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Stern Oil Company, Inc v. James R. Brown D/B/A Exxon

July 3, 2012

STERN OIL COMPANY, INC., PLAINTIFF AND APPELLEE,
v.
JAMES R. BROWN D/B/A EXXON GOODE TO GO AND FREEWAY MOBIL, DEFENDANTS AND APPELLANTS.



APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT MINNEHAHA COUNTY, SOUTH DAKOTA HONORABLE BRADLEY G. ZELL Judge

The opinion of the court was delivered by: Gilbertson, Chief Justice (on reassignment).

#25766-rev & rem-DG

ARGUED AUGUST 23, 2011

REASSIGNED APRIL 24, 2012

[¶1.] Stern Oil argues that James Brown contracted to purchase a minimum amount of fuel for his two convenience stores from Stern Oil for a ten-year period. When Brown notified Stern Oil that he would no longer purchase its fuel, Stern Oil initiated this breach of contract action. Brown filed a counterclaim, alleging fraudulent inducement. The circuit court granted Stern Oil's motion for summary judgment on both the breach of contract claim and on Brown's counterclaim, but the issue of damages proceeded to trial. After a court trial, the circuit court awarded Stern Oil eight years of lost profits. We reverse the circuit court's grant of summary judgment.

FACTS

[¶2.] Brown farms near Gettysburg, South Dakota, and has owned interests in several businesses. In late 2004, he acquired and redesigned two convenience stores on opposite sides of Exit 2 on Interstate 29 in North Sioux City, South Dakota. Stern Oil, a fuel distributor for Exxon Mobil Corporation (ExxonMobil), contacted Brown while he was remodeling the properties. Although Brown was negotiating with another fuel distributor, he ultimately elected to do business with Stern Oil. One convenience store was branded Exxon Goode To Go, and the other was branded Freeway Mobil.

[¶3.] In October 2005, Brown and Stern Oil executed a Motor Fuel Supply Agreement (MFSA) for each of Brown's two convenience stores. Each MFSA listed the maximum volume of fuel that Stern Oil was obligated to offer to sell to Brown each year. The maximum annual volume for the first contract year at Freeway Mobil was 1.38 million gallons of gasoline, and the maximum annual volume for the first contract year at Exxon Goode To Go was 1.5 million gallons of gasoline and 720,000 gallons of diesel. After the first contract year, the maximum annual volume of fuel was adjusted each year based on sales volume.*fn1 Brown was obligated to purchase at least seventy-five percent of the maximum annual volume of fuel. If Brown failed to purchase the minimum amount of fuel that the MFSAs required, Stern Oil had the option to terminate the agreements or refuse to renew them.

[¶4.] The MFSAs also briefly addressed the price of the fuel that Brown was required to purchase from Stern Oil: Unless otherwise specified, all prices shall include applicable taxes, and are subject to change by [Stern Oil] at any time and without notice. All prices are payable in cash in U.S. dollars at time of delivery, or other payment terms as [Stern Oil] may specify, except to the extent credit is extended on such terms and conditions as [Stern Oil] may determine in its sole discretion.

Stern Oil faxed and emailed Brown a fuel price sheet each business day. The price sheet listed the rack price of the various types of fuel that Brown could purchase; the applicable federal and state taxes and fees; and Stern Oil's markup, delivery, and freight charges.*fn2 By adding the additional fees and charges to the rack price, the price sheet listed the total price of the various types of fuel Brown could purchase from Stern Oil.

[¶5.] Under a brand incentive program, Brown and Stern Oil also executed a Repayment Agreement (BIP) for each of Brown's two convenience stores. The BIPs provided that Stern Oil would reimburse Brown for the costs of certain improvements to his convenience stores. Stern Oil thus assisted Brown in designing the layouts of his stores and equipping the stations with ExxonMobilapproved fuel dispensers and payment systems. The BIPs gave Stern Oil the option of reimbursement in the event of Brown's breach or default: [I]n such event, at [Stern Oil's] option, any and all Improvement Costs expended, reimbursed, or otherwise provided to [Brown] by [Stern Oil] or [ExxonMobil], either directly or indirectly, shall become immediately due and payable from [Brown] to [Stern Oil] (the "Repayment Amount") . . .

[¶6.] When Brown notified Stern Oil that he would no longer purchase its fuel, Stern Oil initiated this breach of contract action. Brown filed a counterclaim, alleging that Stern Oil fraudulently induced him to enter into the MFSAs and the BIPs by verbally guaranteeing a five-cent profit on every gallon of fuel he sold. Brown claimed that Stern Oil's prices were so high that he was unable to make a profit on the sale of fuel at his convenience stores. Stern Oil moved for summary judgment on its breach of contract claim and on Brown's fraudulent inducement counterclaim. The circuit court granted Stern Oil's motion for summary judgment on both claims. It concluded that a breach of contract occurred as a matter of law but left the issue of damages for trial. Brown then filed a motion for reconsideration, which, following a hearing, the circuit court denied.

[¶7.] The issue of damages proceeded to trial in October 2009 and January 2010. The circuit court awarded Stern Oil eight years of lost profits in the amount of $925,317. A judgment in that amount plus prejudgment interest was entered against Brown in August 2010. The circuit court later added attorneys' fees and taxable and non-taxable disbursements to the original judgment. Brown moved for a new trial, but his motion was deemed waived. Brown appeals.

ANALYSIS

[¶8.] A grant of summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show 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." SDCL 15-6-56(c). Thus, "[t]his Court reviews a grant of summary judgment to determine whether the moving party has demonstrated the absence of any genuine issue of material fact and entitlement to judgment on the merits as a matter of law." Tolle v. Lev, 2011 S.D. 65, ¶ 11, 804 N.W.2d 440, 444. "All reasonable inferences drawn from the facts must be viewed in favor of the non-moving party." Id. Yet, "the party challenging summary judgment must substantiate his allegations with sufficient probative evidence that would permit a finding in his favor on more than mere speculation, conjecture, or fantasy." Id.

[¶9.] "Summary judgment is not the proper method to dispose of factual questions." Bozied v. City of Brookings, 2001 S.D. 150, ¶ 8, 638 N.W.2d 264, 268. "Summary judgment is an extreme remedy, [and] is not intended as a substitute for a trial." Discover Bank v. Stanley, 2008 S.D. 111, ¶ 19, 757 N.W.2d 756, 762. "However, on appeal this Court will affirm the circuit court's ruling granting a motion for summary judgment if any basis exists to support the ruling." Id.

Fraudulent Inducement Claim

[¶10.] Because the MFSAs were primarily agreements for the sale of goods, South Dakota's version of the Uniform Commercial Code (UCC), which is codified in Title 57A of the South Dakota Code, governs the dispute in this case. See SDCL 57A-2-102.*fn3 The parol evidence rule is set forth under SDCL 57A-2-202. At the time of the court trial on Stern Oil's motion for summary judgment, SDCL 57A-2- 202 provided:

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented

(a) By course of dealing or usage of trade (§ 57A-1-205) or by course of performance (§ 57A-2-208); and (b) By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement.

SDCL 57A-2-202 (2008).

[¶11.] We have recognized an exception to the parol evidence rule when evidence is introduced to establish fraud as a ground for rescinding a contract. As we explained in Sabbagh v. Professional & Business Men's Life Insurance Co., [i]t is well established that, as fraud vitiates everything which it touches, parol evidence is always admissible to show, for the purpose of invalidating a written instrument, that its execution was procured by fraud, or that, by reason of fraud, it does not express the true intentions of the parties. The rule in this respect is not rendered inapplicable by the fact that the writing contains a recital to the effect that all agreements between the parties are contained therein . . . 79 S.D. 615, 629, 116 N.W.2d 513, 520 (1962) (quoting 32 C.J.S. Evidence § 979). This "fraud exception" to the parol evidence rule applies to contracts governed by the UCC. See 1 James J. White & Robert S. Summers, Uniform Commercial Code § 2-11 (5th ed. 2006) (recognizing an exception to the parol evidence rule when a party seeks to rescind a contract governed by the UCC on the basis of fraud); SDCL 57A-1-103(b) ("Unless displaced by the particular provisions of this title, the principles of law and equity, including . . . the law relative to . . . fraud[ ] [and] misrepresentation, . . . supplement its provisions.").

[¶12.] In this case, Brown sought to rescind the MFSAs and the BIPs by introducing evidence that Stern Oil fraudulently induced him to enter into the agreements by verbally guaranteeing a five-cent profit on every gallon of fuel he sold. The circuit court concluded that the parties' negotiations and the alleged verbal guarantee were inadmissible parol evidence. Without the evidence of the alleged verbal guarantee, the circuit court held that Brown's fraudulent inducement claim failed as a matter of law. However, under the fraud exception to the parol evidence rule, this evidence is not barred and the circuit court incorrectly invoked the parol evidence rule. We will affirm a grant of summary judgment "only if all legal questions have been decided correctly." Muhlbauer v. Estate of Olson, 2011 S.D. 42, ¶ 7, 801 N.W.2d 446, 448. Therefore, because ...

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