Cherne Contracting Corp. v. Marathon Petroleum Co.

• Decision Date: 22 July 2009
• Docket Number: No. 08-2723.,08-2723.
• Citation: 578 F.3d 735
• Parties: CHERNE CONTRACTING CORPORATION, Plaintiff-Appellant, v. MARATHON PETROLEUM COMPANY, LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

578 F.3d 735

CHERNE CONTRACTING CORPORATION, Plaintiff-Appellant, v. MARATHON PETROLEUM COMPANY, LLC, Defendant-Appellee.

No. 08-2723.

United States Court of Appeals, Eighth Circuit.

Submitted: March 11, 2009.

Filed: July 22, 2009.

Eric J. Nystrom, argued, Eric J. Nystrom, John C. Ekman, on the brief, Minneapolis, MN, for appellant.

Timothy J. Nolan, argued, Timothy J. Nolan, Emily J. Piper, Joelle M. Lester, on the brief, Minneapolis, MN, for appellee.

Before MURPHY, MELLOY, and SHEPHERD, Circuit Judges.

MELLOY, Circuit Judge.

Cherne Contracting Corporation ("Cherne"), a heavy-industrial general contractor, sued Marathon Petroleum Company, LLC ("Marathon"), the owner and operator of a petroleum refinery in Detroit, Michigan, alleging breach of an implied contract and promissory estoppel. The district court¹ granted summary judgment for Marathon on all of Cherne's claims. Cherne appeals, and we affirm the judgment of the district court.

I. Background

Cherne is a Michigan corporation with its principal place of business in Minnesota. Marathon is a Delaware Limited Liability Company with its principal place of business in Ohio. The amount in controversy is well in excess of $75,000, and we have diversity jurisdiction over this matter pursuant to 28 U.S.C. §§ 1291 and 1332.

In early 2004, Marathon contacted Cherne about performing revamp work at Marathon's Detroit refinery in advance of and during a refinery turnaround² initially scheduled for November 2004. Given the nature of the work to be performed, logistical difficulties with coordinating a complex project within an operating petroleum refinery, compressed time frames for completing work before and during the refinery turnaround, and incompletely defined engineering parameters, Marathon determined that it needed to hire a single-point-of-contact general contractor. Marathon also determined that it needed to seek a contract with a time-and-materials reimbursement scheme rather than a lump-sum payment. When Marathon described the project to Cherne, Cherne anticipated that the project would require approximately 170,000 worker hours across several disciplines, including, but not limited to, electrical, piping, engineering, structural, insulation, and painting work. It is undisputed that both parties initially discussed the project as though they hoped that Cherne would serve as general contractor for the entire project.

While it is clear that the parties had negotiated and communicated throughout winter and spring 2004, they did not reach a final agreement. The parties appear to have been nearing agreement and, in fact, had mutually agreed upon reimbursement terms for time and materials as set forth in an April 29, 2004 proposal ("April 29 Proposal") from Cherne to provide labor and materials at cost plus a determined percentage mark-up. The parties documented many other terms in a draft agreement that remained unexecuted as of May 10, 2004. Notwithstanding these attempts, the parties had not agreed upon an overall cost estimate or an overall scope of work. On May 10, Marathon sent a Letter of Intent to Cherne, and on May 14, Cherne's president accepted and signed the Letter of Intent.³ The Letter of Intent referenced a termination provision from the then-current draft agreement that permitted Marathon to terminate the relationship without cause. The referenced provisions of the draft agreement also detailed the parties' obligations regarding warranties, the return of materials, and the payment of reimbursable expenses in the event of termination.

The Letter of Intent stated that Marathon intended to award a contract to Cherne subject to several contingencies. Relevant to the present appeal, these contingencies included Cherne's future agreement with Marathon as to a cost estimate, determination of a scope of work to Marathon's satisfaction, and the parties' execution of a final written contract. Cherne agreed in the Letter of Intent to begin work on the project prior to the parties' execution of the final contract.

The Letter of Intent authorized Cherne to begin limited pre-turnaround work for up to $50,000. As the original deadline listed in the Letter of Intent approached, the parties had not yet finalized their agreement and had not executed a written contract. In a first addendum dated May 26, the parties raised the cap on permissible work to $100,000 and extended the deadline to June 14. In a second addendum dated June 14, the parties raised the cap on permissible work to $1,253,660, extended the deadline to June 30, and extended the permissible work under the Letter of Intent in accordance with a June 14 email between the parties. That email referenced structural steel erection and an "Indirect Mobilization Estimate." In the email, as in the original Letter of Intent, Cherne acknowledged that the parties had yet to determine an overall project scope, stating, "Upon determination of total project scope, we will perform a control estimate for project indirect costs which will be inclusive of the indirect mobilization costs outlined above." In a third addendum dated July 1, the parties extended the deadline to July 23 without further extending the financial cap or the description of permissible work as referenced in the second addendum. The third addendum provided:

It is agreed that [Marathon] will be directly involved with [Cherne's] planning efforts in terms of manpower loading, [Cherne's] staffing, equipment rentals, and temporary facilities. Further, the indirect mobilization estimate will need to be reviewed in detail and approved by [Marathon] as the overall Pre-Turnaround and Turnaround Planning efforts are finalized.

Upon proper signature below, this Addendum No. 3 shall serve, in advance of a fully executed Contract, as [Cherne's] authorization to continue progressing the Scope of Work.

It is undisputed that the Letter of Intent and its addenda served as a valid contract governing the parties' relationship between May 14, 2004, and July 23, 2004. Each addendum stated that, except for the express revisions, the terms and conditions of the Letter of Intent remained in force. After July 23, Cherne continued performing revamp work for Marathon, and Marathon continued paying Cherne for the revamp work. Cherne's work for Marathon substantially exceeded the financial cap of the second addendum, and Marathon continued to pay Cherne amounts in excess of that financial cap. The parties continued their relationship in this manner until September 13, 2004, when Marathon's Project Manager sent a letter to Cherne terminating their working relationship effective September 17, 2004.

After receiving the termination letter, Cherne responded by letter dated September 24, 2004, notifying Marathon that Cherne would be returning or delivering materials to Marathon. Cherne stated that it was returning materials with the understandings "[t]hat [Marathon] agrees that upon turnover of the Materials to [Marathon], Cherne will have fully completed its material turnover responsibilities related to the contract[,]" that Marathon would pay certain already-submitted invoices, "[t]hat, as Cherne submits its remaining invoices related to the Contract, [Marathon] will continue to review and process such invoices in good faith," and that Cherne was providing materials to Marathon with no warranties or representations as to the condition of the materials.

Ultimately, Marathon paid almost all of Cherne's pre-termination and post-termination invoices, totaling over $2,000,000. Marathon, however, refused to reimburse Cherne for approximately $25,000 in severance payments that Cherne had paid to select employees after Marathon's termination. Marathon also refused to pay Cherne for approximately $13,000 in lease-breakage fees.

Cherne filed the present action in December 2004. Notwithstanding Cherne's statements in its September 24 letter referring to specific "material turnover responsibilities related to the contract," Cherne alleged that, after July 23, 2004, the parties' relationship was no longer governed by the Letter of Intent, the termination clause of the draft agreement as incorporated by express reference within the Letter of Intent, or any written agreement with specific conditions regarding termination or material-turnover responsibilities. Rather, Cherne argued that the parties had entered into an oral or implied contract that could not be terminated without cause. Cherne argued it was entitled to, inter alia, expectation damages in the form of over $1.5 million in profits it believed it would have received if it had performed all pre-turnaround and turnaround work. In the alternative, Cherne argued promissory estoppel and unjust enrichment, alleging that it had provided Marathon a discounted rate in expectation of a greater scope of work.

Marathon moved for summary judgment. The district court granted Marathon's motion, finding that the parties, by their conduct, had modified and extended the Letter of Intent and that the Letter of Intent authorized Marathon to unilaterally terminate the relationship without cause. The district court noted that the parties agreed that their conduct established a contract following the July 23, 2004 dead-line and that the parties only disputed the terms of that contract. The court found, "Although the scope of and expenditures for Cherne's work exceeded the Letter's terms, the parties' conduct established their mutual assent to the modification of those terms." The court proceeded to conduct an analysis of the termination provisions of the draft agreement as incorporated into the Letter of Intent and held that Marathon retained the right to terminate the relationship with Cherne. Finally, the district court rejected the promissory estoppel and unjust enrichment theories as inconsistent with the parties' position (and the court's finding) that a contract governed their relationship.⁴

II. Discussion

We review a...