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Conocophillips, Phillips Petroleum Co. v. 261 East Merrick Road Corp.

March 31, 2006

CONOCOPHILLIPS, PHILLIPS PETROLEUM COMPANY AND TOSCO CORPORATION, PLAINTIFFS,
v.
261 EAST MERRICK ROAD CORP., D/B/A FREEPORT EXXON, ADELMO CIOFFI, MADELINE CIOFFI AND ADNAN KIRISCIOGLU AND GULDEN, INC., DEFENDANTS.



The opinion of the court was delivered by: Townes, United States District Judge

MEMORANDUM and ORDER

Plaintiffs, who are licensed to use the "Exxon" trademark and who refine and market motor fuels and other petroleum products in New York under that brand, bring this diversity action alleging, inter alia, that defendants breached agreements relating to the operation of a retail gasoline service station. Plaintiffs now move pursuant to Rule 56 of the Federal Rules of Civil Procedure for summary judgment as to all nine counts of the Amended Complaint, and defendants move for partial summary judgment. As described below, both plaintiffs' motions and defendants' motions are granted in part and denied in part.

BACKGROUND

Except where otherwise specified, the parties agree on the following facts. On or shortly before December 1, 1996, defendant 261 East Merrick Road Corp. (hereinafter, "261 Corp.") entered into three separate but related agreements (collectively, the "Contract Dealer Account Agreements" or "CDA Agreements") with Exxon Company, U.S.A. (a division of Exxon Corporation and hereinafter "Exxon") concerning a service station 261 Corp. owned and operated at 261 East Merrick Road in Freeport, New York (hereinafter, the "Premises"). Since these three agreements -- the CDA Supply Agreement, the CDA Identifications and Equipment Agreement, and the CDA Payment Agreement -- are central to this action, this Court will briefly summarize the terms of these agreements.

The CDA Supply Agreement

The CDA Supply Agreement ("Supply Agreement"), which was executed by 261 Corp.'s president, defendant Adelmo Cioffi, and became effective December 1, 1996, obligates 261 Corp. to sell only Exxon-branded gasoline and petroleum products for a period of ten years (i.e., until December 1, 2006). Supply Agreement at Art. 1 and § 9.1. During that period, 261 Corp. is required to buy all of its gasoline directly from Exxon, and to receive at least 101,250 gallons each month (1,215,000 gallons annually). Id. at § 2.1.3. Exxon, on the other hand, is required to supply up to 135,000 gallons a month (1,620,000 gallons annually). Id. at § 2.1.2.

The Supply Agreement provides that Exxon may terminate the contract for the reasons listed in Article 20. Termination is permitted, for example, when 261 Corp. fails to pay Exxon in a timely manner, Art. 20(K), or when 261 Corp. fails to operate the premises for seven consecutive days. Art. 20(L). There are no provisions permitting 261 Corp. to terminate the contract.

261 Corp. is also not permitted to assign its rights and obligations under the Supply Agreement, unless a valid state statute requires otherwise. See Rider to Supply Agreement governing Assignability. Even under those circumstances, 261 Corp. is prohibited from assigning the contract "unless the statutory requirements have been met" and 261 Corp. has notified Exxon in writing and supplied certain specified information. Id.

These termination and assignment provisions are, to some degree, echoed in a separate "Key Person Clause," which was executed by Adelmo Cioffi along with the Supply Agreement and which, by its terms, is "incorporated into and made a part" of that agreement. Key Person Agreement at ¶ 1. In this document, Adelmo Cioffi represents that he, Madeline Cioffi, and Margaret Manzo are the sole shareholders of 261 Corp., and agrees to notify Exxon immediately in writing if their stock is "leased, mortgaged, pledged, assigned, sold, or transferred in any way . . . ." Id. at ¶ 2. Adelmo further agrees that he, as the "Key Person" under the Supply Agreement, will "personally operate on a daily basis the motor fuel store business," and that, if he does not do so, Madeline will. Id. at ¶ 3(a) and (b). The Key Person Clause also provides that if either section 2 or 3 is violated, Exxon may terminate the Supply Agreement. Id. at ¶ 3(c). The CDA Identifications and Equipment Agreement Under the CDA Identifications and Equipment Agreement ("Equipment Agreement"), Exxon agrees to loan 261 Corp. certain items for use at the Premises. Although the parties tend to group these items together, the Equipment Agreement divides the loaned items into two categories: "Identifications," which are defined as "signs displaying any trade name, trademark, brand name, label, insignia, symbol, identification, or imprint owned by Exxon or used by Exxon in its business," and "Equipment," a residual category encompassing all loaned items which are not "Identifications." Equipment Agreement at §§ 2.2 - 2.3.1. The items loaned are listed in an attachment to the agreement, labeled Exhibit A. Although some of the items listed in Exhibit A appear to be "Identifications" (e.g., four "End Signs," one "ID Major Sign," and two "Canopy ID Signs"), all of the items are listed under the heading, "Equipment."

The Equipment Agreement further provides that any "additional or replacement" items loaned to 261 Corp. "will be listed on a new Exhibit A" to be furnished by Exxon and that this new exhibit will "replace the existing Exhibit A." Id. at § 2.1. Although the parties disagree over plaintiffs' claim that additional items worth $79,580.73 (the "Additional Equipment") were installed at the Premises on September 14, 2001, and April 30, 2002, the parties agree that plaintiffs never furnished defendants with a new Exhibit A. Defendants' Rule 56.1(a) Statement ("Def. 56.1 Statemt") at ¶ 28; Plaintiffs' Counter-Statement Pursuant to Rule 56.1(b) ("Pl. 56.1 Counter-Statemt") at ¶ 28.

Under the terms of the Equipment Agreement, Exxon agrees to install the loaned items, id. at § 2.1, and 261 Corp. agrees to pay $250 per month to use them. Id. at § 4.1. The agreement expressly provides that title to the items is to remain with Exxon. Id. at § 8.1. However, the agreement also provides that title to the "Equipment" (not the "Identifications") can pass "[u]pon the expiration or termination" of the Equipment Agreement under certain circumstances. Id. at Art. 9. Specifically, Article 9 of the contract provides that, upon expiration or termination of the Equipment Agreement, Exxon has the right to enter the Premises within 60 days "to either remove or abandon in place" any or all of the "Equipment." Id. at § 9.1.1. Section 9.1.4 of the Equipment Agreement provides that title to any "Equipment" not removed by Exxon within 90 days of the expiration or termination of the contract will "automatically pass" to 261 Corp.

Like the Supply Agreement, the Equipment Agreement is a ten-year contract, with an expiration date of December 1, 2006. Id. at § 1.1. However, the Equipment Agreement gives Exxon the right to cancel it "upon expiration, termination, non-renewal or cancellation of the . . . Supply Agreement . . . or at any time upon ninety (90) days' prior written notice." Id. at Art. 3. The Equipment Agreement does not contain a provision permitting 261 Corp. to terminate the contract. Rather, it contains a provision requiring 261 Corp. to "reimburse Exxon on demand . . . for the cost of installation and removal" of "Identifications" and "Equipment" if, inter alia, 261 Corp. "stops doing business" at the Premises or "does not comply with any of [261 Corp's] agreements with Exxon." Id. at § 12.3.1. The amount of that reimbursement is prescribed by Section 12.3.2, which reads:

Exxon and [261 Corp.] agree that the proper reimbursement will be the cost of installation and removal, less Ten percent (10%) for each year that this [Equipment Agreement] has been in effect.

In addition, the Equipment Agreement requires 261 Corp. to reimburse Exxon "on demand for all costs, fees (including attorneys' and experts' fees), and expenses incurred by Exxon in enforcing its rights or remedies" under the contract. Id. at Art. 19.

The Equipment Agreement expressly prohibits 261 Corp. from transferring or assigning its rights under the contract. Id. at § 15.1. This section of the agreement specifically states that Exxon's "acceptance of any payment made by any person or entity other than [261 Corp.] does not represent Exxon's consent to [261 Corp.'s] attempt to transfer or assign . . . ." Id. In addition, the Equipment Agreement contains an "integration" (or "merger") clause which states, in boldface type, "[t]here are no binding oral representations, stipulations, warranties, or "understandings" relating to this . . . Agreement that are not fully set out in this . . . Agreement." Id. at § 23.1.2.

The CDA Payment Agreement

In the CDA Payment Agreement ("Payment Agreement"), 261 Corp. agrees to "operate an Exxon branded retail [Motor Fuel Facility]" on the Premises in accordance with the Supply Agreement. Payment Agreement at ¶ 1. Exxon agrees to pay 261 Corp. $7,500 per month, provided, inter alia, that 261 Corp. remains in total compliance with all of the CDA Agreements. Id. at ¶ 3. The Payment Agreement provides an "estimate" of the cost of the items loaned to 261 Corp. under the Equipment Agreement, stating, "Exxon and [261 Corp.] estimate that . . . the cost of the Identifications and Equipment will be approximately $109,100 . . . ." Id. at ¶ 5A.

The Payment Agreement also contains a paragraph relating to defaults. In the printed contract, this section reads, in pertinent part:

If [261 Corp.] . . . fails to meet, comply with, or breaches any of its obligations under this Agreement, the Supply Agreement, the Equipment Agreement, or any other agreement between Exxon and [261 Corp.] . . . in addition to all other rights and remedies available to Exxon under such documents, at law and equity, Exxon may terminate this Agreement with no further obligation to make CDA Payments. * * * If the Supply Agreement is terminated due to a breach or default under this Agreement, the Supply Agreement, the Equipment Agreement or any other agreements between Exxon and [261 Corp.],[261 Corp.] will pay to Exxon as liquidated damages sustained by Exxon due to such breach or default 2.0 cents per gallon for each gallon of gasoline that [261 Corp.] . . . was obligated to purchase during the remaining term of the Supply Agreement, but has not purchased at the time the Supply Agreement is terminated.

Id. at ¶ 9.

The parties agree that at the time the Payment Agreement was executed, this paragraph was amended by manually crossing out the figure "2.0," and substituting the figure "1.6," thereby reducing the amount of liquidated damages by 0.4 cents per gallon. Def. 56.1(a) Statemt at ¶ 11; Pl. 56.1 Counter-Statemt at ¶ 11. However, the parties disagree as to whether this paragraph was subsequently modified to further reduce this figure. Id. Defendants contend that on January 22, 1997, Exxon's New York Area Manager, Richard A. DeBree, agreed to revise the liquidated damages clause, and did so by crossing out "1.6" and writing "1/22/97 Revised 0.7" in the margin of page 6 of the Payment Agreement. Affidavit of Adelmo Cioffi, dated Feb. 10, 2005 ("Cioffi Aff.") at ¶ 19. Plaintiffs deny that such further amendment took place, Pl. 56.1 Counter-Statemt at ¶ 11, and have introduced evidence that their copy of the contract contains no such modifications. Affidavit of Margaret Pulcini-Gillece, dated Mar. 4, 2005 ("Pulcini-Gillece Aff.") at Ex. 1.

At about the same time the parties entered into the Payment Agreement, the parties executed a side agreement (hereinafter, the "Hours rebate credit agreement"), in which Exxon agrees to give 261 Corp. a rent rebate if 261 Corp. keeps the Premises open 24 hours a day, seven days a week. See Opposition Affidavit of Adnan Kiriscioglu, dated April 15, 2005 ("Kiriscioglu Opp. Aff.") at Ex. F. Although the amount of the rebate depends on the amount of gasoline sold at the Premises each month, the agreement states that the credit will appear "on the monthly rent invoice." Id. (emphasis added). The Hours rebate credit agreement specifically provides that "[t]he Hours Rebate credit will reduce the total amount due Exxon on that invoice." Id.

Post-Contract History

For almost six years after the CDA Agreements became effective, gasoline sales at the Premises far exceeded the amounts required under the Supply Agreement. The parties agree that between December 1, 1996, and October 15, 2002, the station received, and presumably sold, an average of about 2 million gallons of gasoline per year. See, e.g., Plaintiffs' Rule 56.1 Statement ("Pl. 56.1 Statemt") at ¶ 4; Defendants' Counter-Statement Pursuant to Rule 56.1(b) ("Def. 56.1 Counter-Statemt") at ¶ 4.*fn1

About 45 days into the sixth year of the contract, however, 261 Corp. leased the Premises to defendant Gulden, Inc. ("Gulden") for a term of twenty years. Lease Agreement at ¶ 2. This lease, executed on January 15, 2002, by 261 Corp.'s president, Adelmo Cioffi, and Gulden's president, defendant Adnan Kiriscioglu, obligates 261 Corp. to, among other things, "cause the Dealer Supply Agreement with Exxon-Mobil to be canceled" upon written request of Gulden.

Id. at ¶ 8(d). Although the lease does not purport to assign 261 Corp.'s rights and obligations under the CDA Agreements, Gulden began to operate the Premises in mid-January 2002. Pl. 56.1 Statemt at ¶ 19; Def. 56.1 Counter-Statemt at ¶ 19.

The parties disagree as to when plaintiffs' first became aware that Gulden was operating the Premises. In their 56.1 Counter-Statement, defendants assert that plaintiff knew Gulden was operating the station as early as January 17, 2002, when Kiriscioglu sent plaintiffs an Electronic Funds Transfer Authorization form which expressly stated that Gulden was operating the Premises. See Affidavit of Adnan Kiriscioglu, dated March 3, 2005 ("Kiriscioglu Aff.") at ¶ 8 and Ex. B. Plaintiffs claim that this transfer of the operation was "[u]nbeknownst to ConocoPhillips." Pl. 56.1 Statemt at ¶ 19. However, neither party alleges that 261 Corp. ever provided plaintiffs with a written notice of its intent to assign its interests under the contract or that Gulden specifically agreed to comply with the requirements of the CDA Agreements.

On October 16, 2002, Gulden stopped operating the Premises as an Exxon-branded station. Gulden replaced the Exxon signs and logos with "US Gas" brand signs and logos, and began selling non-Exxon branded gasoline, purchased from suppliers other than plaintiffs. Pl.

However, defendants do not allege that they have formally moved for this sanction before Magistrate-Judge Wall, or that ...


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