Cities Service Co. v. Gulf Oil Corp.

Cities Service Co. v. Gulf Oil Corp.
1999 OK 14
980 P.2d 116
70 OBJ 762
Case Number: 87979
Decided: 03/02/1999
Mandate Issued: 07/09/1999
Supreme Court of Oklahoma

CITIES SERVICE COMPANY, now Oxy USA Inc., Plaintiff/Appellee,
v.
GULF OIL CORPORATION, now Chevron USA Inc., and GOC Acquisition Corporation, Defendants/Appellants.

[980 P.2d 120]
APPEAL FROM THE DISTRICT COURT, TULSA COUNTY;
Honorable Deborah Shallcross, Trial Judge.

¶0 Cities Service Company, now OXY USA Inc., [Cities] brought an action in the District Court, Tulsa County, Deborah Shallcross, trial judge, to recover damages for an alleged breach of a merger agreement between itself and Gulf Oil Corporation, now Chevron USA Inc., and GOC Acquisition Corporation [collectively Gulf]. After ruling that several defenses advanced by Gulf to Cities' breach-of-contract claim were not available as a matter of law, the trial judge submitted the remaining issues in the case to the jury with directions that if it found that Cities had relied on the merger agreement in the repurchase of its own stock from an investor, the jury should find damages in the amount specified by the court. When judgment was entered on a jury verdict against Gulf, it appealed.

THE TRIAL COURT'S JUDGMENT FOR THE PLAINTIFF IS AFFIRMED.

Clyde A. Muchmore and Harvey D. Ellis, Jr., of Crowe & Dunlevy, Oklahoma City, OK; Charles R. Ragan and Craig S. Stewart of Pillsbury, Madison & Sutro LLP, San Francisco, CA; Stephen M. Shapiro, Andrew L. Frey and Philip A. Lacovara, Chicago, IL; and Bruce W. Freeman, John T. Schmidt and D. Richard Funk of Conner & Winters, Tulsa, OK, for the appellants.

Oliver S. Howard and Teresa B. Adwan of Gable Gotwals Mock Schwabe Kihle Gaberino, Tulsa, OK; W. DeVier Pierson, Knox Bemis and Peter J. Levin of Pierson Semmes and Bemis, Washington, D.C.; Sam P. Daniel, Jr. and Dallas E. Ferguson of Doerner, Saunders, Daniel & Anderson, Tulsa, OK, for the appellee.

LAVENDER, J.

¶1 While the appeal before us presents complex procedural questions of both state and federal character and some first-impression matters of adjective law, the case's legal issues are posed in the context of two rather straightforward queries - (1) Was Gulf Oil Corporation, now Chevron USA Inc., and GOC Acquisition Corporation [collectively Gulf] justified in terminating the merger agreement between itself and Cities Service Corporation, now OXY USA, Inc. [Cities]? and (2) If not, what then is the proper measure of damages to Cities occasioned by the breach?

I
FACTS AND PROCEDURAL HISTORY

¶2 The protracted legal drama - the subject of this opinion - began in the summer 1982. On June 15

¶3 On August 9, 1982 Cities filed its petition seeking damages not only for breach of contract but also for malicious breach or fraud. Gulf defended its cancellation of the merger, asserting that its act was justified under the agreement's terms (1) because the Federal Trade Commission [FTC] sought restraint of the transaction in federal court [the FTC defense]

¶4 The trial of this cause began in April 1996 and extended almost three months. During this time the trial judge made several bench rulings, the ultimate effect of which was to deny as matters of law the defenses raised by Gulf to Cities' breach-of-contract claim. [Gulf's defenses to Cities' malicious breach or fraud claim otherwise remained viable when the case was submitted to the jury.] The FTC defense was abrogated when preclusive effect was given to orders entered in the shareholders' action in the U.S. District Court for the Southern District of New York.

¶5 In an effort to identify the outward boundaries of any damages which might be awarded Cities, both parties proffered evidence during trial concerning the value of Cities' stock which was repurchased from Mesa Petroleum Corporation [Mesa] in June 1982.

¶6 On July 19, 1996 the jury returned (a) a split [9 to 3] verdict which exonerated Gulf from liability for fraud or malicious breach of the merger agreement and (b) an unanimous verdict finding that Cities' June 1982 repurchase of its own stock from Mesa was in reliance on the Gulf/Cities merger contract. Judgment was entered for Cities in the amount of $229,621,400 plus that quantum of interest which is allowed under Delaware law.

B
The Federal Court Actions

¶7 As a result of the merger's failure, several of Cities' shareholders who had offered their shares to Gulf pursuant to a tender offer circular (issued ancillary to the merger agreement), as well as persons who had purchased shares or options during the tender period, brought suit against Gulf and various of its officers and directors in the U.S. District Court for the Southern District of New York. The action was brought as a class complaint with one group of investors [the Jones group] opting not to participate in the class and proceeding separately. Both actions nonetheless were consolidated for trial.

¶8 Gulf moved for summary judgment in the federal suits alleging that the FTC's challenge of the merger excused its non-performance under the tender offer's explicit terms.

¶9 After Judge Mukasey denied summary judgment, Gulf settled with the shareholders class. Their suit was dismissed with prejudice by a May 21, 1992 order. While Gulf achieved settlement with the shareholder class, it could not agree with the Jones plaintiffs on certain issues of liability and damages. The non-settling parties agreed to submit the remaining issues

II
THE STANDARD OF REVIEW

¶10 Assessment of the various errors alleged to have occurred in this case requires the application of differing standards of review. Gulf urges as errors in the proceedings below the following: (1) the partial summary adjudication given Cities which foreclosed [through use of the doctrine of offensive nonmutual collateral estoppel

¶11 The legal standards which govern motions for summary adjudication and/or directed verdicts very closely approximate each other, if they are not indeed identical.

¶12 Here our review of the availability of offensive nonmutual collateral estoppel - which includes the requirements of identical issues actually and necessarily determined by a final and valid decision, i.e. legal conclusions - is plenary. Nonetheless, the trial court's decision to give preclusive effect to the earlier federal court ruling and arbitration award - i.e., whether the prerequisites of a full and fair opportunity to litigate the issue in the earlier proceedings and fairness are present [factual determinations] - is assayed by yet another standard.

III
GULF'S FTC DEFENSE WAS PROPERLY PRECLUDED THROUGH APPLICATION OF OFFENSIVE NONMUTUAL COLLATERAL ESTOPPEL

A. Introduction

¶13 Review of Cities' invocation of offensive nonmutual collateral estoppel to preclude Gulf's FTC defense raises an [980 P.2d 125] interjurisdictional query. While federal law governs the preclusive effect to be accorded the earlier federal-court decision,25 state law is determinative of whether Gibbon's arbitration award is entitled to equal effect.26

¶14 Extant federal jurisprudence authorizes the use of an offensive,

¶15 A determination by the trial court that the defendant had a full and fair opportunity to litigate the issue in the earlier proceeding is also required as a predicate to the doctrine's employment.

¶16 Inherent in today's review of the propriety of the trial court's denial of Gulf's FTC defense is our consideration of a matter of first impression - the threshold question of whether the doctrine of offensive nonmutual issue preclusion applies to arbitration awards in civil matters which do not implicate federal statutory or constitutional rights. The Court in Carris v. John R. Thomas and Assoc.,

¶17 The rationale for application of preclusive principles stated in Knight

Collateral estoppel - more graphically known as "issue preclusion" - and the related doctrine of res judicata - "claim preclusion" - "relieve parties of the cost and vexation of multiple lawsuits, conserve judicial resources, and by preventing inconsistent decisions, encourage reliance on adjudication." Allen v. McCurry,

Issue preclusion - be it based upon an arbitral award or a court's order/judgment - is an equitable doctrine. Where the parties' alignment and the raised legal and factual issues warrant and fairness to the parties is not compromised by the process, its application is appropriate. It is indeed the proceeding's substance and the degree of due process inherent in it, rather than its form,

¶18 Here the trial judge denied Gulf's FTC defense by giving preclusive effect conjointly to (1) the federal trial court's September 12, 1989 order which denied Gulf's motion for summary judgment based on the "(d)(1)" component of its FTC defense

B. Legal Analysis of the Federal Court Order's Preclusive Effect

¶19 Gulf assigns error to the trial court's application of offensive nonmutual [980 P.2d 127] collateral estoppel in the case before us, asserting that (1) the federal court's order was not sufficiently final to support the doctrine's application; and (2) the settlement agreement between itself and the shareholder class "preserved" Gulf's right to raise any defenses which it might have in future litigation.

¶20 Under extant federal jurisprudence finality as a criterium for application of issue preclusion is a much more flexible concept than that "finality" which is required in the assessment of a district court order's appealability or res-judicata effect. It does not equate with a judgment which ends the litigation and leaves nothing more for the court to do except execute the judgment. Rather, an order's finality for issue-preclusion purposes is assessed by determining whether the conclusion in question is procedurally definite. Particularly relevant to the latter decision are such factors as "the nature of the decision (i.e., that it was not avowedly tentative), the adequacy of the hearing, and the opportunity for review."

"To be `final' for purposes of collateral estoppel the decision need only be immune, as a practical matter, to reversal or amendment. `Finality' in the sense of 28 U.S.C. § 1291 is not required." Id. at 995. [§ 1291 addresses the courts of appeals' jurisdiction over final decisions of district courts]

Hence, finality for collateral-estoppel purposes is assessed in the context of the broader question whether the party - against whom the doctrine is to be applied - had a "full and fair" opportunity to litigate to a conclusion the precluded issue [as distinguished from claim] in the earlier proceeding.

¶21 Under the above criteria the federal court order here in issue is sufficiently firm to be accorded preclusive effect in the cause before us. There is nothing in the federal trial court's well-reasoned, 42-page Opinion and Order which suggests that [980 P.2d 128] it was intended to be tentative. Judge Mukasey held that as a matter of law the "d(1)" [FTC] defense was not available to Gulf after August 3, 1982 - the date on which the FTC requested divestiture of the Lake Charles refinery.

¶22 Gulf suggests that Judge Mukasey's order should be denied the finality requisite for issue preclusion's use because the federal action was dismissed before judgment was entered as the result of a negotiated settlement.

¶23 Gulf's Annex I(d)(i) defense is unquestionably the same defense as that litigated in the earlier federal shareholder action since it is based upon the same [980 P.2d 129] contractual language and facts. Because our de novo review of the state trial court's use of offensive nonmutual collateral estoppel yields no evidence of legal error, we next review its application of the doctrine for abuse of discretion. Gulf's contingent liability in the shareholder litigation was in the millions of dollars. This amount of liability exposure will provide any litigant with ample incentive to litigate. The instant cause was not only foreseeable to Gulf, it had actual knowledge of it while proceeding through the federal litigation. Finally, we note that Gulf was afforded, and evidently took advantage of, all opportunities to brief the issue of its FTC defense's availability under the terms of tender offer circular ¶ 15(d)(1) before the federal court.

C. Legal Analysis of the Arbitration Award's Preclusive Effect

¶24 The arbitrator's award - to which the state trial judge ascribed issue-preclusive effect - was the product of a three week proceeding before Judge John Gibbons. There is no dispute about Judge Gibbons' (a retired Chief Judge of the Second Circuit of the U.S. Courts of Appeals) qualifications to arbitrate the limited contractual issues submitted to him under the arbitration agreement's terms. The parties instructed him (1) to rely upon Judge Mukasey's rulings in the shareholders' action [including the order denying Gulf's "(d)(1)" defense] and (2) to decide whether Gulf had made the contractually mandated determination that the Lake Charles refinery was a material asset of Cities' business, "taken as a whole", before it repudiated the merger agreement on August 6, 1982.

¶25 The record is clear that the arbitrator's scope of authority under the Submission Agreement and ADR Protocol embraced consideration of whether Gulf could avoid breach-of-contract liability by reliance on the tender offer circular ¶ 15 (d)(2) & (3) provisions. The extent of the evidence reflected in the arbitration record

C. Conclusion About The Availability Of Collateral Estoppel In This Cause

¶26 Upon review of the application below of offensive nonmutual collateral estoppel we conclude that Gulf was properly precluded as a matter of law from asserting its FTC defense - as based on the provisions of Annex I(d)(i), (ii) & (iii) - to Cities breach-of-contract claim. In the earlier federal litigation Gulf had its day in court on what the contractual language in issue meant. Application of collateral estoppel here promotes that symmetry of judgment which is one of the desired objects of efficient and effective adjudication and insures that the contractual language - found in both the merger agreement and the tender offer circular - is accorded the same meaning.

IV
DENIAL

¶27 Gulf asserts that Cities materially overstated its oil reserves in its 1981 Securities and Exchange Commission [S.E.C.] filings and in so doing breached the merger agreement's terms. Gulf also reasons that Cities' overstatement of its proved oil reserves breaches a condition precedent to its performance and excuses the merger's repudiation regardless of when the overstatement was discovered and even if Gulf in error had earlier predicated the contract's cancellation upon some other ground.

¶28 Gulf also contends that under the merger agreement's provisions Cities "expressly" warranted its oil reserve figures.

¶29 It is undisputed that on July 13, 1982 Gulf's engineers reported to its board of directors that they perceived a possible 41.7 million barrel shortfall from the proved-oil-reserve-estimate stated in Cities' 1981 annual report filed with the S.E.C.. With knowledge that its board was aware in July 1982 of the possibility of a 41.7 million barrel shortage in Cities' reserve figures, Gulf represented in paperwork filed in the New York arbitration before Judge Gibbons:

"94. The possible oil reserves shortfall discovered in early July did not cause the Gulf Board to terminate on August 6. The directors concluded that they had insufficient information to resolve the difference between Cities and Gulf engineers concerning Cities' oil reserves as of July 1982, and accordingly determined that the information reported to them at that time was not material."

When Gulf was asked in the Tulsa County District Court litigation to admit the truth of its representation to the arbitrator, it stated that its directors "accordingly determined that the information reported to them at that time [August 6, 1982] was not material."

¶30 [980 P.2d 132] The critical question now becomes whether there was record proof of a shortfall in Cities' proved oil reserves greater than the 41.7 million barrel differential admitted not to be material by Gulf. In light of its admissions Gulf's assignment of error to the trial court's denial of its oil-reserve defense can only be sustained if there is record proof (1) that Cities' estimate of its proved oil reserves [as calculated according to S.E.C. regulations] was overstated in an amount greater than the earlier Gulf estimate of 41.7 million barrels and (2) that the bigger shortage was material.

¶31 Gulf anticipated being able to prove error and fraud in the methodology which Cities used to estimate its oil reserves by the testimony of John Lee, an expert. After voir dire examination of Lee, the trial judge excluded his testimony because his trial testimony substantially contradicted his earlier depositional testimony. She found that Lee's change of positions undermined the benefit of the earlier expert discovery deposition which Cities had taken of Lee

¶32 A trial judge's decision to exclude evidence will not be overturned absent a clear abuse of discretion.

¶33 In January 1995 an expert discovery deposition was taken of Lee. Because of concerns generated by Lee's testimony the trial judge ordered a voir dire examination of him before she decided whether to limit his testimony or to exclude parts of it. In Lee's earlier deposition he stated (1) that he had never prepared oil reserves estimates for S.E.C. filing or tender offer purposes; (2) that this was his "maiden voyage" in calculating oil reserves under S.E.C. definitions; (3) that he had never done any economic analysis of proved developed oil reserves' value; and (4) that he had never heard the terms "project reserves" or "unit reserves" or reserves referred to as "field reserves." Nonetheless, during voir dire examination at trial Lee testified that he understood the term "project reserves" and had "done it myself many times, probably [980 P.2d 133] hundreds."

¶34 It is almost axiomatic that to submit an issue not supported by competent evidence to the jury would be prejudicial error on the trial judge's part.

V
THE TRIAL COURT DIRECTED A VERDICT ON THE AMOUNT OF CITIES' RELIANCE DAMAGES TO PREVENT SPECULATION AND CONFUSION IN THE JURY'S DELIBERATIVE PROCESS; HENCE, IT IS NOT ERROR

A.

¶35 Gulf asserts error in the trial court's direction of a verdict on Cities' reliance damages, alleging that by so doing the trial court invaded the jury's province. Although Gulf takes no issue with the amount which Cities paid to repurchase its stock from Mesa,

¶36 Cities' entitlement to reliance damages is confirmed by the jury's verdict which stands unchallenged by either party.

¶37 Cities proffered evidence that immediately after Gulf's repudiation of the merger its life as an independent corporation was doomed and it had to either liquidate itself or find a merger partner.

¶38 Oklahoma's extant jurisprudence provides that when a defendant (breaching party) asserts matters in reduction - either in whole or part - of the damages sought by a plaintiff's breach-of-contract claim, the burden of proving the reductions [which encompasses both burdens of producing evidence and of persuasion

"Conjecture is an unjust and unsound basis for a verdict, and speculative, remote, or contingent damages cannot form the basis of a lawful judgment. Juries may not legally guess the money out of one litigant's pocket into that of another."

Lastly, to require the plaintiff to value the reductions alleged by the breaching party (as Gulf suggests should be done here) - under the guise of the law's requirement that a plaintiff must prove its damages - is tantamount to transferring the assigned burden of proving the fact of the reductions to the non-breaching party. Gulf's attempt to shift the burden of proof to Cities on this issue contravenes Oklahoma's extant jurisprudence and is disallowed. The trial court properly required Gulf to prove the fact of any reductions to damages which it suggested.

¶39 Oklahoma requires that damages be "clearly ascertainable".

¶40 Plenary review of the record evinces that Gulf, as the breaching party, was properly assigned the burden of proving the fact of the reductions which it offered to offset Cities' reliance damages. Gulf's failure to adduce competent evidence by which a jury could gauge its suggested reductions and their monetary value is fatal to its objection to the trial court's directed verdict on the amount of Cities' reliance damages. The trial court's directed verdict on the amount of Cities' reliance damages is sustained.

B.

¶41 Lastly, Gulf urges error in the trial court's order in limine which precludes introduction of evidence about Cities' December 3, 1982 merger with Oxy USA Inc.

¶42 Gulf's assignment of error to the trial court's order in limine was reviewed with a mindful eye to the issues relevant to Cities' breach-of-contract claim then before the trial court. Gulf's offer of proof was particularly addressed to the damages issue and whether the purchase price Cities paid for the treasury shares repurchased from Mesa should have been reduced because of ascertainable value attributable to the same. Our review of Gulf's offer discloses no evidence of monetary value specifically ascribed by Oxy to the settlement with, or the treasury shares acquired from, Mesa which is certain or definite enough to sustain a reduction of Cities' reliance damages.

¶43 A trial judge is responsible for the just outcome of a trial and has broad discretion in its conduct. Unless it appears that a trial court has abused its discretion in reaching a decision, its ruling will not be [980 P.2d 136] reversed.

VI
CONCLUSION

¶44 The arena in which the legal questions addressed by today's pronouncement were played out is a cause whose life extended over fourteen years and culminated in 1996 after a three-month trial. Cities' breach-of-contract claim required the trial court to decide two rather straightforward legal questions: (1) Did Gulf breach the merger agreement between itself and Cities when it repudiated the same on August 6, 1982? and (2) What is the proper measure of the non-breaching party's damages in this contract action? The cause's resolution rested on (1) the application of adjective law concerning the preclusive effect which could be extended to earlier-entered decisions of a federal district court and an arbitrator; (2) the admission or denial of evidence in a contentious evidentiary battle intently waged for two years, and (3) the assessment of the adduced evidence to determine whether the amount of damages should be decided as a question of law or be submitted to the jury. Certainly, the uncontested jury's verdict that the treasury shares acquired from Mesa were purchased by Cities in reliance on the merger agreement assisted in this process.

¶45 Gulf's defense to its repudiation of the merger agreement was premised primarily on the contract's language. While due process requires that Gulf be given a full and fair opportunity to litigate the availability of the asserted contractual defenses [the FTC defense and the "Annex I (d)(2) & (3)" defenses], the law requires no more than one such opportunity be given to do so. Nonmutual collateral estoppel's application is only sustainable after both the legal criteria for the doctrine's availability and the opportunity to earlier litigate have been assessed.

¶46 Gulf takes umbrage at what it suggests is the trial court's usurpation of the jury's duties in the present cause. We have reviewed de novo her rulings about what at first blush would appear to be factual determinations within the jury's usual domain. Because of the absence of necessary record proof to support submission of Gulf's oil-reserve -defense to the jury, the trial court correctly resolved the issue as a question of law. The trial court properly assigned the burden of proof to Gulf for the reductions which it suggested to Cities' reliance damages. Further, after plenary review of Gulf's offer of proof about the Oxy USA/Cities merger, the trial court's rulings - which precluded introduction of evidence about the later merger and averted the interjection of speculation and confusion into the jury's deliberative process - did not constitute abuses of judicial discretion and are affirmed.

¶47 [980 P.2d 137] THE JUDGMENT OF THE TRIAL COURT IS AFFIRMED.

¶48 HARGRAVE, V.C.J., LAVENDER, SIMMS, KAUGER and WATT, JJ., concur.

¶49 SUMMERS, C.J., and WILSON, J., concur in judgment.

¶50 OPALA, J., concurs in part, dissents in part.

¶51 HODGES, J., not voting.

FOOTNOTES

1 See the merger agreement ¶ 1.1 which conditions Gulf's performance upon compliance with Annex I conditions of the contract. Annex I provides in pertinent part:

(d) There shall be any action taken . . . applicable to the Offer by any . . . federal . . . authority or there shall be in effect an order entered by any . . . federal . . . court which, in the sole judgment of Offer Sub [Gulf], (i) would make the acquisition of some or all of the Shares or the consummation of the Merger illegal, (ii) would require the divestiture by Parent or any subsidiary of Parent of any of the Shares or of a material portion of the business of either Parent and its subsidiaries, taken as a whole, or the Company and its subsidiaries, taken as a whole, or (iii) would impose material limitations on the ability of Parent and its subsidiaries effectively to exercise full rights of ownership of the Shares, including the right to vote the Shares acquired by it on all matters properly presented to the stockholders of the Company, or of a material portion of the Company and its subsidiaries, taken as a whole;

(e) The Company [Cities] shall have breached in any material respect its obligations under the Merger agreement.

2 Gulf asserts as the basis for this argument the provisions of the merger agreement ¶ 4.5 which provide in pertinent part:

"The Company [Cities] has also previously furnished, or will promptly furnish after the date hereof, to Parent [Gulf] a true and complete copy of each prospectus, definitive proxy statement and report filed by the Company with the Commission [Securities & Exchange Commission] since January 1, 1982. None of the statements or reports referred to above contained as of its date any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of circumstances under which they were made, not misleading."

3 Gulf's oil reserves defense was actually comprised of six separate affirmative defenses sounding in both contract and fraud. See Gulf's Amended Answer to Petition, Original Record [O.R.] p. 13,076.

4 See In re Gulf Oil/Cities Service Tender Offer Litigation, 725 F. Supp. 712 (S.D.N.Y. 1989) and In re Gulf Oil/Cities Service Tender Offer Litigation, 1989 WL 123109 (S.D.N.Y. 1989); see also In re Gulf Oil/Cities Service Tender Offer Litigation, 776 F. Supp. 838 (S.D.N.Y. 1991).

5 Id.

6 The repurchase occurred after the Cities/Gulf Merger Agreement was executed. Neither party has contested the jury's finding that Cities' stock, i.e., the 4.1 million treasury shares repurchased by Cities from Mesa, was bought in reliance on the merger agreement.

7 The trial judge alerted Gulf to the possibility of this happening before Gulf put on its case by her ruling of April 14, 1996. See Tr. Trans. pp. 2025-26.

8 The merger agreement ¶ 10.8 (iv) provided that the contract was to be governed by the law of Delaware.

9 Gulf's FTC defense is conditioned upon language which is found in the tender offer circular ¶ 15(d).

10 The tender offer circular's litigation-out clause [¶ 15(d)(1)] mirrors in content the language of the Merger Agreement Annex I(d)'s provisions. For that language see supra note 1.

11 See In re Gulf Oil, supra note 4 at 742.

12 Judge Mukasey's rulings were predicated upon a record which reflected the parties had at that time filed 25 briefs (totaling 611 pages), 29 affidavits (totaling 666 pages) and 536 exhibits (totaling 4,889 pages).

13 The issues presented to the arbitrator included:

1. Whether Gulf's Department of Energy's defense was valid as to any or all of the Jones parties, and, if so, to which ones;

2. Whether Gulf had determined - as a predicate to its decision to terminate the merger agreement - that the Lake Charles refinery was a material portion of Cities' business, taken as a whole; and

3. Damages and their calculation.

14 The arbitration proceeding produced a transcript in excess of 5000 pages. Both parties filed pre-hearing, post-hearing and reply briefs and made oral arguments at the opening and closing of the evidentiary hearing. The record in the arbitration included the examination of 27 fact and expert witnesses, designations from 118 depositions and more than 2000 fact and demonstrative exhibits.

15 The "(d)(1)" defense is premised upon the tender offer circular ¶ 15(d)(1) and is titled the "litigation out" defense by Judge Mukasey. The referenced paragraph mirrors the language found in Annex I(d) of the merger agreement, found supra at note 1.

16 In offensive nonmutual collateral estoppel the plaintiff seeks to prevent the defendant from litigating an issue that the defendant has earlier litigated and lost in an action with another party. Oklahoma first recognized the offensive use of nonmutual collateral estoppel in Lee v. Knight, 1989 OK 50, 771 P.2d 1003 [1989]. There the Court gave preclusive effect to the defendant's earlier criminal conviction to establish one element of the tort pressed by the plaintiff.

17 Harder v. F. C. Clinton, Inc.,1997 OK 137, 948 P.2d 298, 302; Handy v. City of Lawton, 1992 OK 111, 835 P.2d 870, 873.

18 Hulett v. First Natl. Bank & Trust Co., 1998 OK 81, 956 P.2d 879, 881.

19 Harder, supra note 17 at 302; Davis v. Town of Cashion, 1977 OK 59, 562 P.2d 854, 855.

20 For comparable analysis, see U.S. v. Geophysical Corp. of Alaska, 732 F.2d 693, 697 (9th Cir. 1984).

21 See Raytech Corporation v. White, 54 F.3d 187, 190 (3d cir. 1995), cert. denied 516 U.S. 914 (1995).

22 Parklane Hosiery Inc. v. Shore, 439 U.S. 322, 331, 99 S. Ct. 645, 651, 58 L. Ed. 2d 558 (1979).

23 See Sandberg v. Virginia Bankshares, Inc. et al, 979 F.2d 332,343-44 (4th Cir. 1992).

24 We are guided in our review of when preclusive effect should be accorded to earlier federal court decisions by the first Justice Harlan's elucidation of the rationales for issue preclusion in Southern Pacific R.R. v. United States,168 U.S. 1, 48-49, 18 S. Ct. 18, 27, 42 L. Ed. 355 (1897). There he said:

The general principle . . . is that a right, question, or fact put in issue, and directly determined by a court of competent jurisdiction, as a ground of recovery, cannot be disputed in a subsequent suit between the same parties or their privies; and, even if the second suit is for a different cause of action, the right, question, or fact once so determined must, as between the same parties or their privies, be taken as conclusively established, so long as the judgment in the first suit remains unmodified. This general rule is demanded by the very object for which civil courts have been established, which is to secure the peace and repose of society by the settlement of matters capable of judicial determination.

25 Hicks v. Quaker Oats Co., 662 F.2d 1158, 1165 (5th Cir. 1981);Veiser v. Armstrong, 1984 OK 61, 688 P.2d 796, 799; see also Pope v. City of Atlanta, 240 S.E.2d 241, 246 (Ga. 1977); Watkins v. Resorts Internat'l Hotel and Casino, Inc., 591 A.2d 592, 598 (N.J. 1991).

26 Veiser, supra note 25 at 799.

27 As distinguished from the defensive use of nonmutual collateral estoppel recognized in Blonder-Tongue Laboratories, Inc. v. Univ. of Illinois Foundation, 402 U.S. 313, 328-29, 91 S. Ct. 1434, 1442-43, 28 L. Ed. 2d 788 (1971).

28 Parklane Hosiery, supra note 22, 439 U.S. at 326, 99 S. Ct. at 645; Jack Faucett Associates, Inc. v. A.T.& T, 744 F.2d 118, 110 (1984), cert. denied 469 U.S. 1196 (1985); Carr v. District of Columbia, 646 F.2d 599, 604 (D.C.Cir. 1980).

29 Burlington Northern R. Co. v. Hyundai Merchant Marine Co., Ltd., 63 F.3d 1227, 1231 (10th Cir. 1995); In re Graham, 973 F.2d 1089, 1097 (3rd Cir. 1992); Gildhorn Savings Association v. Commerce Savings Association, 804 F.2d 390, 392 (7th Cir. 1986).

30 Parklane Hosiery, supra note 22, 439 U.S. at 331, 99 S. Ct. at 651.

31 Parklane Hosiery, supra note 22, 439 U.S. at 330, 99 S. Ct. at 651.

32 Burlington Northern, supra note 29 at 1235.

33 Gildhorn Savings, supra note 29 at 393.

34 See also, Neely v. First State Bank, Harrah, Oklahoma and Sooner State Bank, Tuttle, Oklahoma, f/k/a The Bank of Tuttle, Tuttle, Oklahoma, 1998 OK 119, ___ P.2d ___, where an arbitration award was given claim-preclusive effect for purposes of assessing the availability of a cause of action for malicious prosecution.

35 Today's pronouncement which recognizes that arbitral decisions can have preclusive effect when the arbitration in issue affords basic elements of adjudicatory procedure accords with both the common law and federal jurisprudence. See Restatement (2d) Of Judgments § 84(3). See also Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 221-222, 105 S. Ct. 1238, 1242-43, 84 L. Ed. 2d 158 (1985); Parklane Hosiery, supra note 22, 439 U.S. at 331, 99 S. Ct. at 651; Universal American Barge Corp. v. J-Chem, Inc., 946 F.2d 1131, 1136-37 (5th Cir. 1992); Taines v. Bear, Stearns & Co., Inc., 855 F.2d 862 (9th Cir. 1988)(unpubl.); SCAC Transport (USA) Inc. v. S.S.Danaos et al, 845 F.2d 1157, 1162 (2nd Cir. 1988); Sanders v. W.M.A.T.A., 819 F.2d 1151, 1157 (D.C.Cir. 1987); Greenblatt v. Drexel Burnham Lambert, Inc., 763 F.2d 1352, 1360-61(11th Cir. 1985); Zink v. Merrill Lynch Fenner & Smith, Inc., 1992 WL 554240 (N.D.Okla.).

36 See Greenblatt, supra note 35 at 1360;

37 Knight, supra note 16 at 1005.

38 In this regard, see Board of County Commissioners v. McIntosh, 1Pac. 572, 575 (Kan. 1883).

39 Restatement (2d) of Judgments § 84(3)(1982).

40 Gulf asked the federal court (by a motion for reargument) to find that its earlier order did not preclude Gulf from terminating its offer to Cities in reliance on the tender offer ¶15(d)(1), once the FTC secured the July 29, 1982 temporary restraining order. In an October 11, 1989 order Judge Mukasey ruled that Gulf's "motion accordingly is without foundation," affirming that as a matter of law his earlier order required Gulf to determine that the Lake Charles refinery represented a material asset of Cities' business "taken as a whole" before it could terminate the merger. In re Gulf Oil, supra note 3, 725 F. Supp. at 742-43.

41 Gulf does not assert that the precluded issue [the effectiveness of the "d(1)," i.e., FTC, defense] is not the same issue as that addressed by and litigated in the federal court proceedings. Hence, the trial court's order is not subject to challenge on these grounds.

42 Gulf contends the following language in the Stipulation of Settlement between itself and the shareholder class preserves its defenses:

This Stipulation and each of its provisions

(A) construed as, offered in evidence as, received in evidence as, and/or deemed to be evidence of a presumption, concession or an admission by any defendant of the truth of any fact alleged or the validity of any claim which has been, or could have been asserted in the Litigation, or of the deficiency of any defense which has been, could have been, or in the future might be asserted in any litigation . . . . [Emphasis added by the Court.]

43 Lummus Co. v. Commonwealth Oil Refining Co., Inc., 297 F.2d 80, 89 (2nd Cir. 1962), cert. denied, 368 U.S. 986 (1962).

44 We are mindful of Gulf's reliance on Kay-R Elec. Corp. v. Stone & Webster Const., 23 F.3d 55, 59 (2d Cir. 1994) for the proposition that an order denying summary judgment cannot support collateral estoppel. Nonetheless, we are persuaded that the Court's admonition in Parklane Hosiery, supra note 22, 439 U.S. at 331, 99 S. Ct. at 651, that the availability of issue preclusion must be decided on a case-by-case basis obfuscates application of such a bright line rule. We note that in Kay-R Elec. the court prefaced its decision not to give preclusive effect to the order denying summary judgment on its observation that the court does "not know why summary judgment was denied in that case, and it is clear that for collateral estoppel to bar a party on an issue, the issue in dispute must actually have been litigated and actually decided." Id. at 59. The latter observation cannot be made about Judge Mukasey's ruling.

45 See In re Gulf Oil, supra note 3 at 738, 742-43. Any doubts which Gulf may have had about Mukasey's order were extinguished by his later October 11, 1989 order where he assured Gulf on reargument that "the points now pressed by defendants . . . were not overlooked." He then denied Gulf's motion for reargument which sought to clarify the availability of the tender offer circular ¶ 15(d)(1) defense in the face of the FTC seeking a T.R.O. See In re Gulf Oil/Cities Service Tender Offer Litigation, 1989 WL 123109 (S.D.N.Y. 1989).

46 Gulf apprizes the Court that giving Judge Mukasey's order preclusive effect would discourage settlements.

47 See Restatement (2d) of judgments § 28(1) (1982).

48 Original Record (O.R.) 5855, 5861-62.

49 For the Stipulation's pertinent language see supra note 42.

50 Four years before the settlement here in issue, the U.S. Court of Appeals for the Second Circuit addressed whether settling parties could require a district court to vacate its earlier orders to avoid their being accorded preclusive effect. In Nestle Co., Inc. v. Chester's Market, Inc., 756 F.2d 280, 282 (2nd Cir. 1985) the Second Circuit (the circuit which encompasses the U.S. District Court for the Southern District of New York) held that it was an abuse of discretion for a district court to refuse to enter a vacatur requested pursuant to a settlement agreement. Nestle was cited with approval in Harris Trust & Savings Bank v. John Hancock Mutual Life Ins. Co., 970 F.2d 1138, 1146 (2nd Cir. 1992), cert. denied 507 U.S. 986 (1993), where the court observed that a "vacated order has no collateral estoppel effect." [Emphasis added.]

51 See supra note 12 for a more complete description of the record upon which Judge Mukasey based his decision.

52 On November 8, 1991 Judge Mukasey considered what the parties meant "by an asset or business of Cities that was `material' in relation to the other assets or business of Cities." The federal trial judge ruled that whatever "material" included, it did not encompass Gulf's expenses incurred as a result of having to divest or hold separate the Lake Charles refinery.

53 For the scope of the record considered by Judge Gibbons in reaching his decision, see supra note 14.

54 See supra note 14.

55 See our discussion above of the effect of a private agreement on a trial court order's appealability. See also Restatement (2d) of judgments § 28(1) (1982).

56 For its proposition Gulf relies upon two unreported cases decided by lower Delaware courts; Eastern Electric and Heating, Inc. v. Pine Creek Professional Center, 1987 WL 9610 (Del.Super.Ct.) and Brywil, Inc. v. STP Corp., 1980 WL 77945 (Del.Ch.). The argument Gulf makes is nonetheless closely allied to the common-law principle that he who prevents a thing being done shall not avail himself of the non-performance he has occasioned and is recognized under Delaware jurisprudence. See Gilbert v. The El Paso Company, 490 A.2d 1050, 1055 (Del.Ch.1984); T.B. Cartmell Paint & Glass v. Cartmell, 186 A. 897 (Del.Super.Ct. 1936).

57 See supra note 56.

58 See Gulf's brief in chief, p. 34. Gulf's bases its conclusion that Cities warranted its oil reserves on the language found in the merger agreement Annex I(e) and ¶ 4.5. For this language see supra notes 1and 2.

59 The representation of oil reserves which Gulf contends is materially misleading or untrue is found in Cities' 1981 Annual Report, p. 44. The statement of oil reserves found there was made subject to the following caveat:

"Reserve determinations are Management's best estimates and generally are related to economic, regulatory and operating conditions.

Reserve data filed with Federal agencies, including the S.E.C., vary insignificantly due to definitional differences." [Emphasis added.]

Gulf's 1981 annual report (filed with the S.E.C.) evidences its degree of sophistication with prognostications of the type here in issue when in regard to its own reserve estimates, it stated:

"The oil and gas reserve data presented below are . . . based on current estimates made by the Company. In presenting this information, the Company wishes to emphasize that estimates by their very nature are inexact and subject to constant changes and revisions, . . . ."

See

60 In its brief in chief Gulf also asserts that the merger agreement's language created an express condition subsequent. Again, Gulf would read the language of ¶ 4.5 to create an express warranty by Cities of its statement of oil reserves in its 1981 annual report filed with the S.E.C. For the oil reserve statement to be expressly warranted under the merger agreement provisions Cities would have had to state in specific written language that it was warranting the identified oil-reserve figure. Inman v. Stephenson, 170 Okla. 548, 40 P.2d 1107 syl. 1 (Okla. 1935). It did not do so. Instead, giving ¶ 4.5's language its plain and ordinary meaning, it requires no more than Cities' statements in its 1981 annual report filed with the S.E.C. - taken in light of the circumstances under which they were made - were not untrue or misleading. In its annual report Cities clearly qualified the statement of its proved oil reserves as an estimate. See supra note 59 for the relevant contractual language.

61 For an overview of Delaware rules of construction of contractual language, see US West, Inc. v. Time Warner, Inc., 1996 WL 307445 (Del.Ch.), at *8 - *11. There the court observed that

"[t]he primary rule of construction is this: where the parties have created an unambiguous integrated written statement of their contract, the language of that contract (not as subjectively understood by either party but) as understood by a hypothetical third party will control."

62 See plaintiff's exhibit 4005, Gulf's Response to Cities' May 18, 1995 Request for Admissions. See also trial judge's ruling which deemed Gulf to have admitted that its board of directors did not determine Cities' alleged oil reserve shortage to be material in July 1982. Trial trans. pp. 11926-27.

63 Gulf would have the Court assay materiality through a "reasonable man's" eyes and not that of its board. Were the common law determinative of the issue, Gulf might prevail upon its argument. However, here the judge of "materiality" is fixed by the Agreement as Gulf and not the common-law's reasonable man. See merger agreement Annex I(a). Hence, Gulf's argument is without merit.

64 Delaware law is clear that mere inconvenience or substantial increase in the cost of compliance will not excuse a duty to perform contractual obligations. Ridley Investment Co. v. Croll, 192 A.2d 925, 926 (Del. 1963); Hudson v. D & V Contractors, Inc., 252 A.2d 166, 169 (Del.Super.Ct. 1969).

65 See Tr. trans. pp.11087 -11091, 11043-11068, 10992-10993.

66 James v. State Farm Mut. Auto. Ins. Co., 1991 OK 37, 810 P.2d 365, 371; Gabus v. Harvey, 1984 OK 4, 678 P.2d 253, 257; Graves v. Graves, 1970 OK 177, 475 P.2d 171,177. See also General Elec. Co. v. Joiner, ___ U.S. ___, 118 S. Ct. 512, 517, 139 L. Ed. 2d 508 (1997).

67 In this regard we find the rationale of General Elec. Co., supra note 66 to be persuasive.

68 See Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597, 113 S. Ct. 2786, 2798, 125 L.Ed. 2d 469 (1993). See also Leo H. Whinery, Oklahoma Evidence § 2702 Author's Comments (1985).

69 12 O.S.1991 § 2403.

70 Tr. trans. pp. 11044-11055.

71 Tr. trans. pp. 10993-94.

72 Tr. trans. p. 11056.

73 Okmulgee Window Glass Co. v. Bright, 65 Okla. 53, 183 P. 898, 899 (1915); Oklahoma City v. Hayden, 169 Okla. 502, 37 P.2d 642,644 (1934); Guest v. Shamburger, 120 Okla. 164, 251 P. 97, 98 (Okla. 1926).

74 Cities expended $225.5 million to repurchase 4.1 million shares of its own stock from Mesa in June 1982.

75 At trial Gulf vigorously denied that it authorized Cities to repurchase the treasury shares. Rather, Gulf insisted (1) that the purchase was not made in reliance on the merger agreement and (2) that Cities settled with Mesa at its own instance and for its own separate corporate purposes. Inherent in the unchallenged jury's verdict that the stock was repurchased in reliance on the merger agreement is a rejection of Gulf's assertions.

76 For a scholarly analysis of the nature of reliance damages, see L.L. Fuller and William R. Perdue, Jr., The Reliance Interest in Contract Damages, 46 Yale L.J. 52 (1936-1937).

77 23 O.S.1991 § 21. Its pertinent provision provides :

"No damages can be recovered for a breach of contract, which are not clearly ascertainable in both their nature and origin." [Emphasis added.]

78 See Pl. Exh. 732R.

79 For a scholarly discussion of the elements of "burden of proof," see L. Whinery, Oklahoma Evidence §§ 8.02-8.03 (1994). For a delineation of the distinctions between the burdens of persuasion and of production, see Harder v. F.C.Clinton, Inc., 1997 OK 137, 948 P.2d 298, 303 n.13. See also Director, OWCP v. Greenwich Collieries, 512 U.S. 267, 272-278, 114 S. Ct. 2251, 2255-2258, 129 L. Ed. 2d 221 (1994).

80 City of Weatherford v. Luton, 189 Okla. 438, 117 P.2d 765, 767 (Okla. 1941); Consolidated Cut Stone Co. et al v. Seidenbach et al, 181 Okla. 578, 75 P.2d 442 syl.3 (Okla. 1938); Sackett v. Rose, 55 Okla. 398, 154 P. 1177, 1181 (Okla. 1916); Ditzler Dry Goods Co. v. Sanders, 44 Okla. 678, 146 P. 17, 19 (Okla. 1915).

81 See 23 O.S.1991 § 21, supra note 24. See also Baker & Strawn v. Miller & Jones Bros., 109 Okla. 184, 235 P. 476, 478 (Okla. 1925), where the Court defined "clearly ascertainable" to mean "without obscurity, obstruction, confusion or uncertainty."

82 Noble Homes, Inc. v. Kalman, 1967 OK 92, 428 P.2d 241, 246.

83 Cities and Oxy USA executed a merger agreement in August 1982. The merger itself did not occur until December 3, 1982.

84 Gulf's offer of proof is not temporally limited as its brief in chief implies to the fact that Cities entered a merger agreement with Oxy USA only three weeks after Gulf repudiated its merger with Cities. Rather the offer of proof extends to events chronicled in S.E.C. reports filed as late as 1994.

85 See Bokoshe Smokeless Coal , supra page 26 at 231.

86 Gulf, C. & S.F.Ry.Co. v. Smith, 270 P.2d 629 syl. 1 & 2, 633 (Okla. 1954).

87 Ditzler Dry Goods, supra note 80 at 19. See also 12 O.S.1991 § 2403, whose terms provide:

Relevant evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, misleading the jury, undue delay, needless presentation of cumulative evidence, or unfair and harmful surprise.

88 Because we do not remand the present case for retrial, we do not reach Gulf's request that the cause be assigned to a different judge upon remand.

89 See section III above for a complete delineation of the pertinent criteria.