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Quality Oil, Inc. v. Kelley Partners

August 14, 2009


The opinion of the court was delivered by: Magistrate Judge Susan E. Cox


Plaintiff Quality Oil, Inc. ("Quality Oil") has supplied defendant Kelley Partners, Inc. ("Kelley Partners") with motor oil products since the early 1990s.*fn1 In July of 2003, Quality Oil and Kelley Partners entered into a business agreement entitled the "Product Payback Loan and Supply Agreement" (the "Supply Agreement").*fn2 The Supply Agreement provided that Quality Oil would loan Kelley Partners cash.*fn3 In return for the cash loan, Kelley Partners was to purchase a certain amount of motor oil products from Quality Oil over a five year period.*fn4 As Kelley Partners purchased motor oil products from Quality Oil, the cash loan to Kelley Partners would be incrementally forgiven.*fn5

Kelley Partners, it seems, made purchases as required under the Supply Agreement for the next two years, through June of 2005. In July of 2005, however, Kelley Partners sold its business to a third party, thereafter ceasing all purchases of motor oil products from Quality Oil.*fn6 Quality Oil, in the same month, invoiced Kelley Partners for what it determined to be the unforgiven portion of the loan.*fn7 Kelley Partners did not pay this invoice.*fn8 Quality Oil subsequently sued Kelley Partners in Indiana state court for breach of contract and now, after a dismissal on jurisdictional grounds, Quality Oil has filed its claim here in federal court.*fn9

Before this Court are two motions for summary judgment by Quality Oil, pursuant to Federal Rule of Civil Procedure 56(c). In its first motion, Quality Oil seeks summary judgment on its breach of contract claim against Kelley Partners, alleging $90,000 in damages plus $25,000 in interest [dkt 22]. In its second motion, Quality Oil seeks summary judgment on Kelley Partners' counterclaim for all costs, attorneys' fees, and expenses incurred by Kelley Partners as a result of litigating Quality Oil's Indiana suit [dkt 27]. For reasons stated below, this Court grants both motions in favor of Quality Oil and awards it $87,500 plus $28,000 in interest.


We review the evidence in the record according to the summary judgment standards. Specifically, we consider the evidence in the light most favorable to the non-moving party, Kelley Partners, and draw all reasonable inferences in its favor.*fn10

Quality Oil is an Indiana corporation with its principle place of business in Valparaiso, Indiana.*fn11 It is an authorized lubricants distributor for ExxonMobil Corporation ("Mobil") and supplies Mobil branded products to various purchasers.*fn12 Kelley Partners is an Illinois corporation with its principal place of business in West Chicago, Illinois.*fn13 It is an independent operator of automotive quick lube facilities.*fn14 The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332 because the matter in controversy exceeds $75,000 and the parties are citizens of different states. Venue is proper pursuant to 28 U.S.C. § 1391(a).

A. The Supply Agreement

On July 1, 2003, Quality Oil and Kelley Partners entered into the Supply Agreement.*fn15 The Supply Agreement, governed by the laws of Indiana, was negotiated and signed by Ronald D. Kelley, President of Kelley Partners, and Michael A. Heinold, Chief Executive Officer of Quality Oil.*fn16 The Supply Agreement provides that Quality Oil loan Kelley Partners, at no charge, $150,000 (the "Loan Amount"), an amount set forth in Exhibit A of the Supply Agreement.*fn17 Quality Oil contends, and Kelley Partners does not dispute, that the actual amount loaned to Kelley Partners was $150,500 (not $150,000).*fn18 The purpose of this loan, as is stated in the Supply Agreement, was "to assist in the sale of products at Kelley Partners' business..."*fn19

The Supply Agreement states that the Loan Amount term is five years and is to be amortized on a monthly basis in the following manner:

The unamortized value of the loan will be calculated using 60 months as the term. $150,000 ÷ 60 months = $2,500.00 month Any premature penalty will be figured by multiplying the remaining months left on contract times $2,500.00. i.e. 36 months left on contract x $2,500.00 = $90,000*fn20

In return for accepting the Loan Amount, the Supply Agreement obligated Kelley Partners to fulfill certain purchasing requirements.*fn21 These requirements are outlined in paragraph four of the Supply Agreement, which states:

Purchase of Supply. [Kelley Partners] agrees to purchase from Quality Oil or its designee, at competitive prices and terms established from time to time, at least eighty-five percent (85%) of [Kelley Partners'] requirements of motor oils during the term of this Agreement. [Kelley Partners] further agrees to purchase not less than two hundred twenty-five thousand (225,000) gallons of Mobil motor oil and 225,000 Mobil branded filters within 60 months from the date hereof. Exxon/Mobil products may be used for all other products needed such as grease, gear oil, and chemicals. For the purpose of this requirement, seven and one-half (7.5) pounds of grease shall be equivalent to one (1) gallon of motor oil.*fn22

The Supply Agreement has several other provisions. An "Assignment and Delegation" section states as follows:

[Kelley Partners] agrees that its rights and duties provided hereunder shall not be assigned or delegated without the prior written consent of Quality Oil, said consent not to be unreasonably withheld. This Agreement shall be binding and inure to the successors of either party. If [Kelley Partners] transfers any location prior to completing the purchases required under Paragraph 4, the transferee(s) must continue to purchase the products from Quality Oil until the required purchases have been made. If said transferee(s) does not comply with the foregoing, [Kelley Partners] may be liable under Paragraph 6 if [Kelley Partners] does not meet the requirements of Paragraph 4 with [Kelley Partners'] remaining locations(s).*fn23

The Supply Agreement contains several provisions addressing termination of the Supply Agreement and the consequences thereof. It states in a section entitled "Termination" that the Supply Agreement will terminate and the loan will be forgiven "upon Kelley Partners completing the purchases as set forth in Paragraph 4 above, or the payment of the unamortized portion of the loan's value..."*fn24 The Supply Agreement states further, in a handwritten addition initialed by both Mr. Heinold and Mr. Kelley, that the Supply Agreement will terminate after "225,000 gallons and 225,000 filters of Exxon/Mobil is purchased or 60 months, whichever comes first."*fn25

The Supply Agreement states that if Kelley Partners "shall default in the performance of any covenant hereunder, including the purchase of insufficient gallons of product, Quality Oil may declare payable the unamortized portion of the loan's value as provided on Exhibit A and [Kelley Partners] shall immediately pay said sum to Quality Oil and Quality Oil shall have all other rights and remedies available under the UCC and otherwise."*fn26 It states later, under a section entitled "Premature Termination Penalty," that if Kelley Partners "chooses to prematurely terminate this Agreement (i.e. before Borrower purchases 225,000 gallons under Paragraph 4), Quality Oil reserves the right to bill [Kelley Partners] Paragraph 4 above for the unamortized portion of the loan's value as provided on Exhibit A."*fn27

Finally, the Supply Agreement contains a provision on the reimbursement of costs and fees in the event of litigation.*fn28 Specifically, it states that:

The parties agree that, in the event either party brings an action or proceedings to enforce any of the terms of this Agreement, the losing party shall be required to reimburse the prevailing party on demand all costs, attorney ...

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