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MANHATTAN FUEL CO. v. NEW ENGLAND PETROLEUM CORP.

September 14, 1977;

MANHATTAN FUEL COMPANY, INC., Plaintiff,
v.
NEW ENGLAND PETROLEUM CORPORATION, Defendant



The opinion of the court was delivered by: DUFFY

KEVIN THOMAS DUFFY, D.J.

 This opinion constitutes my findings of fact and conclusions of law pursuant to Rule 52(a), F.R.Civ.P., following a fourteen day trial of this diversity action to recover brokerage commissions.

 The controversy centers around an agreement between defendant New England Petroleum Corporation ("NEPCO"), a New York corporation engaged in the business of importing, refining and selling oil, and John S. Routh, Jr. ("Routh"), the president and sole stockholder of both plaintiff, a Connecticut corporation, and plaintiff's assignee Manhattan Coal Company, another Connecticut corporation, to which Routh had assigned all of his rights in a coal brokerage and agency business in December 1967. In my opinion and order of September 13, 1976, denying defendant's motion to dismiss the complaint on the grounds, inter alia, of the Statute of Frauds, I found the existence of this agreement to be evidenced by a series of letters between Routh and Richard Weinand, defendant's Executive Vice-President. This correspondence indicated that defendant agreed to engage Routh as a broker to obtain the business of Niagara Mohawk Power Corporation ("Niagara Mohawk") as a fuel oil customer for defendant and to pay Routh a commission of five cents per barrel of oil delivered to Niagara Mohawk for the term of the contract so obtained. 422 F. Supp. 797, 800-01. It is undisputed that on July 17, 1970, defendant entered into two long-term fuel oil supply contracts with Niagara Mohawk, covering that utility's Albany and Oswego, New York, electric power generating stations, and that from August 1970 through October 31, 1976, defendant delivered a total of 41,279,439 barrels of oil, of which 23,672,790 went to Albany and 17,606,649 were delivered to the Oswego station. However, defendant has refused to pay plaintiff any commissions owed under the agreement with Routh.

 Defendant contests plaintiff's entitlement to these commissions, claiming that any agreement between the parties required Routh to obtain, on defendant's behalf, the right to engineer, construct, finance, own and operate Niagara Mohawk's Albany oil storage facilities in addition to a long-term fuel oil supply arrangement (the "package deal"); that, in any event, any agreement between the parties related solely to the Albany station; and that, alternatively, the Niagara Mohawk contracts did not result from Routh's efforts. In addition, defendant has renewed its objection to this action on the grounds of the Statute of Frauds, and seeks a reconsideration of my ruling that plaintiff is not disqualified from suing here by reason of Section 1312 of the New York Business Corporation Law. See 422 F. Supp. at 801-02. *fn1"

 The pertinent facts and circumstances surrounding the dispute, as adduced at trial, are as set out below.

 I.

 In March 1967, Routh happened to meet Edward M. Carey ("Carey"), defendant's president, at the bar of the 21 Club in Manhattan. Routh had just resigned his position as president of the Pittston Company, which was involved in coal and fuel oil distribution and of whose subsidiary, Metropolitan Petroleum Corporation, Routh had been in charge. Carey was aware of this, and Routh told him that he had started his own coal brokerage business. On Routh's suggestion that the two men might have a "community of interest," Carey invited Routh to get in touch with him.

 On May 25, 1967, the two men met in Carey's office and discussed Routh's connections with various utilities and the geographical areas into which Carey was desirous of expanding his oil business, particularly sales to utilities. They spoke of Routh's selling oil to various of these utilities and some industrial companies on defendant's behalf; Niagara Mohawk was included with particularity because it was rumored that this company was considering a conversion at its Albany station from coal to oil.

 Although Routh testified that Carey agreed simply to pay him five cents per barrel for each barrel of oil sold for defendant -- that sum expressly discussed as being the equivalent to Routh's usual twenty-to-twenty-five cents per ton of bituminous coal commission -- and that neither the oil specifications nor the offering price of the oil to be sold was discussed, Carey's testimony indicated a different arrangement. According to Carey, Routh was told that defendant desired an arrangement at Niagara Mohawk's Albany station similar to that which defendant had with Con Edison. Carey described that as consisting of defendant's putting up storage at the North First Street Terminal in Brooklyn, building a pipeline through New York City to connect with Con Edison's Ravenswood plant and supplying inventory into that day tank. According to Carey, this package deal *fn2" was typical of defendant's arrangements at that time with two other utilities. Carey also stated that he had quoted Routh an offering price for the Niagara Mohawk Albany Station of $1.85 per barrel, which he referred to as the "posted price" for No. 6 fuel oil delivered to that location, and that Routh told him that Niagara Mohawk would consume about 4,000,000 barrels a year. Carey denied reaching any agreement with respect to the commission to be paid for the solicitation of utilities other than Niagara Mohawk, and, although he claimed that five cents per barrel was five times the normal rate of commission at that time, he disclaimed the existence of any discussion of how the parties arrived at this figure for Niagara Mohawk.

 Despite Carey's testimony that the $1.85 price was discussed at the May 25 meeting, one week thereafter Routh wrote to Carey for confirmation of the oil specifications and for an indication of the delivered oil price to Albany. This letter is silent with regard to any proposed costs for storage facilities.

 On June 8, 1967, Routh met with David Winkworth ("Winkworth") and Leland McCormack ("McCormack"), who were in charge of purchasing fuel for Niagara Mohawk, in their offices in Syracuse, New York. Routh described NEPCO's business and sought confirmation of the conversion rumor. He was told that the purchasing department was in favor of conversion to oil but that the higher level Niagara Mohawk management was not yet convinced. The focus of the discussion was on the Albany station because of its location, but the Oswego station, among others, was also mentioned. To persuade management, and for use in connection with a feasibility study of the proposed Albany conversation, Routh was asked to prepare and submit a written oil supply proposal, which would be considered by Niagara Mohawk along with other oil price quotes that had been obtained.

 Carey was telephonically advised of the results of this meeting, and on June 13, 1967, Routh met with him to obtain the specific information to be included in this proposal. At that time, Carey introduced Routh to Weinand, who was to be Routh's contact at NEPCO. Pursuant to information gleaned from Carey and Weinand, Routh wrote a letter to Winkworth later that day offering 4,300,000 barrels of No. 6 oil for the Glenmont, (i.e., Albany) station, at a price of $1.82 per barrel delivered by tanker alongside Niagara Mohawk's dock and pumped into Niagara Mohawk's storage. Other provisions were specified which are not significant, but no mention was made of defendant's construction or ownership of the facilities. Notwithstanding this, both Carey and Weinand approved the letter either before or after it was sent, and conceded that the $1.82 price quoted included Routh's five-cent-per-barrel commission.

 Despite any express approval of this letter by defendant, Carey testified that he was not happy with Routh's letter of June 13, 1967, and that he complained to Weinand about Routh's failure to include a package deal therein. A second letter, dated July 5, 1967, was prepared by Routh and Weinand and sent to Winkworth under Routh's signature. This letter referred to the earlier one and outlined NEPCO's willingness "to guarantee on a firm 5 or 10-year basis" that NEPCO would finance the entire cost of conversion from coal to oil, including the erection of oil storage and dock facilities, and if Niagara Mohawk so desired, NEPCO would construct these facilities under Niagara Mohawk's engineering supervision. The cost of conversion, as approximated by Winkworth, was to be $500,000. "On this basis," the letter continued, "the cost plus interest would be included in the price of the fuel oil delivered alongside the dock. Amortization would be over the life of the supply contract . . .." Winkworth was additionally told that his company could "acquire the facilities at the end of the contract period, or after 3 years on the basis of the depreciated value of the facilities;" and that, in addition, NEPCO "[was] prepared to carry the cost of inventory and invoice [Niagara Mohawk] on the basis of product delivered from storage into [the] day tank."

 According to Routh, however, it was not any omission which prompted this letter of July 5, 1967, but rather Carey's and Weinand's apprising Routh, at a meeting held between these men immediately prior to the writing of this letter, of the concept of a package deal for the very first time. Although Weinand initially testified that he complained to Routh about his June 13 letter, he later conceded that, indeed, Routh was ignorant of this package concept until the same was explained to him on July 5, 1967.

 This explanation was triggered, Routh was told, by the acceptance of such a deal by another of defendant's utility customers. Routh testified that Carey and Weinand outlined this deal to him on July 5, 1967, in substantially the same manner as was detailed to Winkworth, and that Routh was told that such an arrangement was advantageous to those utilities with a "fuel adjustment clause" in their rate schedules because they would thereby be enabled to convert what would otherwise be a capital expenditure into an ordinary fuel expense which could be passed on to the customers. Routh claimed that he was authorized to offer this arrangement to Niagara Mohawk to thus make NEPCO's offer more competitive, but that at no time was he told that the payment of his commissions was contingent on his obtaining this arrangement.

 In fact, shortly after the receipt of the July 5, 1967 letter, Winkworth advised Routh that Niagara Mohawk was not interested in having NEPCO own or operate the Albany facilities, should Albany be converted, and that Niagara Mohawk did not have a fuel adjustment clause in its rate schedule. This rejection of the package deal was transmitted to defendant.

 Negotiations with Niagara Mohawk, however, proceeded apace. In early July 1967, Routh recruited Willis H. Stephens ("Stephens"), a coal broker with long-time personal and business ties with the senior management of Niagara Mohawk, to act as his co-broker in the solicitation of Niagara Mohawk's oil business on defendant's behalf. This arrangement was disclosed to and accepted by defendant, and thereafter Stephens participated in the numerous meetings which followed between Routh and Niagara Mohawk personnel.

 On July 27, 1967, pursuant to Routh's request for a letter confirming Routh's relationship with defendant, Weinand wrote the following to Routh:

 
"This has reference to your letter dated July 5, 1967 addressed to Mr. David A. Winkworth . . . regarding our interest in financing and constructing the necessary facilities to handle their residual fuel oil requirements on a long-term basis.
 
"This is to advise you that if you are successful in securing the business referred to in the foregoing letter we are prepared to pay you a 5 cents-per-barrel ...

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