffs argue
that this Court should not decide whether CNL was a state actor, at
this stage, because CNL's actions at Parabe and Opia/ Ikenyan are the
subject of Phase II of this trial. The Court agrees. Whether state action
must be pled as an element of plaintiffs' ATCA claims and, if so, whether
plaintiffs are able to demonstrate evidence to satisfy the state action
requirement, are unsuitable for summary adjudication in Phase I of this
trial. At this juncture, defendants' motion for summary judgment based on
the failure to adequately demonstrate state action is DENIED. Defendants
may raise this argument in Phase II of this action, should they deem it
Accordingly, defendants' motion for summary judgment is DENIED. [Docket
IT IS SO ORDERED.