Bayway Refining Co. v. Tosco Corp.

• Decision Date: 01 August 1999
• Docket Number: No. 1075,D,1075
• Citation: 215 F.3d 219
• Parties: (2nd Cir. 2000) BAYWAY REFINING COMPANY, Plaintiff-Appellee, TOSCO CORPORATION, Plaintiff Counter Defendant Appellee, v. OXYGENATED MARKETING AND TRADING A.G., Defendant Counter Claimant Appellant. ocket 99-7743
• Court: U.S. Court of Appeals — Second Circuit

Page 219

215 F.3d 219 (2nd Cir. 2000)

BAYWAY REFINING COMPANY, Plaintiff-Appellee, TOSCO CORPORATION, Plaintiff Counter Defendant Appellee, v. OXYGENATED MARKETING AND TRADING A.G., Defendant Counter Claimant Appellant.

No. 1075, Docket 99-7743.

August Term, 1999

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Argued January 11, 2000

Decided June 08, 2000

Appeal from a judgment of the United States District Court for the Southern District of New York (McKenna, J.), granting summary judgment in favor of the seller in a contract dispute over federal taxes incurred on a sale of petroleum.

Affirmed.

JEFFREY L. DORRELL, Houston, TX (Donald F. Mooney, C.W. Isley, New York, NY, on the brief), for Defendant-Appellant.

CURTIS C. MECHLING, Stroock & Stroock & Lavan LLP, New York, NY (Lawrence D. Norden, Robyn Gemeiner, on the brief), for Plaintiff-Appellee.

Before: WINTER, Chief Judge, JACOBS and CALABRESI, Circuit Judges.

JACOBS, Circuit Judge:

Plaintiff-appellee Bayway Refining Company ("Bayway") paid federal excise tax on a petroleum transaction, as the Internal Revenue Code requires a petroleum dealer to do in a sale to a buyer who has not procured an exemption under the applicable tax provision. In this diversity suit against the buyer, Oxygenated Marketing and Trading A.G. ("OMT"), Bayway seeks to recover the amount of the tax it paid. One question in this "battle of the forms" contract case is whether, under N.Y. U.C.C. § 2-207(2)(b) (McKinney 1993), a contract term allocating liability to the buyer for an excise tax is an additional term presumed to have been accepted (as the seller contends) or (as the buyer contends) a material alteration presumed to have been rejected. The United States District Court for the Southern District of New York (McKenna, J.) granted summary judgment in favor of the seller, Bayway.

We conclude that, in the circumstances presented: (i) the party opposing the inclusion of an additional term under § 2-207(2)(b) bears the burden of proving that the term amounts to a material alteration; (ii) the district court properly granted summary judgment in favor of the seller, because the additional term here did not materially alter the contract; and (iii) the district court properly admitted evidence of custom and practice in the industry despite the fact that it was first proffered in the moving party's reply papers. Accordingly, we affirm.

Background

Bayway and OMT are in the business of buying and selling petroleum products. Bayway contracted to sell to OMT 60,000 barrels of a gasoline blendstock called Methyl Tertiary Butyl Ether ("MTBE"). On February 12, 1998, OMT faxed Bayway a confirmation letter, which operated as the offer, and which stated in pertinent part:

We are pleased to confirm the details of our purchase from you of MTBE as agreed between Mr. Ben Basil and Roger Ertle on [February 12, 1998.]

. . . .

This confirmation constitutes the entire contract and represents our understanding of the terms and conditions of our agreement. . . . Any apparent discrepancies or omissions should be brought to our notice within the next two working days.

Bayway faxed its confirmation to OMT the next day. That document, which operated as the acceptance, stated in pertinent part: "We are pleased to confirm the following verbal agreement concluded on February 12, 1998 with your company. This document cancels and supersedes any correspondence in relation to this transaction." Bayway's acceptance then set forth the parties, price, amount and delivery terms, and undertook to incorporate the company's standard terms:

Notwithstanding any other provision of this agreement, where not in conflict with the foregoing, the terms and conditions as set forth in Bayway Refining Company's General Terms and Conditions dated March 01, 1994 along with Bayway's Marine Provisions are hereby incorporated in full by reference in this contract.

The Bayway General Terms and Conditions were not transmitted with Bayway's fax, but Paragraph 10 of its General Terms and Conditions states:

Buyer shall pay seller the amount of any federal, state and local excise, gross receipts, import, motor fuel, superfund and spill taxes and all other federal, state and local taxes however designated, other than taxes on income, paid or incurred by seller directly or indirectly with respect to the oil or product sold hereunder and/or on the value thereof.

This term is referenced as the "Tax Clause."

OMT did not object to Bayway's acceptance or to the incorporation of its General Terms and Conditions (which included the Tax Clause). OMT accepted delivery of the MTBE barrels on March 22, 1998.

The Internal Revenue Code imposes an excise tax, payable by the seller, on the sale of gasoline blendstocks such as MTBE "to any person who is not registered under [26 U.S.C. § 4101]" for a tax exemption. 26 U.S.C.A. §4081(a)(1)(A)(iv) (West Supp. 1999). After delivery, Bayway learned that OMT was not registered with the Internal Revenue Service for the tax exemption. The transaction therefore created a tax liability of $464,035.12, which Bayway paid.

Invoking the Tax Clause, Bayway demanded payment of the $464,035.12 in taxes in addition to the purchase price of the MTBE. OMT denied that it had agreed to assume the tax liability and refused to pay that invoice item. In response, Bayway filed this diversity suit alleging breach of contract by OMT.

Upon Bayway's motion for summary judgment, the district court held that the Tax Clause was properly incorporated into the contract. See Tosco Corp. v. Oxygenated Mktg. & Trading A.G., No. 98 Civ. 4695, 1999 WL 328342, at *3-*6 (S.D.N.Y. May 24, 1999). The fact that Bayway had failed to attach a copy of the General Terms and Conditions was irrelevant because OMT could have obtained a copy if it had asked for one. See id. at *3. The court then analyzed the contract-forming documents, applied the "battle of the forms" framework set forth in N.Y. U.C.C. § 2-207(2), and concluded that OMT failed to carry its burden of proving that the Tax Clause materially altered the contract. See id. at *3-*6. The court therefore granted summary judgment in favor of Bayway.¹

Discussion

On appeal, OMT argues (i) that it succeeded in raising genuine issues of fact as to whether the Tax Clause materially altered the Bayway/OMT contract and (ii) that the evidence of custom and practice in the industry, upon which the grant of summary judgment turns, was improperly admitted.

We review the district court's grant of summary judgment de novo. See Young v. County of Fulton, 160 F.3d 899, 902 (2d Cir. 1998). In so doing, this Court construes the evidence in the light most favorable to the non moving party and draws all reasonable inferences in its favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Maguire v. Citicorp Retail Servs., Inc., 147 F.3d 232, 235 (2d Cir. 1998). Summary judgment is appropriate only where "there is no genuine issue as to any material fact and... the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c).

We affirm for substantially the reasons stated by the district court. We hold--on an issue of first impression in this Court--that in a "battle of the forms" case governed by N.Y. U.C.C. § 2-207(2)(b), the party opposing the inclusion of an additional term bears the burden of proving that the term works a material alteration. Viewing the evidence in the light most favorable to OMT, we conclude that OMT failed to shoulder that burden. Finally, we hold that the district court properly admitted the evidence concerning industry custom and practice.²

A. Battle of the Forms.

Bayway argued its motion for summary judgment on the basis of New York law, presumably because one of the additional terms incorporated by its acceptance is a New York choice-of-law provision. OMT has accepted New York law as controlling for purposes of Bayway's summary judgment motion.

Under New York law, the rules of engagement for the "battle of the forms" are set out in the Uniform Commercial Code ("U.C.C."), § 2-207:

(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:

(a) the offer expressly limits acceptance to the terms of the offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or is given within a reasonable time after notice of them is received.

N.Y. U.C.C. § 2-207.

It was undisputed in the district court that Bayway's confirmation fax is effective to form a contract as an acceptance--even though it stated or referenced additional terms (including the Tax Clause)--because it was not made expressly conditional on OMT's assent to the additional terms. See id. § 2-207(1). Therefore, under § 2-207(2), the Tax Clause is a proposal for an addition to the contract. See id. § 2-207(2). The parties are both merchants within the meaning of the U.C.C. See id. § 2-104(1), (3). The Tax Clause therefore is presumed to become part of the contract unless one of the three enumerated exceptions applies. See id. § 2-207(2). In its defense, OMT invokes the "material alteration" exception of § 2-207(2)(b).

1. Burden of Proof.

The allocation of the burden of proof under this exception to § 2-207(2) is a question of New York law, see United States v. McCombs, 30 F.3d 310, 323-24 (2d Cir. 1994) (holding that, under the Erie doctrine, federal courts sitting in diversity apply the forum state's law concerning burdens of proof), and is answered in the text of New York's U.C.C. § 2-207(2). Section...