Chemical Distributors, Inc. v. Exxon Corp.

• Decision Date: 22 September 1993
• Docket Number: No. 92-3709,92-3709
• Citation: 1 F.3d 1478
• Parties: CHEMICAL DISTRIBUTORS, INC., Plaintiff-Appellee, v. EXXON CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1478

1 F.3d 1478

CHEMICAL DISTRIBUTORS, INC., Plaintiff-Appellee, v. EXXON CORPORATION, Defendant-Appellant.

No. 92-3709.

United States Court of Appeals Fifth Circuit.

Sept. 22, 1993.

Robert B. McNeal, George C. Freeman, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, LA, for defendant-appellant.

Frederick R. Tulley, Kathleen C. Mason, Taylor, Porter, Brooks & Phillips, Baton Rouge, LA, for plaintiff-appellee.

Appeal from the United States District Court for the Middle District of Louisiana.

Before POLITZ, Chief Judge, REYNALDO G. GARZA and JOLLY, Circuit Judges.

REYNALDO G. GARZA, Circuit Judge:

Exxon Corporation appeals a final judgment of the district court awarding Chemical Distributors, Inc. ("CDI") damages, attorneys' fees and court costs for breach of contract and violations of the Louisiana Unfair Trade Practices and Consumer Protection Law, La.Rev.Stat.Ann. Secs. 51:1401-:1418. ("LUTPA"). We find that the magistrate judge did not err in allowing the jury to construe the contract or in sending CDI's unfair trade practices claim to the jury. However, we find the jury's damage award excessive and order a new trial on damages, unless Chemical Distributors, Inc. accepts the remittitur of damages.

I. Background

In November of 1986, CDI and Exxon Chemical entered into a contract for the purchase, sale, delivery, and storage of a soap used by commercial and industrial customers as cleaning solutions and degreasers. Johnson Wax manufactured this commercial cleaner. CDI was Johnson Wax's exclusive distributor for a thirteen-parish area in Southern Louisiana, including the industrial corridor along the Mississippi River between Baton Rouge and New Orleans.

CDI agreed to purchase and sell to Exxon as many products from Johnson Wax as Exxon ordered. Exxon would then fill orders from certain designated accounts. The principal product under the contract was a diluted version of Johnson Wax's heavy-duty water-based cleaner, labeled "J-SHOP 1000." The contract required CDI to dilute the J-SHOP 1000 and re-label the product as Exxon's "COREXIT-250" cleaner ¹ before CDI made sales and deliveries to the designated accounts. ²

The contract between Exxon and CDI consists of two documents. The first document is a three-page blanket purchase order dated November 11, 1986. The second is a three-page letter agreement dated November 19, 1986. The blanket purchase order estimated Exxon's requirement as 500,000 gallons of cleaner per year. The purchase order permitted Exxon to purchase equivalent products from others, but CDI had the right to match any price offered by a third party. If CDI could not match the price, amounts purchased by Exxon from third parties would be deducted from quantities covered by the purchase order. The purchase order expressly incorporated the letter agreement, stating that the terms and conditions of "said contract" prevailed over any differences from the blanket purchase order.

Exxon bought only 38,000 gallons of cleaner during the first year of contract. On November 17, 1987, one year after entering into the contract, Exxon sent CDI its notice of termination and ceased placing orders for cleaner. According to Exxon, it terminated the contract because CDI had consistently failed to pay its Johnson Wax invoices, had only thirty gallons of cleaner left, and was no longer able to obtain any cleaner from Johnson Wax to supply Exxon's designated account. According to the contract, either party could terminate upon sixty-days' written notice. CDI then initiated suit against Exxon, claiming breach of contract and violation of the Louisiana Unfair Trade Practice Act.

CDI sued Exxon in state court, and Exxon removed to federal court; both parties agreed to trial by jury before a magistrate judge. The jury found Exxon liable for a bad faith breach of contract and for unfair trade practices and awarded CDI $900,000 in damages. The magistrate judge also awarded CDI $345,145.46 in pre-judgment interest, $106,843 in attorneys' fees, and $12,042.94 in costs. Exxon filed motions for judgment notwithstanding the verdict, or alternatively for a new trial, or for a remittitur. Exxon also sought to have the judgment amended to exclude pre-judgment interest. The magistrate judge denied all motions. Exxon obtained a stay of judgment by posting a supersedeas bond, and now appeals.

II. Analysis

Exxon claims the magistrate judge erred in: (1) allowing the jury to construe its contract with CDI; (2) sending CDI's unfair trade practices claim to the jury; and (3) upholding the jury's damage award.

We find that the magistrate judge did not err in allowing the jury to construe the contract or in sending CDI's unfair trade practices claim to the jury. However, we find the jury's damage award excessive and order a new trial on damages, unless CDI accepts the remittitur of damages.

A. Did the magistrate judge err in allowing the jury to construe the contract?

Exxon claims the magistrate judge erred in finding the contract ambiguous and in submitting it to the jury for resolution. Exxon argues that their contract with CDI is susceptible to only one reasonable interpretation; hence, the magistrate judge should have found it unambiguous and construed it as a matter of law.

Both the letter agreement and the blanket purchase order state that Texas law applies to the contract. "Texas law has long accepted the rule that the question of whether a contract is ambiguous is a question of law for the court." R & P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517, 518 (Tex.1980). We review questions of law de novo. Jhaver v. Zapata Off-Shore Co., 903 F.2d 381, 383 (5th Cir.1990). Under Texas law, a contract is ambiguous only when the application of pertinent rules of construction leave it genuinely uncertain which one of two reasonable meanings is the proper one. Temple-Inland Forest Prods Corp. v. United States, 988 F.2d 1418, 1421 (5th Cir.1993) (quoting Prairie Producing Co. v. Schlachter, 786 S.W.2d 409, 413 (Tex.App.--Texarkana 1990, writ denied)).

1. Who was the "buyer"?

The first ambiguity the magistrate judge found in the contract concerned the identity of the "buyer." The magistrate judge noted that the purchase order identified the "buyer" as Exxon Chemical Company, a division of Exxon Corporation. The blanket purchase order, however, states that all of the terms and conditions on the reverse of the form are included in the purchase order. On the reverse of the form the term "buyer" includes Exxon Corporation, its divisions, subsidiaries, and affiliates. The magistrate judge found that CDI thought the two initial customer accounts were just that, initial accounts, and that other customer accounts would be added as Exxon's sales staff marketed cleaner to other Exxon divisions and subsidiaries. Exxon, however, thought the contract stated that only Exxon Chemical was the buyer and not Exxon Corporation or any of its divisions.

Therefore, the magistrate judge concluded that "it was for the jury to determine whether the parties contemplated only purchases being made by Exxon Chemical for the two designated customer accounts, or expected the contract to include all of Exxon Corporation's divisions and subsidiaries as purchasers."

2. Was Exxon required to purchase 500,000 gallons of cleaner

per year?

The second ambiguity the magistrate judge found in the contract turned on whether Exxon was required to purchase 500,000 gallons of cleaner per year as estimated in the blanket purchase order. The magistrate judge again referred to the printed terms on the reverse side of the blanket purchase order. It states in pertinent part:

If [CDI] delays shipment or completion of shipment for more than thirty (30) days ..., [Exxon] may obtain substitute quantities of the goods from other sources; and the quantities obtained by [Exxon] shall be deducted from the amount [Exxon] is obligated to purchase under this order.

The magistrate judge reasoned that if the purchase order did not require Exxon to make any purchases, this condition made no sense. "The condition is only meaningful if the purchase order is construed to require purchases of about 500,000 gallons per year. Therefore, the 500,000-gallon estimate is another area of ambiguity in the contract."

Exxon argues that their contract with CDI cannot be reasonably construed to require Exxon Chemical to buy 500,000 gallons of cleaner each year. Exxon claims that because of the integration clause found in the blanket purchase order, the letter agreement controls. That clause states, "[t]erms and conditions of said contract [i.e., the letter agreement] are to prevail over any differences from this blanket purchase order." Exxon argues that the letter agreement, the controlling document, does not require Exxon Chemical to purchase any specific amount of cleaner from CDI.

Exxon argues that the pertinent part of the letter agreement reads as follows, "CDI agrees to make available to designated accounts surfactant product(s) as may be ordered by Exxon Chemical under the terms provided herein." Exxon claims that this language does not obligate Exxon Chemical to purchase any specific amount of cleaner.

Exxon further argues that the blanket purchase order imposes no greater obligations on Exxon Chemical to buy cleaner than does the letter agreement. Exxon points out that the purchase order contained a retroactive pricing provision. At the end of the year, Exxon's price for cleaner would be adjusted depending on the amount of cleaner it purchased. The provision begins with the category "0-250,000 gallons/year"; according to Exxon, this proves that both Exxon and CDI knew that sales could be as little as 0-250,000 gallons.

Finally, Exxon argues that even if this is a traditional requirements contract, only the analysis would change but the result would be the same. ³ Exxon argues that a requirements contract imposes a duty of good faith and fair dealing on ...