Puerto Rico Elec. Power Authority v. Action Refund
Decision Date | 07 February 2008 |
Docket Number | No. 07-1847.,07-1847. |
Citation | 515 F.3d 57 |
Parties | PUERTO RICO ELECTRIC POWER AUTHORITY (PREPA), Plaintiff, Appellant, v. ACTION REFUND and Stanley K. Wallin, Defendants, Appellees. |
Court | U.S. Court of Appeals — First Circuit |
Marco A. Gonzalez, Jr., with whom Gia G. Incardone and Duane Morris LLP were on brief, for appellant.
David F. Smith, with whom W. Clifton Holmes, Sher & Blackwell LLP, Jose E. Alfaro-Delgado, and Brown & Ubarri, P.S.C. were on brief, for appellees.
Before TORRUELLA, Circuit Judge, BALDOCK,* Senior Circuit Judge, and SMITH,** District Judge.
This is an appeal from the district court's grant of summary judgment dismissing all of the plaintiff's claims and allowing, in part, the defendants' counterclaims. The plaintiff-appellant, Puerto Rico Electric Power Authority ("PREPA"), is a public utility that generates and sells electric power to businesses and residents of Puerto Rico. The defendants-appellees are Action Refund, a North Carolina corporation engaged in the business of helping qualified entities obtain refunds from the United States Department of Energy ("DOE"), and its principal, Stanley K. Wallin.
In September 2004, the parties signed a contract (hereinafter, "the Contract") which provided that Action Refund would act as a representative in PREPA's claim for refunds and be paid twenty percent of the total amount received. PREPA received a refund of $3 million and refused to pay the twenty percent fee, asserting that the Contract was invalid. In December 2006, PREPA filed the instant suit against Wallin and Action Refund, seeking a declaratory judgment to invalidate the Contract and damages for fraud, fraudulent inducement, and unconscionability.
Wallin and Action Refund moved for summary judgment on only the declaratory judgment count. The court granted the motion and, sua sponte, dismissed the remaining three counts. Upon motion of the defendants, the court then granted summary judgment on their counterclaims: the court declared the Contract to be valid and binding and that the defendants were entitled to payment of the twenty percent fee. PREPA appealed. After careful consideration, we affirm the district court's orders.
In 1986, a federal multi-district litigation alleged that various producers and sellers of domestic crude oil and refined petroleum products were overcharging customers in violation of DOE regulations. The litigation resulted in a settlement of approximately $5 billion in overcharges from the offending parties. The DOE collected the funds and created a repayment process in which affected end-use consumers could submit claims to obtain a share of the overcharges. The refunds were disbursed in three rounds: the first in the late 1980s, the second in the mid-1990s, and the third in 2004.
PREPA was among the affected end-use consumers; after submitting its claims in 1988, it received a refund of nearly $7 million in 1997. In May 2004, the DOE published procedures to obtain" refunds in the third and final round. See Final Procedures for Distribution of Remaining Crude Oil Overcharge Refunds, 69 Fed. Reg. 29,300 (May 21, 2004). This round, limited to those "successful claimants" who had already received refunds, required claimants to submit the necessary paperwork on or before December 31, 2004, or otherwise forfeit all rights to the refund. Id. at 29,304. In addition to the publication in the Federal Register, written notice was to be sent to the approximately 3,400 eligible claimants. Id. PREPA asserts that it never received written notice from the DOE.1
Since 1992, Wallin had assisted claimants in obtaining petroleum refunds. Through a subcontracting relationship with a refund claimant company, PBA Tax Accounting, Inc., Wallin contacted companies that qualified for the DOE refund program and offered to help prepare and submit the necessary documentation. Sometime in 1993, he learned that PREPA's application was still pending and offered to help facilitate the refund process. PREPA and PBA signed a contract providing that PBA would receive a service fee of ten percent of the total refund amount in return for its services. The relationship soured in 1997 when PREPA received the nearly $7 million refund check and refused to pay PBA. The parties settled the dispute for $250,000 in October 1998.
In the summer of 2004, Wallin, now the sole proprietor of Action Refund, discovered that PREPA had not claimed its third-round refund. Wallin contacted PREPA and offered to assist in the refund process. On August 6, 2004, he submitted a written proposal for services as well as a proposed contract. The proposal authorized Action Refund to act as PREPA's representative. In return for providing information and services about refunds, Action Refund was to receive twenty percent of the money. Various employees at PREPA, including its legal department, reviewed the proposed contract. They asked for, and received additional information about Wallin and Action Refund. At no time did either party discuss the prior relationship between PREPA and PBA. PREPA proposed the addition of a paragraph limiting Action Refund's authorization to one year. Wallin agreed and the Contract was executed by the parties on September 20 and 21, 2004.
On October 4, 2004, Wallin submitted PREPA's verification documentation to the DOE and made various follow-up communications. In January 2005, the DOE contacted PREPA and requested that it submit a verification form which was identical to the one submitted by Wallin in October. On March 28, 2006, PREPA received a refund check for $3 million. Wallin demanded the twenty percent fee described in the contract and PREPA refused.
PREPA filed the instant suit in the United States District Court for the District of Puerto Rico against Wallin and Action Refund on December 16, 2005 on the basis of federal diversity jurisdiction, seeking: a declaratory judgment establishing that the Contract is void and invalid (Count One) and damages for fraud in the inducement, fraud, and unconscionability (Counts Two, Three, and Four, respectively). The defendants answered and filed a counterclaim seeking their own declaratory judgment establishing the validity of the Contract, by which Action Refund is entitled to twenty percent of the refund, and damages for the breach. Following discovery, the defendants filed a motion for summary judgment with respect to Count One only. PREPA opposed the motion. On December 29, 2006, the district court allowed the defendants' motion for summary judgment on Count One and sua sponte dismissed PREPA's remaining three counts, leaving only the defendants' counterclaims.
Two months later, the defendants moved for summary judgment on their counterclaims. PREPA opposed the motion and asserted that the district court's sua sponte dismissal of Counts Two, Three, and Four of its complaint was improper. On March 15, 2007, the district court issued an order giving PREPA "ten days to oppose the summary disposition of its claims, and said response must be filed with the Court on or before March 29, 2007." PREPA v. Action Refund, No. 05-2302 (D.P.R. Mar. 15, 2007) ( ). In response, PREPA filed a motion to vacate the December 29 dismissal of its complaint. On March 30, 2007, the district court entered an order and final judgment allowing, in part,2 the defendants' motion for summary judgment on its counterclaims and denying PREPA's motion to vacate the December judgment.
We review a district court's grant of summary judgment de novo, and the record is evaluated in the light most favorable to the nonmoving party, indulging all reasonable inferences in that party's favor. See Chao v. Hotel Oasis, Inc., 493 F.3d 26, 33 (1st Cir.2007); Fed.R.Civ.P. 56.
On appeal, PREPA challenges the district court's decision on procedural and substantive grounds. It asserts that the district court erred in entering summary judgment sua sponte on Counts Two, Three, and Four, without providing sufficient notice. It also contends that, irrespective of the notice issue, the evidence on the record demonstrates that there are genuine issues of material fact with respect to all counts as well as the counterclaims.
Count One of the complaint seeks a declaratory judgment establishing that the Contract is void and invalid for lack of consideration. Specifically, PREPA asserts that the DOE refund was not obtained through "any information or work by Action Refund." The district court allowed the defendants' motion for summary judgment.
We begin with the requirements for a valid contract under Puerto Rico law:3 (1) consent of the parties, (2) a definite object of the contract, and (3) consideration. See P.R. Laws Ann. tit. 31, § 3391 (2004). PREPA alleges that the contract lacked consideration because it was already entitled to the refund without any further action on the part of the defendants.4 The allegation stems from PREPA's realization that Action Refund had only completed a simple, one-page form to obtain the refund. PREPA contends that the form is one that could easily have been completed without Action Refund and, therefore, there was no consideration. We disagree.
The Contract, signed by both parties, provided as follows:
1. I hereby authorize Action Refund to act as our representative in the claim for Petroleum Refunds.
2. Action Refund will provide information and services about refunds regarding petroleum and petroleum product overcharges.
3. All refunds and interest realized in our favor as a result of the information and work performed by Action Refund will be sent directly to [PREPA].
4. All refunds realized will be shared as follows: Action Refund will receive 20% of an amount equal to the total amount received and it is understood no other cost or fees will be...
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