Midwest Grain Products, Inc. v. Envirofuels Marketing, Inc.

Decision Date29 November 1993
Citation139 F.3d 912
PartiesNOTICE: Although citation of unpublished opinions remains unfavored, unpublished opinions may now be cited if the opinion has persuasive value on a material issue, and a copy is attached to the citing document or, if cited in oral argument, copies are furnished to the Court and all parties. See General Order of
CourtU.S. Court of Appeals — Tenth Circuit

Before KELLY, BARRETT, and BRISCOE Circuit Judges.

ORDER AND JUDGMENT *

EnviroFuels Marketing, Inc. (EnviroFuels) appeals the district court's Order, with findings of fact and conclusions of law, that it was not entitled to recovery on its quantum meruit counterclaim.

Background

In July, 1991, EnviroFuels entered into a four year written contract with ARCO Products Company (ARCO), a division of the Atlantic Richfield Company, to supply fuel grade ethanol ("the EnviroFuels/ARCO contract"). (Appellant's Appendix A, Exhibit A). The contract provided for ARCO's purchase of approximately 21 million gallons of ethanol between August 15, 1991, and February 28, 1995, over four separate "supply periods." Id. As EnviroFuels is an ethanol broker and does not produce ethanol, it turned to Midwest, a producer, to supply the ethanol needed under the EnviroFuels/ARCO contract. During the first supply period, EnviroFuels purchased ethanol from Midwest on a "spot basis" at approximately 7.5% less than the ARCO purchase price.

Between the first and second supply periods, EnviroFuels and Midwest negotiated to assign the EnviroFuels/ARCO contract to Midwest. (Appellant's Appendix A, Exhibit B). The proposed assignment was formalized in an April 22, 1992, letter from EnviroFuels to Midwest, which provided,

We propose to assign all of our right, title and interest in and to the Ethanol Purchase Contract [EnviroFuels/ARCO contract] to you, in exchange for your agreeing to pay to us an amount equal to 1.5% of the "Price for Product" actually received by you from ARCO as a result of your performing the terms and provisions of the assigned Ethanol Purchase Contract or any successor thereto. 1

Id. However, the proposed assignment was unsuccessful due to ARCO's refusal to consent absent a price concession. 2

After the assignment failed, Midwest continued to supply ethanol to ARCO on behalf of EnviroFuels in fulfillment of the EnviroFuels/ARCO contract. ARCO paid EnviroFuels for the shipments and EnviroFuels paid Midwest. During the second and third supply periods, EnviroFuels paid Midwest the gross amount received by ARCO and Midwest remitted back a 1.5% commission. During the fourth supply period, EnviroFuels began paying Midwest the net amount due or the amount it received from ARCO less its 1.5% commission.

In June, 1994, Midwest entered into a separate contract directly with ARCO to supply approximately 4 million gallons of ethanol ("the Midwest/ARCO contract"). (Appellant's Appendix A, Exhibit C). The Midwest/ARCO contract provided for ethanol shipments between August 15, 1994, and February 28, 1995, essentially the same time period as the fourth supply period of the EnviroFuels/ARCO contract, August 15, 1994, to January 15, 1995. See id. at 2 p 2; Exhibit A at 3 p 4.

In late 1994 or early 1995, EnviroFuels began withholding payments on Midwest's shipments to ARCO on behalf of EnviroFuels. (Supplemental Appendix of Appellee, Tab A at 3 p 14). Thereafter, on June 30, 1995, Midwest initiated this action against EnviroFuels in Atchison County State District Court. (Appellant's Appendix A). At the heart of Midwest's claims is the assertion that upon ARCO's refusal to consent to the assignment in 1992, it and EnviroFuels entered into an oral agreement wherein it agreed to satisfy EnviroFuels's obligations for the remaining three supply periods of the EnviroFuels/ARCO contract at the EnviroFuels/ARCO contract price less 1.5%. Id. at 4 p 12. In Count I, Midwest prayed for $592,083.28 on account stated as the amount owed for ethanol shipped on behalf of EnviroFuels to satisfy the EnviroFuels/ARCO contract during the fourth supply period. 3 Id. at 7-8 p 20-24. In Count II, Midwest prayed for $39,601.94, which ARCO mistakenly paid to EnviroFuels rather than to Midwest on the Midwest/ARCO contract. Id. at 8-9 p 26-29. In Count III, Midwest claimed breach of contract on the part of EnviroFuels because Midwest fully performed on the agreements in Counts I and II and EnviroFuels failed to pay the amounts due and owing for ethanol shipped. Id. at 9-10 p 31-33. In Count IV, Midwest sought payment for the ethanol delivered to ARCO on behalf of EnviroFuels on a quantum meruit/unjust enrichment theory. Id. at 10-11 p 35-38. Finally, in Count V, Midwest requested that the court declare the parties' respective rights and obligations under the alleged oral contract. Id. at 11-12 p 40-44.

On August 11, 1995, EnviroFuels removed this action to the federal district court of Kansas pursuant to 28 U.S.C. § 1446 due to complete diversity of citizenship and an amount in controversy in excess of $50,000. (Appellant's Appendix A). On December 14, 1995, EnviroFuels filed its First Amended Answer and Counterclaim. (Supplemental Appendix of Appellee, Tab A). In its answer, EnviroFuels denied the existence of an oral contract as described by Midwest but alleged that the "agreement between the parties was a modification of the written agreement (the April 22, 1992 letter, ... ) pursuant to which the parties agreed to perform the written agreement despite the absence of the consent to assignment by ARCO, ..." Id. at 3 p 12. EnviroFuels also admitted that it has not remitted certain funds collected for shipments to ARCO, but asserted that such funds were retained as set-off against damages suffered due to Midwest's breach of contract. Id. at 3-4 p 14. In its counterclaims, EnviroFuels claimed that: (1) Midwest breached the oral contract to perform on the April 22, 1992, letter by failing to supply the quantities needed to satisfy the EnviroFuels/ARCO contract in the second supply period and by failing to pay EnviroFuels a 1.5% commission on all future sales with ARCO as set forth in the letter, and (2) Midwest breached its fiduciary relationship with EnviroFuels by misleading EnviroFuels regarding their future relationship. Id. at 10-12 p 53-59. EnviroFuels prayed for damages for breach of contract, for rescission of the contract for failure of consideration plus damages, for judgment that the contract failed for lack of mutual consent and restoration of the parties to their original positions, and/or for judgment for fraud and breach of fiduciary duty. Id. at 12-13 p A-D.

On July 12, 1996, the district court considered Midwest's motion for partial summary judgment on Counts III 4 and V and on EnviroFuels' breach of contract counterclaim. 5 (Appellant's Appendix D). After careful consideration, the district court granted summary judgment on Midwest's Count III, dismissed Midwest's Count V as moot, and denied summary judgment on EnviroFuels' breach of contract counterclaim. Id. at 23. The district court concluded that EnviroFuels was not entitled to a set-off of the amounts it admitted it owed Midwest because the alleged damages to EnviroFuels did not stem from the same contract under which EnviroFuels withheld payment to Midwest and because EnviroFuels failed to provide Midwest with notice of any kind, formal or informal, of its intention to withhold the payments as a set-off as required by K.S.A. § 84-2-717. Id. at 12-14. Hence, the district court concluded that Midwest was entitled to summary judgment on Count III, which included Counts I and II. Id. at 14. With respect to EnviroFuels' counterclaim, the court first determined that the written assignment embodied in the April 22, 1992, letter did not constitute a written contract between the parties due to the failure of a condition precedent, ARCO's consent. Id. at 18. Then, the district court denied summary judgment on EnviroFuels' counterclaim because it determined that there was a material question of fact regarding whether EnviroFuels' alleged oral contract (that the parties agreed to perform under the terms of the April 22, 1992, letter despite the lack of ARCO's consent) was enforceable as an exception to the Kansas statute of frauds for full performance. 6 Id. at 22.

Thereafter, on July 22, 1996, the district court finalized the pretrial order. (Supplemental Appendix of Appellee, Tab B). Over Midwest's objection that it was not plead, the district court included in the pretrial order a counterclaim by EnviroFuels on the theory of quantum meruit. 7 Id. at 10 & 16 p 10. Thus, on September 24, 1996, the parties proceeded to trial solely on EnviroFuels' counterclaim for quantum meruit. See (Appellant's Appendix E at 4-6). After trial to the court, the court determined that EnviroFuels failed to demonstrate that it was entitled to recover under quantum meruit. (Appellant's Appendix F at 8-10). The court concluded that EnviroFuels was not entitled to any more compensation for the ethanol purchased from Midwest than the 1.5% commission it received and that EnviroFuels was not entitled to any commission on direct contracts between Midwest and ARCO. Id. at 10-11. The district court also determined that EnviroFuels' claim failed because the implied promise EnviroFuels sought to establish was contradicted by an express term of the completed contract of the parties. Id. at 8.

On appeal, EnviroFuels contends the district court erred in concluding that the parties had an oral agreement for the sale of ethanol over the last three supply periods of the EnviroFuels/ARCO contract. EnviroFuels argues that there is no evidence to...

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