Cenex, Inc. v. Arrow Gas Service

• Decision Date: 20 July 1995
• Docket Number: No. 94-CV-302-J.,94-CV-302-J.
• Citation: 896 F. Supp. 1574
• Parties: CENEX, INC., f/k/a Farmers Union Central Exchange, Inc., A Minnesota Corporation, Plaintiff, v. ARROW GAS SERVICE, a Wyoming Corporation, Nancy G. Frederick; Alan L. Frederick; Debra F. Douglas, Jerald N. Frederick; and Sandra S. Aune, Defendants.
• Court: U.S. District Court — District of Wyoming

896 F. Supp. 1574

CENEX, INC., f/k/a Farmers Union Central Exchange, Inc., A Minnesota Corporation, Plaintiff, v. ARROW GAS SERVICE, a Wyoming Corporation, Nancy G. Frederick; Alan L. Frederick; Debra F. Douglas, Jerald N. Frederick; and Sandra S. Aune, Defendants.

No. 94-CV-302-J.

United States District Court, D. Wyoming.

July 20, 1995.

COPYRIGHT MATERIAL OMITTED

Stephen N. Sherard, Rex Johnson, Sherard, Sherard & Johnson, Wheatland, WY, Edward F. Fox, Doherty, Rumble & Butler, St. Paul, MN, for Cenex Inc., plaintiff.

Paul John Drew, Drew & Carlson, Gillette, WY, for Arrow Gas Service, Nancy G. Frederick, Alan L. Frederick, Debra F. Douglas, Jerald N. Frederick, Sandra S. Aune, defendants.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT

ALAN B. JOHNSON, Chief Judge.

The plaintiff's motion for summary judgment and the defendants' motion for partial summary judgment came before the Court for hearing on June 23, 1995. The Court, having considered the motions, the parties' responses one to the other, the materials submitted by the parties both in support of and in opposition to the motions, and being fully advised in the premises, FINDS and ORDERS as follows:

Background

The plaintiff, Cenex, is a Minnesota corporation which is a distributor of propane. In October of 1992, Cenex purchased the propane business of Arrow Gas Service ("Arrow Gas") for a base price of $1.6 million, together with other future payments of approximately $1 million. The parties agreed to a "Purchase Price Adjustment" clause in their purchase and sale agreement, which required future adjustment of the purchase price according to the actual number of gallons of propane gas sold by Cenex in the two year period following the closing date. The Purchase Price Adjustment was based on a cumulative benchmark sales figure of 6,000,000 gallons of propane and provided for a price reduction of $.40 per gallon for each gallon below the 6,000,000 gallon threshold, up to a total of $200,000. This Purchase Price Adjustment clause also provided for a supplemental payment of $.40 per gallon to Arrow Gas for each gallon above that figure, up to a maximum of $400,000.

In November of 1994, Cenex claims that the total amount of propane sold in the applicable two year period following the closing date of the purchase agreement was 4,603,100 gallons of propane, resulting in a payment due to Cenex in the amount of $200,000. It is not disputed that sales of propane by Cenex in the applicable two year period failed to reach the 6,000,000 benchmark provided for in the parties' agreement.

Cenex contends Arrow Gas has repudiated the Purchase Price Adjustment obligation. Defendant Arrow Gas has denied liability, asserts various defenses and counterclaims and seeks recovery of the full purchase price adjustment that Arrow Gas now claims it is entitled to recover in the amount of $400,000. Arrow Gas also seeks to recover punitive damages in the total amount of $10 million. Arrow Gas claims that Cenex operated the business in a manner that deliberately suppressed sales to avoid further payment to Arrow Gas under the Purchase Price Adjustment provision of the parties' contract.

Cenex responds that it operated the business in good faith to maximize revenues and profits and that it had no incentive to suppress sales. Cenex argues that propane sales did not reach the 6,000,000 gallon threshold for a variety of reasons including weather, market and economic factors.

Arrow Gas has also claimed that Cenex breached the covenant of good faith and fair dealing by closing the company's Sheridan plant site and by selling certain assets associated with the Gillette and Upton plant sites in the ordinary course of business. Arrow Gas now seeks damages from the plaintiff for this claimed breach of the covenant of good faith and fair dealing.

Cenex now argues it is entitled to summary judgment for the amount due under the Purchase Price Adjustment provision and that the counterclaims of defendant are based on unsubstantiated innuendo and strained contract interpretations designed to obfuscate Cenex's claim for breach of contract. Cenex seeks summary judgment in its favor, based upon the undisputed agreement of the parties that: 1) the applicable provisions of the Purchase Agreement are not ambiguous, determining that the shortfall in excess of one-half million gallons of propane entitles it to the $200,000 Purchase Price Adjustment pursuant to the terms of the parties' contract; 2) dismissal of the counterclaims asserted by defendants against plaintiff; and 3) dismissal of defendants' claim for $10,000,000 in punitive damages.

Standard of Review

Pursuant to Fed.R.Civ.P. 56(c), summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits on file, if any, show that there is no genuine issue as to any material fact, and that the moving party is entitled to summary judgment as a matter of law." The moving party has the burden of showing the absence of a genuine issue concerning any material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). The moving party's burden may be met by identifying those portions of the record demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In determining whether these burdens have been met, the court is required to examine all evidence in the light most favorable to the non-moving party. Barber v. General Electric Co., 648 F.2d 1272 (10th Cir.1981).

Once the moving party has met its initial burden, the burden shifts to the party resisting the motion. That party must "make a showing sufficient to establish the existence of an element essential to the party's case, and on which that party will bear the burden of proof at trial." Manders v. Oklahoma ex rel. Dept. of Mental Health, 875 F.2d 263, 265 (10th Cir.1989) citing Celotex, 477 U.S. at 325, 106 S.Ct. at 2554.

Discussion

The Agreement of Purchase and Sale of Assets By and Between Arrow Gas Service "Arrow Gas" and Farmers Union Central Exchange, Incorporated "Cenex" is dated as of October 26, 1992. The full agreement is attached to the complaint as Exhibit A, and is a commercial transaction for the acquisition of the propane gas operations of Arrow Gas in Wyoming.

Section 1.01 describes the assets to be sold:

Section 1.01. PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of this Agreement, on the Closing Date (as such term is defined in Section 5.01 of this Agreement) Seller shall sell, assign, transfer and convey, and CENEX shall purchase, assume, and accept legal title to all of the following described assets of Seller employed in or associated with the Business (all such assets are hereinafter collectively referred to as the "Assets"):

(a) Machinery and Equipment. All plant machinery and equipment including buildings, delivery equipment, bulk storage tanks and customer storage tanks associated with the Plant Sites, including that which is described on Exhibit 1.01(a) attached hereto and incorporated herein, together with all office equipment, furniture, tools and fixtures owned and used by Seller at its office in Gillette, Wyoming (the "Machinery and Equipment");

(b) Real Property. All real property which is described on Exhibit 1.01(b), attached hereto and incorporated herein (the "Real Estate");

(c) Contracts and Leases. All rights of Seller under the contracts, leases, agreements and personal property leases listed on Exhibit 1.01(c) attached hereto and incorporated herein (the "Contracts and Leases");

(d) Retail Inventory. All propane product inventory on hand at the Plant Site(s), in delivery equipment or in meter tanks or cylinders on customers' premises, and all whole goods and parts inventory (e.g. furnaces, water heaters, regulators, fittings, copper tubing, piping, etc.) that is associated with or related to the Business or the Assets, and which is on hand at the Plant Site(s), as of the close of business on the date before the Closing Date (the "Retail Inventory");

(e) Materials and Supplies. All miscellaneous office and shop materials and supplies owned by Seller, associated with the Business and located at the Plant Site(s) as of the Closing Date (the "Materials and Supplies");

(f) Prepaid Expenses. All prepaid expenses allocated to periods following the Closing Date that are related to the Assets and which are identified by category in Exhibit 1.01(f), attached hereto, and reflected on the books and records of the Business as of the Closing Date (the "Prepaid Expenses").

(g) Business Records. All business records, customer lists, and books maintained by Seller in connection with the Assets or the operation of the Business as of the Closing Date (the "Business Records").

(h) Trade Name. The trade name "Arrow Gas Service" used by Seller in connection with the Business (the "Trade Name").

Section 1.04 of the parties' agreement provides:

SECTION 1.04. PURCHASE PRICE ADJUSTMENT.

(a) Calculation of the Purchase Price Adjustment. The Purchase Price for the Assets shall be adjusted following the second anniversary of the Closing Date based upon the volume of propane sold by CENEX during such two (2) year period in the following manner.

(i) Purchase Price Increase. In the event the volume of propane sold by CENEX in the Arrow Trade Territory during such two (2) year period exceeds a cumulative total of six million gallons, CENEX shall pay to Seller an amount equal to forty cents (40¢) per gallon for each gallon in excess of six million gallons, up to a maximum of four hundred thousand dollars ($400,000); or

(ii) Purchase Price Reduction. In the event the volume of propane sold by CENEX in the Arrow Trade Territory during such two (2) year period is less than a cumulative total of six

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