Childers Oil Co., Inc. v. Exxon Corp.

• Decision Date: 03 April 1992
• Docket Number: No. 91-2598,91-2598
• Parties: CHILDERS OIL COMPANY, INCORPORATED, a corporation; James E. Childers, Jr.; Erma L. Childers, doing business as Childers Short Stop, Plaintiffs-Appellants, v. EXXON CORPORATION, a corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1265

960 F.2d 1265

CHILDERS OIL COMPANY, INCORPORATED, a corporation; James E Childers, Jr.; Erma L. Childers, doing business as Childers Short Stop, Plaintiffs-Appellants, v. EXXON CORPORATION, a corporation, Defendant-Appellee.

No. 91-2598.

United States Court of Appeals Fourth Circuit.

Argued Dec. 4, 1991.

Decided April 3, 1992.

Carl Lee Fletcher, Jr., Spilman, Thomas, Battle & Klostermeyer, Charleston, W.Va., argued (David A. Faber, R. Scott Long, on brief), for plaintiffs-appellants.

William R. O'Brien, Howrey & Simon, Washington, D.C., argued (Darren B. Bernhard, Gregory J. Commins, Jr., Howrey & Simon, Washington, D.C., Thomas B. Bennett, Bowles, Rice, McDavid, Graff & Love, Charleston, W.Va., William R. Hurt, Exxon Co., U.S.A., Houston, Tex., on brief), for defendant-appellee.

Before HALL, NIEMEYER, and LUTTIG, Circuit Judges.

OPINION

K.K. HALL, Circuit Judge:

Childers Oil Company and James and Erma Childers d/b/a Short Stop ¹ appeal the district court's grant of summary judgment for defendant Exxon Corporation in Childers' action for breach of contract, tortious interference with prospective business relations, and fraud, and on Exxon's counterclaims for trademark infringement, breach of contract, and recovery on a promissory note. Through a combination of waiver, the parol evidence rule, and the statute of limitations, the appellants are unable to recover. In addition, they offer no colorable defenses to Exxon's counterclaims. Accordingly, the judgment is affirmed.

I.

The appellants are two businesses, both wholly owned by James and Erma Childers--Childers Oil Co., Inc., and Short Stop, a partnership. Childers Oil was formed in 1975 to operate a bulk fuel distributorship in Bluefield, West Virginia. Childers Oil initially sold Amoco products. Shortly after it began operations, Childers Oil built a new plant near Princeton, West Virginia, at the junction of two major highways--Interstate 77 and U.S. Route 460.

In January 1980, Childers Oil built a retail service station adjacent to its Princeton plant. It leased the station to the Short Stop partnership. The competition-less station prospered. In early 1982, however, Amoco announced its withdrawal from West Virginia. Mr. Childers learned of Amoco's action in his Sunday newspaper.

If Mr. Childers worried of not having a supplier, his fears were quickly erased. The very next day, William Lucas, a distributorship salesman for Exxon, telephoned Mr. Childers to express Exxon's interest in replacing Amoco as Childers Oil's supplier. At the time, Exxon had no retail outlets on Interstate 77 from Charleston, West Virginia, to Wytheville, Virginia--a stretch of over 120 miles--and it was interested in filling this lacuna in its competitive ubiquity.

Mr. and Mrs. Childers had one serious concern about Exxon. Exxon owned a tract of land 400 yards from Short Stop, and the Childers had heard rumors that Exxon planned to build a companyowned station there. The Childers did not want to become an Exxon distributor and then be forced to compete with another retail Exxon outlet.

A few days after the initial telephone call, Lucas came to the Childers Oil plant to discuss Exxon's proposal. Mr. Childers asked Lucas about Exxon's plans for its tract of land. According to Mr. Childers, Lucas promised that Exxon would not build a retail station on the tract if Childers Oil would sign an Exxon Distributor Agreement. ² 2]

A few weeks passed. Then Lucas and his boss, Lowe Lunsford, paid Mr. Childers another visit. Again, Mr. Childers brought up his concern about Exxon's plans for its land. Lunsford assured him that the property was in Exxon's inactive "land bank," and Exxon had no plans to construct a station there.

Through the summer of 1982, Mr. Childers continued negotiations with Exxon. Both Lucas and Lunsford repeated their assurances that Exxon would not compete with Short Stop by building on its "land bank" tract.

On September 14, 1982, Childers Oil signed Exxon's standard Distributor Agreement. The agreement contains a boilerplate integration clause:

25. ENTIRE AGREEMENT: This writing is intended by the parties to be the final, complete and exclusive statement of their agreement about the matters covered herein. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR WARRANTIES AFFECTING IT.

Mr. Childers asked that Exxon's promise not to compete be included in the agreement, but was told that no changes could be made in the form. He signed anyway. The agreement was to expire on March 31, 1984.

Within a few months, Mr. and Mrs. Childers began hearing new rumors that Exxon was planning to develop its property. Mr. Childers called Lunsford each time he heard such a rumor. At first, Lunsford said that he had heard nothing, but he later expressly stated that a company-owned station would not be built.

Sometime in late 1983, a contractor showed up at Childers Oil and said he was there for a pre-bid conference on the "new station." Mr. Childers told the contractor that he had no intention of building a new station. He immediately called Lunsford, who said that Exxon was "just getting some cost figures together" and was not actually planning to build.

Nonetheless, before the end of 1983, Exxon began construction of a station to compete with Short Stop. Mr. Childers called Lunsford at the first sign of construction. Lunsford said, "Jim, I am sorry, I didn't have the clout I thought I had, I couldn't prevent this from happening."

By June 1984, Exxon's retail service station was open for business. Short Stop's business immediately and sharply declined. On June 10, 1984, Mr. Childers appeared in front of the Small Business Subcommittee of the Joint Committee of Government and Finance of the West Virginia Legislature to complain of Exxon's conduct. To contravene Mr. Childers' complaint, Exxon sent a written response, with a cover letter signed by Lunsford, to members of the subcommittee on September 14, 1984. In it, Exxon asserted that it had always planned to build the station, and no one at Exxon had told Childers otherwise. Exxon's response was not sent to Mr. Childers, and he did not inquire about the subcommittee's handling of his complaint. In September 1988, at Mr. Childers' deposition, he first learned of the existence of this document.

If they desired relief through litigation, 1984 was the most apt moment for the Childers to have filed suit against Exxon. Instead, they took fateful steps toward financial and litigation ruin. In early 1984, with construction of the company station going on before their eyes, they signed a second distributorship agreement, substantively identical to and expressly superseding the first. This new agreement extended the Exxon franchise for three years. The Childers spent $700,000, most of it borrowed, turning Short Stop into an extravagant traveler's mecca. The new and improved Short Stop included an ice cream store, convenience store, delicatessen, separate restroom building, and a large increase in gasoline capacity.

The revenue of Short Stop could not keep up with the increased debt burden. In January 1986, Childers Oil's account with Exxon became delinquent (over thirty days late) in an amount exceeding $100,000. The parties agreed on a payment plan under which Childers Oil would pay the two oldest outstanding invoices each time it picked up a load of gasoline from Exxon. This repayment scheme did not work, however, because Childers Oil began purchasing gasoline from Pennzoil instead of Exxon, and thus avoided the triggering of two-for-one payments. Exxon soon exercised its contractual right to demand payment by cashier's check.

Things got even worse when Exxon learned that Childers Oil had sold Pennzoil gas under Exxon's trademark. On April 23, 1986, Exxon exercised its right under the Petroleum Marketing Practices Act ³ to terminate the franchise, effective July 24, 1986, because of the misbranding. The appellants admit the misbranding and the lawfulness of the franchise termination.

During the three-month window between notice and the effective date of the termination, Mr. and Mrs. Childers tried to sell Childers Oil to H.C. Lewis, an Exxon distributor in Welch, West Virginia. The Childers and Lewis agreed that Lewis would purchase Childers Oil and sell gas to Short Stop, which the Childers would continue to own. The agreement, however, was contingent on Exxon's increasing Lewis' allotment so that he would have enough gas to supply Short Stop. Because it had no more wish to entrust its trademark to the Childers indirectly as directly, Exxon refused to increase Lewis' allotment, and the proposed deal collapsed.

In October 1986, two months after termination of the franchise, the Childers still owed Exxon $224,168.27. They signed a promissory note providing for monthly payments and interest. They have made only small payments, and do not dispute the amount that they owe on the note.

On August 10, 1987, the Childers filed this suit against Exxon in district court. Jurisdiction rests on diversity of citizenship. They amended the complaint twice, the last time on March 24, 1989. The final complaint pled three claims: (1) breach of contract, (2) tortious interference with plaintiffs' prospective business relationship with Lewis, and (3) fraud. The fraud claim did not appear in earlier versions of the complaint.

Exxon counterclaimed for breach of the distributorship agreement, for trademark infringement, and to recover on the promissory note. At the conclusion of discovery, on September 15, 1989, Exxon moved for summary judgment on all claims and counterclaims. On June 27, 1991, the district court granted summary judgment for Exxon.

Plaintiffs appeal.

II.

The substantive law of West Virginia applies to this diversity action. A concept central to the contract issues we must address--the parol evidence rule--is not, as its name may suggest, a procedural rule of evidence, but is rather a substantive...