National Oil Company v. Phillips Petroleum Company

• Decision Date: 08 November 1966
• Docket Number: No. C-65-64.,C-65-64.
• Citation: 265 F. Supp. 320
• Parties: NATIONAL OIL COMPANY, Inc., a Wisconsin corporation, Plaintiff, v. PHILLIPS PETROLEUM COMPANY, Inc., a foreign corporation, Defendant.
• Court: U.S. District Court — Western District of Wisconsin

265 F. Supp. 320

NATIONAL OIL COMPANY, Inc., a Wisconsin corporation, Plaintiff, v. PHILLIPS PETROLEUM COMPANY, Inc., a foreign corporation, Defendant.

No. C-65-64.

United States District Court W. D. Wisconsin.

November 8, 1966.

William P. Skemp, La Crosse, Wis., for plaintiff.

Hubert V. Fuller, La Crosse, Wis., for defendant.

MEMORANDUM OPINION IN SUPPORT OF ORDER GRANTING DIRECTED VERDICT

JAMES E. DOYLE, District Judge.

Viewed most favorably to the plaintiff, the evidence received at the trial may be summarized as follows:

For about 17 years prior to May 31, 1963, plaintiff National had been a jobber for defendant Phillips. The jobbership was the subject of a year to year contract terminable by either party as of May 31, by giving 90 days notice. Despite this rather insecure contractual base, National was prepared to, and did, make rather substantial investments in land, buildings, tanks, and equipment. The value of these assets as of January 1, 1963, may have been in the order of $195,000.00.

A significant feature of the jobbership was the function performed by one Stellick and one Howarth. It is disputed whether the role of these men was that of employees of National, or that of independent contractors with National. In my oral opinion of October 20, 1966, I expressed the opinion that it is unnecessary to a decision herein to apply either label to the relationship, because interference with both employment contracts and non-employment contracts may be actionable under certain conditions. In any event Stellick had been associated with National since about 1946, and Howarth since about 1960. Each owned his own truck. National furnished a tank which was installed on the truck. Fuel oil was placed in the truck-tanks at National, and was delivered by Stellick or Howarth to the ultimate consumers. They were paid a commission of a certain sum per gallon for all fuel oil thus sold and delivered. The customers were obtained both by National and by Stellick and Howarth. National kept the books, did the billing, and computed the commissions. Stellick and Howarth were treated as employees for purposes of social security, workmen's compensation, and medical and hospital group insurance. Their relationship with the ultimate customers was a significant one; they "controlled" a portion of the business; they could take a portion of the business with them if they left National; this "controlled" portion, in the case of Stellick, may have been about 800,000 to 900,000 gallons per year.

There were in existence written customer lists, which were considered to be the property of National. Stellick, however, could have prepared from memory a list of his customers substantially identical to National's list; and this was probably also true of Howarth.

There was no written contract between National, on the one hand, and either Stellick or Howarth, on the other. There was no oral contract by which the relationship was to continue for any fixed period. As of early February, 1963, Stellick and Howarth appeared to be satisfied with their relationship with National.

In about early February, 1963, Phillips elected not to renew the jobbership contract with National for the period commencing June 1, 1963, and so notified National. The reason was Phillips' opinion that National was not realizing the full potential of the market in the La Crosse area. It is undisputed that Phillips was entirely within its rights to make this election and to act on it. In about early February, and perhaps earlier, Phillips decided to try to obtain one Scott Burgess to replace National as its jobber in the La Crosse area. It is also undisputed that Phillips was entirely within its rights to do this. The effort succeeded and Scott Burgess became the Phillips jobber as of June 1, 1963.

Oral notice to National of Phillips' decision was given on a certain day in February, 1963; later the same day, Phillips' representatives saw Burgess about taking over the jobbership; on the evening of the same day, Phillips' representatives called on Stellick and his wife, and encouraged Stellick to agree to associate with Burgess as a route salesman on and after June 1, 1963. The reason for so encouraging Stellick was Phillips' belief that Stellick probably "controlled" a substantial amount of fuel oil business, and that Burgess, and thus Phillips, would benefit from the "gallonage" which Stellick would take with him to Burgess. The local Phillips supervisor was encouraged by his superior to press Stellick to associate with Burgess as of June 1, 1963.

Phillips' decision was a grievous blow to National. National believed, with reason, that only by making promptly a new jobbership arrangement with another supplier could it avoid a major diminution in the value of its physical assets and the total destruction of its intangible asset of good will. National sought out such alternate suppliers. In March or April, National received offers from Deep Rock and from Sinclair ranging from 2O cents per gallon to 5 cents per gallon for "controlled gallonage" which National could bring to a new jobbership.

National's general manager pressed Stellick to declare whether Stellick intended to stay with National or to go with Burgess or to do something else as of June 1. Stellick declined to commit himself. When National informed Deep Rock and Sinclair that it could not guarantee Stellick's "controlled gallonage," neither company had any further interest in awarding a jobbership to National.

Some time prior to June 1, 1963, National decided to close out its business. Some time prior to the moment at which National arrived at this decision, Stellick had told National's general manager that Stellick would not remain with National on and after June 1 and would go with Burgess instead.

Both Stellick and Howarth actually remained with National through May 31. Thereafter, Howarth went with Burgess. Stellick set up his own jobbership.

Once it had decided to close out its business, National decided to proceed in a manner favorable to Stellick because of his long service to National. National leased its bulk tank facilities to Stellick; sold him certain equipment and inventory; "gave" him the intangibles, such as the telephone number, the name "National," the customer lists, a "no-compete" contract, and National's good will; and wrote a letter to National's customers commending Stellick to them.

National's claim in this lawsuit is that Phillips committed a tort by interfering with National's relationship with Stellick, without justification. The damages sought represent the difference between the value of certain of the tangible assets of National as a going business, on the one hand, and the amount actually received for these tangible assets by National when it closed out its business, on the other hand; plus the entire value of its intangible assets as a going business, which was allegedly destroyed. With respect to the latter (the so-called "blue-sky" value), certain evidentiary problems arose at the trial. Plaintiff's witness was permitted to testify that the price paid for a jobbership might include a factor of from one cent to two and one-half cents per gallon for "controlled" annual gallonage; also that in the 1963 purchase of a somewhat similar Phillips jobbership in the Duluth area, 20% of the purchase price was considered to apply to intangible assets.

I concluded that in February, 1963, there was an intentional effort on the part of Phillips to persuade Stellick to go with the proposed new Phillips jobber (Burgess) on and after June 1, 1963. I concluded that at the time this intentional effort was made, Phillips knew reasonably well the nature of Stellick's relationship to National, the nature of National's business, and the nature of the effect upon National of Phillips' decision to terminate the jobbership as of May 31.

The central question is: did Phillips commit a tort?

Free of precedent, I would be quick to answer no. The possible tort in question is that of interference with contract. In my view, there was no contract between National and Stellick to be interfered with; therefore, no tort.

Plaintiff contends, however, that the relationship between National and Stellick was that of a contract terminable at will by either party. Plaintiff further contends that by Wisconsin precedent (I am bound, of course, in this diversity action by the Wisconsin rule, if it can be ascertained), the tort of interference with contract can be committed with respect to a contract terminable at will by either party.

In the course of oral argument on the motion for a directed verdict, plaintiff's counsel was requested to comment on a hypothetical case stated by the court substantially as follows: Assume that an advertisement is placed in the La Crosse newspaper, stating that X company is interested in hiring highly trained engineers, and inviting those interested to send a letter to post office box 100; a highly trained engineer, employed by Y company, reads the advertisement and sends a letter to post office box 100, expressing interest; X company follows up and inquires whether the engineer is under contract with Y company; the engineer responds that there is no written contract, and that there is no oral contract for any period of time, and that he is legally free to change jobs the next minute; X company then offers him a job at higher pay and he accepts forthwith. Plaintiff's counsel contends that under the Wisconsin rule, X company has committed an actionable tort against Y company.

As indicated, I consider such a rule unreasonable, and I entertained marked skepticism that it could be the Wisconsin rule. A review of the Wisconsin cases has persuaded me that plaintiff's counsel's contention is not without basis.

The general rule in employment cases is said to be that enticement may be actionable even though the employment is terminable at will. 30 Am.Jur., "Interference," ß 9,...