Mobil Oil Corp v. Earhart Petroleum ( 2000 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MOBIL OIL CORPORATION,
Plaintiff-Appellee,
v. No. 99-2093
EARHART PETROLEUM, INCORPORATED,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Albert V. Bryan, Jr., Senior District Judge.
(CA-98-968-A)
Argued: March 2, 2000
Decided: May 3, 2000
Before WILKINSON, Chief Judge, and WILLIAMS
and MICHAEL, Circuit Judges.
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Affirmed by unpublished per curiam opinion.
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COUNSEL
ARGUED: Alfred John Weisbrod, WEISBROD LAW OFFICES,
Dayton, Ohio, for Appellant. Thomas Collier Mugavero, MONTE-
DONICO, HAMILTON & ALTMAN, P.C., Chevy Chase, Maryland,
for Appellee. ON BRIEF: Glenn H. Silver, SILVER & BROWN,
Fairfax, Virginia, for Appellant. Edward B. Ruff, PRETZEL &
STOUFFER, Chicago, Illinois, for Appellee.
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Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
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OPINION
PER CURIAM:
Mobil Oil Corp. (Mobil) sued Earhart Petroleum, Inc. (Earhart) for
breach of a distributor agreement, and Earhart counterclaimed. The
district court granted summary judgment to Mobil and awarded it
attorney's fees and costs under the agreement. Earhart appeals, and
we affirm.
I.
Earhart, an Ohio corporation, entered into an agreement to be a
nonexclusive distributor of petroleum products for Mobil, a New
York corporation with its principal place of business in Fairfax, Vir-
ginia. Earhart and Mobil did business under the agreement for a little
less than two years. A problem developed when Mobil became con-
cerned that Earhart was trying to switch Mobil customers to a com-
petitor's brand, in breach of the distribution agreement. After Earhart
failed to allay those concerns, Mobil terminated the distribution
agreement on January 25, 1996. On February 12, 1996, Mobil sent a
letter to Earhart's customers advising them that Earhart was no longer
an authorized seller of Mobil products. At that time Earhart was in
possession of Mobil products valued somewhere between $104,000
and $500,000, and Earhart owed Mobil approximately $280,000.
The distribution agreement provided that if Earhart was indebted to
Mobil at termination, "then Mobil [might] apply the value of Distribu-
tor's then current inventory of Mobil Products, in good condition,
bought from Mobil, against such indebtedness." Earhart claims that it
asked Mobil to repurchase its inventory and credit its account accord-
ingly and that Mobil agreed to audit the inventory for that purpose,
but that Mobil failed to follow through on its commitment. See Ear-
hart Br. at 6. In its papers, Mobil denies that Earhart made the request
or that Mobil ever agreed to conduct an audit.1 In any event, no audit
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1 At oral argument, counsel for Mobil represented that Mobil attempted
to conduct an audit, but that Earhart had refused Mobil access to its prop-
2
ever took place. Instead, on February 27, 1996, Earhart sold a portion
of its Mobil inventory to a waste hauler. The balance of the inventory
was later sold at a deep discount or discarded. Earhart did not give
Mobil any notice that it intended to dispose of the remaining inven-
tory; indeed, Mobil learned that the inventory had been sold off or
destroyed only through discovery in the ensuing litigation.
On July 8, 1998, Mobil sued Earhart in federal court in the Eastern
District of Virginia, alleging that Earhart had breached the distribu-
tion agreement by attempting to convert Mobil customers to a com-
peting brand and by failing to pay the $280,000 due. Earhart
counterclaimed on October 13, 1998, asserting that Mobil had
breached the contract by giving preferential terms to Earhart's direct
competitors and by failing to credit Earhart for its Mobil inventory.2
The district court dismissed Earhart's first claim (dealing with
Mobil's alleged preference of Earhart's competitors in the Mobil
line), holding that the claim had not been brought within twelve
months of the date that it arose, as required by the distribution agree-
ment.3 The district court also granted Mobil partial summary judg-
ment on its contractual claim for Earhart's failure to pay for products
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erty. For purposes of this decision, we assume that Mobil agreed to audit
Earhart's inventory and failed to do so.
2 Earhart also alleged that Mobil had engaged in discriminatory pricing.
That claim was dismissed by stipulation.
3 Section 9.2 of the agreement reads:
Any other claim by Distributor of any kind [other than one hav-
ing to do with defects or shortages], based on or arising out of
or in connection with this Agreement or otherwise, shall be
waived and barred unless Distributor gives Mobil written notice
within sixty (60) days after the event, action or inaction to which
such claim relates. Notwithstanding notice by Distributor to
Mobil, any claim by Distributor to Mobil, unable to be resolved
sooner by amicable agreement between Distributor and Mobil,
shall be waived and barred unless asserted by the commence-
ment of a lawsuit in a court of competent jurisdiction within
twelve (12) months after the event, action, or inaction to which
such claim relates.
3
received, but the court noted that the amount of liability would
depend on Earhart's right to a setoff under the second part of its coun-
terclaim. As to the second part of the counterclaim, the district court
concluded that genuine issues of fact were in dispute and set the mat-
ter for trial.
On the morning of trial, Mobil filed eight motions, all characterized
as motions in limine. Two of these were in effect summary judgment
motions because they argued that Earhart was not entitled to recovery
as a matter of law. Although counsel for Earhart had not been served
with any of the motions until that morning, the district court heard
argument on the motions that dealt with the merits of Earhart's claim.
Mobil argued that Uniform Commercial Code § 2-706(3), Va. Code
Ann. § 8.2-706(3), required Earhart to give Mobil notice before sell-
ing or destroying goods that Mobil was obligated to buy, and the dis-
trict court agreed. Ruling from the bench, the court granted judgment
for Mobil in the amount of $279,402.42, dismissed the jury, and
invited Earhart to brief the issue by filing a motion to amend the judg-
ment. Earhart did so, and the district court stood by its original deci-
sion.
Finally, Mobil claimed a contractual right to "all costs and reason-
able attorney's fees" associated with its lawsuit to collect the debt
from Earhart. The court awarded Mobil $10,915.62 in costs and
$56,911.40 in fees. Earhart appeals the district court's dismissal
(under Va. Code Ann. § 8.2-706(3)) of its counterclaim for credits,
the dismissal (for untimeliness) of its counterclaim for breach of con-
tract, and the award of costs and fees. We affirm the district court on
all issues.
II.
Assuming that Earhart had a contractual right to return its inven-
tory to Mobil for credit, the district court held that Earhart was a
"seller" of goods.4 As a result, Earhart could pursue a seller's reme-
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4 Section 11.4.4 of the distribution agreement provides that:
Mobil may apply the value of Distributor's then current inven-
tory of Mobil Products, in good condition, bought from Mobil,
4
dies (sell for what it could get and sue for cover), subject to the
requirement of U.C.C. § 2-706(3), Va. Code Ann. § 8.2-706(3), that
notice be given to the buyer prior to a private sale. Since it found that
Earhart never gave that notice, the district court awarded judgment to
Mobil as a matter of law.5 Earhart argues that it was never a seller
under the terms of the U.C.C. and that a trial was necessary to resolve
disputes of material fact concerning the notice that it provided Mobil.
We reject both arguments.
When a buyer wrongfully rejects or revokes acceptance of goods,
an aggrieved seller is entitled to pursue certain remedies, including
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against such indebtedness. The value of the inventory shall be
determined at Mobil's sole discretion and shall be based on the
original sales price of the Products from Mobil to Distributor less
any transportation costs to return said Products to Mobil.
Although the language of this section is permissive ("Mobil may apply
. . ."), the district court assumed that if Mobil had represented that it
would credit Earhart's account, as Earhart alleged, Mobil had exercised
an option and bound itself as a buyer.
5 We note again that Mobil's "motion in limine" on this issue was a dis-
positive motion brought on the morning of trial without any prior notice
to Earhart. Mobil claims that it brought the motion as soon as possible
after learning that Earhart had destroyed the last of its Mobil inventory.
While that may be so, Earhart's counsel was placed at a clear disadvan-
tage by the lack of notice because he was forced to defend against a
motion for summary judgment with no preparation whatsoever. See Fed.
R. Civ. P. 56(c) (motion for summary judgment "shall be served at least
10 days before the time fixed for the hearing"). Counsel for Earhart
asked for time to respond, but the district court denied the request. The
court stated that it would be a pointless exercise to proceed with the jury
trial if Mobil's argument was correct and that Earhart could file a motion
to alter or amend the judgment under Fed. R. Civ. P. 59. We emphasize
that the possibility of a Rule 59 motion post-judgment should not be con-
sidered as an acceptable substitute for the important requirement of ade-
quate notice before a hearing is held on a motion for summary judgment.
Nevertheless, in this case Earhart did file a Rule 59 motion, and the dis-
trict court gave it due consideration. Accordingly, we conclude that any
prejudice from the lack of notice and the premature decision was cured.
We review the judgment in favor of Mobil de novo.
5
reselling the goods to a third party and recovering damages from the
buyer. See Va. Code Ann. § 8.2-703(d). A seller who chooses resale
and cover as its remedy must comply with the requirements of Va.
Code Ann. § 8.2-706. Particularly relevant in this case is § 8.2-706(3),
which states that "[w]here the resale is at private sale the seller must
give the buyer reasonable notification of his intention to resell." A
public sale is an auction; a private sale occurs through direct solicita-
tion and negotiation or through use of a broker. See U.C.C. § 2-706
cmt.4. It is undisputed that Earhart effected a private sale when it sold
its Mobil inventory at a discount or to a waste hauler. What is dis-
puted is whether Earhart may be characterized as a seller, with the
result that it would be subject to § 8.2-706(3).
A seller is "a person who sells or contracts to sell goods." Va. Code
Ann. § 8.2-103(d). A "sale" is "the passing of title from the seller to
the buyer for a price." And, a "person in the position of a seller"
includes "anyone who . . . holds a security interest or other right in
goods similar to that of a seller." Id.§ 8.2-707(1). Here, Earhart had
title to its inventory of Mobil products and claims that it had a con-
tractual right to exchange that inventory for valuable consideration,
that is, a credit against its debt to Mobil. In addition, the agreement
required Earhart to pay the costs of delivering the inventory back to
Mobil. As the district court concluded, "[a]lthough somewhat atypi-
cal, this arrangement is the very essence of a sales contract, in which
no doubt exists that Earhart is the seller and Mobil the buyer." We
agree with the reasoning of the district court. Moreover, even if Ear-
hart was not a seller outright, but only "a person in the position of a
seller," the notice requirement of § 8.2-706 would still apply. See Va.
Code § 8.2-707(2) (person in position of a seller has seller's remedies,
including remedies under § 8.2-706). Mobil was entitled to reasonable
notice of Earhart's intention to make a private sale so that it could
protect itself if Earhart attempted to sell the goods at a steep discount
and then sue for the difference between the sale price and the contract
price. That is just what happened here. We therefore hold that Earhart
was a "seller" under Virginia law and was required to give notice to
Mobil before it sold its Mobil inventory at a private sale.
Furthermore, any constructive notice that Earhart provided of its
intent to sell was insufficient as a matter of law. Earhart conceded that
it never directly notified Mobil of its intention to sell off its inventory.
6
Instead, Earhart argued that once Mobil refused to repurchase the
inventory, it was on constructive notice that Earhart would resell the
petroleum products elsewhere. This is not the "reasonable notifica-
tion" contemplated by § 8.2-706(3). The breaching buyer's mere fail-
ure to accept the goods does not place the buyer on notice that the
seller will choose to make a private sale and seek cover as its remedy.
Even if the circumstances are such that the seller clearly has no rem-
edy except resale, reasonable notification is necessary where the seller
resorts to a private, rather than a public, sale. See 8.2-706(3), (4). A
contrary rule would place a breaching buyer on constructive notice by
reason of the breach alone, rendering § 8.2-706(3) a virtual nullity.
Although the seller need not provide details of the time and place of
a private sale, see U.C.C. § 2-706 cmt.8, it must provide the buyer
with reasonable notification of its intent to make such a sale. Earhart
clearly did not give this notice, and it therefore cannot recover dam-
ages under § 8.2-706.6
We affirm the district court's award of summary judgment to
Mobil on Earhart's counterclaim for a setoff based on its inventory of
Mobil products.
III.
On October 13, 1998, Earhart filed its counterclaim asserting that
Mobil breached the distribution agreement by giving preferential
terms to Earhart's competitors (who also sold Mobil products). The
district court concluded that the claim arose no later than January 25,
1996, when Mobil terminated its agreement with Earhart. Since Ear-
hart had failed to bring its claim for this alleged breach within twelve
months of the date it arose, as required by the distribution agreement,
the district court awarded summary judgment to Mobil. Earhart
argues that this contractual limitations clause is unconscionable
because it applies only to the distributor, while Mobil may take
advantage of the full five-year statute of limitations provided by Vir-
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6 A seller that cannot recover under § 8.2-706 is limited to the differ-
ence between the market price at the time and place for tender and the
unpaid contract price together with any incidental damages. See Va.
Code Ann. § 8.2-708. Earhart has not asserted any right to damages
under § 8.2-708.
7
ginia law. See Va. Code Ann. § 8.01-246(2). We do not find the limi-
tations clause to be unconscionable.
"[U]nconscionability deals primarily with a grossly unequal bar-
gaining power at the time the contract is formed." Envirotech Corp.
v. Halco Eng'g, Inc., 364 S.E.2d 215, 220 (Va. 1988). Earhart has
offered no evidence that it suffered from a gross disparity of bargain-
ing power or that Mobil engaged in oppressive conduct. Moreover,
Virginia law defines an unconscionable contract as"one that no man
in his senses and not under a delusion would make, on the one hand,
and as no fair man would accept, on the other. The inequality must
be so gross as to shock the conscience." Management Enters., Inc. v.
Thorncroft Co., 416 S.E.2d 229, 231 (Va. 1992) (internal quotations
omitted). While the disparity in the time allowed to file suit certainly
favors Mobil, the inequality is not so great as to shock the conscience.
Earhart also suggests that Mobil should be estopped from invoking
the limitations clause. The grounds for estoppel are not entirely clear,
but Earhart appears to argue that Mobil offered to conduct an audit
of the inventory, never did so, and then filed its own suit after the
one-year limitation period had passed. The record does not support
this contention. At best, the record indicates that the parties were
negotiating toward settlement and that Earhart therefore assumed that
Mobil would not bring suit. Absent a more explicit promise or repre-
sentation from Mobil that it would not sue, Earhart cannot show
grounds for estoppel. See Jenkins v. Ford Motor Co., 498 S.E.2d 445,
449 (Va. Ct. App. 1998).
We affirm the district court's award of summary judgment to
Mobil on Earhart's claim that Mobil breached the distribution agree-
ment by giving preferential treatment to Mobil dealers who competed
with Earhart.
IV.
The distribution agreement states that "in the event that Distribu-
tor's account is placed for collection, it shall pay all costs and reason-
able attorney's fees associated with such collection proceedings if
Mobil prevails." The district court awarded Mobil $56,911.40 in fees
and $10,915.62 in costs. Earhart appeals, arguing that the award is
8
excessive and unsupported by the language of the agreement. Specifi-
cally, Earhart claims (1) that Mobil unreasonably hired Chicago coun-
sel to conduct litigation in Virginia, incurring unnecessary expenses
for travel and for retention of local counsel, (2) that costs and fees that
were incurred before litigation commenced are not"associated" with
the collection proceeding, and (3) that the district court improperly
included expenses for meals, travel, and delivery services in its calcu-
lation of "costs." We affirm the award in its entirety.
The district court found that hourly rates and the time expended on
the case were reasonable. There is no reason to believe that the work
performed by local counsel (which was required) was in any way
duplicative of the work performed by Chicago counsel. While we
might question Mobil's need to retain out-of-state counsel for a case
tried in Mobil's home state, we cannot say that the decision to retain
such counsel was unreasonable or that the district court abused its dis-
cretion in awarding Mobil its resulting fees and costs. With respect
to the costs and fees incurred before litigation commenced, we agree
with the district court that such costs are "associated" with this pro-
ceeding. See In re General Motors Corp., 110 F.3d 1003, 1024 (4th
Cir. 1997) ("Surely research performed prior to a case being filed is
recoverable as part of the attorney's fees for that case."). Finally,
Mobil is entitled to costs and fees by contract, not by statute. That
contractual provision is not subject to the narrow construction that
applies to Virginia's statute providing for the award of costs and fees.
See Lansdowne Development Co., L.L.C. v. Xerox Realty Corp., 514
S.E.2d 157, 162-63 (Va. 1999). As the district court recognized, the
expenses claimed by Mobil here are normally borne by a party in the
course of litigation. Earhart has not offered any reason for us to adopt
a narrow construction of the contract term "costs," and we decline to
do so here.
V.
For the reasons stated, the judgment of the district court is
AFFIRMED.
9