Childers Oil Co. v. Exxon Corp.

960 F.2d 1265, 1992 WL 64963

• Court: Court of Appeals for the Fourth Circuit
• Decided: April 3, 1992
• Docket: No. 91-2598
• Status: Published

Opinions

OPINION

K.K. HALL, Circuit Judge:

Childers Oil Company and James and Erma Childers d/b/a Short Stop¹ appeal the district court’s grant of summary judgment for defendant Exxon Corporation in Childers’ action for breach of contract, tor-tious interference with prospective business relations, and fraud, and on Exxon’s counterclaims for trademark infringement, breach of contract, and recovery on a promissory note. Through a combination of waiver, the parol evidence rule, and the statute of limitations, the appellants are unable to recover. In addition, they offer no colorable defenses to Exxon’s counterclaims. Accordingly, the judgment is affirmed.

I.

The appellants are two businesses, both wholly owned by James and Erma Child-ers — Childers Oil Co., Inc., and Short Stop, a partnership. Childers Oil was formed in 1975 to operate a bulk fuel distributorship in Bluefield, West Virginia. Childers Oil initially sold Amoco products. Shortly after it began operations, Childers Oil built a new plant near Princeton, West Virginia, at the junction of two major highways — Interstate 77 and U.S. Route 460.

In January 1980, Childers Oil built a retail service station adjacent to its Princeton plant. It leased the station to the Short Stop partnership. The competition-less station prospered. In early 1982, however, Amoco announced its withdrawal from West Virginia. Mr. Childers learned of-Amoco’s action in his Sunday newspaper.

If Mr. Childers worried of not having a supplier, his fears were quickly erased. The very next day, William Lucas, a distributorship salesman for Exxon, telephoned Mr. Childers to express Exxon’s interest in replacing Amoco as Childers Oil’s supplier. At the time, Exxon had no retail outlets on Interstate 77 from Charleston, West Virginia, to Wytheville, Virginia — a stretch of over 120 miles — and it was interested in filling this lacuna in its competitive ubiquity.

Mr. and Mrs. Childers had one serious concern about Exxon. Exxon owned a tract of land 400 yards from Short Stop, and the Childers had heard rumors that Exxon planned to build a companyowned station there. The Childers did not want to become an Exxon distributor and then be forced to compete with another retail Exxon outlet.

A few days after the initial telephone call, Lucas came to the Childers Oil plant to discuss Exxon’s proposal, Mr. Childers asked Lucas about Exxon’s plans for its tract of land. According to Mr. Childers, Lucas promised that Exxon would not build a retail station on the tract if Childers Oil would sign an Exxon Distributor Agreement.²

A few weeks passed. Then Lucas and his boss, Lowe Lunsford, paid Mr. Childers another visit. Again, Mr. Childers brought up his concern about Exxon’s plans for its land. Lunsford assured him that the property was in Exxon’s inactive “land bank,” and Exxon had no plans to construct a station there.

Through the summer of 1982, Mr. Child-ers continued negotiations with Exxon. Both Lucas and Lunsford repeated their assurances that Exxon would not compete with Short Stop by building on its “land bank” tract.

On September 14, 1982, Childers Oil signed Exxon’s standard Distributor Agreement. The agreement contains a boilerplate integration clause:

25. ENTIRE AGREEMENT: This writing is intended by the parties to be the final, complete and exclusive statement of their agreement about the matters covered herein. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR WARRANTIES AFFECTING IT.

Mr. Childers asked that Exxon’s promise not to compete be included in the agreement, but was told that no changes could be made in the form. He signed anyway. The agreement was to expire on March 31, 1984.

Within a few months, Mr. and Mrs. Child-ers began hearing new rumors that Exxon was planning to develop its property. Mr. Childers called Lunsford each time he heard such a rumor. At first, Lunsford said that he had heard nothing, but he later expressly stated that a company-owned station would not be built.

Sometime in late 1983, a contractor showed up at Childers Oil and said he was there for a pre-bid conference on the “new station.” Mr. Childers told the contractor that he had no intention of building a new station. He immediately called Lunsford, who said that Exxon was “just getting some cost figures together” and was not actually planning to build.

Nonetheless, before the end of 1983, Exxon began construction of a station to compete with Short Stop. Mr. Childers called Lunsford at the first sign of construction. Lunsford said, “Jim, I am sorry, I didn’t have the clout I thought I had, I couldn’t prevent this from happening.”

By June 1984, Exxon’s retail service station was open for business. Short Stop’s business immediately and sharply declined. On June 10, 1984, Mr. Childers appeared in front of the Small Business Subcommittee of the Joint Committee of Government and Finance of the West Virginia Legislature to complain of Exxon’s conduct. To contravene Mr. Childers’ complaint, Exxon sent a written response, with a cover letter signed by Lunsford, to members of the subcommittee on September 14,1984. In it, Exxon asserted that it had always planned to build the station, and no one at Exxon had told Childers otherwise. Exxon’s response was not sent to Mr. Childers, and he did not inquire about the subcommittee’s handling of his complaint. In September 1988, at Mr. Childers' deposition, he first learned of the existence of this document.

If they desired relief through litigation, 1984 was the most apt moment for the Childers to have filed suit against Exxon. Instead, they took fateful steps toward financial and litigation ruin. In early 1984, with construction of the company station going on before their eyes, they signed a second distributorship agreement, substantively identical to and expressly superseding the first. This new agreement extended the Exxon franchise for three years. The Childers spent $700,000, most of it borrowed, turning Short Stop into an extravagant traveler’s mecca. The new and improved Short Stop included an ice cream store, convenience store, delicatessen, separate restroom building, and a large increase in gasoline capacity.

The revenue of Short Stop could not keep up with the increased debt burden. In January 1986, Childers Oil’s account with Exxon became delinquent (over thirty days late) in an amount exceeding $100,000. The parties agreed on a payment plan under which Childers Oil would pay the two oldest outstanding invoices each time it picked up a load of gasoline from Exxon. This repayment scheme did not work, however, because Childers Oil began purchasing gasoline from Pennzoil instead of Exxon, and thus avoided the triggering of two-for-one payments. Exxon soon exercised its contractual right to demand payment by cashier’s check.

Things got even worse when Exxon learned that Childers Oil had sold Pennzoil gas under Exxon’s trademark. On April 23, 1986, Exxon exercised its right under the Petroleum Marketing Practices Act³ to terminate the franchise, effective July 24, 1986, because of the misbranding. The appellants admit the misbranding and the lawfulness of the franchise termination.

During the three-month window between notice and the effective date of the termination, Mr. and Mrs. Childers tried to sell Childers Oil to H.C. Lewis, an Exxon distributor in Welch, West Virginia. The Childers and Lewis agreed that Lewis would purchase Childers Oil and sell gas to Short Stop, which the Childers would continue to own. The agreement, however, was contingent on Exxon’s increasing Lewis’ allotment so that he would have enough gas to supply Short Stop. Because it had no more wish to entrust its trademark to the Childers indirectly as directly, Exxon refused to increase Lewis’ allotment, and the proposed deal collapsed.

In October 1986, two months after termination of the franchise, the Childers still owed Exxon $224,168.27. They signed a promissory note providing for monthly payments and interest. They have made only small payments, and do not dispute the amount that they owe on the note.

On August 10, 1987, the Childers filed this suit against Exxon in district court. Jurisdiction rests on diversity of citizenship. They amended the complaint twice, the last time on March 24, 1989. The final complaint pled three claims: (1) breach of contract, (2) tortious interference with plaintiffs’ prospective business relationship with Lewis, and (3) fraud. The fraud claim did not appear in earlier versions of the complaint.

Exxon counterclaimed for breach of the distributorship agreement, for trademark infringement, and to recover on the promissory note. At the conclusion of discovery, on September 15, 1989, Exxon moved for summary judgment on all claims and counterclaims. On June 27, 1991, the district court granted summary judgment for Exxon.

Plaintiffs appeal.

II.

The substantive law of West Virginia applies to this diversity action. A concept central to the contract issues we must address — the parol evidence rule — is not, as its name may suggest, a procedural rule of evidence, but is rather a substantive component of West Virginia’s law of contracts. United States v. Bethlehem Steel Co., 215 F.Supp. 62, 68 n. 12 (D.Md.1962), aff'd, 323 F.2d 655 (4th Cir.1963); Jack H. Brown & Co., Inc. v. Toys “R” Us, Inc., 906 F.2d 169, 173 (5th Cir.1990); see Mohr v. Metro East Manufacturing Co., 711 F.2d 69, 72 (7th Cir.1983).

The district court held that the parol evidence rule barred use of Exxon’s oral promises to vary the terms of the written distributorship agreement. See generally, Kanawha Banking and Trust Co. v. Gilbert, 131 W.Va. 88, 46 S.E.2d 225, 232-233 (1947); Cardinal State Bank v. Crook, 184 W.Va. 152, 399 S.E.2d 863, 866-867 (1990). Appellants proffer various exceptions to the rule, but none of them quite fit.

A.

Fraudulent inducement is an exception to the parol evidence rule, because such evidence does not “alter or vary” the terms of the contract; instead, a party may avoid the contract altogether (through rescission) by showing that it was fraudulently procured. Central Trust Co. v. Virginia Trust Co., 120 W.Va. 23, 197 S.E. 12, 16 (1938); Foremost Guaranty Cory. v. Meritor Savings Bank, 910 F.2d 118, 123 (4th Cir.1990) (applying Virginia law). The Childers do not seek rescission of the distributorship agreement; they seek damages for breach of the alleged parol promise.

B.

Appellants’ argument that the no-competition promise was a collateral contract is unavailing as well. They do not identify the separate consideration for the collateral promise. The subject matter of the supposed collateral contract is very closely related to the distributorship agreement, and indeed, a covenant not to compete would naturally be a part of an integrated distributorship agreement. This close connection precludes a finding of a collateral contract. Jones v. Kessler, 98 W.Va. 1, 126 S.E. 344, 349 (1925). Finally, the agreement’s integration clause emphasizes that no “ORAL UNDERSTANDINGS ... AFFECT[ ] IT.”⁴ The district court rightly rejected the collateral contract argument.

C.

In direct contradiction to the collateral contract theory, appellants posit that the oral promise was additional consideration for the distributorship agreement. Where consideration is a mere recital (e.g. “one dollar and other good and valuable consideration”), parol evidence may establish what the actual consideration was. However, West Virginia law draws a line at enforcement of parol promises as “additional consideration.” Kanawha Banking & Trust, 46 S.E.2d at 233-234. In a sense, every promise made in a contract is in “consideration” of the other party’s promises, and the “additional consideration” exception would swallow the rule if it were applied as appellants suggest.

D.

Finally, with full knowledge that Exxon had broken its promise not to compete, Childers entered into a new distribution agreement. This second agreement specifically states:

28. PRIOR AGREEMENT: This Agreement cancels and supersedes any prior agreements between the parties thereto, covering the purchase and sale of product(s) covered by this Agreement.

The parol term the Childers seek to enforce was, if anything, a part of the original distributorship agreement. Signing a new agreement that “cancels and supersedes” the former, with knowledge of a breach of the old agreement, is a clear waiver of that breach.

In sum, the Childers have no tenable breach of contract claim, and the summary judgment on that claim was proper.

III.

The district court held that Exxon had an absolute right to refuse to increase Lewis’ allotment, and its refusal can never be “tortious interference” with the proposed Lewis-Childers transaction. Restatement (Second) of Torts § 766, comment b; Torbett v. Wheeling Dollar Savings & Trust Co., 173 W.Va. 210, 314 S.E.2d 166, 171-173 (1983) (relying on Restatement definition).

We agree with the district court, for the reason it gave and more. Tortious interference claims lie only against a party that is a stranger to the relationship. Torbett, 314 S.E.2d at 173. Exxon would have been the supplier of the fuel that was the subject of the proposed transaction, it would have had to license the use of its marks, and it would have derived profits from the sale of the product. Finally, even if Exxon were a stranger to the deal, and had some legal duty to supply the fuel, we think it was entitled as a matter of law to refuse to entrust its product to a person who had admitted prior misuse of its trademark. See Humboldt Oil Co. v. Exxon Co., USA, 823 F.2d 373, 375 (9th Cir.1987), cert. denied, 485 U.S. 1021, 108 S.Ct. 1575, 99 L.Ed.2d 890 (1988).

IV.

The West Virginia statute of limitations for claims of fraud is two years. W.Va. Code § 55-2-12. The parties agree that if the statute of limitations began to run when the Childers learned that Exxon was going to build a company-owned station, the action is barred.⁵

A.

Appellants, however, argue that they did not find out that Exxon knew its promise was false when made until September 1988, when, at his deposition, Mr. Child-ers was shown Exxon’s 1984 letter to the state legislative subcommittee. Breaking a promise, without more, is only a breach of contract. Making a promise that is not intended to be kept may be a fraud, if the other elements of that tort are present. Janssen v. Carolina Lumber Co., 137 W.Va. 561, 73 S.E.2d 12, 17 (1952); Dyke v. Alleman, 130 W.Va. 519, 44 S.E.2d 587 (1947). Consequently, the Childers argue that they did not “discover” their fraud cause of action until Mr. Childers’ deposition, and the statute of limitations did not begin to run until then.

Appellants assert that the possibility of sanctions under Fed.R.Civ.Pr. 11 is a strong deterrent to pleading fraud claims on bare suspicion that a broken promise was never intended to be kept. Appellees counter that Rule 9(b) permits intent to be pled generally, and, if fraud claims do not accrue until a smoking gun is in the plaintiff's hands, few claims will accrue until after a suit is filed and information in the defendant’s possession is discovered. This debate, whether knowledge of so-called “legal” causation is required to begin the running of a statute of limitations, is not new to jurisprudence.

Two recent West Virginia cases provide guidance. In Hickman v. Grover, 178 W.Va. 249, 358 S.E.2d 810 (1987), the plaintiff had been injured by a bursting air tank. He sued a defendant, who then filed a third-party claim against the manufacturer of the tank. More than two years after the accident, the plaintiff attempted to assert a claim directly against the manufacturer. He asserted that the statute of limitations did not begin to run until he discovered that the tank was defective. The West Virginia court rejected his argument, 358 S.E.2d at 813-814:

In products liability cases, the statute of limitations begins to run when the plaintiff knows, or by the exercise of reasonable diligence should know, (1) that he has been injured, (2) the identity of the maker of the product, and (3) that the product had a causal relation to his injury.

* * * * * *

Hickman asks us to take this one step further. He suggests that we add another requirement, i.e., that the product was defective as a result of the conduct of its manufacturer. Indeed, this is a big requirement, because such knowledge is often not known with legal certainty until after the jury returns its verdict. At the very least, this knowledge would be very difficult to obtain, except during the discovery phase of trial. Thus, we would have a situation where the statute of limitations would almost never accrue until after the suit was filed. This would almost abrogate the statute of limitations in products liability claims. We cannot accept such a holding.

Hickman was followed by Stemple v. Dobson, 184 W.Va. 317, 400 S.E.2d 561 (1990), which imported its concepts into a fraud case. The court held, 400 S.E.2d at 565:

[W]e conclude that where a cause of action is based on tort or on a claim of fraud, the statute of limitations does not begin to run until the injured person knows, or by the exercise of reasonable diligence should know, of the nature of his injury, and determining that point in time is a question of fact to be answered by the jury.

The court identifies the “injury” as the thing to be discovered, not that the defendant’s state of mind or breach of duty may legally entitle the plaintiff to recover damages. The majority rule is the same. United States v. Kubrick, 444 U.S. 111, 118-125, 100 S.Ct. 352, 357-360, 62 L.Ed.2d 259 (1979)⁶; Phillips v. Amoco Oil Co., 799 F.2d 1464, 1469 (11th Cir.1986); Berkley v. American Cyanamid Co., 799 F.2d 995, 999 (5th Cir.1986).

The “discovery rule” tolls a statute of limitations until the plaintiff has, or ought to have, answers to two questions: Am I injured? Who injured me? Kubrick, 444 U.S. at 122, 100 S.Ct. at 359. At that point, the plaintiff has enough information to begin investigating his claims. Phillips, 799 F.2d at 1469 (fraud cause of action accrues “when the plaintiff should have discovered facts that would provoke a person of ordinary prudence to inquiry”); Berkley, 799 F.2d at 999 (fraud cause of action accrues when plaintiff knows of “falsity of defendant’s statements and their relationship to the claimed injury”). He may not know enough to win a verdict or even file a complaint on that first day, but that is why the law gives him a reasonable limitations period to investigate. The appellants had sufficient knowledge to be put on a duty to inquire when Exxon built its company station. Lest the discovery rule abrogate West Virginia’s fraud statute of limitations, we hold that the fraud claim is barred.

Appellants seize the Stemple court’s comment that the point in time that a plaintiff discovers enough to start the clock running is a question of fact to be resolved by a jury. Appellants argue that the district court should have let a jury decide when the statute began to run.

We do not read Stemple to require submission of a statute of limitations defense on undisputed facts to a jury. Stemple was a pair of homeowners’ appeal of a summary judgment entered against them in their suit against the prior owners for, among other things, fraudulently concealing severe termite damage to the structure. As we described above, the court identified the termite damage, and not the defendants’ state of mind, as the thing to be discovered. 400 S.E.2d at 565. The court then surveyed the evidence in the case, which consisted of a series of events, each one of which would tend to cause more alarm in the plaintiffs. Inasmuch as application of the statute of limitations required identifying one of these discoveries as the proverbial straw that broke the camel’s back, the court concluded, in reversing the summary judgment (400 S.E.2d at 566, emphasis added):

Clearly, reasonable persons could draw different conclusions from these facts.... Because there is a material question of fact with regard to when the plaintiffs’ right of action accrued so as to commence the running of the statute of limitations, the matter was clearly a question for the jury.

In other words, if resolution of a statute of limitations defense presents a genuine question of material fact, a jury should resolve it. If not, a statute of limitations may be applied as a matter of law. Here, if Childers’ knowledge of Exxon’s state of mind were a prerequisite to the running of the statute, a jury might very well have to resolve whether Childers should have, with reasonable diligence, discovered the 1984 report to the legislative subcommittee sooner. However, because knowledge of the injury and the injurer is enough, and appellants admittedly had both more than two years before suit, there is no material issue of fact for a jury to resolve. Exxon is entitled to the benefit of its statute of limitations defense as a matter of law.⁷

The judgment of the district court is affirmed.

AFFIRMED.

1 . This opinion will refer to the appellants collectively as "Childers,” except where the context indicates otherwise.

2 . Exxon denies that this oral promise was made, but concedes that disputed issues of fact must be resolved in appellants’ favor for purposes of Exxon's motion for summary judgment. Our recital of facts applies this rule, and we make no attempt to identify every fact that Exxon might controvert if the case were tried.

3 . 15 U.S.C. §§ 2801-2841.

4 . Exxon also argues that if the promise not to compete were a freestanding contract independent of the distributorship agreement, it would be unenforceable under the Statute of Frauds, because any contract for a term of more than one year must be in writing. W.Va.Code, § 55-1 — 1(f) (1981 & Supp.1991). Exxon did not as-serf this defense below, however, and it was not considered by the district court. Because adequate alternate grounds for affirmance are present, we need not decide whether Exxon may interpose a statute of frauds defense for the first time on appeal.

5 . Mr. Childers admitted at his deposition that he knew Exxon had broken its promise, and that he felt he had been lied to, when construction of the station began.

6 . Kubrick was cited by the West Virginia court in a medical malpractice case, Harrison v. Seltzer, 165 W.Va. 366, 268 S.E.2d 312, 315 n. 2 (1980), where the court stated in dicta the rule it was later to explicitly adopt in Hickman:

[W]here the adverse results of medical treatment are so extraordinary that the patient is immediately aware that something went wrong, ... the statute of limitations will begin to run once the extraordinary result is known to the plaintiff even though he may not be aware of the precise act of malpractice.

Harrison, 268 S.E.2d at 315. West Virginia’s medical malpractice/discovery rule jurisprudence is disproportionately replete with cases involving foreign objects left within a patient’s body during surgery. Hill v. Clarke, 161 W.Va. 258, 241 S.E.2d 572 (1978); Morgan v. Grace Hospital, 149 W.Va. 783, 144 S.E.2d 156 (1965); Gray v. Wright, 142 W.Va. 490, 96 S.E.2d 671 (1957), overruled in part, Morgan, 144 S.E.2d at 161 (fraudulent concealment of object's presence by physician not required for discovery rule tolling); Baker v. Hendrix, 126 W.Va. 37, 27 S.E.2d 275 (1943). Inasmuch as discovery of such an object not only identifies the source of the injury, but also virtually establishes malpractice res ipsa loquitur, the Kubrick issue did not arise in those cases.

7 . Without citation to authority, appellants assert that Exxon’s counterclaim on the promissory note should have been held in abeyance pending resolution of appellants’ claims "by a jury.” Of course, the district court had disposed of appellants’ claims on summary judgment when it ruled in Exxon’s favor on the note, and the premise of their argument is rendered nugatory by our affirmance. Moreover, the Childers proffer no defense to collection of the note.