Exxon Mobil Corp., et al. v. Saudi Basic Industries Corp. (03/30/2005)

Question presented: May the Rooker-Feldman doctrine, which bars lower federal courts from conducting de facto appellate review of decisions by state courts, be expansively interpreted to additionally incorporate preclusion principles and divest federal courts of jurisdiction solely because a pending state-court proceeding presents identical issues, notwithstanding the long-established system of dual federal and state jurisdiction?

BY EMILY PARKER, MEDILL NEWS SERVICE

Federal and state courts each have a way of handling cases and have coexisted as a bedrock of federalism enshrined in the Constitution. There are reasons to file in the federal system or in state court, but in some cases, a party can file a lawsuit in both courts.

This becomes a problem when the exact same claims are made in both a federal suit and in a state suit. This is the issue in Exxon Mobil Corp. v. Saudi Basic Industries Corp. (SABIC).

Nearly 25 years ago, subsidiaries of ExxonMobil, then two separate companies, and SABIC entered into a partnership. These companies formed two joint ventures called Yanpet and Kemya. Both joint ventures operated in Saudi Arabia and manufactured polyethylene. The partners agreed that they would not profit at the joint ventures' expense.

But when SABIC obtained the rights to a polyethylene manufacturing method, it secretly marked-up fees it charged to Yanpet and Kemya. Four years ago, Exxon Mobil discovered these extra charges that had been going on for years.

Litigation resulted in October 1998 when SABIC filed suit in U.S. District Court for the District of New Jersey, claiming that Kemya deserved ownership of a patent related to the manufacturing of polyethylene.

Nearly two years later, SABIC filed another suit in the Delaware state court, seeking a declaratory judgment that they were not liable for the overcharging and that the charges did not violate the joint venture agreement.

Exxon Mobil countersued in federal court, claiming SABIC's overcharges did violate the joint venture agreement and ExxonMobile should be awarded damages.

The subsidiaries of Exxon Mobil, Mobil Yanbu Petrochemical Co. and Exxon Chemical Arabia, Inc. (ecAI), also filed claims in the Delaware Superior Court for damages for the overcharging by SABIC.

The case went through the state court system quicker and in March 2003, a two-week trial was held in Delaware. A jury rendered a verdict, finding that SABIC had violated the joint venture agreement by overcharging the joint ventures, and awarding Exxon Mobil compensatory damages of more than $416 million.

An appeal by SABIC is pending in the Delaware Supreme Court.

SABIC also moved to dismiss the case pending in the federal district court based on the Foreign Sovereign Immunities Act (FSIA). When this motion was denied, SABIC appealed to the 3rd Circuit Court of Appeals.

On Nov. 12, 2003, a 3rd Circuit panel agreed to hear the case, even though the case was still pending in the Delaware state courts. Shortly before oral argument, the 3rd Circuit informed attorneys to be prepared to argue whether the Rooker-Feldman doctrine applied in this case.

The Rooker-Feldman doctrine stems from two cases decided six decades apart, one in 1923, the other in 1983. The doctrine prevents federal courts other than the U.S. Supreme Court from considering issues presented to and decided by state courts, thereby keeping federal courts from acting like appeals courts to state court decisions.

On March 24, 2004, the 3rd Circuit issued a unanimous opinion, vacating the lower federal court ruling and ordering that the federal suit be dismissed for want of subject matter jurisdiction.

"Because Exxon Mobil's federal claims were identical to the claims in which the Delaware Superior Court reached a final judgment, they are barred by the Rooker-Feldman doctrine," Judge Thomas Ambro wrote for the panel. "We cannot imagine a more classic invocation of the Rooker-Feldman jurisdictional bar than to preclude a party from maintaining a federal action as an ‘insurance policy' in case the state trial court decision in that party's favor is overturned by an appellate state court."

In seeking review by the U.S. Supreme Court, Exxon Mobil claims Rooker-Feldman does not apply in this case. In its petition for certiorari, Exxon Mobil said the appeals decision did not explain how Rooker-Feldman applies when Exxon Mobil is not challenging the state court decision and the only decision it could challenge is still pending in the Delaware appeals court.

Exxon Mobil also argues that it is important for the Supreme Court to decide the case to restore the balance between different circuit courts.

"The conflicting authority that has arisen in numerous courts of appeals cases decided since the [Supreme] Court issued Feldman over two decades ago demonstrates that, without the Court's guidance, the conflict will continue to deepen and, given the Third Circuit's entrenched position on the subject, the conflict is unlikely to resolve itself without the Court's assistance," according to its petition.

On Oct. 12, 2004, the U.S. Supreme Court accepted review in the case, and on March 30, 2005, unanimously reversed, holding for Exxon Mobil that the Rooker-Feldman doctrine doesn't keep the company from resorting to the federal courts.

Writing for the Court, Justice Ruth Bader Ginsburg concluded that Exxon Mobil wasn't using the federal courts to undo the Delaware judgment, but was filing to protect itself in case it lost in state court on grounds that would not have precluded relief in the federal system.