Citgo Petroleum Corporation v. Ranger Enterprises, Inc.

Filing 183

ORDER granting in part and denying in part 95 MOTION for Summary Judgment; granting in part and denying in part 130 MOTION for Sanctions Relating to Errata Testimony of Ranger Enterprises; granting 144 MOTION to Strike Supplemental Ex pert Report of Jeffrey Bernard; granting 165 MOTION to Strike Expert Report of Dileep Sirur; granting 166 MOTION for Leave to Supplement the Record; denying 173 MOTION for Leave to Allege an Additional Affirmative Defense. Signed by Chief Judge Barbara B. Crabb on 7/9/2009. (arw)

IN THE UNITED STATES DISTRICT COURT FO R THE WESTERN DISTRICT OF WISCONSIN --------------------------------------------C IT G O PETROLEUM CORPORATION, O PIN IO N AND ORDER Plaintiff, 0 7 - cv -6 5 7 - b b c v. R AN G ER ENTERPRISES, INC., D efendan t. --------------------------------------------For almost fifteen years, plaintiff Citgo Petroleum Corporation sold petroleum pro ducts to defendant Ranger Enterprises, Inc. under a distributor franchise agreement. U nd er separate branding agreements, plaintiff Citgo paid the initial costs of "branding" each o f 39 gas stations owned by defendant and provided branding incentives in the form of rebates on gallons of gas sold. The relationship started unraveling in 2005 and came to an end the following year. In this lawsuit, plaintiff contends that defendant breached the parties' franchise agreem ent when it failed to purchase certain fuel allotments and breached the parties' bran ding agreements when it de-branded before the termination of the agreements. For its part, defendant contends that plaintiff breached the franchise agreement when it failed to

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su pp ly required fuel allotments.

Plaintiff asks the court to find as a matter of law that (1)

defendan t breached the parties' franchise agreement when it failed to purchase the required m onthly minimum fuel between January and July of 2006; (2) defendant breached the bran ding agreements by de-branding 39 of its stations before July 31, 2006; (3) plaintiff's claim s are not barred by the doctrines of prior material breach, frustration of purpose, im po ssibility of performance and accord and satisfaction or because the liquidated damages clause imposes an improper penalty; (4) plaintiff is not liable for any breach of the franchise agreem ent and defendant is not entitled to damages for the loss of its ability to use plaintiff's bran d; and (5) plaintiff is entitled to fees and prejudgment interest as prevailing party in this suit. I conclude that defendant breached the franchise agreement when it failed to purchase the minimum monthly amounts it had agreed to buy under the agreement and that this failure is not excused by any alleged failures by plaintiff to supply gas in 2005, although defendan t may be entitled to recover any costs it incurred that year in covering shortages in supp lies from plaintiff. I conclude also that under the branding agreements, defendant is liable for the cost of branding and for rebates it accepted for each of the 39 gas stations at issu e in the amount of $3,071,147.08, and is not entitled to any damages for the costs of de-brand ing, re-branding, lost opportunity costs or lost opportunities for growth. Plaintiff's alleged supply failures do not excuse payment of these amounts because defendant agreed

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to pay them back to plaintiff if it de-branded its stations for any reason, because the obligation to repay the branding costs and incentives is separate from the duty to supply imposed on plaintiff under the franchise agreement and because, even if the franchise agreement applied to the branding obligations, defendant has failed to show any material breach of that agreem en t by plaintiff. Plaintiff's claims are not barred by any of the doctrines defendant h as asserted; the liquidated damages provision is not a prohibited penalty; defendant is not en titled to damages for the loss of use of plaintiff's brand; and plaintiff is entitled to fees and p rejudgm ent interest in an amount to be determined at trial. However, plaintiff is not en titled to summary judgment on defendant's counterclaim for breach of contract for undersu pply in 2005. Defendant did not waive its right to sue for damages for the shortfalls in supply when it executed an amendment to the franchise agreement in December 1, 2005. T he parties have filed a number of additional non-dispositive motions: (1) plaintiff's m o t i o n to strike the errata testimony of Daniel Arnold, Frank Louis and John Carabelli, w hich will be granted as to Arnold's and Louis's testimony; (2) plaintiff's motion to strike the supplemental expert report of Jeffrey Bernard, which will be granted because the report is an improper attempt by Bernard to enlarge upon his original report; (3) defendant's m otion for leave to supplement the record with the expert reports of Kevin Murphy, Joseph L eto and Dileep Sirur, which will be granted; (4) defendant's motion to strike portions of D ileep Sirur's report, which will be granted with respect to ¶¶ 13-22; and (5) defendant's

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m o tio n for leave to amend its answer to assert an additional affirmative defense, which will be denied. Left for trial are (1) the measure of plaintiff's damages for defendant's breach of the franchise agreement for failing to purchase the required fuel in 2006 and (2) whether plain tiff breached the parties' franchise agreement in 2005 by failing to deliver the full am o un ts of product due under the franchise agreement and, if so, what damages defendant i n cu r re d.

I. PRELIMINARY MOTIONS A . Motion to Strike Errata Testimony P lain tiff has filed a motion to strike the errata sheets submitted by defendant for three of its 30(b)(6) witness and to impose sanctions under Rule 37 because the errata sheet corrections exceed the boundaries of permissible corrections by changing the scope of the w itnesses' testimony. During the depositions of defendant's witnesses Frank Louis and Dan A rn o ld , plaintiff's counsel asked them the basis for their testimony that plaintiff had not delivered its promised supply of product during the second quarter of 2005. Initially, both w itnesses identified a document written by Bob McDonald regarding certain fuel shortages. In the course of Arnold's deposition, it was discovered that the document in question referred to shortages in 2003, not 2005. Upon recognizing their mistake, defendant's

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w itnesses submitted errata sheet testimony striking their testimony regarding the McDonald letter and including new evidence in support of defendant's claim. Plaintiff objects to d efen dan t's errata sheets as an improper attempt to rewrite these witnesses' testimony. (As for the third witness, John Carabelli, plaintiff has not identified any objectionable changes.) R ule 30(e) allows changes in the form or substance of deposition testimony if the depo nent submits a signed statement listing the changes and the reasons for making them. D efendan t's witnesses have all complied with this requirement. The question is whether R u le 30(e) encompasses all changes in substance, including such a significant change as A rn o ld and Louis have made. Under Thorn v. Sundstrand Aerospace Corp., 207 F.3d 383, 38 9 (7th Cir. 2000), the answer seems to be no. Thorn was an age discrimination case in which a deponent testified on behalf of the em ployer that in choosing which employees would be laid off, he had considered which had the "longest-term potential." Later, he corrected his testimony in an attempt to show that he intended to refer to those employees who were working with products that had the "longestterm potential." The court of appeals found the change permissible under the rule, noting that it covers changes in both form and substance and that it includes the salutary requirem ent that the original testimony and the proposed change be retained, thereby allow in g the jury to evaluate both at trial. If this were all that the court had said, I would agree with defendant that plaintiff's motion to strike should be denied and the jury allowed

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to decide which version of the deponents' testimony it chose to believe. However, the court w e n t on to say that "[we] also believe, by analogy to the cases which hold that a subsequent affidavit may not be used to contradict the witness's deposition, that a change of substance w hich actually contradicts the transcript is impermissible unless it can plausibly be rep resen ted as the correction of an error in transcription, such as dropping a "not." Id. at 389 (internal citations omitted). It is one thing to seek a correction when one meant to say something other than what he actually said, as was the case with the deponent in Thorn; it is another thing entirely to ad d new testimony based on new evidence, as Louis and Arnold want to do. They may not pro vid e new testimony under the guise of correcting errors. Plaintiff's motion to strike will be granted. P lain tiff has asked for sanctions in the form of an order barring defendant from adducing any evidence about fuel shortages during the second quarter of 2005, which was the subject of the attempted correction. The motion will be granted. Defendant's failure to catch th e error in the testimony of the two witnesses had a prejudicial effect on plaintiff that could have been minimized if defendant's counsel had asked deponent Arnold appropriate qu estion s after the error was discovered and, of course, it could have been eliminated altogether had defendant prepared its witnesses properly. The prejudice could be cured by allow ing plaintiff an opportunity to re-depose the two witnesses at defendant's expense, but

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given the relative immateriality of the testimony, I am unwilling to impose such an inco nv enien ce on plaintiff. Defendant is not seeking any damages for any alleged

un dersupp ly in the second quarter; presumably, its only interest in putting in the evidence of the second quarter undersupply is to suggest to the jury that it continued into the third an d fourth quarters of 2005. Plaintiff is entitled to motion for attorney fees and costs incurred in bringing the m otio n in an amount to be decided after trial.

B. Motions to Strike & Supplemental Expert Reports 1. Plaintiff's motion to strike the supplemental expert report of Jeffrey Bernard Jeffrey Bernard's supplemental expert report, dkt. #144, includes opinions on topics that he failed to address in his original report. Arguing that the supplementation is

justifiable, defendant says it was necessary because plaintiff did not comply with certain discovery requirements and that the new report does not prejudice plaintiff. In this court's amended pretrial conference order issued on January 23, 2008, the m agistrate judge explained to the parties that [a]ll disclosures mandated by this paragraph must comply with the req uirem en ts of Rule 26(a)(2)(A), (B) and (C). There shall be no third round of rebuttal expert reports. Supplementation pursuant to Rule 26(e)(1) is lim ited to matters raised in an expert's first report, must be in writing and must b e served not later than five calendar days before the expert's deposition, or

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before the general discovery cutoff if no one deposes the expert. . . . Failure to co m p ly with these deadlines and procedures could result in the court striking the testimony of a party's experts pursuant to Rule 37. The parties may m odify these deadlines and procedures only by unanimous agreement or by cou rt order. Dkt. #29 at 2. By court order, initial expert reports were due April 24, 2009; responsive repo rts were due May 29, 2009. Dkt. #86. On May 30, 2009, defendant submitted Bernard's supplemental report without leave of the court. By defendant's own admission, the report contains additional opinions intended to rebut the deposition testimony of plaintiff's 30(b)(6) witness, Brian Galloway, regarding "ratab ility," or whether defendant was a sporadic purchaser of fuel, and plaintiff's allocations d urin g Hurricanes Rita and Katrina. With respect to Bernard's supplement regarding

"ratability," defendant states that "Bernard's supplementation on ratability was proper, as he considered Galloway's testimony, and also considered the testimony of other witnesses who w ere not deposed until after April 20, 2009." Dkt. #152 at 8-9. With respect to plaintiff's allocation of fuel during the hurricanes, defendant contends that plaintiff "had no legitimate expec ta ti on that Galloway's opinion testimony could not be disputed . . . .; [o]bviously it m ad e more sense for Bernard to issue his supplemental expert containing this rebuttal on M ay 29." Dkt. #152 at 13. Under Fed. R. Civ. P. 26(e)(1), a party may supplement or correct its Rule 26(a) disclo su r e s "if the party learns that in some material respect the disclosure or response is

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inco m plete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing." That is no t the case here. Bernard's supplemental report seeks to rebut deposition testimony rather than to add information not otherwise made known. Defendant contends that it is

prejudiced by its inability to rebut Galloway's deposition testimony, but it has only itself to b lam e for any discovery problems. If at any time it had believed it lacked discovery relevant to ratability or fuel allocations, it could have filed a motion to compel discovery. It never did so . Now it seeks to adduce new materials by way of supplement to which plaintiff cannot respo nd . Defendant could have asked for leave of court to file a supplemental report in which Bernard responded to Brian Galloway's deposition testimony. Had it done so, the court m ight have allowed the supplementation and given plaintiff an opportunity to respond. It is too late to do so now. At trial, defendant may challenge Galloway's testimony but it may not offer any new opinions by Bernard.

2. Defendant's motion for leave to supplement the record with expert testimony of Kevin M u rp hy, Dileep Sirur and Joseph Leto and to strike portions of the expert testimony of D ileep Sirur P lain tiff does not oppose defendant's June 15, 2009, motion for leave to supplement the record to include the expert testimony of plaintiff's experts Kevin Murphy, Dileep Sirur

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an d Joseph Leto. The motion will be granted. Although defendant wants to include Dileep Sirur's expert testimony, it has also filed a motion to strike portions of the same expert report. Peculiar as this may seem, defendant explains that the second motion is conditional u po n the court's denial of plaintiff's motion to strike Jeffrey Bernard's expert; if the motion is denied, its motion to strike is moot. Because I have granted plaintiff's motion to strike B ern ard 's supplemental report, I must consider defendant's motion to strike excerpts of S irur's expert report. D efendan t contends that Sirur's opinions regarding (1) the 75% allocations imposed by plaintiff at the Rockford/Marathon exchange terminal after August 29, 2005 (¶¶13-20); (2 ) the effect of Hurricanes Katrina and Rita at terminals other than the Rockford/Marathon term inal (¶¶21-22); and (3) "ratability" (¶¶26-30) are improper rebuttal because Bernard said no thing about these matters in his initial expert report. I agree with defendant as to the first tw o matters addressed by Sirur's expert report but not as to the last. In his expert report, B ern ard addresses primarily the effect of fuel supply shortage before August 29, 2005. Therefore, paragraphs 13-22 of Sirur's report addressing fuel shortages after August 29 are im pro per rebuttal and will be stricken. However, Bernard did address plaintiff's possible d efen se of "ratability" and discounted it as a credible defense. Bernard Expt. Rpt., dkt. #117, at 15. Sirur's opinion regarding "ratability" is proper rebuttal.

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C . Motion for Leave to Amend to Assert an Additional Affirmative Defense I will deny defendant's last minute (June 29, 2009) motion for leave to allege an addition al affirmative defense of "constructive termination" of the parties' franchise agreem ent in violation of the Petroleum Marketing Practices Act, 15 U.S.C. § 2801, without allow ing additional briefing. Defendant acknowledges that this court has consistently denied defendant's repeated efforts to assert counterclaims for alleged violations of the Petroleum M arketing Practices Act as barred by the statute of limitations applicable to the Act. This tim e, defendant argues that the Act does not bar a "constructive termination" claim as an affirm ative defense. In support of this theory, defendant cites Beach v. Ocwen Federal Bank, 523 U.S. 410 (1998), in which the Supreme Court held that "[s]o long as the plaintiff's action is timely, . . . a defendant may raise a claim in recoupment even if he could no longer b rin g it independently, absent the clearest congressional language to the contrary." Id. at 415 (citation omitted). Beach does not save defendant's claim. As the Court explained, a claim for recoupment is a "defense arising out of some feature of the transaction upon which the plaintiff's action is grounded." Id.; Reiter v. Cooper, 507 U.S. 258, 264 (1993). Defendant's affirm ative defense is not a claim for recoupment under the Act for the simple reason that plaintiff's action is not grounded upon the Petroleum Marketing Practices Act, but upon state con tract law. Defendant's affirmative defense of constructive termination cannot be said to arise out of some feature of a state contract claim.

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I will not allow defendant's new effort to slip a claim under the Act into this case in the form of an affirmative defense when plaintiff has not asserted claims based on the Act. L ik e defendant's counterclaim, plaintiff's claims are breach of contract claims. It is

u nn ecessary to consider the Act in resolving them. Defendant's motion for leave to amend w ill be denied.

II. SUMMARY JUDGMENT MOTION B efore proceeding to the merits of the parties' claims, I must discuss procedure. After th is case was reassigned, the parties were given instructions for filing summary judgment subm issions. Procedure to be Followed on Motions for Summary Judgment & Helpful Tips to Filing a Summary Judgment Motion in Cases Assigned to Judge Barbara B. Crabb, attached to Preliminary Pretrial Conference Order, dkt. #29. As these documents explain, a party op po sing summary judgment must file a brief with opposing legal arguments, a response to the movant's proposed findings of fact, and evidentiary materials to support the factual propositions. Each fact must be proposed in a separate paragraph and supported by a reference to supporting evidence. In opposing plaintiff's motion, defendant failed to comply with these procedural rules. D efendant states in its proposed findings of fact that it is has "present[ed] substantial evidence that prior to August 29, 2005, when Hurricane Katrina struck the Gulf Coast,

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[plaintiff] was already an unreliable supplier of fuel to [defendant], such that [defendant] was chro nically experiencing fuel outages that were completely unacceptable to [defendant]." D ft.'s PFOF, dkt. #118-3, at 2-3. However, defendant fails to propose any specific facts regarding the undersupply as instructed by this court's summary judgment order. Rather, defendan t provides a general cite to the expert report of Jeffrey Bernard, the affidavit of its ow n counsel and the deposition of Frank Louis, defendant's vice-president of supply . Plaintiff cannot be expected to respond to the facts proposed by defendant when defendan t gives only a general cite to a report, does not identify the specific facts it is asserting and does not say where the court and plaintiff can find the support for those asserted facts. Harney v. Speedway SuperAmerica, LLC, 526 F.3d 1099, 1104 (7th Cir. 20 08 ) ("It is not the duty of the court to scour the record in search of evidence to defeat a m o tio n for summary judgment; rather, the nonmoving party bears the responsibility of identifying the evidence upon which he relies.") Neither plaintiff nor the court should be requ ired to do defendant's work for it. Accordingly, I will disregard defendant's proposed facts regarding plaintiff undersupply in 2005. Ziliak v. AstraZeneca LP, 324 F.3d 518, 520 (7th Cir. 2003) ("A party's failure to comply with summary judgment evidentiary requ irem ents is traditionally remedied . . . by excluding the non-conforming submission . . . and then determining whether [the remaining facts] entitle the moving party to judgment as a matter of law").

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Although this case has been pending for almost 18 months, defendant's response to m an y of plaintiff's proposed findings of fact includes a request for additional discovery under R ule 56(f), which provides that a court may deny a summary judgment motion if the no nm ov ing party has not had a fair opportunity to engage in full discovery of a disputed issue. "Rule 56(f) requires a party to state the reasons why it cannot adequately respond to the summary judgment motion without further discovery and must support those reasons by affidavit." Waterloo Furniture Components, Ltd. v. Haworth, Inc., 467 F.3d 641, 648 (7th C ir. 2006). Defendant never filed a motion under Rule 56(f) or attempted to show why it w ou ld be unable to respond adequately to plaintiff's proposed facts. Defendant has suggested n o reason for its failure to secure necessary discovery in time to oppose the motion. Acco rdingly, its implicit Rule 56(f) motion will be denied. I will accept as undisputed those facts for which defendant's only objection is Rule 56(f). Kalis v. Colgate-Palmolive Co., 231 F.3d 1049, 1057 n.5 (7th Cir. 2000) ("`When a party fails to secure discoverable evidence d ue to his own lack of diligence,' the necessary justification [for Rule 56(f)] is lacking, and `it is not an abuse of discretion for the trial court to refuse to grant a continuance to obtain such information.'") (quoting Pfeil v. Rodgers, 757 F.2d 850, 856 (7th Cir. 1985)). Fro m the parties' proposed findings of fact, I find the following facts to be material and undisputed.

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U N D IS PU T ED FACTS A. Parties Plaintiff CITGO Petroleum Corporation is a Delaware corporation with its principal place of business in Houston, Texas. It refines and markets CITGO-brand gasoline and other petroleum products through a network of independent franchised distributors that in turn resell to independent retailers or directly to the public through retail outlets. D efendan t Ranger Enterprises, Inc. is an Illinois corporation with its principal place o f business in Rockford, Illinois. From 1991 until 2006, defendant was a franchisee for p lain tiff and sold CITGO-brand gasoline at retail locations in Illinois, Indiana and Wisconsin. D efendan t purchased gasoline from plaintiff for resale to the motoring public at service station s displaying the CITGO brand name and trademarks.

B. The Distributor Franchise Agreement O n October 7, 1991, the parties entered into a franchise relationship by signing a distributo r franchise agreement. Paragraph 2 of the franchise agreement is entitled

"Q uan tities" and states in relevant part: Fran chisee shall purchase and accept hereunder quantities of products as set f o r t h below during the respective monthly periods and CITGO shall sell and deliv er the specified quantities of products during the respective monthly p erio ds. Franchisee hereby acknowledges and agrees that the purchase and ratable lifting of the monthly quantities of product specified herein by

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Franchisee are reasonable, important and of material significance to the franchise relationship. Franchisee understands and agrees that any failure by Franch isee to purchase and accept a minimum of ninety (90%) of the monthly quantity of gasoline or diesel fuel listed below during any month on a ratable basis shall be a violation of this Agreement. D k t. #1, Exh. A, at ¶ 2. B e t w e e n 1991 to 2005, the parties amended the franchise agreement from time to tim e to increase the annual volume of gasoline that plaintiff would sell and defendant would buy. In December 2005, the parties amended the agreement to reduce the fuel quantities defendan t was required to purchase. O n June 30, 2005, Mike Slider, defendant's vice president of fuel supply and distribution, emailed plaintiff's representative, Brad Winczewski, informing him that d efen dan t was having difficulty purchasing gas at four terminals in Illinois, Indiana and W isconsin. Shortly after June 30, 2005, defendant's president, Dan Arnold, told Winczewski that defendant would "sign a mutual cancellation."

C . Fuel Supply Shortages During Hurricanes Katrina and Rita In 2005, plaintiff operated two of its largest refineries on the Gulf Coast of the United States in Corpus Christi, Texas, and Lake Charles, Louisiana. The Lake Charles refinery was a primary and substantial source of the gasoline and other petroleum products plaintiff sent to its distributors in the midwestern United States, including defendant. On August 29,

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20 05 , Hurricane Katrina struck the Gulf Coast. Hurricane Rita hit the same area one month later. The two hurricanes caused substantial shortages of products and refining capacity to plaintiff and to the petroleum industry. On two separate occasions in the fall of 2005, plaintiff told defendant and its other custom ers in defendant's supply region that it would "allocate" its gasoline products. The distributo r franchise agreement provides that if because of a shortage of crude oil, raw materials, products, or refining capacity, either of its own, or of its other regular sources of supply, or in the industry generally, or because of governmental regulations, or for any reason, [plaintiff] deem s that it may be unable to meet all of its supply requirements, [plaintiff] m ay allocate its products equitably among its various customers pursuant to a plan, method or formula as [plaintiff] believes fair and reasonable. Franchisee agrees to be bound by any such allocation. During the period of such alloca tio n, the provisions of Paragraph 2 relating to volume requirements shall no t be effective, and the quantity deliverable under this Agreement shall then be such quantity as [plaintiff] determines it can equitably allocate to Fran chisee. Upon cessation of any such period of allocation neither [plaintiff] nor Buyer shall be obligated to make up any quantities omitted pursuant to the p ro visio n s herein. F lagg Dec., dkt. #99, Exh. A, ¶8. B etw e en August 29, 2005 and September 8, 2005 and between September 21, 2005 an d October 13, 2005, plaintiff allocated its gas products. After Hurricane Katrina, in Septem ber 2005, defendant experienced fuel shortages that defendant's president, Dan Arn old, believed might put defendant out of business.

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D . The 2005 Amendment of the Franchise Agreement T h e original distributor franchise agreement between the parties went into effect on N o vem b er 1, 1991. The contract stated that the "Agreement shall be effective for a term of five (5) years, beginning 11/01/91 and expiring on 10/31/96." In 1992, the parties amended the distributor franchise agreement. Under the amendment, the agreement would be in effect from August 1, 1993 to July 31, 1997 and would renew automatically for a period of three years unless terminated or non renewed as provided for in the Petroleum Marketing Practices Act. Under the original agreement, the franchise agreement (after several automatic renewals) w ould have terminated on October 31, 2005; the effect of the 1992 amendment was to make the dispositive expiration date July 31, 2006. In November 2005, defendant concluded that plaintiff's uncured fuel supply ob ligations were cause for defendant to terminate the relationship. Defendant told plaintiff it was pulling out and began the process of planning to de-brand. On November 16, 2005, Arn old emailed Winczewski, plaintiff's representative, stating On June [30] 2005 I sent an e-mail to you stating that I will not be renewing the Supply Contract that has now expired as of October, 30 2005. Nothing has happened during the 120[-day] notice given. We have had numerous discuss io n s about "setting down with Gene" but no appointment has been arran ged. It is now two weeks since our Supply Contract has expired[.] Joseph Dec., dkt. #98-4, Exh. J at 60. Up to this time, Arnold was under the mistaken belief th at the expiration date of the franchise agreement was October 31, 2005 (and not July 31,

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20 06 ). On November 30, 2005, he emailed plaintiff, stating that "I am concluding that I need to be making other plans." Arn old met with Winczewski and Gene Kiesling during the first week of December 2005 . On December 20, 2005, defendant sent plaintiff an executed amendment to the d istributo r franchise agreement, reducing the required monthly purchase volume from 6,000,000 to 5,175,000 gallons, effective December 1, 2005. Every amendment to the

fran ch ise agreement executed by the parties, including the 1992 Amendment, 2004 A m en dm en t and the 2005 Amendment, contained the following provision: "ALL OTHER T ER M S AND CONDITIONS OF THE AGREEMENT SHALL REMAIN IN FULL FORCE AN D EFFECT." D u rin g December 2005, defendant purchased 106.99% of its contract volume of gasoline from plaintiff.

E. Defendant De-brands A s defendant's senior director of supply in 2006, Frank Louis's objective was to find new suppliers to replace all of plaintiff's supply. Accordingly, he bought from plaintiff only w hen he found the price attractive. Defendant continued to accept deliveries from plaintiff throu gh July 31, 2006. In 2006, defendant made the following monthly purchases:

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M on th

Purcha ses (in gallons)

C o n tract Volume

P urch ases (as % of con tract volume)

Ja n u a r y F eb r u a r y M arch A p ri l M ay Ju n e J u ly

3 , 1 6 8 ,9 6 2 1 , 7 8 1 ,9 1 6 2 , 1 2 4 ,6 8 0 2,555,913 1 , 1 9 3 ,2 4 1 1,060,274 1,208,348

5,175,000 5,175,000 5,175,000 5,175,000 5,175,000 5,175,000 5,175,000

6 1 .2 3 % 34.43% 41.05% 49.38% 23.05% 20.48% 23.34%

TO TAL

1 3 , 0 9 3 ,3 3 4

36,225,000

3 6 .1 4 %

T o meet its contractual minimum for January through July 2006, defendant was required to purch ase 90% of contract volume of 36,225,000. By purchasing 13,093,334 gallons,

defendan t was 19,509,166 gallons short of its minimum for the year. On January 17, 2006, plaintiff sent defendant a new form entitled "Marketer Fran chise Agreement," which was intended to replace the franchise agreement when it expired on July 31, 2006. On February 8, 2006, defendant acknowledged that it had received the new agreement and stated: "This letter is not a rejection of the [new agreement] or notice that [defendant] does not intend to renew its Franchise Agreement, but only to inform [plain tiff] that we will not be able to respond prior to its February 15, 2006 deadline." By

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Ap ril 28, 2006, defendant had not responded to the request to execute the new agreement. O n that date, plaintiff wrote defendant, stating that "This letter will serve as formal notice to you that your franchise relationship with [plaintiff] will not be renewed as of the close of busin ess on July 31, 2006. In compliance with the Petroleum Marketing Practices Act, enclosed you will find the Secretary of Energy's Summary Statement outlining your rights un der the Act." On or about June 1, 2006, defendant began the process of de-branding. Defendant d e-b ran ded all the locations by no later than July 31, 2006. Re-branding cost defendant $1 ,43 9,8 03 .62 .

F. Branding Agreements and De-Branding Calculations for Defendant's Locations 1. The branding agreements In addition to the franchise agreement, plaintiff and defendant entered into at least 39 separate agreements known as competitive allowance agreements and brand allowance p ro gr a m agreements, which I will refer to collectively as the branding agreements. Each of these branding agreements pertains to a particular retail location operated by defendant. In general, the agreements require defendant to keep a station branded for 7 to 10 years. In exchan ge, plaintiff pays the initial cost of branding the station and gives defendant "allowance pay m en ts" in the form of a quarterly cents-per-gallon rebate on gasoline purchased. The

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bran ding agreements contain provisions explaining the parties' rights in the event that a location is de-branded. The agreements state in relevant part: If the location debrands, for any reason, before the completion of the co m m itm en t period . . . the Marketer shall reimburse CITGO all or a portion o f the Allowance payments received for the Location, which reimbursement shall be based upon the number of years the Location was branded CITGO after the Effective Date. *** If the location debrands, the Marketer shall reimburse to CITGO all or a po rtion of CITGO's costs incurred in branding the Location including the cost for branding materials supplied for the Location by CITGO. This reim bursem ent shall be CITGO's cost after depreciation. Depreciation shall be based upon the straight line method over 60 months from the Effective Date. U sed signs or other branding materials cannot be returned for credit. *** M arketer cannot assign or transfer his rights under this agreement without prio r written consent of CITGO. Flagg Dec., dkt. #99-2, Exh. B., at 4-5, ¶¶4 and 7, 11 (competitive allowance agreement); see also id. at 2, ¶¶7-8, 12 (brand allowance agreement). The branding agreements further provide: "Marketer will not be entitled to receive the Allowance for any quarter in which the M ark eter fails to lift 90% of his total [franchise agreement] volume[.]" Id. at 2, ¶6; at 4, ¶5. The branding agreements set forth a location-specific reimbursement schedule. Before the end of the franchise relationship, the total amount that plaintiff advanced to defendant under th e 39 branding agreements was $3,878,177.40.

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2 . Stores sold before June 1, 2006 Before June 1, 2006, defendant sold the stores at the following locations: Store # 1 0 8 3 3 12 7 at 2302 Market Street in Bloomington, Ilinois; Store #10833128 at 1685 S o u th Baltimore Avenue in Decatur, IL; and Store #10833135 at 2760 North Oakland A ven ue in Decatur, IL. All three stores were covered by the brand allowance program and d efen dan t had agreed to run them under the CITGO brand for 10 years. The reimbursement schedule for these stores is as follows: 1. Bloomington Store: $111,506.46 (Nov. 30, 2006); $139,259.19 (July 31, 2006) 2. South Baltimore, Decatur, IL: $57,844.05 (Nov. 30, 2006); $83,076.35 (July 31, 2006) 3. North Oakland, Decatur, IL: $107,071.80 (Nov. 30, 2006):

$ 1 0 7,0 9 4 .9 7 (July 31, 2006) (D e fen dan t denies that these stores should be included in plaintiff's de-branding calculations because defendant did not own them as of June 1, 2006.)

3 . Locations de-branded by July 31, 2006 O n December 22, 2006, plaintiff notified defendant in writing that the early debranding of all 39 stations triggered defendant's reimbursement obligations under the

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agreem ents in the amount of $2,780,177.40.

This amount was calculated using a de-

bran ding date of November 30, 2006. Because the reimbursement amounts decrease with th e passage of time, this amount was lower than a reimbursement amount computed using the earlier, actual de-branding date of July 31, 2006. Store # 10833137 in Jerome, Illinois w as de-branded before June 1, 2006, after it was hit by a tornado. If an April 15, 2006, date is used for location #10833137, and a July 31, 2006, date is used for all the other locations, th e amount owed under the branding agreements is $3,071,147.08. T he following chart lists all the stores de-branded by July 31, 2006 except the stores sold before June 1, 2006 and store #10833137, which was hit by the tornado. The chart in clu des the following information: (1) the store number and location of the CITGO-brand gaso lin e stations owned, operated or licensed by defendant; (2) how many years defendant w a s committed to operate under the CITGO-brand; and (3) and the reimbursement amount ow ed under the respective branding agreements. Store # Location Branding Agreement Years in Effect 1 0 years 7 years 1 0 years Reimbursement (N o v. 30, 2006) $ 1 4 0 , 2 9 5 .9 1 $ 3 9 , 4 0 2 .7 6 $ 1 9 5 , 7 3 3 .8 5 R e im b u r s e m e n t (Ju ly 31, 2006) $ 1 4 0 , 8 3 5 .6 3 $ 3 9 ,5 5 1 .9 0 $ 2 6 4 , 2 3 1 .2 9

1 0 8 33 0 0 9 10833010 10 83 30 11

Cherry Valley, IL 61108 M adiso n, WI 5 3 7 04 R ock ford, IL 6 1 1 08

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Store #

Location

Branding Agreement Years in Effect 7 years 7 years 7 years 7 years 7 years 7 years 7 years 7 years 7 years 7 years 1 0 years 1 0 years 1 0 years

Reimbursement (N o v. 30, 2006) $ 4 1 , 3 8 4 .4 9 $ 3 2 , 8 3 6 .5 2 $ 3 9 , 4 8 8 .2 7 $ 1 , 9 7 8 .9 7 $ 4 , 5 7 3 .4 6 $ 1 , 6 9 1 .9 1 $ 1 4 , 8 1 3 .6 8 $ 2 2 , 2 4 1 .0 9 $ 3 4 , 0 8 0 .7 0 $ 2 9 , 6 1 8 .3 7 $ 1 1 1 , 0 9 7 .5 8 $ 1 3 9 , 7 0 8 .0 1 $ 1 1 4 , 5 5 8 .0 3

R e im b u r s e m e n t (Ju ly 31, 2006) $ 4 2 ,0 8 5 .4 4 $ 3 3 ,2 1 7 .0 7 $ 3 9 ,8 7 6 .9 9 $ 2 , 7 1 3 .4 4 $ 5 , 3 0 0 .8 4 $ 2 , 2 0 5 .9 0 $ 2 8 ,4 6 0 .9 1 $ 2 2 ,9 0 5 .6 3 $ 3 5 ,1 7 0 .0 8 $ 2 9 ,9 2 9 .9 7 $ 1 1 1 , 4 0 0 .9 6 $ 1 4 0 , 6 2 1 .7 0 $ 1 1 5 , 3 3 0 .9 2

10 83 30 12 10 83 30 13 10 83 30 15 10833016 10 83 30 17 10 83 30 18 10 83 30 20 10 83 30 21 10 83 31 06 10 83 31 31 1 0 8 33 1 3 4 10 83 31 36 10 83 31 39

R ock ford, IL 6 1 1 08 R ock ford, IL 6 1 1 02 R ock ford, IL 6 1 1 14 O akdale, WI 5 4 6 49 S prin gfield, IL 6 2 7 03 R och elle, IL 6 2 7 03 S prin gfield, IL 6 2 7 07 L ov es Park, IL 6 1 1 11 R ock ford, IL 6 1 1 08 S prin gfield, IL 6 2 7 03 D e catu r, IL C ottage Grove, W I 53527 T uscola, IL 6 1 9 53

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Store #

Location

Branding Agreement Years in Effect 1 0 years 1 0 years 1 0 years 7 years 7 years 1 0 years 1 0 years 1 0 years 1 0 years 1 0 years 1 0 years 7 years 7 years

Reimbursement (N o v. 30, 2006) $ 1 1 5 , 6 6 8 .0 6 $ 7 8 , 1 7 2 .4 2 $ 1 2 7 , 3 0 2 .2 4 $ 4 0 , 5 1 3 .0 5 $ 5 9 , 4 9 2 .5 7 $ 9 8 , 3 9 1 .0 0 $ 1 1 7 , 0 1 2 .8 9 $ 1 1 5 , 2 9 0 .5 5 $ 1 0 5 , 4 5 7 .9 9 $ 6 9 , 8 7 0 .1 0 $ 2 0 , 4 7 9 .0 6 $ 2 8 , 4 2 2 .1 9 $ 3 4 , 6 7 5 .6 1

R e im b u r s e m e n t (Ju ly 31, 2006) $ 1 1 9 , 6 1 0 .3 6 $ 7 8 ,9 6 2 .1 0 $ 1 5 8 , 2 4 4 .9 4 $ 4 1 ,1 3 1 .2 6 $ 5 9 ,9 3 1 .0 7 $ 1 0 0 , 1 8 7 .7 7 $ 1 1 7 , 0 6 3 .3 4 $ 1 1 6 , 2 9 6 .4 7 $ 1 0 6 , 4 3 8 .0 9 $ 7 0 ,7 3 3 .6 9 $ 2 7 ,1 2 9 .9 2 $ 2 8 ,7 0 0 .1 1 $ 3 5 ,9 1 8 .1 7

10 83 31 40 10 83 31 41 10 83 32 05 10 83 32 06 10 83 32 07 10 83 32 11 10 83 32 24 10 83 32 25 10 83 32 26 10 83 32 28 10 83 32 31 10 83 32 35 1 0 8 33 2 3 9

M endo ta, IL 6 1 3 42 B razil, IN 4 7 8 34 S ou th Beloit, IL 61080 W inn ebago , IL 6 0 1 88 B elvidere, IL 5 1 1 08 L ov es Park, IL 6 1 1 11 Freepo rt, IL 6 1 0 32 Prin ceton, IL 6 1 3 56 G reenw oo d, IN 4 6 1 43 D eK alb, IL 6 0 1 15 M cC hesney P ark , IL 61115 H am pshire, IL 6 0 1 40 L ak e Station, IN 46405

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Store #

Location

Branding Agreement Years in Effect 1 0 years 7 years 7 years 1 0 years 1 0 years 1 0 years

Reimbursement (N o v. 30, 2006) $ 8 3 , 3 8 3 .0 6 $ 1 5 , 5 1 9 .1 4 $ 3 9 , 2 6 9 .6 8 $ 1 1 1 , 9 5 2 .1 7 $ 7 7 , 4 8 9 .8 7 $ 9 1 , 1 9 8 .0 8

R e im b u r s e m e n t (Ju ly 31, 2006) $ 8 4 ,0 4 8 .5 6 $ 1 5 ,5 6 6 .5 8 $ 3 9 ,4 5 3 .6 9 $ 1 5 7 , 9 2 9 .7 4 $ 7 5 ,3 4 4 .9 8 $ 9 1 ,2 8 6 .6 3

1 0 8 33 2 4 0 10 83 33 18 10 83 33 21 10 83 33 22 10 83 33 23 10 83 33 24

L ak e Station, IN 46405 R ock ford, IL 6 1 1 03 D eK alb, IL 6 0 1 15 R ock ford, IL 6 1 1 09 C ham paign , IL 6 1 8 22 R osco e, IL 6 1 7 03

G . Defendant's Damages Claim During his deposition, defendant's Chief Financial Officer David Saporta testified that "there was lost value to the company . . . [in] the tens of millions of dollars" which comes from looking at the lost profitability of the stations that were branded CITGO through those tim e periods discussed and placing a value on the lost profitability from a company valuation s ta n d p o i n t ." In interrogatory responses, defendant asserted that it was entitled to the

fo llo w i ng categories of damage: (1) "out-of-pocket costs of de-branding and re-branding ($1 ,43 9,8 03 .62 as of 2006)"; (2) "lost opportunity costs from not being able to put the costs

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o f de-branding and re-branding to a more profitable use"; (3) "lost value in the company w h ich arose from the fact that the company had to launch a new and independent brand (Road Ranger), as opposed to benefitting from an established brand (CITGO)"; (4) "The dam ages presently estimated by Ranger CFO Dave Saporta" in a spreadsheet attached to the in terro gato ry answers; and (5) "Cover damages arising from and related to the necessity of R anger having to purchase fuel from non-CITGO parties due to CITGO's inability to supply th e fuel it contracted to supply." Saporta Dep., dkt. #103, at 134-35.

O PIN IO N A. Applicable Law T he parties assume that Oklahoma law governs their breach of contract dispute. In ad ditio n , the parties' franchise agreement includes a provision stating that "[t]his Agreement sh all be governed by the laws of the State of Oklahoma." Dkt. #98-2, Exh. A, at 16. Acco rdingly, I will apply Oklahoma law to the agreement.

B . Plaintiff's Breach of Contract Claims 1 . Defendant's failure to purchase gas in 2006 T o recover on its breach of contract theory, plaintiffs must prove: "1) formation of a contract; 2) breach of the contract; and 3) damages as a direct result of the breach." Digital

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D esign Group, Inc. v. Information Builders, Inc., 24 P.3d 834, 843 (Okla. 2001). It is un disputed that a valid and enforceable contract (the distributor franchise agreement) existed betw een the parties and that in December 2005, they amended the franchise agreement to red uce the amount of fuel defendant was required to purchase each month from 6,000,000 to 5,175,000 gallons. Between January and July of 2006, defendant failed repeatedly to purchase the required amount. As of July 31, 206, defendant was 19 million gallons short of its contractual minimum and in breach of the franchise agreement. As obvious as this conclusion seems, defendant argues that it is not liable for breach o f either the franchise agreement or the branding agreements because plaintiff allegedly com m itted a prior material breach of agreement by failing to supply fuel in 2005 and because plaintiff has failed to show that it suffered any damage as a result of the diminished fuel p urch ases in December 2005 and the first seven months of 2006. (Defendant contends for th e first time that plaintiff's supply problems continued into 2006. Defendant did not include any allegations to that effect in its third amended counterclaim and never moved to am end the counterclaim to include such a claim. con tention .) N either party has moved for summary judgment on the matter of damages owed plaintiff by defendant for failure to comply with the fuel purchase requirement set out in the am ended franchise agreement. It will be up to the jury to determine the amount of damages, Accordingly, I will disregard the

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w i th plaintiff bearing the burden of proving actual damages sustained as a consequence of defendan t's breach. As to the alleged prior material breach, "[g]enerally, where one party contends that it is relieved of performing its own contractual obligation by the breach of the other party, the c o n t r o l lin g issue is whether the breach invoked as a basis for relief is material." Polymer Fabricating, Inc. v. Employers Workers' Compensation Association, 980 P.2d 109, 115 (Okla. 19 98 ). A breach is material when it "defeats the object of the contract or [] concerns a matter of such importance that the contract would not have been made if default in that particular h ad been expected." Id. Defendant contends that plaintiff's failure to supply fuel during 20 05 constituted a material breach because it undermined plaintiff's reliability as a fuel s u p p li e r . It is undisputed that in June of 2005 Mike Slider, defendant's vice president of fuel supply and distribution, emailed Winczewski, plaintiff's representative, informing him that defendan t was having difficulty purchasing gas from four terminals and that plaintiff allocated gaso lin e to defendant during September and October 2005 when Hurricanes Rita and Katrina struck. This is the only evidence defendant has adduced of plaintiff's alleged undersupply. Fro m these sparse facts, no reasonable jury could conclude that plaintiff materially b reach ed the parities' franchise agreement, especially with regard to the allocation period fo llo w i ng the hurricanes. First, plaintiff failed to deliver gas on only a limited number of

30

occasio ns over the course of a fifteen-year franchise relationship. Second, the franchise agreem en t expressly authorizes plaintiff to allocate its products if, "because of a shortage of crude oil, raw materials, products, or refining capacity, either of its own, or of its other regular so urces of supply, or in the industry generally, or because of governmental regulations, or for an y reason, [plaintiff] deems that it may be unable to meet all of its supply requirements." It is undisputed that Hurricanes Katrina and Rita caused substantial shortages of products and refining capacity to both plaintiff and the petroleum industry. Thus, plaintiff was authorized under the franchise agreement to allocate fuel during these periods. The facts do not support a finding that any of plaintiff's alleged breaches or its allocation defeated the purp ose of the contract. T he parties' agreement is an installment contract for the sale of goods. Under

O klahom a law, contracts for the sale of goods are governed by the Uniform Commercial Co de. Goodwin v. Durant Bank & Trust Co., 952 P.2d 41, 43, n.6 (Okla. 1998); Perry v. L aw son Ford Tractor Co., 613 P.2d 458, 462 (Okl. 1980). Under § 2-612 of the UCC, a breach occurs "whenever non-conformity or default with respect to one or more installments substant ia lly impairs the value of the whole contract." However, "the aggrieved party

rein states the contract if he accepts a non-conforming installment without seasonably n o tifyin g of cancellation or if he brings an action with respect only to past installments or dem ands performance as to future installments." U.C.C. § 2-612(3). It is undisputed that

31

in December of 2005 defendant purchased more than 100% of the required minimum gasoline and that in that same month it signed an amendment to the franchise agreement. B y signing the new amendment, defendant demanded performance as to future installments an d reinstated the contract. After this, it was not entitled to use the past breaches as a basis fo r its non-performance unless plaintiff failed to provide adequate fuel supply after the 2005 am endm ent. Defendant makes much ado about plaintiff's statement that "for the purposes of su m m ary judgment under supply is assumed," Plt.'s Sur-reply Br., Dkt. #110, at 1, calling th e statement duplicitous and sanctionable. Plaintiff's statement is nothing more than a claim that plaintiff is entitled to judgment on its claims, regardless of the undersupply. It do es not establish any fact about undersupply, either whether it occurred or to what extent. In its attempt to prove that the undersupply amounted to a material breach, defendant relies for proof almost entirely on the report by its expert Jeffrey Bernard. Although Bernard con cludes that the undersupply threatened the existence of defendant's business and justified its de-branding, his report is too conclusory and lacking in factual support to constitute the p ro o f that defendant needs. Mid-State Fertilizer v. Exchange National Bank, 877 F.2d 1333, 1338 -39 (7th Cir. 1989) (expert affidavits cannot contain mere conclusory statements but m ust reveal "a process of reasoning beginning with a firm foundation"). Defendant has su bm itted no evidence of how much gasoline plaintiff failed to deliver, how many stations

32

w ere affected, how the undersupply affected these stations or any other evidence that would dem on strate that the undersupply was as detrimental as Bernard says it was. I conclude that defendant's evidence is insufficient to allow a reasonable jury to find that plaintiff committed a prior material breach. Accordingly, plaintiff is entitled to summary judgm ent on its claim that defendant breached the parties' franchise agreement by failing to purchase the required minimum fuel and on defendant's affirmative defense of prior material b r ea ch .

2 . Defendant's de-branding before July 31, 2006 Plaintiff's second breach of contract claim relates to the branding agreements governing individual gasoline and retail locations in Wisconsin, Illinois and Indiana. According to plaintiff, the branding agreements are all separate and distinct contracts that provide their own rights and duties between the parties. The 39 branding agreements require defendant to reimburse a predetermined amount of branding costs and rebates received if the station de-brands "for any reason." When defendant de-branded the 39 locations at issue in th is case before July 31, 2006, it violated this portion of the branding agreements and therefore must reimburse plaintiff for the money it spent in branding defendant's locations. T hese reimbursements are calculated by a schedule that reduces the amount defendant would ow e on the basis of the number of years it has been branded.

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D efendan t objects to plaintiff's view of the evidence on a number of grounds. First, it contends that it is not liable to plaintiff for stores ##10833127, 10833128 and 10833135 lo cated in Bloomington and Decatur, Illinois because it sold these stores before June 1, 2006. Secon d, it contends that plaintiff seeks damages for stores whose amortization periods exp ired before defendant de-branded. Third, it argues that, even if it breached the branding agreem ents, it is not liable because plaintiff committed a prior material breach of the distributor franchise agreement, frustrated the purpose of the branding agreements and made it impossible to perform the branding agreements. Under Oklahoma law, "[i]f the contract language is free of ambiguity, its meaning is a matter of law for the court." M.J. Lee Construction Co. v. Oklahoma Transp. Authority, 1 2 5 P.3d 1205, 1210 (Okla. 2005); Corbett v. Combined Communications Corp. of

O k lah om a, Inc., 654 P.2d 616, 617 (Okla. 1982) ("If the language of a contract is clear and w ithout ambiguity, the court is to interpret it as a matter of law. Similarly, existence of an am biguity is a decision to be made by the Court.") (Internal citation omitted.). "A contract is ambiguous if it is reasonably susceptible to at least two different interpretations." M.J. Lee Co nstruction, 125 P.3d at 1213. If no ambiguity exists, intent is to be determined from the w o r ds used "unless there is fraud, accident, or pure absurdity." Public Service Co. of

O k laho m a v. Burlington Northern Railroad Co., 53 F.3d 1090, 1097 (10th Cir. 1995) (a n a ly z in g contract interpretation under Oklahoma law). "The law will not make a better

34

co n tract than the parties themselves have seen fit to enter into, or alter it for the benefit of on e party to the detriment of another." King-Stevenson Gas & Oil Co. v. Texam Oil Corp., 4 6 6 P.2d 950, 954 (Okla. 1970). In this case, the parties agree that the terms of the b ran di n g agreement are not ambiguous. Accordingly, the language of the branding

agreem ents governs plaintiff's de-branding claims.

a. Stores ##10833127, 10833128 and 10833135 With respect to the three stations that were sold before June 1, 2006, defendant denies any liability for de-branding these stations because it no longer controls them. However, the bran ding agreements state explicitly that the franchisee cannot assign or transfer his rights u nd er the programs without prior written consent by plaintiff. Dkt. #98-2, Exh. B, at 2, ¶12 (term s and conditions for brand allowance programs), at 4, ¶11. Defendant has offered no evidence of prior written consent. It admits that these stations were de-branded before July 31 , 2006. Therefore, it cannot escape liability for the de-branding costs of these stores.

b. Stores where branding agreement expired In its opposition brief, defendant contends that stores ## 10833017, 10833018 and 10 83 30 21 had already fulfilled their obligations under the branding agreement and therefore, defendant should not be liable for de-branding these stores. It cites no facts to support the

35

con tention that the agreements had expired before defendant de-branded, but refers only to facts proposed by plaintiff that show the date the branding agreement was signed and the length of the contract. These proposed facts do not support a finding that any of the agreem ents had expired. If defendant had intended to dispute whether it was liable for deb ran din g these locations, it should have disputed this fact and proposed its own facts showing the existence of a material dispute. Without such evidence, no reasonable jury could find that the branding agreements for store ## 10833017, 10833018 and 10833021 had expired b efo re July 31, 2006.

c. Liability regardless of fault T he branding agreements provide that if any location de-brands, "for any reason," defendant must reimburse plaintiff for allowance payments and all or a portion of the b ran din g costs. As discussed above, under Oklahoma law, when a contract contains no am biguity regarding its terms, its interpretation is a question of law. The contract language contai n s no apparent ambiguity: it states clearly that defendant is liable if it de-brands p r e m a tu r e ly . D e fe n d a n t argues that "for any reason" should not be read as a no fault provision, saying that reading it this way would be absurd and commercially unreasonable. It contends th at the the branding agreements should be read in conjunction with the distributor

36

fran ch ise agreement.

Contrary to defendant's position, there is nothing absurd or

com m ercially unreasonable in requiring a party to pay back unearned incentives or the cost o f branding materials advanced by the other party. The reimbursement and amortization sch ed ule is a straightforward way for plaintiff to protect itself when it advances money and m aterials to a new franchisee, who might otherwise choose to de-brand any time a better deal cam e along. Whether defendant's president understood that the main agreement was the franchise agreement and not the branding agreements has no bearing on the dispute. "Under O klahom a law, `[w]here a party signs a written agreement, in the absence of false r epresen tatio n or fraud, he is bound by it, although ignorant of its contents.'" Elsken v. N etw ork Multi-Family Sec. Corp., 49 F.3d 1470, 1474 (10th Cir. 1995) (citing Hicks v. S tate Farm Mutual Auto Insurance Co., 568 P.2d 629, 633 (Okla. 1977)). Arnold signed each branding agreement as well as the franchise agreement in his capacity as defendant's president of operations. "The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the oral negotiations or stipulations concerning its matter, w hich preceded or accompanied the execution of the instrument." Okla. St. Ann. tit. 15, § 137. W ith respect to the claim that the franchise agreement and not the branding agreem en ts govern the de-branding dispute, defendant cites no language in the branding agreem ents suggesting that they are meant to be interpreted in conjunction with the

37

franchise agreement. Although the branding agreements provide for revocation of these agreem ents if the parties no longer have a franchise agreement in effect or if a franchisee vio lates the franchise agreement, they do not provide that the branding agreements are of no effect if the franchisor breaches the franchise agreement. Dkt. #99-2, Exh. B., at 5, ¶¶ 12-13. H o w e ver inequitable this arrangement may seem to defendant, it is plaintiff and not d efe n d an t that bears the greatest risk under the branding agreements. It is plaintiff that m akes allowance payments and pays the cost of branding the gas stations; all defendant is r e q uired to do is wave and maintain the brand flag. A contract provision that provides pro tection for the party taking the entire risk is not inequitable. I conclude that the branding agreements are separate contracts that govern the parties de-brand ing dispute. Any breach of the franchise agreement is irrelevant to defendant's liability for de-branding under the branding agreements.

d. Affirmative defenses: prior material breach, frustration of purpose and impossibility According to defendant, it is more sinned against than sinning because plaintiff was in material breach first and because that breach frustrated the purpose of the branding agreem ents and made their performance impossible. As I explained above, defendant has failed to show that plaintiff's alleged breach was "material." Therefore, I will grant plaintiff's requ est for summary judgment on this affirmative defense. Both of the remaining defenses

38

fail as a matter of law. Im po ssibility of performance is a defense to non-performance when "before the time for performance and without the default of either party the particular thing ceases to exist an d be available for the purpose." Kansas, Oklahoma and Gulf Ry. v. Grand Lake Grain Co., 434 P.2d 153 (Okla.1967). However, "the duty of a promisor is not discharged by the mere fact that supervening events deprived him of the ability to perform, if they are not such as to d ep rive other persons similarly situated of the ability to so perform." Oklahoma Gas and Elec. Co. v. Pinkerton's Inc., 742 P.2d 546 (Okla. 1986). In this case, nothing prevented d efen dan t from fulfilling its obligations under the branding agreements before July 31, 2006. E ven if there were some instances of undersupply in 2005, defendant has submitted no evid en ce that in the months before July 31, 2006 it could no longer purchase gas from plaintiff and maintain its branding. It was defendant's choice to de-brand before the

term ination of the parties' franchise agreement. No other force intervened. The essential elements of a frustration of purpose defense are "1) frustration of the principal purpose of the contract; 2) that the frustration is substantial; and 3) that the non-occurrence of the frustrating event or occurrence was a basic assumption on which the co ntract was made." Sabine Corp. v. ONG Western, Inc., 725 F. Supp. 1157, 1178 (W.D. O kla. 1989) (quoting Restatement (Second) of Contracts § 265). It is clear from the

b ran din g agreement that the purpose of the agreement was to insure that defendant did not

39

de-brand before the termination of the agreements, which required defendant to brand the location with plaintiff's materials within six months of the signing of the agreement and to no t de-brand in anticipation. requ irem ents. Defendant seems to believe that plaintiff's alleged breach of the franchise agreement frustrated the purpose of the branding agreements, but again, no breach of the franchise agreem en t has any bearing on the dispute over the branding agreement. 13 Samuel Williston & Richard A. Lord, A Treatise on the Law of Contracts, § 39:2, at 512-23 (4th ed. 2002) ("A party to a contract is not excused for nonperformance due to the fact that the other party to the contract has breached a separate contract between them, nor due to the fact that no np erform an ce under a prior contract or contracts between the parties has been excused."). E ven if those breaches of the franchise agreement bore on the enforceability of the branding agreem en ts, defendant cannot show that those breaches were material and therefore, it cannot show that the purpose of either the franchise agreement or the branding contracts was f r u s t r a te d . The principal purpose of the parties' franchise agreement was to create a franchise relation ship that gave defendant the right to sell plaintiff's gasoline. For a period of fourteen years, plaintiff performed the contract without any complaints from defendant. In the course of one year, plaintiff allegedly became an unreliable supplier of fuel; how unreliable, Defendant does not argue that it could not meet these

40

defendan t does not say. It has submitted no evidence showing how much or to what degree plaintiff was in breach, making it impossible for a reasonable jury to find these alleged b reach es "substantial." Accordingly, I will grant plaintiff's request for summary judgment on defendan t's affirmative defenses of impossibility of performance and frustration of purpose.

e. Reimbursement schedule L ast, defendant argues that plaintiff is not entitled to damages on its claim regarding the branding agreements because the reimbursement payments plaintiff is claiming consitute an improper penalty under Oklahoma law. In Oklahoma, a contractual liquidated damages clause such as the reimbursement schedule is void if it constitutes a penalty. Sun Ridge Investors, Ltd. v. Parker, 956 P.2d 876, 877 (Okla. 1998); see also Okla St. Ann. tit. 15, § 213 (2009). In deciding whether a liquidated damages clause is a penalty, the court considers w hether "1) the injury caused by the breach [is] difficult or impossible to estimate accurately; 2) the parties [] intend[ed] to provide for damages rather than for a penalty; 3) the sum stipulated [is] a reasonable pre-breach estimate of the probable loss." Sun Ridge Investors, 956 P.2d at 878. The amount of liquidated damages will be upheld if it is not an excessive am o un t. McQueen, Rains & Tresch, LLP v. Citgo Petroleum Corp., 195 P.3d 35, 46-47 (O kla. 2008). The liquidated damages clause in the branding agreements provides for a repayment

41

of advances made by plaintiff in the form of allowance payments and branding materials. In calcu latin g the amount owed to plaintiff, the branding agreements require the repayment of all "allowance payments" as well as the costs incurred in branding the location minus the depreciation "based upon the straight line method over 60 months from the Effective Date." D kt. #99-2. 99-2, Exh. B. It is undisputed that plaintiff advanced $3,878,177.40 to

d efen dan t under the 39 branding agreements. Plaintiff is seeking damages in the amount of $ 3 ,0 7 1 .1 4 7 .0 8 , which represents the unearned portion of the allowance payments and bran ding materials. Defendant agreed to the reimbursement schedule set out in the branding agreements on 39 different occasions. It entered into the agreements knowingly and willingly. It in cu rred no liability for entering into these branding agreements, received the benefit of being bran ded by plaintiff and earned rebates for maintaining plaintiff's brand. The parties' liquidated damages clause is not a penalty bur a means of reimbursing plaintiff for the capital it expended in branding defendant's gas stations. The clause is a reasonable pre-breach e s tim ate of damages: it seeks repayment for damages determined by the amount of time d efen dan t maintained the gas stations under plaintiff's brand. In other words, the amount of damages is reduced if defendant met its obligations and kept the location branded for the requ isite life of the contract. The clause requires only that defendant pay for the unearned advan ces made to it. Plaintiff is not required to prove the exact nature of its damages,

42

although it could do so. McQueen, Rains & Tresch, 195 P.3d at 46 (rejecting argument that liq uid ated damages is penalty unless "the amount denominated as liquidated damages [can] be related to the damages actually suffered at the time of the breach"). I conclude that the liquida ted damages clause is valid and enforceable. As a matter of law, plaintiff is entitled to damages in the amount of $3,071,147.08 for defendant's breach of the 39 branding agreem ents.

C . Defendant's Fuel Supply Counterclaim 1. Waiver of claims D efendant signed the 2005 amendment to the franchise agreement. Plaintiff takes the po sition that the signing amounted to a waiver of defendant's right to recover on its un dersupp ly claim, but it cites no Oklahoma case law to support its waiver theory. Under O k la h o m a law, a party may waive its right to breach of contract by conduct or acts that indicate an intention to relinquish its rights. Hidalgo Properties, Inc. v. Wachovia Mortgage Co ., 617 F.2d 196, 199 (10th Cir. 1980). Plaintiff has identified no conduct that

dem onstrates defendant's intention to waive its right to sue for the alleged undersupply. The 2 0 0 5 amendment to the franchise agreement involved a reduction of the minimum amount of gasoline defendant was required to purchase each month. It did not address any of the parties' past actions or express or imply a waiver by defendant of its right to pursue plaintiff's

43

liability for past events. Under the UCC, a party does not waive its right to damages for past breaches by accepting future installments. To the contrary, a buyer can bring an action for past breaches w h ile maintaining the current installment contract. U.C.C. § 2-613(3). Plaintiff's motion fo r summary judgment on defendant's counterclaim for damages resulting from undersupply w ill be denied.

2. Damages claim P lain tiff contends that it is entitled to summary judgment as to the measure of dam ages on defendant's counterclaim, even if it is not entitled to summary judgment