American Oil Co. v. McMullin, 73-1459

• Decision Date: 06 January 1975
• Docket Number: No. 73-1459,73-1459
• Citation: 508 F.2d 1345
• Parties: 1974-2 Trade Cases 75,446 AMERICAN OIL COMPANY, a corporation, Appellee, v. Lawrence S. McMULLIN, Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1345

508 F.2d 1345

1974-2 Trade Cases 75,446

AMERICAN OIL COMPANY, a corporation, Appellee, v. Lawrence S. McMULLIN, Appellant.

No. 73-1459.

United States Court of Appeals, Tenth Circuit.

Argued July 8, 1974.

Decided Jan. 6, 1975.

David S. Cook, Salt Lake City, Utah (Arthur H. Nielsen, Earl Jay Peck, and Nielsen, Conder, Hansen & Henriod, Salt Lake City, Utah, with him on the brief), for appellant.

Walter T. Kuhlmey, Kirkland & Ellis, Chicago, Ill. (Richard J. Goetsch, Chicago, Ill., and Wayne C. Durham, Durham & Swan, Salt Lake City, Utah, with him on the brief), for appellee.

Before LEWIS, Chief Judge, and BREITENSTEIN and SETH, Circuit Judges.

SETH, Circuit Judge.

This litigation involves the several problems arising from various contractual relationships between American Oil Company and Lawrence S. McMullin relating to the operation of a bulk distribution point, retail truck stop and service station, and cafe at Elko, Nevada. According to the characterizations developed in the several contracts, McMullin leased the facility from American, was its commissioned employee-agent insofar as operation of the bulk distribution plant was concerned, and was a branded American dealer as to operation of the truck stop, service station, and cafe. McMullin operated the facility for approximately two years until he became insolvent and American cancelled the lease and retook possession of the facility.

This action riginally began as simultaneous attachment proceedings in the state courts of Nevada and Utah which were removed and purportedly consolidated in the United States District Court for the District of Utah. The removal and consolidation created some procedural difficulties which were discussed in a prior opinion reported at 433 F.2d 1091. The case is now before us on the merits, having taken the form of a suit by American to recover various contractual obligations allegedly owed by McMullin with McMullin counterclaiming and asserting that American has violated provisions of the Sherman and Robinson-Patman Antitrust Acts and has made fraudulent misrepresentations to him in the course of their dealings. After allowing McMullin various setoffs, the trial court entered judgment in favor of American in the amount of $98,840.84 and against McMullin on his counterclaims. McMullin appeals from that judgment.

Prior to January 1967 the Elko facilities were owned and operated by Slim Olson, a large independent jobber who also operated similar facilities in Ely and Winnemucca, Nevada, and Bountiful, Utah. Olson customarily purchased his liquid fuels from American at its Salt Lake City refinery for wholesale and retail distribution from his four operations. Olson was the only distributor of American branded products in northern Nevada. While he billed his operations as 'cut-rate,' Olson was free to set both his wholesale distribution prices and his retail station prices.

Early in 1967 American determined that it would be to its advantage to acquire control of Olson's bulk distribution operations, and it purchased substantially all of Olson's assets at the four locations. The company thus assumed operation of the Elko facilities until it could find a suitable bulk plant agent and station operator. That person was the defendant McMullin, a longtime employee and truck driver for American.

The negotiations between American and McMullin commenced in April 1967. American outlined the operation to him and showed him its projections as to sales volumes and profit margins from the bulk distribution point, the service station, and the cafe. McMullin was told that he would be required to make a minimum capital investment of $10,000. He decided to accept the proposals and assumed operation of the Elko facilities on May 26, 1967, after receiving training in bulk plant procedures and truck stop operations. In accepting, McMullin executed several form agreements with American which established a multifaceted relationship between the parties. These contracts can best be examined as they relate to the different phases of the Elko operation.

McMullin executed American's standard lease agreement by virtue of which he became the lessee of all of the Elko facilities, including the truck stop, the cafe, the bulk distribution point, and all buildings, tanks, pumps, and other fixtures. The rental was in the form of a one cent per gallon charge on all retail gasoline sales and five per cent of the gross receipts from the restaurant operation. The lease was for a term of one year.

The two principal agreements relating to the bulk distribution operation denominated McMullin as an employee-agent of American for the sale of petroleum products other than liquefied petroleum gas (LPG), and for the sale of LPG respectively. Under these agreements American retained ownership and risk of loss as to all products at the bulk plant. McMullin was compensated by a commission on all bulk plant sales, the amount of the commission varying according to the distance from the plant to the customer. The record shows that most of the bulk plant customers were consumers, that is, farmers, ranchers, and other commercial users. There were, however, some retailer customers, the principal one being McMullin himself. American retained the authority to establish the bulk plant prices, which were customarily lower to consumer users than to dealers such as McMullin. American also limited the geographical area in which bulk sales could be made. Under the agreements McMullin assumed the operational expenses of the bulk plant which included any additional necessary employees. McMullin was also required to provide delivery trucks, which he purchased from Slim Olson. Under his employment contracts McMullin could make two types of cerdit sales from the bulk plant. The first was to established American customers with authorized credit, and on these American assumed the credit risk. McMullin could also extend credit to any other customer. These accounts were carried by American but the ultimate risk was on McMullin. The employment contracts could be terminated on thirty days' notice.

The remaining group of contracts pertained to McMullin's retail dealership. The Elko station was the only American branded station within a forty-mile radius. American's signs were prominently displayed, and its trademarks were on the fuel pumps as well as in various other places in the station area. Under the retail agreements, McMullin was treated as an independent dealer with the latitude to set his own retail prices and to deal in products other than American's if he wished. His fuel pumps were, however, connected directly to the bulk storage tanks, and, since American controlled access to those tanks, the physical arrangement was such that, absent any substantial alterations, his gasoline and diesel fuel came from the bulk plant which he also operated. American recommended retail prices to McMullin, but he was free to set his own prices independently, and he did this on more than one occasion. McMullin's status as an American branded dealer allowed him the option of participating in a variety of programs sponsored by American. Perhaps the one of most significance to this lawsuit was the Trucker's or Yellow Credit Card program. This was a contract pricing arrangement that American offered fleet or trucking accounts whereby American agreed to supply fuels to the fleet customer at a specified price. The customer was issued a yellow credit card as evidence of the agreement. As a participating dealer McMullin would supply fuels to the yellow credit card holders and bill them at the contract prices. American would then replace the fuels so supplied by McMullin and pay him a service fee for handling the transaction. McMullin's participation in the Yellow Credit Card program, as well as in American's standard credit card program, was voluntary. McMullin also contracted with American to purchase a minimum of 100,000 gallons of regular gasoline annually in return for certain discounts, and contracted to keep the station open on a twenty-four-hour basis and to pay a surcharge on all gasoline in return for which American would pay all utility bills.

In addition to above agreements, American also provided McMullin with the necessary financing to assume the operation. As was mentioned, McMullin had to make an initial capital investment of $10,000. American then advanced an additional $30,096.96 in the form of a Dealer Stock Loan and $14,743.08 in the form of an Agent Truck Loan. Both of these loans were secured by McMullin's inventory and personal property at the site. Monthly installments were set forth in both loans, but McMullin also entered into liquidation agreements providing that the installments could be paid by way of a surcharge applied to his fuel purchases and by withheld commissions on his bulk plant sales.

The record shows that while McMullin continued his operation of the Elko facilities for slightly over two years, his financial difficulties became apparent from the outset. Under the arrangement with American, McMullin's pump prices were essentially at the levels established by Olson, the prior owner, but the price at which McMullin purchased fuels was higher. In short, because of his various arrangements with American, McMullin could never have hoped to realize the margins obtained by Olson.

However, as the trial court found, McMullin's limited marketing position was not the only source of his difficulties. Finding 28 by the trial court contained the following observations:

'McMullin's financial failure at Elko resulted from his having abnormally large and uncontrolled costs and expenses, from his being badly undercapitalized, McMullin's only capital contribution being a $10,000 loan from a bank which was paid off from gross receipts of the business in 1968, from his having inadequate books and records which did not permit McMullin to know where he stood financially at...