Corval Constructors, Inc. v. Tesoro Refining & Marketing Co.

Background

Corval Constructors, Inc., described in the opinion as a Minnesota-based engineering and construction firm, contracted with Tesoro Refining & Marketing Company, LLC to provide services at the Mandan Refinery in North Dakota. The parties entered into a Master Services Agreement in February 2013 and a Supplemental Agreement in February 2018. The agreements contemplated that Tesoro would issue purchase orders, service orders, and work orders describing Corval’s work and the amount Tesoro would pay.

According to Corval’s amended complaint, the parties worked together without apparent problems from 2013 through early 2018. Beginning in January 2018, however, Tesoro allegedly failed to pay or withheld portions of payments related to seventeen projects. Corval alleged that Tesoro decided internally on or about January 16, 2019, to stop paying or processing Corval’s invoices but did not tell Corval. Corval further alleged that Tesoro continued encouraging it to work at refinery locations, including the Mandan Refinery, while knowing it would not be paid. Corval said it continued working from January through March 2019, after which Tesoro suspended and then terminated Corval from work on Mandan Refinery projects.

Corval asserted claims for breach of contract, declaratory judgment, promissory estoppel, and fraud. The court’s jurisdiction was based on diversity of citizenship, and the opinion states that Corval sought damages exceeding $75,000.

Motion to Transfer Venue

Tesoro moved under 28 U.S.C. § 1404(a) to transfer the case to the United States District Court for the District of North Dakota. That statute permits transfer, for the convenience of the parties and witnesses and in the interest of justice, to another district where the case could have been brought. The parties did not dispute that the case could have been brought in North Dakota.

The court explained that a plaintiff’s choice of forum receives substantial deference and that transfer should not be granted unless the transfer-related factors strongly favor the proposed forum. The relevant considerations included the convenience of the parties, the convenience of witnesses, access to records, the location of the conduct, applicable law, judicial economy, litigation costs, the ability to enforce a judgment, and the possibility of a fair trial.

The court found that the convenience of the parties did not favor transfer. Corval’s ties to Minnesota made Minnesota a convenient forum for Corval. Although Tesoro had no ties to Minnesota apart from a registered address and agent, the court noted that Tesoro would be a foreign litigant in North Dakota as well. The court also observed that important events, such as business decisions and communications, may have occurred or originated in places other than North Dakota.

The court likewise found that the convenience of witnesses had not been shown to favor transfer. Tesoro identified 39 potential witnesses, many of whom it said had first-hand knowledge of the North Dakota work. The court found that Tesoro had not distinguished the importance of those witnesses and noted that many might be cumulative. It also considered Corval’s assertion that almost all of its potential witnesses were from Minnesota. Because many of Tesoro’s identified witnesses were its employees, the court assumed they would appear voluntarily in Minnesota. The court also noted that depositions could take place in North Dakota.

The court rejected Tesoro’s arguments concerning project records and expert access. It reasoned that much of the evidence could likely be stored or transmitted electronically and that the record did not show that important original paper documents made North Dakota substantially more convenient. The court also found that the possible need for experts to visit the refinery did not establish that North Dakota would be a more convenient forum, particularly because the experts had not been identified.

Finally, the court found that the interests of justice did not favor transfer. It identified no problem involving judicial economy, enforcement of a judgment, or a fair trial in Minnesota. It also found no reason that the applicable law made North Dakota a better forum. The Master Services Agreement contained a Texas choice-of-law provision, and the court explained that a federal court in Minnesota could apply Texas law just as a federal court in North Dakota could.

Rule 12(b)(6) Motion

Tesoro separately moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss Corval’s declaratory-judgment, promissory-estoppel, and fraud claims. A Rule 12(b)(6) motion tests whether the complaint states a legally plausible claim. In reviewing the motion, the court accepted the complaint’s factual allegations as true and drew reasonable inferences for Corval. The court also applied Rule 9(b), which requires fraud to be pleaded with particularity.

Declaratory Judgment

Tesoro argued that a declaratory judgment is a remedy rather than an independent cause of action. The court agreed that a declaratory judgment is a remedy, but explained that this does not prevent a party from presenting the request as a separate count in a complaint. A declaratory judgment must have a legal basis, and Corval’s breach-of-contract claims— which Tesoro did not challenge at that stage—provided such a basis. The court therefore denied Tesoro’s motion to dismiss Corval’s declaratory-judgment claim.

Promissory Estoppel

Tesoro argued that Corval’s promissory-estoppel claim could not proceed because the alleged promises were already covered by the parties’ contracts. Corval responded that the claim concerned promises outside the agreements, or promises that might ultimately be found outside the agreements.

The court found that Corval could assert the claim as pleaded. It understood Corval to allege that Tesoro made promises independent of the written agreements, including promises that Tesoro would pay for Corval’s work if Corval continued performing work at the Mandan Refinery. The court also noted that the Federal Rules allow a party to plead alternative or even inconsistent claims. The court therefore denied Tesoro’s motion to dismiss the promissory-estoppel claim.

Fraud

The parties agreed that Texas law governed Corval’s fraudulent-inducement claim. Under that law, the claim requires a false material representation, knowledge of its falsity or reckless disregard for its truth, an intent to induce action, and actual and justifiable reliance that caused injury.

Tesoro argued that its pre-existing contractual relationship with Corval prevented Corval from bringing a fraudulent-inducement claim. The court rejected that argument because Corval was not alleging that Tesoro’s 2019 conduct induced it to enter the 2013 Master Services Agreement. Instead, Corval alleged that Tesoro’s conduct fraudulently induced it to continue performing under the agreement after Tesoro had allegedly decided not to pay. The court described this as a possible “string along fraud” theory recognized under Texas law. It held that Corval’s allegations—that Tesoro promised future payment to keep Corval working while intending not to pay—were sufficient to plead fraudulent inducement.

Tesoro also argued that Corval had not pleaded fraud with the particularity required by Rule 9(b). The court found the issue close but concluded that the complaint was adequate. Corval identified Tesoro as the party responsible, described the alleged false communications as oral and written statements encouraging continued work, identified the relevant period as approximately January 16 or 17, 2019, through March 2019, identified Mandan as the center of the conduct, and explained how Tesoro allegedly continued requesting work without disclosing its decision to stop paying. The court held that these allegations were sufficient in this commercial dispute and denied Tesoro’s motion to dismiss the fraud claim.

Disposition

Judge Eric C. Tostrud ordered that Tesoro’s motion to transfer venue was DENIED and Tesoro’s motion to dismiss was DENIED. The order addressed the venue and pleading motions; it did not determine the ultimate merits of Corval’s claims.