Cities Service Oil Company v. Coleman Oil Company, Inc.

• Decision Date: 19 December 1972
• Docket Number: No. 72-1250.,72-1250.
• Citation: 470 F.2d 925
• Parties: CITIES SERVICE OIL COMPANY, Plaintiff-Appellee, v. COLEMAN OIL COMPANY, INC., Defendant-Appellant.
• Court: U.S. Court of Appeals — First Circuit

470 F.2d 925 (1972)

CITIES SERVICE OIL COMPANY, Plaintiff-Appellee, v. COLEMAN OIL COMPANY, INC., Defendant-Appellant.

No. 72-1250.

United States Court of Appeals, First Circuit.

Heard October 3, 1972.

Decided December 19, 1972.

COPYRIGHT MATERIAL OMITTED

Samuel H. Borenkind, New York City, with whom Sanderson & Dudley and David Sanderson, Portsmouth, N. H., were on brief, for appellant.

Ronald L. Snow, Concord, N. H., with whom Neil F. Castaldo and Orr & Reno, Concord, N. H., were on brief, for appellee.

Before COFFIN, Chief Judge, and McENTEE and CAMPBELL, Circuit Judges.

McENTEE, Circuit Judge.

This appeal involves the validity of seven gasoline service station leases between appellant, Coleman Oil Company (Coleman) and plaintiff, appellee, Cities Service Oil Company (Cities). Since 1941 appellant has acted as a wholesale distributor of oil products manufactured by Cities, receiving payment from the latter on a commission basis. In conjunction with this arrangement, Coleman acquired and developed numerous gasoline service station sites in the Maine-New Hampshire area, including those involved in the present litigation. While the land for these sites was acquired by Coleman with its own funds, the actual development was undertaken in cooperation with Cities. The improvements were financed in the following manner. Cities would arrange for Coleman to borrow the necessary money from a financial institution, the loan being secured by a fifteen year mortgage on the property. As collateral security for the loan, Coleman would execute and deliver to Cities a fifteen year lease, running concurrently with the mortgage, and assign the monthly rental payments to the lending institution. These rental payments were equal to the amortization and interest due on the loan. After the service stations were completed, Cities, as lessee, would sublet the premises to a retail gasoline dealer for an amount equal to its own rental obligation. The service stations sublet in this manner became exclusive outlets for the products of Cities, with Coleman acting as its wholesale distributor.

Trouble between the two companies began in December 1959 (approximately five years after the signing of the first lease) when Cities notified Coleman that effective January 15, 1960, it would directly supply its products to fifteen service stations¹ and that, as a consequence, Coleman would no longer act as its commission agent for these stations. At about the same time, a dispute arose as to the validity of six of the seven leases now in question. This dispute culminated in an action for enforcement of the leases being filed by Cities in federal district court. As part of the settlement in that action, Coleman signed a release dated December 14, 1960, specifically reaffirming the validity of these leases, including the renewal and purchase options contained therein, and a release dated February 7, 1961, waiving all defenses to any leases then existing between the parties. In return for signing these releases, Coleman received a five year renewal of its commission agreements with Cities.

In June 1971 Coleman again notified Cities that it considered the leases to be invalid, and that it would shortly evict Cities from the leased premises. On July 10 Coleman carried out its threat, and replaced Cities' identifications with those of the American Oil Company. The present action to enforce the leases followed.

At the trial, Coleman conceded that the disputed leases had been properly executed and that Cities had never violated any of their provisions. Nor did Coleman seek to challenge the intrinsic validity of the releases which it had signed in settlement of the earlier litigation. Appellant sought to avoid the seemingly inescapable effect of these concessions, however, by arguing that the releases had been signed as a result of economic duress, and that the leases were invalid as a matter of law. As to the alleged invalidity of the leases, Coleman set forth two grounds in support of its position. First, Coleman argued that the leases had never been intended to create a genuine landlord-tenant relationship, but were rather in the nature of security agreements which should have been cancelled once the mortgage debts were paid off. Secondly, it contended that the leases were in restraint of trade, and therefore unenforceable under the Sherman Antitrust Act.

At the close of the evidence, the trial court submitted the following questions to the jury:

"(1) Were the leases between the plaintiff and defendant a deliberate arrangement by the plaintiff to eliminate and stifle competition so as to prevent competitive brands of petroleum products from being sold at the gasoline service stations covered by the leases?

"(2) Was the stipulation and general release, Exhibits 2 and 3, entered into by the defendant because of duress?

"(3) What damages do you find that the plaintiff suffered because the defendant terminated the leases on July 10, 1971?

(a) on a daily basis —

(b) from July 10, 1971, to April 7, 1972 —

(c) none."

The jury answered the first two questions in the negative, and calculated plaintiff's damages to have been $250 on a daily basis. Following the jury's verdict, the trial court issued its Ruling and Order, which reads in part as follows:

"1. The findings of the Jury are accepted.

"2. The seven leases in issue are valid and binding on both parties.

"3. The seven leases in issue do not violate Section 1 of the Sherman Anti-Trust Act. 15 U.S.C. Sec. 1.

. . . . . .

"5. The defendant is permanently enjoined from interfering, directly or indirectly, with the plaintiff\'s use of the seven leased premises in accord with the terms and conditions of the leases and is ordered to specifically perform all of its obligations and responsibilities under the leases. . . .

"6. The plaintiff shall be entitled to damages at the rate of $250 per day, plus interest and costs from July 10, 1971, to date of final entry of judgment."

Coleman appeals from this decision, asserting the same grounds for finding the leases invalid as it advanced below. It also objects to the trial court's admission of certain testimony relating to damages, and to the overall sufficiency of the evidence on that issue. We find appellant's contentions to be without merit, and accordingly affirm the judgment of the district court.

The first obstacle which Coleman faces on this appeal, and one which we find to be insuperable, is the matter of the releases which it signed in late 1960 and early 1961. These releases were executed in settlement of a suit involving six of the seven properties currently in dispute. The December 14, 1960, release specifically reaffirmed the validity of these leases, including the purchase and renewal options contained therein, and waived all defenses to their sufficiency which might be asserted by Coleman. The February 7, 1961, release contained a similar waiver of defenses as to all leases then existing between the parties. As of the signing of this second agreement, all seven leases involved in the present case had been executed.

There is an obvious public policy favoring the amicable settlement of litigation, and agreements accomplishing this result will be disregarded only for the strongest of reasons. The appellant argued before the district court, and now seeks to argue on appeal, that the releases were signed as a result of the irresistible economic pressure which Cities was able to exert upon Coleman by threatening to discontinue the commission arrangements then existing between the parties. The jury, however, found against Coleman on the issue of duress,² and appellant has not attempted to argue that this finding was incorrect as a matter of law. Indeed, such an argument would be fruitless, since there is no evidence in the record which would have compelled a jury to conclude that the releases had been signed as a result of economic pressure. While the president of Coleman did testify in conclusory terms that his company would have been forced to go out of business had its commission agreements with Cities been cancelled, there was no indication that other, equally profitable, arrangements could not have been worked out with competing oil companies.³ The issue of duress was a factual question for determination by the jury, and we find no reason to overturn its verdict. The releases are therefore fully binding upon Coleman, and act as a bar to the defenses it now seeks to assert. We need not rest our decision on that ground alone, however, since Coleman has advanced no sufficient reason for invalidating the controverted leases.

Turning first to appellant's contention that the disputed leases were somehow something other than what they clearly purported to be, we find the trial court's holding on the issue of the leases' validity to be completely dispositive. If the appellant's theory that the leases were actually intended as security agreements were to be accepted, the renewal and purchase options contained therein would be rendered totally meaningless. This fact alone provides more than adequate support for the court's decision.

Appellant also seeks to avoid the binding effect of the leases by arguing that they were in violation of § 1 of the Sherman Antitrust Act⁴ and therefore unenforceable. Appellant reasons that since the leases effectively created an exclusive sales outlet for Cities, they illegally restrained free competition in the interstate distribution of petroleum products. We need not consider whether an antitrust defense would be available to Coleman in this contract action, see Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959); Dickstein v. duPont, 443 F.2d 783 (1st Cir. 1971), since more fundamental deficiencies inhere in appellant's argument.

For purposes of § 1 of the Sherman Act, a contract may be an illegal restraint of trade (1) because it constitutes a per se violation of the statute,⁵ or (2) because an...