Charter Co., In re
| Decision Date | 11 October 1990 |
| Docket Number | 89-3607,Nos. 89-3419,s. 89-3419 |
| Citation | 913 F.2d 1575 |
| Parties | Bankr. L. Rep. P 73,704 In re the CHARTER COMPANY, et al., Debtors. CHARTER CRUDE OIL COMPANY, Charter International Oil Company, Plaintiffs-Appellees, v. EXXON COMPANY, U.S.A., a DIVISION OF EXXON CORPORATION, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Hywel Leonard, Alan C. Sundberg, Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., for defendant-appellant.
James H. Post, Raymond R. Magley, Jacksonville, Fla., for plaintiffs-appellees.
Appeals from the United States District Court for the Middle District of Florida.
Before TJOFLAT, Chief Circuit Judge, FAY, Circuit Judge, and HOFFMAN *, Senior District Judge.
Charter Crude Oil Company ("CCOC"), and Charter International Oil Company ("CIOC") (collectively referred to as "Charter"), as debtors-in-possession in bankruptcy, sued Exxon Company, U.S.A. ("Exxon"), a division of Exxon Corporation, to
recover amounts owed under several contracts. In a consolidated non-core proceeding, the bankruptcy court, contrary to express contractual setoff provisions, found that Exxon was obligated to pay CCOC the gross balance owed to CCOC, plus eighteen percent interest per annum, and that Exxon was entitled only to an unsecured claim against CCOC for debts owed to Exxon. The district court entered a judgment in favor of Charter, according to the bankruptcy court's proposed findings, and awarded attorneys' fees, even though Charter did not object to the bankruptcy court's failure to recommend such an award. Exxon appeals. We find that the district court erred by entering judgment for the gross amount owed to CCOC without allowing Exxon its legal and contractual right to offset the amount CCOC owed to Exxon. We also find that Exxon must pay only the Texas statutory interest rate of six percent. We therefore reverse the decision of the district court and vacate its award of attorneys' fees.
This dispute is based upon five "purchase," "sale," and "exchange" contracts, into which Exxon and Charter entered before Charter's petition for bankruptcy. Under purchase or sale contracts, one company buys crude oil ("crude") from the other, and the buyer pays cash to the seller. Under an exchange contract, no cash payment takes place. Instead, the parties agree to an exchange of crude or refined oil products ("product").
In 1982, Exxon entered into two purchase contracts for crude (the "060 Contract" and the "062 Contract"), and one matching sale contract for delivery of crude (the "061 Contract") with CCOC. The parties paid for crude delivered under the purchase and sale contracts according to a net settlement agreement. Under that agreement, the amounts owed under all the contracts were netted out on a monthly basis, and a single cash payment was made by the indebted party. 1
In addition to these purchase and sales contracts, there were two exchange agreements between Exxon and Charter (the "052 Contract" and the "236 Contract"). Under the 052 Contract, CCOC agreed to deliver approximately 200 gallons of crude per day to Exxon, and Exxon agreed to deliver an identical amount and kind of crude to CCOC. The 236 Contract, between Exxon and CIOC, operated correspondingly. Under it, CIOC agreed to deliver each month to Exxon certain types and quantities of refined product. In turn, Exxon agreed to deliver to CIOC the identical amount and kind of product it had received.
Although the parties ultimately stipulated to the money owed for crude purchased and sold under the 060, 061, and 062 Contracts, as well as the volume of the crude and product imbalances due under the exchange contracts, those amounts were originally in dispute. In fact, the volumes owed under the exchange contracts were not resolved until April, 1985, and even then a dispute regarding certain invoices remained an open issue which was not resolved until shortly before trial.
The parties' resolution of the disputed debts and product balances under the purchase, sale, and exchange contracts together with other obligations were set forth in their pre-trial stipulations. 2 As between CCOC and Exxon, Exxon owed a CCOC net debt of $115,721.15, plus 3,328.2 barrels of Texas Sour Crude, which the district court valued at $96,517.80. 3
On April 20, 1984, Charter filed for bankruptcy under Chapter 11. On December 18, 1986, upon confirmation of Charter's reorganization plan, Charter filed two adversary proceedings in the bankruptcy court claiming damages against Exxon resulting from the alleged breach of the contracts between the parties. Charter originally styled the proceedings as ones for "turnover" of a debt. The bankruptcy court, however, determined that both disputes were non-core proceedings 4 pursuant to 28 U.S.C. Sec. 157(c)(1) (1988), and consolidated them for trial.
At trial, Charter initially acknowledged that Exxon had setoff rights against Charter. Consequently, Charter claimed it was entitled to recover $1,243,671.94, the amount that Charter alleged was the net value of money and product owed to Charter. 5 Additionally, Charter sought interest of eighteen percent on the net CCOC debt and ten percent on the net CIOC debt, totalling $565,382.72.
Exxon responded by showing that it had tendered payment to Charter on November 19, 1984 for more than Charter was owed but Charter did not accept the tender. Exxon also asserted that the amounts owed by Charter were a setoff. Charter did not contest the setoff. Further, Exxon claimed that Charter could only receive pre-judgment interest of six percent on all net accounts as a matter of law.
After trial, the bankruptcy court submitted to the district court its proposed findings of fact and conclusions of law in each of the non-core proceedings, pursuant to 28 U.S.C. Sec. 157(c)(1) (1988). The bankruptcy court made several recommendations.
First, it recommended that CCOC recover from Exxon under the 052 Contract the gross amount of product owed to it ($96,517.80) plus six percent pre-judgment interest. Second, it recommended that Exxon pay CCOC the gross amount it owed under the 060 and 062 Contracts ($1,670,842.61) plus eighteen percent interest. Third, it recommended that Exxon pay CIOC the net amount it owed to CIOC ($1,031,432.65) plus six percent interest. As for debts owed to Exxon, the bankruptcy court recommended that Exxon have an unsecured claim of $1,431,173.53 against Charter (the amount owed to Exxon by CCOC under the 061 Contract) with no interest to accrue. Finally, the bankruptcy court recommended that Exxon's November 19th tender of payment was invalid because it was conditioned upon bankruptcy court approval.
The bankruptcy court's proposed findings for CCOC made no mention of the net settlement agreement which provided for a net basis of settlement of payment obligations. Additionally, the proposed findings failed to offset undisputed debts owed by CCOC to Exxon against Exxon's debts to CCOC. The court made its recommendation despite CCOC's own offered proposed findings which provided for such a setoff. Curiously, the bankruptcy court's proposed findings regarding CIOC offset debts between CIOC and Exxon and netted them out before awarding any interest to CIOC.
On November 2, 1988, Exxon submitted objections to the bankruptcy court's proposed findings and requested de novo review by the district court under 28 U.S.C. Sec. 157(c)(1) (1988). On April 20, 1989, the district court entered an opinion and final judgment in favor of Charter. 103 B.R. 302.
The district court adopted many of the proposed findings of the bankruptcy court and held in favor of Charter. It refused to enforce Exxon's right of setoff under Section 553 of the Bankruptcy Code. 6 Instead, it ruled that Exxon had violated the automatic stay of 11 U.S.C. Sec. 362 (1988) by failing to make payments and deliver product to CCOC without prior court approval. Additionally, the court held that Exxon had waived its setoff by not obtaining court approval prior to confirmation of CCOC's plan of reorganization. Because of Exxon's waiver, the court rejected Exxon's claim that CCOC's concessions throughout trial and post-trial entitled Exxon to setoff. The court also rejected Exxon's argument that the net settlement agreement entitled Exxon to setoff. It believed that enforcing the net settlement agreement would violate the automatic stay.
The district court then concluded that CCOC was entitled to an award of eighteen percent interest on the 060 and 062 Contracts. Yet, the contracts were silent as to any interest to be paid, and Exxon had never paid any interest under them to CCOC. Exxon claimed that in such situations the Texas statutory maximum interest rate is six percent. The court based its assessment of eighteen percent upon a printed phrase on CCOC's invoices that were sent after delivery that "interest at the maximum lawful rate will be charged on past-due amounts." 7
Finally, the district court rejected Exxon's argument that Charter had waived any right to seek attorneys' fees. Because we reverse in this case upon other grounds, we do not address this issue.
We find it unnecessary to engage in a detailed discussion of either the automatic stay provision 8 or of Section 553 of the Bankruptcy Code. It is clear to us that the undisputed terms of the contractual arrangement between the parties control. Exxon and CCOC had agreed to and operated in accord with their net settlement agreement and on no other basis.
The net settlement agreement clearly applied to the 060, 061, and 062 Contracts while they were in effect. By its express terms, Exxon was obligated only to pay CCOC the net balance of the parties' mutual invoices on a monthly basis.
Charter argues that because the cancellation of the contracts terminated the net settlement agreement, the net...
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