Magcobar North American, A Div. of Dresser Industries, Inc. v. Grasso Oilfield Services, Inc., 13-86-163-CV

• Decision Date: 30 June 1987
• Docket Number: No. 13-86-163-CV,13-86-163-CV
• Citation: 736 S.W.2d 787
• Court: Texas Court of Appeals
• Parties: MAGCOBAR NORTH AMERICAN, A DIVISION OF DRESSER INDUSTRIES, INC. and Oso Refining Company, d/b/a Apache Fuel & Supply Co., Appellants, v. GRASSO OILFIELD SERVICES, INC., Appellee. Corpus Christi

Page 787

736 S.W.2d 787

MAGCOBAR NORTH AMERICAN, A DIVISION OF DRESSER INDUSTRIES INC. and Oso Refining Company, d/b/a Apache Fuel &amp Supply Co., Appellants, v. GRASSO OILFIELD SERVICES, INC., Appellee.

No. 13-86-163-CV.

Court of Appeals of Texas,

Corpus Christi.

June 30, 1987.

Rehearing Denied Aug. 28, 1987.

J. Michael Mahaffey, David M. Coover, Jr., Corpus Christi, Robert M. Hardy, Jr., Warren R. Taylor, Houston, Mike A. Hatchell, Tyler, for appellants.

Edward O. Garcia, Corpus Christi, for appellee.

Before NYE, C.J., and KENNEDY and DORSEY, JJ.

OPINION

KENNEDY, Justice.

This is an appeal from an action for damages arising out of the breach of an alleged lease. Grasso Oilfield Services, Incorporated, sued Magcobar North American Division and Apache Fuel & Supply Company after Apache replaced Grasso in doing business with Magcobar. Grasso alleged in its petition that it owned a six-year lease on a dock controlled by Magcobar, that Magcobar breached the lease, and that Apache tortiously interfered with the lease. After a lengthy trial, a jury found favorably to Grasso on all of twenty-nine special issues. The trial court rendered judgment on the verdict, awarding Grasso $2,500,000 in lost profits, $150,000 in reliance damages, and exemplary damages of $3,750,000 against Magcobar and $1,250,000 against Apache.

I. THE MAGCOBAR--GRASSO ARRANGEMENT

Most of the facts are not disputed. In late 1979 or early 1980, Lee Williams, who was at that time Magcobar's area distribution manager for the Corpus Christi area, began looking for property to develop. Magcobar intended to expand its facilities in the Corpus Christi area for selling drilling fluids and chemicals to the offshore oil industry. During this period, Williams began negotiating with American Petrofina (Fina) to lease part of the land Fina owned on Harbor Island, near Port Aransas and the mouth of the Corpus Christi Ship Channel.

William Guy DeLay became president of Grasso in April 1980. DeLay, a friend of Lee Williams, had known of Magcobar's desire to develop an offshore service business in the Corpus Christi area since 1979. He was interested in Magcobar's plans because Grasso and Magcobar were in business together at other offshore service points. At these other locations, Magcobar would supply oilfield service boats with drilling fluids and chemicals, and Grasso would supply them with diesel fuel and lubricants. This created "full-service docks" where the service boats could get all the supplies they needed at one place.

Magcobar leased land on Harbor Island on January 1, 1982, and began planning construction of its dock. Construction actually began in October 1982 and was completed in May 1983. Grasso became involved during the summer or fall of 1982, negotiating with Magcobar in order to obtain the fuel-selling concession on Magcobar's dock.

On October 5, 1982, DeLay sent Williams a letter with Grasso's proposal. In the letter, Grasso proposed that it would supply Magcobar's customers with diesel fuels and lubricants. It would use Fina as its diesel supplier, as Fina (the land owner) desired, and it would buy or lease a warehouse to store its lubricants and attempt to rent a fuel storage tank from Fina to store its diesel. Grasso further offered to pay for all costs of laying pipelines, pumps, and other necessary equipment, to comply with all governmental and corporate regulations, to carry adequate insurance, and to use qualified staff. Williams forwarded a copy of this letter to Fina on November 14, 1982, along with a cover letter which stated that the Grasso proposal was "along the lines that we at Magcobar would prefer to follow." Williams also requested a meeting with Fina to "discuss this proposal and any other alternatives you suggest."

As construction continued at Harbor Island, Magcobar engineers contacted Grasso in January 1983 for permission to lay the pipeline from the Fina tank to the edge of the dock. Magcobar wanted to lay the pipe themselves for time and cost efficiency, since it was preparing to pour the dock's concrete slab. The pipeline was to be encased in the slab, so it would be out of the way. Grasso approved Magcobar's laying the pipeline. In April 1983, Grasso leased a warehouse in nearby Aransas Pass to store its lubricants. In May 1983, DeLay called Williams, told him that Grasso had a supply agreement with Fina, and asked for permission to move its equipment onto the dock. The request was approved by William B. Corser, president of Magcobar, and Grasso came on the dock and became operational.

As of May 1983, when the full-service facility opened for business, no written agreement between Grasso and Magcobar existed. DeLay and Williams orally agreed that, since Grasso had entered a burdensome fuel-supply contract with Fina, and since the market was new and untested, they would sit down and negotiate a written lease when the operation became profitable. In the meantime, it was agreed that Grasso would not pay Magcobar the standard "put-through" commission, which was the primary rent charged a diesel fuel retailer in the industry, computed on a cents-per-gallon-sold basis. ¹ Grasso did, however, pay $175 per month as rent for a trailer which it located on the dock and used as an office and as sleeping quarters for its employees. Grasso further agreed to provide a full-service dock, open seven days a week, twenty-four hours a day.

On June 1, 1983, Magcobar changed its personnel structure from an "area" concept to a "district" concept. Lee Williams was transferred to Houston to act as District Manager of the Houston district, and Orville Welch became District Manager of the Corpus Christi district, with responsibility over the Harbor Island facility. Near the beginning of July 1983, Gary D. Shields, general attorney for the Magcobar Group of Dresser Industries, first learned that no written agreement existed covering the Grasso-Magcobar arrangement at Harbor Island. He immediately called Lee Williams, who told Shields that Magcobar had needed Grasso on the dock for their grand opening and would work out a full agreement when Grasso reached profitability. The parties disagreed at trial on whether "profitability" meant a single successful month (November 1983) or when profits exceeded costs for the entire operation (January or March 1984).

At any rate, no mention was made between the parties of reducing the arrangement to a writing until January 1984, when DeLay casually remarked to Williams, at the end of a meeting on other matters, that January 1984 looked like it would be a good month, so they ought to get together and work out a contract. DeLay was fired near the end of that month, and James Moxon became Grasso's president. After this, neither DeLay nor Williams, the two friends who had coordinated the dock arrangement, had any authority over the Harbor Island operation.

Once again, the arrangement at Harbor Island continued undisturbed until about April 1984. During the first part of April, Moxon of Grasso met with Magcobar's Williams and Ken Beerman, Williams' supervisor. Magcobar requested a written indemnity agreement from Grasso, which Grasso promised to prepare. At the same time, Gary Shields and his supervisor in Magcobar's legal department were becoming increasingly nervous about the lack of a written contract covering the Harbor Island operation. On April 15, 1984, Grasso sent to Magcobar a document entitled "Fuel Dispensing Agreement," which contained an indemnity agreement but also dealt with other matters. It made no provisions for a cent-per-gallon commission. This document was received by Shields on May 7. Shields apparently treated it as a proposed integrated contract to cover the entire Magcobar-Grasso operation on Harbor Island.

Meanwhile, Orville Welch, Magcobar's district manager over Harbor Island, noticed that the Harbor Island facility was deriving no income from Grasso's diesel fuel sales, whereas a similar facility at Sabine Pass was producing income for Magcobar. Also during the month of April, Magcobar learned that Grasso had been discussing with Fina the possibility of leasing the remainder of Fina's waterfront land on Harbor Island, and had been talking to Magcobar's competitors, Newpark and Baroid, about participating in this venture. Magcobar became upset, and Grasso offered participation to Magcobar, but Magcobar apparently decided against participating in these expansion plans. Grasso proceeded to enter into an agreement with Fina dated May 1, 1984, tying up the rest of Fina's waterfront land and substantially reducing the rent Fina was charging under the May 1983 fuel supply agreement.

About May 7, 1984, several Magcobar executives, including Williams, Beerman, Shields, and Orville Welch, had an informal meeting. Welch raised the issue of Harbor Island, wondering if there was a way to profit from the diesel fuel sales there. Shields agreed with Welch that Magcobar should be making money from the fuel sales there. Within the next day or two, Welch had called representatives of four diesel fuel retailers, including Apache, inviting them to submit proposals to Magcobar, letting Magcobar know how much the fuel concession at Harbor Island would be worth to those companies. He received proposals from all four companies.

Despite Magcobar's solicitation of these proposals, it was determined that Grasso would be given a face-to-face meeting to discuss the rent it would be willing to pay. Moxon, on behalf of Grasso, attended a meeting May 29, 1984, in Magcobar's offices. Shields, Beerman, and Welch were present on Magcobar's behalf. The accounts of the proceedings at this meeting vary.

Shields had already prepared a contract entitled "Dock Use Agreement" for Moxon to sign which included Grasso paying a rental fee of five cents per gallon for the first 500,000 gallons sold, and 7.5 cents per gallon thereafter, in addition to a $2,000 flat monthly rental. Moxon considered these...