Carter v. Exxon Company USA

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
5-24-1999
Carter v. Exxon Company USA
Precedential or Non-Precedential:
Docket 97-5248,97-5272
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Recommended Citation
"Carter v. Exxon Company USA" (1999). 1999 Decisions. Paper 140.
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Filed May 24, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 97-5248
RICHARD CARTER; CAROL CARTER,
husband and wife, d/b/a Forsum, Inc.;
FORSUM, INC.,
Appellants
v.
EXXON COMPANY USA, a division of
EXXON CORPORATION,
EXXON CORPORATION,
Defendants/Third-Party Plaintiffs
v.
PETROLEUM TECHNOLOGIES, INC.
Third-Party Defendant
No. 97-5272
RICHARD CARTER; CAROL CARTER,
husband and wife, d/b/a Forsum, Inc.;
FORSUM, INC.,
v.
EXXON COMPANY USA, a division of
EXXON CORPORATION; EXXON CORPORATION,
Defendants/Third-Party Plaintiffs
v.
PETROLEUM TECHNOLOGIES, INC.
Third-Party Defendant
EXXON CORPORATION,
Appellant
On Appeal from the United States District Court
for the District of New Jersey
(D. C. Civil No. 93-0238)
District Judge: Hon. Mary L. Cooper
Argued: May 21, 1998
Before: SLOVITER, GREENBERG, Circuit Judges, and
GIBSON, Senior Circuit Judge.*
(Filed: May 24, 1999)
Andrew J. Stern (ARGUED)
David A. Yanoff
Beasley, Casey & Erbstein
Philadelphia, PA 19107
Attorneys for Appellants in
No. 97-5248
Steven J. Fram (ARGUED)
Archer & Greiner
Haddonfield, New Jersey 08033
Attorney for Appellant in
No. 97-5272
OPINION OF THE COURT
JOHN R. GIBSON, Senior Circuit Judge.
Richard Carter and his wife, Carol, appeal and argue that
_________________________________________________________________
*The Honorable John R. Gibson, Senior United States Circuit Judge for
the Eighth Circuit Court of Appeals, sitting by designation.
2
the district court erred in granting summary judgment in
favor of Exxon Company USA on their Petroleum Marketing
Practices Act1 claim and on Exxon's state law counterclaim.
They also contend, with respect to their state law contract
claims, that the district court erred in instructing the jury,
in interpreting and analyzing for unconscionability
disclaimers in their franchise agreement with Exxon, in
barring recovery of any damages that accrued after their
franchise agreement was not renewed, and in holding that
a jury finding was not against the clear weight of the
evidence. Exxon cross appeals, contending that the district
court erred by applying the disclaimers to only one of the
Carters' contract claims and abused its discretion by
granting the Carters leave to amend their complaint. We
reverse the grant of summary judgment on the Carters'
Petroleum Marketing Practices Act claim and on Exxon's
counterclaim. We conclude the district judge erred in
instructing the jury on waiver and reverse the judgment on
the Carters' state law contract claims. We affirm the district
judge's holding that the contract disclaimers do not bar the
Carters from recovering business loss on one of their
contract claims and affirm the district judge's holding that
the Carters may not recover, on their contract claim,
business loss occurring after their franchise agreement was
not renewed. We remand for further proceedings in
accordance with this opinion.
In 1986, the Carters began operating an Exxon service
station in Wrightstown, New Jersey. Carter had previously
been in the trucking business, but planned to make the
service station his only business. The Carters formed a
corporation, Forsum, Inc., for the purpose of operating the
station. Because Exxon did not own the real property where
the station was located, Carter entered into a lease with
Thomas and Alma Davis, the owners of the real property.
From the inception of the franchise, the Carters and Exxon
discussed the possibility of upgrading the station or
rebuilding the station (the "hi-grade" plan), but this never
materialized.
_________________________________________________________________
1. The relevant provisions of the Act are codified at 15 U.S.C. SS 2801-
2806 (1994).
3
Carter renewed the franchise on July 20, 1989, effective
through August 1, 1992. The renewal was memorialized in
a "Sales Agreement" and a "Rental Agreement." The Sales
Agreement had a provision disclaiming consequential
damages, and the Rental Agreement had a provision
disclaiming damages, including loss of business resulting
from repairs performed on the loaned equipment.
In late September 1990, the Carters reported a leak in
the "plus" tank, one of three underground gasoline storage
tanks. Exxon, which owned and was responsible for the
tanks, confirmed the leak and sent out a work crew to
perform the repairs. On October 15, 1990, the work crew
emptied the "plus" tank to test the repair. On October 18,
1990, the buoyant force of ground water forced the tank to
emerge from the ground, which in turn caused the
"supreme" tank to take on water.2 During the repair of the
"supreme" tank, it too emerged from the ground causing
damage to the "regular" tank. After two weeks in which the
Carters were left with no operational tanks, Exxon repaired
the "regular" tank, but the Carters were left with only one
working tank for nine months, allowing them to sell only
one type of gasoline.
After the tanks surged, the Carters had several meetings
with various Exxon employees including David O'Connor,
business counselor for the Carters' account, Anthony
Luciano, district manager for southern New Jersey, and
Richard Biedrzycki, Exxon's outside counsel. In the
meetings, the parties discussed several issues. Carter
expressed his desire that Exxon immediately replace his
tanks, keeping them at their old site, while Exxon
expressed renewed interest in the "hi-grade" plan, which
would involve replacing the tanks in a new site to suit the
larger facility. Exxon, unable to convince Carter to agree to
_________________________________________________________________
2. Exxon engineers recognized the risk of the tanks emerging. Two
methods of combating this risk are securing the tank with straps and
filling it with liquid. Carter claimed that some straps were missing while
others were broken. Also, failed communications between the work crew
and the fire department resulted in the "plus" tank not being filled with
water from October 16, 1990 to October 18, 1990. Carter used these
occurrences as part of the basis for his state law claims, and the jury
resolved these claims in favor of Carter.
4
the "hi-grade" plan, eventually decided in mid-May to
replace the tanks in their old site, and the work was
completed in July 1991. In bringing all three tanks to
working order, Exxon filled them with hold-down loads of
gasoline.
After the tanks were replaced, the parties continued to
discuss variations of the "hi-grade" plan, but also discussed
a franchise renewal, a covenant not to sue for damages
arising out of the tank repair, and monies Exxon claimed
were due for various items, one of which was a charge for
the gasoline used to refill the tanks during the repairs. The
discussions took a turn for the worse after a stormy
meeting on June 3, 1992, abruptly terminated by the
Carters' attorney, Gerald Haughey. After meetings on June
18 and July 8, 1992, the parties still could not resolve their
differences. A critical point of dispute between the parties is
whether Exxon, in the course of these meetings, ever
offered the Carters a franchise renewal without conditioning
it on their assent to other agreements including the
covenant not to sue and investment and amortization
agreements related to the "hi-grade" plan.
The parties ultimately did not agree on a renewal of the
franchise, and Exxon sent the Carters a termination notice
in late July 1992. The Carters vacated the premises by the
end of September. Exxon entered a franchise agreement for
the same premises with the Davises' son-in-law, Wayne
Bird. The Carters filed this lawsuit.
The Carters and Forsum asserted a violation of the
Petroleum Marketing Practices Act ("Petroleum Act"), breach
of contract, negligence, tortious interference with business
relationship, and tortious interference with prospective
economic advantage. Exxon filed a counterclaim alleging
that Carter had failed to pay Exxon monies due under their
franchise agreement.
The district court dismissed the Carters' Petroleum Act
claims on the grounds that only Forsum had standing to
sue under the Petroleum Act, and dismissed Carol Carter
and Forsum's tortious interference claims. The district
court granted summary judgment in favor of Exxon on the
claims of violation of the Petroleum Act, negligence,
5
interference with business relationship, and interference
with prospective economic advantage. The district court
also granted summary judgment, as to liability only, in
favor of Exxon on its counterclaim.
The trial was bifurcated, and the case was submitted to
the jury to resolve the Carters' breach of contract claim and
the appropriate amount of damages on Exxon's
counterclaim. The Carters' contract claim was two-fold.
They alleged Exxon had breached its contractual duties by
failing to make the tank repairs in a good and workmanlike
manner and to make the repairs in a reasonable time. The
jury returned a verdict on liability in favor of the Carters on
both theories; however, the liability verdict was mitigated by
the jury's finding that the Carters had waived Exxon's
contractual duty to repair in a reasonable time for the
period of October 18, 1990, to December 30, 1990. After
the district judge made post-verdict rulings on damage
issues based upon the disclaimers in the franchise
agreement and accrual of damages after termination of the
franchise agreement, the parties stipulated that the Carters'
damages for breach of contract were $40,000 and Exxon's
damages on its counterclaim were $40,000. This appeal
and cross-appeal followed.
The Carters argue the district court erred in granting
summary judgment on the Petroleum Act claim and in
granting summary judgment on Exxon's counterclaim. They
further contend that the district court's jury instruction on
waiver was erroneous, that the district court erred in
applying the disclaimers to bar their claim for
consequential damages for breach of duty to repair in a
good and workmanlike manner, that the district court erred
by barring the recovery of any damages for the time period
after the franchise agreement was not renewed, and that
the jury's finding that ninety days was a reasonable repair
period was against the clear weight of the evidence. Exxon
contends that the district court erred by applying the
disclaimers to only one of the Carters' contract claims. It
contends the disclaimers should also bar recovery of
consequential damages on the Carters' claim for breach of
duty to repair in a reasonable time. It also contends the
district court abused its discretion by granting the Carters
leave to amend their complaint.
6
I. Summary Judgment on Petroleum Act
The Carters3 argue that the non-renewal of their
franchise agreement violated the Petroleum Act. Congress
enacted the statute for the purpose of protecting
franchisees, who generally have inferior bargaining power
when dealing with franchisors, from unfair termination or
nonrenewal of their franchises. See S. Rep. No. 95-731, at
17-19, (1978), reprinted in 1978 U.S.C.C.A.N. 873, 875-77.
However, Congress also provided franchisors with some
flexibility to terminate franchise relationships by delineating
specific provisions which indicate when a franchisor may
permissibly terminate a franchise agreement. See 15 U.S.C.
S 2802(b)(3). The district court granted summary judgment
against the Carters based upon such a provision.
Specifically, the district court relied upon section 2802(b)(3)
of the Petroleum Act which states:
[T]he following are grounds for nonrenewal of a
franchise relationship:
(A) The failure of the franchisor and the franchisee to
agree to changes or additions to the provisions of the
franchise, if --
(i) such changes or additions are the result of
determinations made by the franchisor in good faith
and in the normal course of business . . . .
15 U.S.C. S 2802(b)(3).
When the franchisor terminates or does not renew a
franchisee's contract, the burden falls upon the franchisor
to prove that it declined to renew for one of the permissible
reasons set forth in the Petroleum Act. See Lugar v. Texaco,
Inc., 755 F.2d 53, 56 (3d Cir. 1985); Sun Refining and
Marketing Co. v. Rago, 741 F.2d 670, 672 (3d Cir. 1984); 15
U.S.C. S 2805(c).
Summary judgment may only be granted "if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
_________________________________________________________________
3. The district court held that Forsum, the Carters' corporation, was the
party with standing to bring the Petroleum Act claim; we refer to the
Carters for simplicity.
7
that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter
of law." Fed. R. Civ. P. 56(c). The moving party has the
burden of demonstrating that the standards of Rule 56(c)
have been satisfied. See Boyle v. County of Allegheny
Pennsylvania, 139 F.3d 386, 393 (3d Cir. 1998). When a
court is deciding a motion for summary judgment,
"inferences should be drawn in the light most favorable to
the non-moving party, and where the non-moving party's
evidence contradicts the movant's, then the non-movant's
must be taken as true." Big Apple BMW, Inc. v. BMW of
North America, Inc., 974 F.2d 1358, 1363 (3d Cir. 1992),
cert. denied, 507 U.S. 912 (1993). The judge's function is
not to weigh the evidence and determine the truth of the
matter, but to determine whether there is a genuine issue
for trial. See id. (quotations omitted). If the non-movant has
offered more than a "scintilla" of evidence, the judge may
not discredit the non-movant's evidence even if the
movant's evidence far outweighs that of the non-movant.
See id. Our review of the district court's decision is plenary,
and we use the same standard the district court should use
in the first instance. See Patel v. Sun Co., 141 F.3d 447,
451 (3d Cir. 1998).
The parties dispute whether there is a genuine issue of
material fact as to whether Exxon offered the Carters an
unconditional renewal of their franchise agreement. The
Carters claim that the renewal of the franchise agreement
was conditioned upon their assent to other agreements,
including the covenant not to sue and investment and
amortization agreements related to the "hi-grade" plan.
Exxon claims that it offered the Carters a franchise
agreement without any strings attached. If Exxon
conditioned the renewal offer upon Carter's assent to these
agreements, then the non-renewal did not comply with the
Petroleum Act. See 15 U.S.C. SS 2802(b)(3) and 2805(f). The
district court so stated the issue on the summary judgment
motion. We must review the record in the light most
favorable to the Carters and determine if there is a genuine
issue of material fact as to whether Exxon conditioned its
renewal offer upon these agreements. We are persuaded
that a genuine issue of material fact exists.
8
Carter testified several times at deposition that Exxon's
offer of a franchise renewal was conditioned upon his
assent to other agreements. In Carter's words, "[A] sales
agreement on its own, alone, was never offered to me," and
"[T]he way it was offered was in a package . . . if I signed
a full release, if I put $30,000 in the building . .. ." Carter
addressed the June 1992 time period which was crucial to
the district court's reasoning. When asked if Exxon had
offered him a franchise agreement before July 2, 1992,
Carter responded "[I]n some form of package form, I believe
so . . . ." Carter specifically defined the package as a
general release for claims arising from the tank damage, an
agreement to upgrade the station with $30,000 of
improvements, an amortization agreement, and an
agreement to clear the debt Carter allegedly owed Exxon
from past transactions, including the gasoline used to fill
the tanks during repair.
Other evidence on the record indicates that there is a
genuine factual issue as to whether the offer was
unconditional. Haughey, who was present at the meeting of
June 3, 1992, testified that Exxon was "tying" the renewal
of the sales agreement to the damage of the tanks and had
been doing so "from the beginning." Carol Carter testified
that every time Exxon made an offer, the Carters were not
free to sign only the franchise agreement. In her words,
"You couldn't pick up one so [sic] stack and say, okay, I'll
take this and leave the other two. They were set in front of
you as a whole and this is what you had to decide on. You
had to sign all three." Exxon's own employees testified that
before June 1992, Exxon offered package deals. O'Connor
testified that in October 1991, he communicated with
Exxon's attorneys regarding an offer to the Carters that
contained a covenant not to sue and an amortization
agreement. Further, Luciano testified that Exxon offered
Carter a deal in which Carter would receive a new franchise
agreement, but also would have to sign a covenant not to
sue.
Moreover, the evidence cited by the district court and
Exxon does not persuade us that there is no genuine issue
of material fact. Both the district court and Exxon rely
heavily on O'Connor's testimony that there were no
9
conditions placed on the June 18, 1992, offer of a new
franchise agreement. However, that testimony is in direct
conflict with Carter's testimony that he was never offered a
franchise renewal with no strings attached. When the non-
movant's evidence contradicts the movant's, the non-
movant's must be taken as true. See Big Apple BMW, Inc.,
974 F.2d at 1363. Instead, the district court accepted
Exxon's, the movant's, evidence as true. The district court
and Exxon also make much of Carter's admission that on
June 3, 1992, Exxon never explicitly stated that the offer
was conditioned upon his assent to other agreements.
However, as Carter's testimony shows, Exxon certainly did
not explicitly tell him that the offer was not conditioned
upon other agreements, as Exxon had indicated in the past.
Carter's statement at most represents an ambiguity in his
testimony. Ambiguities in deposition testimony are for the
jury to resolve. See Meinhardt v. Unisys Corp., 74 F.3d 420,
433 n.10 (3d Cir.), cert. denied, 519 U.S. 810 (1996).4 The
district court also relied on a letter Haughey wrote on
January 2, 1992, requesting that Exxon handle the renewal
of the franchise agreement and the damage to the tanks as
two distinct issues and a letter Biedrzycki wrote in July of
1992, indicating that Exxon was treating the matters
separately. In the district court's opinion, the letters
showed that both parties understood that the franchise
renewal was distinct from discussions relating to the
damaged tanks. However, the inference the district court
drew from the correspondence is too broad and certainly
not in the Carters' favor. The letter only directly shows that
Haughey was asking for the issues to be treated separately,
and at one point in July, Exxon indicated that they were.
It does not directly show that Exxon made an unconditional
offer, and inferring that it does is inappropriate on
summary judgment.
_________________________________________________________________
4. Exxon also relies upon on a statement that Carter made in a meeting
in July 1992 indicating that he had no choice but to cease operations.
Exxon claims that this amounts to a rejection of a franchise agreement.
Carter's statement, however, does not show that Exxon made an
unconditional offer. Read in a light most favorable to Carter, the
statement only shows that Carter could not continue his operations if he
was forced to agree to Exxon's package offer--including his waiver of
claims arising out of the tank replacement.
10
In short, the district court failed to place the events of
June and July in context with the previous relations
between the parties and only accepted Exxon's version of
the events. The record, when viewed in the light most
favorable to the Carters, reveals that a genuine issue of
material fact exists as to whether the renewal offer was
conditional. We therefore reverse the grant of summary
judgment for Exxon.
II. Summary Judgment on Counterclaim
The district court entered summary judgment for Exxon
on its counterclaim, which alleged that Carter owed Exxon
for purchases of gasoline under the agreement.5 The district
court held that Carter had not contested his liability as to
the items in question. While the court lacked
documentation as to amounts, it found it appropriate to
grant Exxon's motion for summary judgment on the issue
of liability. The parties later stipulated the amount of this
debt as $40,000.
The Carters argue the debt arose almost entirely from the
loads of gasoline used to hold the tanks down during
repair. Luciano, Exxon's employee, testified that the
indebtedness arose from the hold-down gasoline used for
the three tanks. The Carters further argue that they did not
expressly or impliedly promise to pay for the hold-down
loads as they did not order the gasoline; thus, Exxon could
only recover in quasi-contract, a theory of recovery Exxon
did not allege. The franchise agreement states that
"[Gasoline] shall be delivered by Seller to Buyer at the
premises in the quantities ordered by Buyer." Carter
testified that he did not order the hold-down loads. Luciano
testified that the Carters disputed the amount of the debt.
O'Connor testified that there was a dispute regarding
monies allegedly due for fuel used in the tank replacement.
Applying the standards stated above, we conclude this
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5. Exxon also asserts that the Carters' alleged failure to pay the debt is
a basis for granting summary judgment in its favor on the Carters'
Petroleum Act claim. The district court did not base its grant of
summary judgment on the Petroleum Act claim upon this debt; thus, we
do not address it in relation to the Petroleum Act claim.
11
evidence compels the rejection of summary judgment on
Exxon's counterclaim.
III. Jury Instruction on Waiver
The case went to the jury on the Carters' breach of
contract claims, and the jury found that the Carters waived
performance of Exxon's contractual duty to repair the tanks
from October 18, 1990, to December 30, 1990. The Carters
argue that the court erred in instructing the jury that
waiver could be found based upon "inaction or silence." The
Carters timely objected to the instruction. We must
determine whether the jury instructions as a whole stated
the correct legal standard. See Ryder v. Westinghouse Elec.
Corp., 128 F.3d 128, 135 (3d Cir. 1997), cert. denied, 118
S. Ct. 1052 (1998). "If, looking at the charge as a whole, the
instructions were capable of confusing and thereby
misleading the jury, we must reverse." Mosley v. Wilson,
102 F.3d 85, 94 (3d Cir. 1996) (quotations omitted).
The breach of contract claim was asserted under New
Jersey law, and we look to New Jersey law to determine the
applicable definition of waiver. The Supreme Court of New
Jersey in West Jersey Title & Guaranty Co. v. Industrial
Trust Co., 141 A.2d 782 (N.J. 1958), held that waiver
requires "a clear, unequivocal, and decisive act of the party
showing such a purpose or acts amounting to an estoppel
on his part . . . ." Id. at 787. See also Petrillo v. Bachenberg,
623 A.2d 272, 276 (N.J. Super. Ct. App. Div. 1993), aff 'd,
655 A.2d 1354 (N.J. 1995); Country Chevrolet, Inc. v.
Township of North Brunswick Planning Bd., 463 A.2d 960,
962 (N.J. Super. Ct. App. Div. 1983). New Jersey law thus
requires a decisive act, rather than mere inaction, as a
basis for waiver, and we conclude the district court's
instruction was contrary to New Jersey law.
Moreover, during closing argument, Exxon's counsel
argued that the Carters' silence in the face of the
destruction of the tanks and Exxon's corresponding "hi-
grade" proposal made it reasonable for Exxon to proceed on
the proposals, rather than to start replacing the tanks. The
district court instructed the jury that it mustfind a waiver
if the Carters expressly agreed to or clearly acquiesced in a
12
delay of performance under the contract which reasonably
led Exxon to believe that the Carters would not insist the
tanks be repaired or replaced. Introducing the issue of
Exxon's reasonable belief is also contrary to New Jersey
law, and further compounded the error. See Petrillo, 623
A.2d at 272, 276 (holding that it is erroneous to define
waiver as conduct causing an objective observer to believe
party had relinquished her rights). Including inaction,
silence, and reasonable belief in the definition of waiver
creates an incorrect statement of the legal standard and
could confuse the jury as to the basis for waiver. The
district court's instruction is reversible error.
IV. Damages
A.
The franchise relationship between Carter and Exxon was
memorialized in the Sales Agreement and the Rental
Agreement. Each had a provision disclaiming damages.
Paragraph three of the Rental Agreement states:
Upon written notice from the Lessee, Lessor shall make
all repairs to the equipment leased hereunder which
are not Lessee's responsibility as described in Exhibit
A; provided, however, that such repairs are, in Lessor's
sole judgment, necessary in consideration of the
remaining term of this agreement or have not been
caused by negligence or misuse of Lessee or Lessee's
employees, agents, representatives or contractors.
Lessor and its designees shall have the right to enter
the premises at any time to inspect, repair, or replace
the equipment, and Lessor shall have no obligation to
reimburse Lessee for any loss of business by Lessee or
other damages resulting from these activities by Lessor.
Paragraph twenty-six of the Sales Agreement states:
DAMAGES: NO CLAIM SHALL BE MADE UNDER THIS
CONTRACT FOR SPECIAL, OR CONSEQUENTIAL
DAMAGES, EXCEPT AS PROVIDED OTHERWISE BY
LAW.
13
The district court held that it did not need to look to
paragraph twenty-six of the Sales Agreement because
paragraph three of the Rental Agreement was more
applicable to tank replacement. After determining that
paragraph three was not unconscionable, the district court
held that it barred the Carters' recovery of consequential
damages on their claim for breach of duty to repair in a
good and workmanlike manner, but did not bar the Carters'
recovery of consequential damages on their claim for breach
of duty to repair in a reasonable time. Each party claims
the district court's holding was erroneous. The Carters
claim that both paragraph three and paragraph twenty-six
are inapplicable, and, in the alternative, they are
unconscionable. Exxon disputes the Carters' claims and
further contends that the district court erred by not
applying paragraphs three and twenty-six to the Carters'
claim for breach of duty to repair in a reasonable time.
Thus, we must first determine whether the proper
interpretation of the contract bars the Carters' recovery of
consequential damages and then determine whether the
contract, properly interpreted, is unconscionable.
Franchise agreements governed by the Petroleum Act are
to be interpreted according to state contract law.6 See Lippo
v. Mobil Oil Corp., 776 F.2d 706, 712 (7th Cir. 1985). We
thus look to New Jersey's law of contract interpretation.
New Jersey's fundamental rule of contract interpretation is
_________________________________________________________________
6. Rental agreements are interpreted and analyzed for unconscionability
in the same way as contracts. We need not consider whether New
Jersey's version of the Uniform Commercial Code applies to this rental
agreement. On the state law issues before the court today--waiver,
interpretation, unconscionability, and consequential damages--the
U.C.C. analysis and the common law contract analysis lead to the same
result. See N.J. Stat. Ann. SS 12A:2-209 (West 1962) (not defining waiver)
and 12A:2-208 (West 1962) (New Jersey Study Comment). Compare N.J.
Stat. Ann. S 12A:2-301 (West 1962) (U.C.C. Comment) with Jacobs v.
Great Pacific Century Corp., 518 A.2d 223, 224, 227 (N.J. 1986)
(interpretation). Compare Chatlos Systems, Inc. v. National Cash Register
Corp., 635 F.2d 1081, 1086-87 (3d Cir. 1980) with Howard v. Diolosa,
574 A.2d 995, 999 (N.J. Super. Ct. App. Div. 1990) (unconscionability),
certification denied, 585 A.2d 409 (N.J. 1990). Compare N.J. Stat. Ann.
S 12A:2-715 (West 1962) (New Jersey Study Comment) with Donovan v.
Bachstadt, 453 A.2d 160, 165-66 (N.J. 1982) (consequential damages).
14
that the court is to ascertain the parties' intent from what
was written and the surrounding circumstances. See
Jacobs v. Great Pacific Century Corp., 518 A.2d 223, 224,
227 (N.J. 1986); Tessmar v. Grosner, 128 A.2d 467, 471
(N.J. 1957). Our review of the district court's interpretation
of the contract is plenary. See Smithkline Beecham Corp. v.
Rohm and Hass Co., 89 F.3d 154, 159 (3d Cir. 1996);
Jumara v. State Farm Ins. Co., 55 F.3d 873, 880-81 (3d Cir.
1995).
The parties make much of whether the Sales Agreement
and the Rental Agreement are one agreement or two. Exxon
argues that they are one agreement; therefore, paragraph
twenty-six of the Sales Agreement applies to losses
resulting from the repair of the tanks, and paragraph
twenty-six is so broad that it does not leave room for the
district court's distinction between manner and time of
repair. The Sales Agreement refers to attachments, and its
language makes evident that the Rental Agreement was an
attachment to it. The Rental Agreement is not only entitled
a "Rider to the Sales Agreement," but commences with
reference to the buyer's purchase of products as defined in
the Sales Agreement. However, whether the parties have
one or two agreements is not determinative of the issue
before us.
Contract provisions are to be interpreted so as to give
each provision meaning, rather than rendering some
provisions superfluous. See, e.g., Ehnes v. Hronis, 23 A.2d
592, 593 (N.J. 1942); United States v. Johnson Controls,
Inc., 713 F.2d 1541, 1555 (Fed. Cir. 1983); Embassy
Moving & Storage Co. v. United States, 424 F.2d 602, 606
(Ct. Cl. 1970). Exxon's reading of paragraph twenty-six of
the Sales Agreement renders superfluous the disclaimer
language in paragraph three of the Rental Agreement,
which specifically addresses the parties' respective duties
for the upkeep of the equipment and which disclaims
business loss resulting from repair of the equipment. The
reading of the two agreements which gives independent
meaning to paragraph three of the Rental Agreement is that
paragraph twenty-six of the Sales Agreement does not apply
to losses stemming from tank repair. The disclaimers in
paragraph twenty-six of the Sales Agreement and
15
paragraph three of the Rental Agreement apply to different
aspects of the contractual relationship between the parties.
The critical phrase of paragraph three of the Rental
Agreement is: "[Lessor] shall have the right to enter the
premises at any time to inspect, repair, or replace the
equipment, and Lessor shall have no obligation to
reimburse Lessee for any loss of business by Lessee or
other damages resulting from these activities . . . ." The
business loss on the breach of duty to repair in a good and
workmanlike manner claim results from Exxon's repair of
the equipment and is barred by the disclaimer.
We believe, however, that New Jersey's contract
interpretation principles lead to the conclusion that the
Carters may recover business loss for breach of duty to
repair in a reasonable time.
"An agreement . . . must be accorded a rational meaning
in keeping with the express general purpose." Tessmar v.
Grosner, 128 A.2d 467, 471 (N. J. 1957). "[T]he most fair
and reasonable construction, imputing the least hardship
on either of the contracting parties should be adopted . . .
so that neither will have an unfair or unreasonable
advantage over the other." Id. (citations omitted).
Paragraph three only bars damages "resulting from"
repair and does not refer to failure to commence repairs or
the timeliness of repairs. An interpretation of this language
that allows Exxon to delay commencement of tank
replacement and not make the replacement in a reasonable
time is not the most reasonable or fair because it
substantially undermines the right to repairs that Exxon
gave Carter.7 Further, allowing Exxon an unlimited time to
make the repairs gives it an unfair advantage in this case
_________________________________________________________________
7. Exxon claims that it did not commence tank replacement because
after the tanks surged, the Carters negotiated with them about making
the "hi-grade" improvement. However, Carter testified that he told Exxon
that he was not interested in the "hi-grade" improvement and wanted his
tanks replaced in their old site. This factual dispute goes to the merits
of Exxon's waiver defense, which the jury resolved by finding that Carter
waived his right to have the tanks timely replaced from October 18, 1991
to December 30, 1991. The waiver issue must be retried with the proper
jury instruction.
16
where the delay could have compelled Carter into assenting
to the "hi-grade" improvement. It is also not in accord with
the general purpose of the agreement, the sale of gasoline.
If Exxon truly was bargaining for exculpation from damages
regardless of the length of time it took them to make
repairs, it should have drafted the contract explicitly
excluding damages for untimely repair.
While the exculpatory clause in a commercial lease was
held not to exculpate a landlord from his own negligence
unless the clause expressly so stated, see Carbone v.
Cortlandt Realty Corp., 277 A.2d 542, 543 (N.J. 1971), the
principle is also applicable in this case. Exxon's delay, like
Cortlandt's negligence, was a subject that required an
explicit disclaimer.
Considering the stake Carter had in his franchise and the
imprecise language of the disclaimer, we are not persuaded
that Carter agreed to incur the risk that Exxon would delay
the commencement of tank replacement and not perform
the required repair or replacement in a reasonable time.
B.
Even if we were to interpret the disclaimer as Exxon
proposes, we would conclude the contract is
unconscionable to the extent that it shields Exxon from
damages resulting from its failure to repair or replace the
tanks in a reasonable time. Unconscionability is a question
of law for the court to decide. N.J. Stat. Ann. S 12A:2-302
(West 1962). In determining whether a contract is
unconscionable, courts focus on the bargaining power of
the parties, the conspicuousness of the putative unfair
term, and the oppressiveness and unreasonableness of the
term. See, e.g., Chatlos Systems, Inc. v. National Cash
Register Corp., 635 F.2d 1081, 1086-87 (3d Cir. 1980);
Gladden v. Cadillac Motor Car Division, 416 A.2d 394, 403
(N.J. 1979) (concurring opinion).
In this case, while we recognize that the Carters had
discussions with other franchisors, there is no doubt that
their bargaining power was substantially less than Exxon's.
See S.Rep. No. 95-731, at 17-18, (1978), reprinted in 1978
U.S.C.C.A.N. 873, 875-76. The Petroleum Act might protect
17
the Carters from unfair renewal decisions, but there
remains a wide disparity in bargaining power with regard to
other aspects of the relationship.
Furthermore, the disclaimer is not adequately
conspicuous. The paragraph is not titled, and the critical
language limiting Exxon's liability is not capitalized or
highlighted. Thus, there is no indication that this far-
reaching disclaimer might be of greater importance than
other provisions of the paragraph or the agreement. The
lack of a title or highlighting is particularly disturbing
because the disclaimer is buried in a paragraph which
purports to confer the benefit of repairs made at Exxon's
expense. Indeed, in a single-spaced paragraph, which for
the first eight and one-half lines discusses only the duty to
repair, it is not until the last clause of the third sentence
beginning on the last half of the eighth line, that the
disclaimer of liability is reached. In this respect, the case is
similar to Jutta's Inc. v. Fireco Equipment Co., 375 A.2d 687
(N.J. Super. Ct. App. Div. 1977), in which the court struck
down a limitation on damages which appeared at the end of
a paragraph conferring a guarantee. See id. at 690. While
the paragraph in Jutta's was more deceiving because it was
titled "Distributor's Guarantee," placing the disclaimer far
down in a paragraph which otherwise seems to confer
benefits, without any demarcation at all, falls short of being
conspicuous. See N.J. Stat. Ann. S 12A:1-201(10) (West
Cum. Supp. 1998) (describing language as conspicuous if it
is in larger or contrasting type).
Finally, the disclaimer, as Exxon would have us interpret
it, would be oppressive and unreasonable. In some
respects, this case is similar to Kearney & Trecker Corp. v.
Master Engraving Co., 527 A.2d 429 (N.J. 1987). There the
New Jersey Supreme Court considered whether a seller's
disclaimer of consequential damages was enforceable when
the seller's repair warranty had failed of its essential
purpose.
Kearney adopted our reasoning in Chatlos Systems, Inc.
v. National Cash Register Corp., 635 F.2d 1081 (3d Cir.
1980), and held that the fact that the seller's repair
warranty had failed of its essential purpose does not alone
render the disclaimer of consequential damages
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unconscionable. See Kearney, 527 A.2d at 437-38. In the
court's words:
[New Jersey Law] does not require the invalidation of
an exclusion of consequential damages when limited
contractual remedies fail of their essential purpose. It
is only when the circumstances of the transaction,
including the seller's breach, cause the consequential
damage exclusion to be inconsistent with the intent
and reasonable commercial expectations of the parties
that invalidation of the exclusionary clause would be
appropriate . . . . For example, although a buyer may
agree to the exclusion of consequential damages, a
seller's wrongful repudiation of a repair warranty may
expose a buyer to consequential damages not
contemplated by the contract . . . .
Id. at 438.
Kearney held that the disclaimer in question was not
unconscionable as applied, considering the wide range of
repairs possible for the complex controlled machine at issue
and the repeated service calls made by the seller. See id. at
438-39.
In this case, Exxon did not repudiate its duty to repair.
But, under Kearney, the issue is whether, considering the
circumstances of the transaction and the nature of Exxon's
breach, it is consistent with reasonable commercial
expectations and the intent of the parties that the Carters
bear the risk of loss of business stemming from Exxon's
failure to repair or replace the tanks in a reasonable time.
The disclaimer makes no reference to failure to
commence repairs or the timeliness of repairs. Most
important is the nature of Exxon's breach. Even if the
Carters waived their right to timely tank replacement
through December 30, 1991, as the jury found, Exxon did
not commence tank replacement until mid-May. The
replacement of the tanks was not completed until mid-July,
three and one-half months longer than the jury found to be
a reasonable time for the replacement. Absent waiver or a
similar defense, we conclude that the substantial delay in
the commencement of tank replacement, with a resulting
failure to replace in a reasonable time, is the kind of
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breach, which causes unforeseen damage, such as the New
Jersey Supreme Court referred to in Kearney.
Kearney relied on our decision in Chatlos Systems, Inc. v.
National Cash Register Corp., 635 F.2d 1081 (3d Cir. 1980).
In Chatlos, the buyer bought a computer system from the
seller. The contract included a repair warranty and a
consequential damage disclaimer. A year and a half after
the sale, the system was not working properly, despite
repeated repair efforts by the seller. The buyer sued for
consequential damages. See Chatlos, 635 F.2d at 1084. In
upholding the validity of the damage disclaimer against a
claim that it was unconscionable, we stated, "[I]t is worth
mentioning that even though unsuccessful in correcting the
problems within an appropriate time [the seller] continued
in its efforts . . . . This is not a case where the seller acted
unreasonably or in bad faith." Id. at 1087. In this case, as
we observed above, we do not see the kind of continuing
effort to repair present in Chatlos, and the jury specifically
found that Exxon breached a contractual obligation to
make the repair or replacement within a reasonable time.
Even assuming Exxon's interpretation of the contract is
correct, we conclude that the application of the disclaimer
to damages resulting from Exxon's failure to repair or
replace the tanks in a reasonable time is unconscionable.
We reach this decision considering the precedent of
Kearney, Chatlos, and Jutta's, the disparity in bargaining
power between the parties, the inconspicuousness and
imprecision of the disclaimer, and the substantial delay in
the commencement of the tank replacement, which, absent
waiver or a similar defense, was inconsistent with the
parties' intent and reasonable commercial expectations.8
On their breach of duty to repair in a reasonable time
claim, the Carters may recover business loss which, at the
time the parties made the contract, was a reasonably
foreseeable result of Exxon's breach and was a reasonably
certain consequence of the breach. See Donovan v.
_________________________________________________________________
8. The Carters' contention that it is unconscionable for the disclaimer to
bar recovery on the breach of duty to repair in a good and workmanlike
manner claim is without merit. That breach does not involve the kind of
unforeseen damages to which Kearney refers.
20
Bachstadt, 453 A.2d 160, 165 (N.J. 1982). However, we
affirm the district court's holding that on this breach of
contract claim the Carters may not recover business loss on
a hypothetical franchise agreement that would have taken
effect after the franchise agreement expired in July 1992.
We are persuaded that, as a matter of law, the nonrenewal
of the franchise agreement and the lost opportunity to
make profit on a new agreement was not a reasonably
certain consequence of Exxon's delay in replacing the
tanks. The delay and the ultimate tank replacement
occurred more than a year before the franchise was not
renewed, and during that year, the parties continuously
negotiated for a renewal of the franchise.
C.
If they succeed on their Petroleum Act claim, the Carters
can recover lost profits that would have accrued had they
been able to continue to operate the station after July 1992.9
See Thompson v. Kerr-McGee Refining Corp., 660 F.2d 1380,
1388 (10th Cir. 1981), cert. denied, 455 U.S. 1019 (1982).
The disclaimers do not shield Exxon from liability for
consequential damages resulting from a violation of the
Petroleum Act. In the first place, the language of the
disclaimers does not apply to these damages. Paragraph
three does not apply because these damages do not"result"
from repair. Paragraph twenty-six does not apply because
these damages are not based on a claim made "under" the
contract. Alternatively, even if the damages were based on
a claim made "under" the contract, 15 U.S.C.S 2805(d)
provides for the recovery of actual damages. Thus, the
damages would be "provided otherwise by law" in
accordance with paragraph twenty-six's savings clause.
Most importantly, even if the disclaimers did apply, we
could not allow Exxon to contract away the protection
Congress provided franchisees. See Graham Oil v. Arco
Prod. Co., 43 F.3d 1244, 1248 (9th Cir. 1994), cert. denied,
516 U.S. 907 (1995). If the Carters succeed on their
_________________________________________________________________
9. The district court did not rule on the damages available to the Carters
on the Petroleum Act claim because the court had granted Exxon
summary judgment on this claim.
21
Petroleum Act claim, they are entitled to actual damages
resulting from the violation. See 15 U.S.C.S 2805(d).
V. Conclusion
We reverse the district court's entry of summary
judgment on the Petroleum Act claim and Exxon's
counterclaim. We conclude the district court erred in
defining waiver for the jury and reverse the judgment on
the Carters' state law contract claims. We affirm the district
court's holding that the Rental Agreement disclaimer
precludes the Carters from recovering business loss on
their breach of duty to repair in a good and workmanlike
manner claim and its holding that neither the Rental
Agreement disclaimer nor the Sales Agreement disclaimer
precludes recovery on the Carters' claim for breach of duty
to repair in a reasonable time to the extent that business
loss accrued before the franchise agreement expired in July
1992. In view of our holdings on the waiver instruction, the
damages for breach of contract, and the counterclaim, we
believe it is appropriate that the entire case be retried,
including the issue of the reasonable time to repair or
replace the tanks. See Childers v. Joseph, 842 F.2d 689,
699 (3d Cir. 1988); Heckmen v. Federal Press Co. , 587 F.2d
612, 619 (3d Cir. 1978). We affirm the district court's
holdings on all other issues raised. We remand for further
proceedings consistent with this opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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