WEINFELD, District Judge.
Plaintiff by this action seeks thirty million dollars damages, injunctive relief, an accounting and to impress a trust. The defendants are the Economic Development Administration of Puerto Rico (EDA), its administrator, Rafael Durand, its economic consultant, Sam J. Van Hyning,
The essence of plaintiff's claim is that he conceived a novel and original program for the development of a petro-chemical plant in Puerto Rico and for obtaining a substantial oil import quota therefor; that it was revealed in trust and confidence to the defendants Durand and Van Hyning, as officials of EDA, upon an agreement of nondisclosure; that in breach thereof they and EDA disclosed the program to Phillips; that the defendants wrongfully appropriated plaintiff's program when Phillips undertook its development under an agreement whereby EDA is to share in its profits and benefits.
The defendant EDA moves to dismiss the complaint on various grounds which, in the main, rest upon its contention that it is an agency of the government of the Commonwealth of Puerto Rico, and as such enjoys sovereign immunity and is not subject to diversity jurisdiction. It moves to dismiss under:
EDA also moves under Rule 12(b) (6) to dismiss the complaint for failure to state a claim, or in the alternative for summary judgment pursuant to Rule 56. Phillips also moves (by way of cross-motion) for summary judgment. On this aspect of the motion the parties have submitted affidavits, including the deposition of the plaintiff and exhibits. Phillips' cross-motion was made in response to plaintiff's motion directed to its answer.
We first consider the motion of the defendant EDA. Federal jurisdiction is alleged upon diversity of citizenship.
EDA challenges federal diversity jurisdiction on the ground that it is not a citizen of Puerto Rico but in fact is the "arm or alter ego"
The pleadings do not control; the fact that the complaint names EDA as a defendant does not preclude inquiry to ascertain who in fact is the real party in interest in order to determine whether diversity jurisdiction exists. The issue is to be determined by the essential nature and effect of the suit as disclosed by the entire record,
Among the other factors, no one of which is conclusive,
The program had marked success in the two decades of its existence. It is stated that new industrial plants are being established at an average rate of 250 per year and that the economy, now widely diversified, enjoys one of the highest rates of annual income growth in the world—some ten per cent.
Prior to 1950 the vehicle used by the Commonwealth to carry out the program of industrial and economic development, sometimes referred to as "Operation Bootstrap," was a public corporation, the Puerto Rico Industrial Development Company (PRIDCO). Its activities were two-gauged, one operational and the other promotional. In 1950 the promotional aspects of the program were transferred to EDA. The origin of the transfer and the details with respect to the differences in functions and duties of the two agencies are discussed hereafter, since they bear significantly on the issue of sovereign immunity.
Since the 1950's petroleum refineries and related petro-chemical production and processes have been a critical part of Puerto Rico's economic development program. Its importance to Puerto Rico's industrial and economic growth, to compensate for the island's scarcity of materials, has long been recognized. An essential of petro-chemical production is oil feed stock for refining, the derivatives of which are fed into related petro-chemical and chemical plants for ultimate processing into synthetic fibers, plastics and other consumer products, marketable in Puerto Rico and abroad. In end result product diversification, industrial expansion, increased employment and improved housing are achieved. Because of proximity and cost factors, Venezuela has been the principal source of the required oil feed stock.
However, in March 1959, the importation into Puerto Rico and the United States of crude oil and crude oil derivatives, the feed stock essential for petro-chemical processes, was restricted by proclamation of the President of the United States.
The instant suit centers about plaintiff's submission in September 1961 to EDA of a proposal for a petro-chemical complex which contemplated the erection of a refinery for processing and petro-chemical plants, together with a plan which he asserts he conceived for a modification of oil import quota restrictions in order to obtain the essential crude oil. The proposal was hinged to the importation into Puerto Rico from Venezuela of 35-40,000 barrels of crude oil per
While the Court at this point does not consider the merits of plaintiff's claim, he contends that his program was novel, original, and submitted to EDA in confidence; that he was the first to conceive a practical program for building a plant and obtaining the required oil feed stock. The essence of his claim of novelty, as his complaint alleges, was utilizing the political power and prestige of the Commonwealth and its officials in support of the application for the import quota of petroleum required for the proposed project.
His letter of September 25, 1961 to Rafael Durand, administrator of EDA, explicitly states that the program is "predicated on your government issuing to our enterprise a commitment that * * * the Commonwealth government will obtain a quota of foreign crude oil, preferably Venezuelan, for our use sufficient in barrelage per day to warrant our going ahead with our plans. * * * The project depends entirely on your obtaining the quota of oil required." Thus, whatever the merits of the plaintiff's basic claim, it is clear that the Commonwealth itself was to play the essential role under plaintiff's projected program. Durand, however, on October 16, 1961, advised plaintiff that the Commonwealth would "not entertain a commitment to satisfy the * * * condition in your letter of September 25 to me."
Other groups as well as EDA have been interested in the development of a petro-chemical complex. Among these was the defendant Phillips, which since 1945 has operated one of the world's largest petro-chemical plants in Texas and which, after prior negotiations in January 1964, with the support of EDA and the Commonwealth, applied to the United States Department of the Interior for a quota of 50,000 barrels per day of selected petroleum feed stock to be imported into Puerto Rico for refinement and use in a contemplated chemical complex. After due notice a public hearing was held on the Phillips application in July 1964. On February 11, 1965 the Secretary of the Interior announced he favored the establishment of a major petro-chemical complex in Puerto Rico and that his department would enter into final negotiations with Phillips to determine the feasibility of a project to yield "maximum economic benefits and maximum employment opportunities for Puerto Rico." Within a week of this announcement, on February 18, plaintiff wrote Phillips contending that the plan so tentatively approved by the Department of the Interior was the very one he had proposed and disclosed in confidence to EDA officials in 1961, and that he planned legal action against Phillips and others for alleged appropriation of his property.
On May 14, 1965 the Department of the Interior gave final approval to the Phillips plan, following which, on May 27, 1965, Phillips and the Commonwealth of Puerto Rico entered into an agreement embodying the plan.
Against this broad outline of the nature of plaintiff's claim as alleged against EDA, we now analyze the legislation which created it, its structure and relationship to the Commonwealth, and other factors which bear on the issue of who is the real, substantial party in interest against whom the claim is asserted.
EDA was created under Reorganization Plan No. 10 of 1950, and by implementing legislation was "organized to operate as an agency of the Government of Puerto Rico * * *."
Notwithstanding these rather compelling factors which strongly support EDA's position that in fact it is the arm of the Commonwealth, the plaintiff contends that countervailing considerations establish that it functions as an independent agency. The principal thrust of his argument centers about PRIDCO, which was organized in 1942 by the Puerto Rico Legislature as a public corporation to induce private capital to undertake and develop various commercial and industrial enterprises. It was given the power to contract and to sue and be sued. Plaintiff contends that PRIDCO had and continues to have the status of an agency entirely separate and independent of the Commonwealth; that when EDA was created in 1950 it was as the successor to PRIDCO, and as such succeeded to PRIDCO's status, emphasizing that PRIDCO itself was transferred to EDA and placed under the direction of the administrator of EDA. It may be acknowledged that PRIDCO was entirely independent of the government of Puerto Rico and as much was conceded upon the argument of this motion. But plaintiff's conclusion that EDA succeeded to PRIDCO's status misreads the statute which gave birth to EDA upon legislative acceptance of the Reorganization Plan of 1950, and further disregards very fundamental differences in the structure, function and powers of the two agencies and in the relationship of each to the Commonwealth.
EDA was created as a new "agency of the Government of Puerto Rico"
PRIDCO and EDA are separate and distinct bodies, each with separate and distinct functions. Prior to EDA's creation in 1950 PRIDCO's functions embraced governmental and proprietary activities. These extended to industrial development, economic research, the promotion of tourism, and the ownership, development, operation and leasing of industrial and commercial plants. Some, but not all, of these functions were transferred to EDA. The latter took over only those of industrial development, economic research and the promotion of tourism. It is beyond serious challenge that those three functions are governmental and concern the welfare and well being of the Commonwealth and its citizens in economic, social, political and cultural aspects. On the other hand, PRIDCO continued to own, operate and manage factories; it also continued to buy, sell and lease properties—functions normally exercised by private enterprise. Since the functions which were transferred to EDA are of a nature normally associated with governmental bodies possessing sovereign immunity and particularly since the proprietary functions which would have militated against granting EDA immunity were not transferred, plaintiff's contention that EDA upon its creation automatically assumed the nonimmune, proprietary status of PRIDCO is without support.
What has been said so far as to the distinct and singular characteristics of EDA under the Act establishing it also disposes of plaintiff's further contention that because the Puerto Rico Legislature normally creates agencies independent of the Commonwealth government, EDA must be deemed such an agency. Plaintiff here points to the Puerto Rico Water Resources Authority, the Puerto Rico Ports Authority, the Metropolitan Bus Authority, the Commercial Development Company, the Puerto Rico Communications Authority and the Caribbean Economic Development Corporation. If anything, reference to them defeats rather than supports his position. Each of those agencies, like PRIDCO, but unlike EDA, is endowed by its governing statute with an entirely separate and independent status;
In sum, the legislation under which EDA was organized establishes that it has the attributes and restrictions of a traditional executive agency of government and is far from autonomous, and further that it is without funds of its own or authority to raise funds. Were a judgment to be recovered against it, the Commonwealth would be called upon for payment. Although plaintiff in his reply memorandum argues that he does not seek a money judgment against EDA but merely equitable relief against the stock interest in the new petro-chemical complex which will be granted to PRIDCO, the fact is that his complaint names EDA and not PRIDCO as a defendant, and further his complaint seeks not only equitable relief but damages as well. If plaintiff's suit should succeed as it is presently framed, any recovery will be against EDA, and since it is without funds, payment of the judgment, if any, can only come from the Commonwealth government—a factor of much significance.
Plaintiff, in a further effort to bolster his position that EDA is an agency entirely independent of the Commonwealth, stresses that its methods of operation parallel those of private industry. He urges that even though EDA may not specifically be authorized by statute to enter into contracts or to sue or be sued, in fact and in practice it does enter into contracts under which it undertakes functions akin to those of private enterprise, and maintains offices in New York and other cities of the United States and Canada, where it solicits business; such activities, he contends, render EDA subject to suit. He relies heavily upon Cowles v. Mercer County,
Moreover, the only instance cited by plaintiff of a contract entered into allegedly by EDA is that under which the defendant Phillips undertook the development of the petro-chemical complex, and with respect to which plaintiff now seeks a share of the profits. But EDA is not the other party to the agreement. The terms of the agreement show that the Commonwealth of Puerto Rico is the other party. After reference to the Phillips proposal for the petro-chemical complex,
Equally unavailing is the plaintiff's position with respect to the maintenance of offices by EDA in the United States and Canada. Its activities there are promotional and informational and intended to publicize industrial and economic opportunities in Puerto Rico. Its representatives answer inquiries from prospective investors, analyze proposed projects and advise as to their eligibility for tax exemption under the Commonwealth's industrial and economic program. It is not uncommon, and indeed the court may take judicial notice, that states and governments advertise and publicize investment availability, scenic beauty and vacation attractions
Considering the nature of the plaintiff's claim, which clearly required a commitment by the Commonwealth of Puerto Rico, the structure, functions and powers of EDA, as defined by the statute which implemented Reorganization Plan No. 10, and EDA's operations, the court is persuaded that under the circumstances here presented EDA was acting as the agency and alter ego of the Commonwealth and that the Commonwealth is the real party in interest; accordingly, the defendant's motion under Rule 12(b) (1) to dismiss for lack of jurisdiction over the subject matter based upon non-diversity of citizenship is granted. This disposition makes it unnecessary to consider defendant's further motions under other subsections of Rule 12, as well as its motion for summary judgment.
Phillips' motion for summary judgment presents different issues from those involved in the disposition of Commonwealth's motion to dismiss for lack of jurisdiction, and so reference is necessary to other matters relating to plaintiff's claim.
Plaintiff is an attorney practicing law in New York City more than thirty years, who since 1942 has had some professional and social contacts in Puerto Rico. Up to
Soon after his initial talk with his client
Feliciano, who appears initially to have been uncertain as to whom in authority to contact in Fomento, as EDA was known in Puerto Rico, finally reached Durand and wrote to plaintiff on June 6 that Durand doubted the "Governor will * * * approve any participation of any governmental agency in any other application for increase in quota" because the Commonwealth had previously supported an application for a 20,000 barrel a day increase which had been granted upon condition that no further increase would be applied for. In the same letter Feliciano also conveyed Durand's suggestions that plaintiff file an application for a quota directly with the U. S. Secretary of Interior to see what he could accomplish on his own, and that he write Durand "a letter stating your problem and asking for the cooperation of the Commonwealth Government on this matter."
Plaintiff never followed through on the suggestion that he file an application directly nor did he immediately write Durand. However, during the week of June 19 he did confer at EDA's New York City office with representatives there, Diaz Hernandez and a Mr. Hiquera. Plaintiff testified that he endeavored to "sell" his proposal for a petro-chemical complex and to convince them of its value to Puerto Rico; however, as he further acknowledged, those two gentlemen just listened and all they undertook to do was to talk to Durand about the project. As events developed, Hernandez later wrote to EDA in Puerto Rico that while he agreed with the idea of a third refinery, "the Government should not give backing to any specific project at this stage." His view, concurred in by Durand, was that "it would be impracticable for the Commonwealth Government to back the Krisel project at this early stage."
The only other occasion plaintiff personally met with any EDA representative was on or about July 3, 1961 when together with two members of the Cirillo Brothers firm he conferred at the EDA office in Puerto Rico with Sam J. Van
It is evident from subsequent correspondence and other documentary matter that Van Hyning was "cold" and unenthusiastic about plaintiff's proposal and doubted the financial capacity of plaintiff and his associates to carry through the proposed project. For a variety of reasons, he was generally of the view that in connection with any third refinery, a daily import quota of 5-15,000 barrels rather than 50,000 barrels reflected a more realistic approach. Plaintiff on the other hand kept urging Feliciano to impress upon EDA officials a program which, based upon his client's needs for residual fuel oil, called for not less than 35-40,000 barrels a day in the initial stages of the project and later for 70,000 barrels a day.
On September 26,
Plaintiff never met Durand personally. But against the general background of these previous events and inter-party correspondence, plaintiff submitted to Durand a formal proposal dated September 25, 1961, which was either personally delivered or mailed to him on September 28 by Nieves.
On October 16, Durand advised the plaintiff that the "Commonwealth of Puerto Rico will not entertain a commitment to satisfy the first condition stated in your letter of September 25 to me."
As noted in the discussion under the Commonwealth motion, the Phillips Petroleum Company in January 1964, with Commonwealth support, filed application for a 50,000 barrel per day quota of selected feed stock to be imported into Puerto Rico for refinement and use in a proposed petro-chemical complex. The successive and intermediate steps, which preceded the final contract in May 1965 between Phillips and the Commonwealth
Plaintiff had no dealings with Phillips; his sole contact was the claim letter he sent in February 1965, followed by this law suit commenced in September 1965. His claims against Phillips are hinged to those asserted against EDA, the merits of which were not reached in the EDA motion. They must necessarily be analyzed on the defendant Phillips' cross motion for summary judgment.
Plaintiff's basic claim, however elaborated, is that his proposal for a petrochemical complex was novel, unique and original; that it was disclosed by him and by Feliciano and Nieves acting on his behalf to EDA and its officials, Durand and Van Hyning in Puerto Rico and Hernandez and Hiquera in New York City, in trust and confidence and upon EDA's and its officials' agreement that the plan would not be revealed; that contrary thereto EDA and its officials disclosed the plan to Phillips, with whom it thereafter entered into an agreement for the development of the complex; that EDA, its officials, and Phillips, the latter with notice of plaintiff's rights and his relation to EDA, appropriated his idea and property.
Plaintiff's separate causes of action against EDA for damages and equitable relief, as variously denominated by him, are for (1) breach of contract, either (a) express,
Plaintiff's program, according to him, was "finalized" and put into concrete form in his letter dated September 25, 1961. He himself summarizes the five important elements of his program as outlined in that letter as follows:
This last item—the use of the political prestige and power in support of the quota application—is the hard core of his claim of an original idea and property right. He acknowledges, although grudgingly, that concepts of a petro-chemical complex, the importation of oil feed stock, tax exemption, and investment in projects by the Puerto Rican public, were within the knowledge and experience of Puerto Rican and EDA authorities in furtherance of "Operation Bootstrap." But plaintiff contends these separate concepts were, to use his language, "the expression of disconnected, generalized ideas which may have been before EDA in the past," until he conceived "a practical integration of ideas into a homogeneous, concrete and definite program. This was and is the real uniqueness of my program—for the first time it was all in one package ready to use."
Plaintiff repeatedly, in one way or another in his affidavit in opposition to the motion for summary judgment, in his deposition and in his several briefs emphasizes that the "valuable idea, plan and program" allegedly entrusted to EDA in confidence and appropriated by Phillips was the concept of using the political power and governmental prestige to secure the daily barrelage necessary for the contemplated project. He summed it up in his deposition, when he characterized the condition in his letter of September 25, that the Commonwealth commit itself to obtaining a foreign quota of crude oil "as the foundation stone of the entire program," and added, "my whole object was to utilize the position of the Puerto Rican governor, Munoz-Marin, and the Puerto Rican government's economic program * * * its prestige. * * *"
Phillips not only urges that plaintiff's claims against EDA are without foundation, but further presses that his claim of novelty, upon its face, is so utterly lacking
In resisting the motion, plaintiff contends that his claim of novelty presents an issue of fact which alone requires its denial. He further argues that even if it be held upon the undisputed facts that his program is not novel, nonetheless, factual issues remain as to (1) the relationship of trust and confidence between him and EDA, (2) the existence of an agreement, whether express or implied in fact or in law, that the program would not be disclosed to third parties, and (3) whether Phillips, aware of plaintiff's alleged trust and contractual relationship with EDA, misappropriated his property; that these issues likewise require denial of the summary judgment motion. In any event, he contends he should not be foreclosed from an opportunity to depose Feliciano and Nieves, who, in affidavits submitted on this motion, have denied the bases of his various causes of action.
In this diversity action, the initial question is what substantive law the courts of New York would apply in determining the validity of plaintiff's claim. Both New York and Puerto Rico had substantial contacts with the matter in dispute, but the parties at a conference with the Court agreed that New York law governs, particularly so in the absence of authoritative holdings by the Puerto Rican courts on the issues here presented.
The Court does not reach the issue of novelty on which the parties have concentrated much of their respective arguments. Contrary to the defendant's contention, a determination favorable to it on the novelty question would not dispose of all of plaintiff's theories of recovery. Plaintiff asserts that his program was entrusted to EDA upon an express agreement that it would not be disclosed and would be treated in confidence. Under New York law, an idea, if valuable, even though it does not contain novel, secret or confidential material, may be protected by such an agreement. This doctrine applies even when the subject matter of the idea is common or open to public knowledge.
It is of course true that the mere assertion of a claim is not by itself sufficient to ward off summary judgment.
Plaintiff claims however, that his program was entrusted by him in confidence to Feliciano and Nieves, who acted on his behalf in their discussions with and presentation of the matter to Durand and other EDA officials and that an express agreement of non-disclosure resulted. He also emphasizes that his letter of September 25, 1961 not only was marked "confidential" but under his instructions to Nieves was to be delivered personally by the latter to Durand. Both Feliciano and Nieves, contrary to plaintiff's contention, deny that the proposal or any information with respect thereto was ever submitted by them to Durand or Feliciano or any EDA officials upon any agreement or understanding of non-disclosure or nonuse of the information. Seemingly, this should end this aspect of the matter. But plaintiff challenges the denials of his erstwhile friends, who, he asserts, are now hostile witnesses who have yielded to local influences and urges that a pre-trial examination of them and those EDA representatives with whom they conferred on his behalf will establish, contrary to their present positions, that an express agreement was made.
In the circumstances, however tenuous plaintiff's claim may appear, he should be afforded an opportunity to depose those he alleges have betrayed his interest. They and the Puerto Rican officials with whom they met on plaintiff's behalf have exclusive knowledge of the events upon which plaintiff's claim of an express contract must rest. Under the circumstances, Rule 56(f) requires that plaintiff be given an opportunity to inquire into these events.
There remains for final consideration the plaintiff's motions addressed to the defense of laches and