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Quality Oil, Inc. v. Kelley Partners

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION


August 14, 2009

QUALITY OIL, INC., PLAINTIFF,
v.
KELLEY PARTNERS, INC. D/B/A THE OIL WORKS-ELGIN & THE OIL WORKS-BATAVIA, INC., DEFENDANT.

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

MEMORANDUM OPINION AND ORDER

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.

PROCEDURAL HISTORY AND FACTS

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 fees, and the expenses incurred in such a proceeding.*fn29

B. Events After The Signing Of The Supply Agreement

In July of 2005, two years after the parties signed the Supply Agreement, Kelley Partners sold its business to a third party.*fn30 Kelley Partners did not assign or transfer the Supply Agreement to the new purchasers.*fn31 Quality Oil alleges that Kelley Partners last purchased motor oil products in the same month, on July 5, 2005.*fn32 Kelley Partners disagrees, stating that it last purchased products from Quality Oil on July 22, 2005.*fn33 Whatever the date of last purchase, the parties agree that Kelley Partners purchased no motor oil products from Quality Oil after July of 2005.

After Quality Oil learned of Kelley Partners' sale, it invoiced Kelley Partners for what it determined to be the unamortized portion of the Loan Amount.*fn34 Quality Oil claims that it invoiced Kelley Partners this amount because Kelley Partners sent Quality Oil a letter stating that Kelley Partners had sold its business and that all outstanding invoices should be sent to it.*fn35

After Kelley Partners failed to pay the invoice, Quality Oil filed a breach of contract claim in Indiana state court on November 4, 2007.*fn36 Kelley Partners filed a motion to dismiss for lack of personal jurisdiction during the course of the litigation.*fn37 The trial court denied this motion without a hearing.*fn38 A bench trial was held and on September 10, 2007, the trial court determined that Indiana had personal jurisdiction over Kelley Partners, and determined that Kelley Partners had breached the Supply Agreement.*fn39

Kelley Partners appealed the trial court's decision solely on the issue of whether Indiana had personal jurisdiction over Kelley Partners.*fn40 On May 20, 2008, the Court of Appeals of Indiana held that it did not have personal jurisdiction over Kelley Partners, noting that:

Kelley Partners does not have the minimum contacts required to establish personal jurisdiction. Therefore, the trial court erred in its determination that Indiana had personal jurisdiction over Kelley Partners, and Kelley Partners' motion to dismiss should have been granted.*fn41

Quality Oil subsequently filed the instant action on September 3, 2008 [dkt 1].

STANDARD OF REVIEW

To prevail on a motion for summary judgment, the movant must show, through pleadings, depositions, and affidavits on file, if any, that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law.*fn42 A motion is appropriately granted if no reasonable jury could find for the non-moving party.*fn43 The moving party is not required to disprove the opponent's case but, rather, must establish a lack of evidentiary support for the non-moving party's position.*fn44 This Court will not weigh the evidence and will draw all inferences in favor of the non-moving party.*fn45

ANALYSIS

This Court, recognizing that Kelley Partners challenges many of Quality Oil's factual contentions, will first address Kelley Partners' response to Quality Oil's Local Rule 56.1 Statement of Facts.We will then address Quality Oil's summary judgment motion on its breach of contract claim and, finally, Quality Oil's summary judgment motion on Kelley Partners' counterclaim. The parties agree that Indiana law governs the Supply Agreement and, thus, is applicable here.*fn46

A. Local Rule 56.1 Statement Of Facts.

This Court recognizes that Kelley Partners disputes many of the facts alleged in Quality Oil's Local Rule 56.1 Statement of Facts. But many of Kelley Partners' responses to Quality Oil's Local Rule 56.1 Statement of Facts are actually legal conclusions as opposed to factual contentions.*fn47 It is for the Court, not the parties, to determine questions of law and these responses do not create a genuine factual issue for trial.*fn48 This Court also notes that a factual dispute must be material to prevent summary judgment.*fn49 A factual dispute is only material when it might affect the outcome of a suit under governing law.*fn50 Many of the factual disputes herein, including the parties' disagreement about the date of Kelley Partners' last purchase of products from Quality Oil, will not affect the outcome of this suit and are, therefore, immaterial.*fn51

Furthermore, when disputing facts or alleging additional facts, the non-moving party must allege specific facts that create a genuine issue for trial.*fn52 It may not rely on vague, conclusory allegations.*fn53 Many of Kelley Partners' factual allegations, including at least two of its additional factual statements, are vague allegations and, therefore, do not create a genuine issue of fact for trial.*fn54 For example, Kelley Partners' assertions that Quality Oil "did not offer competitive prices" and that Quality Oil "refused to deal with Kelley" are insufficiently specific to create a genuine issue of material fact.*fn55 With this in mind, we begin our analysis.

B. Count I - Breach Of Contract

As noted, in its motion for summary judgment on its claim for breach of contract, Quality Oil argues that Kelley Partners did not fulfill its purchasing requirements under the Supply Agreement. It also argues that Kelley Partners failed to assign the Supply Agreement after selling its business to a third party. Quality Oil claims that, by failing to fulfill its purchasing requirements and failing to assign the Supply Agreement to a third party, the unamortized Loan Amount became due.

Kelley Partners argues that Quality Oil did not perform its duties under the Supply Agreement and is, therefore, barred from winning its breach of contract claim. Specifically, Kelley Partners argues that Quality Oil breached the Supply Agreement by prematurely invoicing Kelley Partners $110,250 on July 22, 2005 and that Quality Oil has not demonstrated that it offered products at competitive prices and terms. Kelley Partners also argues that Quality Oil has no claim against it because the Supply Agreement terminated, under its own terms, after sixty months passed in July of 2008.

Under Indiana law, the construction of a contract is a question of law for the court to determine.*fn56 When determining the meaning of a contract, the court's goal should be to ascertain and effectuate the intentions of the parties.*fn57 The agreement should be read as a whole and the court should construe the agreement so as to harmonize all of its provisions and as not to render any terms ineffective or meaningless.*fn58 Where one construction of a contract would make it extraordinary and another, equally consistent with the language, would make it reasonable, just, and fair, the latter construction must prevail.*fn59 Parties to a contract should receive the benefit of their bargains, but not more or less than the contract proscribes.*fn60

1. Kelley Partners' Obligations Under the Supply Agreement

The Supply Agreement required Kelley Partners to purchase either 250,000 gallons of motor oil and 250,000 filters within a sixty month period or to purchase eighty-five percent of its oil product requirements over a sixty month period. The Court derives this construction from paragraph four of the Supply Agreement and the handwritten addition to the Supply Agreement initialed by Mr. Kelley and Mr. Heinold.*fn61 The second purchasing requirement option for Kelley Partners -purchasing eighty-five percent of its oil products over a sixty month period - assumed that Kelley Partners would make, at a minimum, some purchases from Quality Oil. But Kelley Partners is asking the Court to read the Supply Agreement to mean that it had to either: (1) purchase 250,000 gallons of motor oil and 250,000 filters within a sixty month period; or (2) wait sixty months until the contract term ran out without purchasing any motor oil products. It would, however, be extraordinary and unjust to construe the Supply Agreement in that way.*fn62 Such a construction would entitle Kelley Partners to opt to purchase no oil products from Quality Oil while retaining the Loan Amount. Construing the Supply Agreement in this way would not effectuate the intention of the parties because Quality Oil would have loaned money to Kelley Partners for no consideration in return.*fn63

Additionally, the Supply Agreement required Kelley Partners to assign its duties to a third party should it sell its business or, in the alternative, be subject to a premature termination penalty.*fn64

The Supply Agreement specifically states that, in the event Kelley Partners transfers its business prior to completing required purchases under paragraph four, the transferee must continue to purchase motor oil products until the required purchases are completed.*fn65 If the transferee does not complete the required purchases, the Supply Agreement states, Kelley partners "may be liable under Paragraph 6 if [Kelley Partners] does not meet the requirements of Paragraph 4 with Borrower's remaining locations(s)."*fn66 Paragraph six states that Kelley Partners is liable for the unamortized portion of the loan should it terminate the Supply Agreement prematurely.*fn67

Considering the construction above, Kelley Partners breached the Supply Agreement. Kelley Partners admits to purchasing less than 250,000 gallons of motor oil and 250,000 filters.*fn68

Additionally, the undisputed facts state that Kelley Partners did not purchase any products from Quality Oil after July of 2005.*fn69 Therefore, Kelley Partners did not satisfy its purchasing requirements under the Supply Agreement. Kelley Partners also sold its business without assigning its duties to the transferee.*fn70 We find, therefore, that Kelley Partners is liable for the unamortized portion of the loan.

2. Quality Oil's Obligations Under the Supply Agreement

We next address whether Quality Oil failed to fulfill its obligations under the Supply Agreement. As is stated above, Kelley Partners argues that Quality Oil breached the Supply Agreement by prematurely invoicing Kelley Partners $110,250 on July 22, 2005, and by not offering products at competitive prices and terms. Quality Oil argues that it was justified in invoicing Kelley Partners under the doctrine of anticipatory repudiation and also argues that Kelley Partners' claim that it did not offer products at competitive prices is insufficiently specific to create a genuine issue of fact.

Indiana law recognizes the doctrine of anticipatory repudiation.*fn71 Under this doctrine, a party to litigation may resort immediately to a remedy for breach when another party repudiates a contract with respect to performance not yet due.*fn72 Repudiation, however, must be positive, absolute, and unconditional to be treated as an anticipatory breach because the doctrine represents a harsh remedy.*fn73

Here, Kelley Partners unequivocally repudiated the Supply Agreement.*fn74 It did so by selling its business to a third party, failing to purchase products from Quality Oil after July of 2005, and failing to assign its duties to the transferee.*fn75 Quality Oil, therefore, had the right to resort to seeking remedies.*fn76 Additionally, this Court notes that, in sending the invoice, Quality Oil was simply responding to a letter sent from Kelley Partners, which requested that all outstanding invoices be sent to it.*fn77 This does not amount to a breach under the provisions of the Supply Agreement.

Quality Oil also did not breach the Supply Agreement, as Kelley Partners alleges, by failing to offer oil products at competitive prices and terms. As is stated above, this allegation is insufficiently specific to amount to a legitimate issue of fact.*fn78 Kelley Partners does not allege whether Quality Oil's prices or terms, or both, were uncompetitive. It does not allege in detail which third party suppliers were more competitive than Quality Oil or, with any specificity, to what degree they were more competitive than Quality Oil. Without more, Kelley Partners' allegations that Quality Oil did not offer products at competitive prices cannot prevent summary judgment.*fn79

We also hold that Kelley Partners' contention that the Supply Agreement terminated on its own terms in July of 2008 is without merit. Kelley Partners urges the Court to read the Supply Agreement so that it would terminate after sixty months without any post-July 2005 purchasing requirements from Kelley Partners. We have already addressed this argument and determined that such a reading would render ineffective a number the Supply Agreements provisions, including several references to Kelley Partners' purchasing requirements contained in paragraph four.*fn80 Kelley Partners is correct that, when reading it alone, the handwritten, initialed portion of the Supply Agreement seems to indicate that Kelley Partners can wait sixty months and allow the Supply Agreement to expire.*fn81 Contracts in Indiana, however, are to be read as a whole.*fn82 When reading the handwritten portion with paragraph four and other sections referencing termination, the Supply Agreement does not allow Kelley Partners to wait out the term of the Supply Agreement without making additional purchases.*fn83

3. Quality Oil's Damages

Pursuant to the terms of the Supply Agreement, this Court orders Kelley Partners to pay Quality Oil $87,500, the unamortized portion of the Loan Amount. Quality Oil argues that the unamortized portion of the Loan Amount is $90,000, not $87,500. We find, however, that Kelley Partners performed its duties under the Supply Agreement through July of 2005 because it purchased motor oil products during that month.*fn84 Therefore, when calculating the unamortized portion of the Loan Amount, pursuant to Exhibit A of the Supply Agreement, Kelley Partners is only responsible for thirty-five months, August 2005 through June 2008. At a rate of $2,500 amortized per month, this amounts to damages of $87,500.

Quality Oil also seeks interest on damages resulting from Kelley Partners' breach of the Supply Agreement. Indiana law states that an award of prejudgment interest in a breach of contract action is warranted "if the amount of the claim rests upon a simple calculation and the terms of the contract make such a claim ascertainable."*fn85 An award of prejudgment interest is founded upon the theory that the defendant has deprived plaintiff of the use of its money and that plaintiff cannot be fully compensated for the loss suffered without it.*fn86 The test for determining whether prejudgment interest is appropriate is "'whether the damages are complete and may be ascertained as of a particular time.'"*fn87 Here, damages are complete and easily calculated. The Supply Agreement specifies how they are to be calculated.*fn88 Additionally, damages arose at a particular time, namely, the first full month after Kelley Partners made its last purchase from Quality Oil.*fn89 In Indiana, interest on forbearance of money, when not set by the parties in a contract, is set by statute at eight per cent per annum.*fn90 Calculated at that rate over four years, from August 2005 to date, Kelley Partners is to pay Quality Oil $28,000 in interest.

C. Kelley Partners' Counterclaim

Quality Oil moves for summary judgment on Kelley Partners' counterclaim, in which Kelley Partners claims that Quality Oil should pay all costs, attorneys' fees, and expenses incurred by Kelley Partners during the Indiana suit. Quality Oil argues that it is entitled to judgment on this counterclaim because Kelley Partners is not a prevailing party, as required by the fees provision in the Supply Agreement. Quality Oil argues that, under Indiana law, a party is a prevailing party only when it receives a judgment and, since Kelley Partners never received a judgment in the Indiana action, fees are not warranted. Kelley Partners, in contrast, claims that it is entitled to approximately $25,000 in fees and costs because it prevailed in Indiana state court when the appellate court reversed the trial court on jurisdictional grounds.*fn91

As a general rule, parties to litigation in Indiana are responsible for paying their own attorney fees.*fn92 Responsibility for attorney fees may be shifted to another party under Indiana law if a private contract states that one party pay the fees of the other party.*fn93 Here, the Supply Agreement states that the prevailing party shall be reimbursed for all costs, attorney fees, and expenses incurred in proceedings to enforce any terms of the Supply Agreement.*fn94

The term "prevailing party," however, is not defined under the Supply Agreement. Where a term is not defined by a contract, a court must determine the definition for the parties.*fn95 In defining the term "prevailing party," this court recognizes that the goal of contract interpretation is to ascertain and give effect to the parties' intent as manifested by the language of the contract.*fn96 If the language is clear and unambiguous, it must be given its plain and ordinary meaning.*fn97

The Court will first look to Black's Law Dictionary to determine the meaning of prevailing party, as Indiana courts have done in the past.*fn98 Black's Law Dictionary defines the term "prevailing party" as "[a] party in whose favor a judgment is rendered, regardless of the amount of damages awarded."*fn99 Indiana courts have defined the term "prevailing party" similarly for the purposes of fee provisions. The Supreme Court of Indiana recently held that, in the absence of further definition by the contract, a contract with a fees provision produces fees only when "one party or the other wins a judgment."*fn100 More specifically, the court noted that a party is a prevailing party when a trial on the merits is conducted and a judgment is entered in its favor.*fn101 A final judgment, under Indiana law, is defined as a court decision where a final determination of the rights of the parties is made on issues raised at litigation, leaving no further questions to be adjudicated in regard to those issues.*fn102

Other Indiana courts have also defined "prevailing party." An Indiana court held that a party may be considered a prevailing party without obtaining a favorable final judgment so long as that party prevailed in some other way, perhaps by way of consent decree.*fn103 Specifically, that court noted the importance of obtaining some sort of relief on the merits of the claim in attaining prevailing party status.*fn104 Other Indiana courts, under a variety of factual scenarios, have held that a party should not be considered a prevailing party where a judgment was not entered.*fn105

Here, Kelley Partners is not a prevailing party because it did not receive a judgment in its favor. The dismissal by the Court of Appeals of Indiana does not constitute a judgment in Kelley Partners' favor for several reasons. First, the ruling did not dispense with the merits of the suit and it did not determine the rights of the parties.*fn106 Kelley Partners did not receive any relief when the appellate court ruled. Rather, the appellate court simply forced Quality Oil to initiate the action in a different venue.

Second, Indiana courts have indicated that a court decision made without proper personal jurisdiction is void and is, therefore, not actually a judgment.*fn107 The Supreme Court of Indiana has held that "a judgment rendered without personal jurisdiction over an indispensable party is void as to that party."*fn108 This statement indicates that judgments by Indiana courts where one party is not subject to personal jurisdiction, should not be considered valid, final judgments. Third, as is indicated above, a party receiving a favorable ruling on a motion is not considered a prevailing party under Indiana law.*fn109 Here, the Indiana appellate court simply reversed the trial court's ruling on Kelley Partners' motion to dismiss for lack of personal jurisdiction.*fn110 By definition, then, Kelley Partners is not a prevailing party and fees are not merited.

CONCLUSION

For the reasons set forth above, the Court grants both Quality Oil's motion for summary judgment on the breach of contract claim [dkt 22] and motion for summary judgment on Kelley Partners' counterclaim [dkt 27]. This Court, thus, awards Quality Oil $115,500 in damages.

IT IS SO ORDERED

Susan E. Cox UNITED STATES MAGISTRATE JUDGE


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