Langham-Hill Petroleum Inc. v. Southern Fuels Co., LANGHAM-HILL

• Decision Date: 19 March 1987
• Docket Number: Nos. 86-1596,LANGHAM-HILL,s. 86-1596
• Citation: 813 F.2d 1327
• Parties: PETROLEUM INC., Plaintiff/Appellee, v. SOUTHERN FUELS COMPANY, Defendant/Appellant (Two Cases). (L), 86-1632.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1327

813 F.2d 1327

7 Fed.R.Serv.3d 321

LANGHAM-HILL PETROLEUM INC., Plaintiff/Appellee, v. SOUTHERN FUELS COMPANY, Defendant/Appellant (Two Cases).

Nos. 86-1596(L), 86-1632.

United States Court of Appeals Fourth Circuit.

Argued Nov. 13, 1986.

Decided March 19, 1987.

Benjamin Lipsitz, Baltimore, Md., on brief, for defendant/appellant.

David Michael Kopstein (DiSalle and Staudinger, Washington, D.C., on brief), for plaintiff/appellee.

Before WIDENER and CHAPMAN, Circuit Judges and ROBERT E. MAXWELL, United States District Judge, sitting by designation.

CHAPMAN, Circuit Judge:

Southern Fuel Company (Southern) appeals an order of summary judgment against it for breach of an oil purchase contract and from an award of attorneys fees under Fed.R.Civ.P. 11 which award was granted after notice of intent to appeal the summary judgment order had been filed. Southern's primary contention, which this court rejects, is that the action of Saudi Arabia, which led to a dramatic drop in world oil prices, falls within the scope of the contract's force majeure or Act of God clause, thereby validating Southern's refusal to honor the contract. Southern also questions the jurisdiction of the district court to award attorney's fees under Fed.R.Civ.P. 11 after notice of appeal has been filed. We find that the court does retain such jurisdiction.

I.

Southern and Langham-Hill Petroleum, Inc., (Langham-Hill) are both in the business of buying and selling large quantities of petroleum products. In October, 1985, the parties entered into a fixed price contract under which Southern agreed to purchase 100,000 barrels (4,200,000 gallons) of No. 2 Fuel oil in four monthly installments. The contract states that the price of the oil was $0.83 per gallon. The dispute is centered upon paragraph 7 of the agreement of sale, a force majeure clause written in boilerplate language. ¹

The first three monthly shipments of oil were purchased by Southern as agreed. In January of 1986, the price of crude oil in the world market collapsed as a result of Saudi Arabian attempts to regain its share of the world oil market. In a letter dated January 14, 1986, Southern informed Langham-Hill that based upon the drop in world oil prices caused by the Saudi Arabians, who were "outside Southern's control," Southern was invoking the force majeure clause and would not perform the remainder of its obligations under the contract.

Langham-Hill, invoking the district court's diversity jurisdiction, alleged a cause of action for breach of contract. The district court granted Langham-Hill's motion for summary judgment holding that the fall of oil prices in the world market did not relieve Southern Oil from its obligations under the contract. The court found the measure of damages under U.C.C. Sec. 2-708(1) to be the difference between the market price at the time and place of expected tender and the unpaid contract price. This formula yields $306,075.00 in actual damages. The district court also stated that it was willing to entertain a petition by Langham-Hill for attorney's fees and costs pursuant to Fed.R.Civ.P. 11. Southern appealed. The day after Southern filed its notice of intent to appeal, Langham-Hill filed a petition for attorney's fees and costs pursuant to Fed.R.Civ.P. 11. The district court awarded attorney's fees to Langham-Hill. Southern also appealed this ruling and the issues were consolidated into one appeal.

II.

A grant of summary judgment is appropriate only when there is no genuine dispute as to any material fact and the moving party is entitled to a judgment as a matter of law. Any doubts as to the existence of a genuine issue of material fact will be resolved against the movant, in this case, Langham-Hill. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970).

Southern argues that questions of fact exist regarding its helplessness in the face of Saudi Arabian action and its inability to remain in business if it had satisfied the contract. Despite our sympathy for its plight, the law of contracts and the realities of the business world lead us to reject Southern's contentions.

This court has previously expressed some opposition to efforts by a party to a contract to characterize an act which results in price fluctuations as being outside its control, thereby rendering the contract unenforceable. " 'Shortage of cash or inability to buy at a remunerative price' cannot be regarded 'as a contingency beyond the seller's control.' " Wheeling Valley Coal Corporation v. Mead, 186 F.2d 219 (4th Cir.1950). If fixed-price contracts can be avoided due to fluctuations in price, then the entire purpose of fixed-price contracts, which is to protect both the buyer and the seller from the risks of the market, is defeated. Recently the Seventh Circuit in Northern Indiana Public Service Company v. Carbon County Coal Co., 799 F.2d 265 (7th Cir.1986), dealt with a utility company's effort to escape a long-term, fixed-price coal contract through a declaratory judgment action. The court rejected the utility company's argument that a regulatory body's denial of a proposed rate increase makes the contract prohibitively expensive. The majority reasoned that:

[the defendant] committed itself to paying a price at or above a fixed minimum and to taking a fixed quantity at that price. It was willing to make this commitment to secure an assured supply of low sulphur coal, but the risk it took was that the market price of coal or substitute fuels would fall. A force majeure clause is not intended to buffer a party against the normal risks of a contract. The normal risk of a fixed price contract is that the market price will change. If it rises, the buyer gains at the expense of the seller (except insofar as escalator provisions give the seller some protection); if it falls, as here, the seller gains at the expense of the buyer. The whole purpose of a fixed price contract is to allocate risks in this way. A force majeure clause interpreted to excuse the buyer from the consequences of the risk he expressly assumed would nullify a central term of the contract.

799 F.2d at 275. We agree with this reasoning and reject Southern's appeal.

Southern also contends that summary judgment was inappropriate in this case because it did not receive an opportunity to be heard on the summary judgment motion. There is no absolute requirement that a ruling on a motion for summary judgment be preceded by a hearing and, given the evidence presented, the district court did not err in deciding the motion without a hearing. See Atkinson v. Bass, 579 F.2d 865 (4th Cir.1978).

III.

Finally, Southern argues that the district court erred in its award of attorney's fees to Langham-Hill. Under Fed.R.Civ.P. 11, the district court is empowered to render attorneys and represented parties responsible for reasonable fees incurred by other par...