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Sunline Commercial Carriers, Inc. v. Citgo Petroleum Corp.

Superior Court of Delaware

December 27, 2017


          Submitted: July 20, 2017

         Plaintiffs Motion for Summary Judgment - GRANTED IN PART Defendant's Motion for Summary Judgment - DENIED

          Michael F. Bonkowski, Esquire & Nicholas J. Brannick, Esquire, Cole Schotz P.C., Attorneys for Plaintiff.

          Ross A. Mortillaro, Esquire, Michael P. Aigen, Esquire, J. Michal Zapendowski, Esquire and Lawrence Lee Budner, Esquire, Lackey Hershman, LLP, Attorneys for Defendant.

          Mary F. Dugan, Esquire, Young Conway Stargatt & Taylor, LLP, Attorney for Defendant.

          John Zavitsanos, Esquire, Debora Simon Pacholder, Esquire and Edward Goolsby, Esquire, Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing P.C., Attorneys for Defendant.


          William C. Carpenter, Jr., Judge.


         On January 9, 2013, Sunline Commercial Carriers, Inc. ("Sunline" or "Plaintiff) and CITGO Petroleum Corporation ("CITGO" or "Defendant") entered into an Agreement for Motor Transportation Services (the "Master Agreement").[1]Under the Master Agreement, Plaintiff agreed to provide motor carrier services for the transportation of barrels of petroleum products provided by CITGO. The Master Agreement set forth Plaintiffs requirements to provide transportation services, insurance and liability provisions, and general invoicing procedures but it was silent on pricing and the minimum barrel requirements.[2] These terms were not defined until March 2013 in a separate one year agreement also titled Agreement for Motor Transportation Services (the "Term Agreement").[3] The Term Agreement incorporated by reference the terms of the Master Agreement stating that "[t]o the extent of any inconsistent or conflicting terms between this Agreement and the [earlier] Master Agreement, this Agreement shall govern and control."[4] Together, the Master Agreement and the Term Agreement operate together to form the parties' contract (the "Contract").

         Pursuant to the Term Agreement, Defendant was required to use Plaintiffs transportation services to ship a specified monthly minimum number of barrels. If Defendant was unable to provide the specific monthly minimum of barrels, the Defendant was required to pay Plaintiff "$3.33 plus an agreed fuel service charge of 28%" for each barrel it failed to provide.[5] Defendant's failure to satisfy the monthly minimum barrel requirements was deemed a shortfall and each shortfall payment was due fifteen days after receipt of Plaintiff s invoice.[6] Appendix A of the Term Agreement provided a detailed schedule of the minimum barrel requirements that the Defendant was required to provide and the Plaintiff was obligated to ship. For example, beginning April 2013, Defendant was required to provide a guaranteed monthly minimum of 100, 000 barrels and Plaintiffs corresponding shipment obligation was 100, 000 barrels that month.[7] In May 2013, the minimum barrel requirements increased to 180, 000[8] and after June 1, 2013, Defendant's guaranteed monthly minimum and Plaintiffs corresponding shipment obligation was a continuous 240, 000 barrels.[9]

         As early as June 2013, the number of barrels provided by Defendant fluctuated and fell short of the parties' expectations. In fact, after only three months into the Term Agreement, Defendant was unable to supply the guaranteed monthly minimum of 240, 000 barrels and often failed to pay the associated shortfall fees. The chart below illustrates the shortfall amount, the shortfall obligation, and if the Defendant satisfied such obligation.[10]


Shortfall Barrels

Shortfall Obligation

Shortfall Obligation Met?

June 2013

97, 595

$415, 989


July 2013

81, 477

$347, 288


August 2013

143, 372

$611, 109


September 2013

50, 410

$214, 445


December 2013

49, 607

$211, 445


February 2014

16, 402

$69, 912


March 2014

96, 085

$409, 553


         Because of these early and recurring shortfalls, the parties began to discuss how Defendant could meet its obligations. Defendant proposed pushing all shortfall barrels and obligations to the end of the Contract term. Plaintiff, however, was only willing to move some of the shortfalls to the end of the Contract, if and only if the Defendant paid a portion of the shortfall obligations each month, which would cover the Plaintiffs expenses. Plaintiffs President Mr. John Flinn ("Mr. Flinn") told Defendant in an email on October 15, 2013, that Sunline "did not want to lose this business [] but [they] did not know what else to do."[11] Plaintiff continued to remind Defendant of Sunline's cash loss but wanted to try to figure out a solution. Plaintiff also told Defendant's Senior Hydrocarbon Trader Jones Khan ("Mr. Khan"):

Let me know what CITGO decides as losing the business over something I did not cause is difficult for me to understand. I thought our proposal was fair considering the size of the full amount and I do not have deep enough pockets to absorb August as I did in June and July.[12]

         In October 2013, while many of Plaintiff s invoices remained unpaid, the Defendant proposed extending the term of the Term Agreement an additional month to April 30, 2014, and paying 30% of its shortfall obligations up front, and pushing the remaining 70% to the end of the extended contract term.[13] Such discussions continued for two more months with no agreement.[14]

         Since there is no written document, it is still unclear to the Court exactly when a modification was finally agreed upon, however; the parties seemed to have reached some understanding around December 2013 for the outstanding shortfall obligations for June, July, August, and September 2013.[15] The modification required Defendant to pay 20%» of the existing shortfall obligations, and push the remaining 80%) of the shortfall obligations to a later date at the end of the Contract ("20/80 Modification").[16] Unfortunately whatever was agreed to was not set forth in a formal written contract, and there is a great deal of dispute regarding the parties' responsibilities and obligations and even the Contract's end date.[17]

         To add further confusion to this relationship, in a series of email chains, Plaintiff appears to have automatically waived full payment for shortfalls incurred in December 2013 but refused to waive full payment for shortfalls incurred in February and March of 2014. More specifically, when the Defendant failed to meet its minimum monthly barrel requirements in December, it seems without any additional discussions, Plaintiff applied the 20/80 Modification to the December invoice.[18] However, in February and March of 2014, when Defendant also failed to meet its minimum monthly barrel requirements and incurred additional shortfalls, Plaintiff refused to accept anything but full payment.[19] In fact, Mr. Flinn stated "it does look like I permitted a shortfall adjustment in December for 20% cash payment and 80% to be made up[, ] however I am unaware of any waiver given by me for February."[20] As such, Defendant paid the shortfalls in February and March in full.

         In February, it also appears the parties engaged in an additional round of discussions regarding how to handle shortfalls. While a "proposal" from CITGO is mentioned in email exchanges, a copy of Defendant's proposal has not been provided to the Court and it appears no formal agreement was reached. There are email exchanges critiquing Defendant's proposal, where Defendant's representative Mr. Khan ultimately responded to Plaintiff:

[t]here are couple of minor changes we'll need to make. Otherwise, all looks good. Term and Termination: The term of this Agreement (the "Term") shall commence as of April 1st, 2014 and shall terminate on April 30, 2014. Each party will have the option to extend the contract for the month of May 2014 by giving an advance written notice on or prior to April 1, 2014. There is a reason for using this kind of language. Let me know what you think.[21]

         However, there was no response by Plaintiff provided in either parties' discovery.

         On March 31, 2014, Defendant sent Plaintiff its 60-day notice of termination. Defendant's termination notice stated that "[t]he transportation services, therefore will continue thru the month of May, ending on May 31st, 2014."[22] The parties disagree whether Defendant was required to provide the monthly minimum barrel requirements for April and May of 2014 or if those months acted simply as a makeup period for the remaining shortfall obligations. Defendant believed no monthly minimums were required and Mr. Khan provided Mr. Flinn with a copy of Defendant's attorney's discussions in a May 29, 2014 email:

[t]he subsequent agreement on a new one-month term for April 2014 trumps the 60-day cancellation notice. There was no agreement for a one-year extension nor does the 3/21/13 agreement provide for one. In order to renew the agreement, there was a condition that must be met:
'If both parties agree on terms and volumes, this Agreement will be renewed with the agreed upon start date and term of the Agreement.' That condition precedent was not met. Additionally, there is nothing in the 3/21/13 agreement that indicates any renewal must be on a one-year basis. The agreement specifically contemplates that the parties will need to agree upon a start date and term. The agreement does state that there will be a 60-day notice to terminate and Mr. Khan honored that intent by providing a 60-day notice even though the agreement was currently on a one-month term. We did not specifically agree on any terms and volumes (including minimums) for April and May. The only term we agreed on was to use up the adjusted shortfall bbls until such time that volume has been exhausted.[23]

         Plaintiff asserts the opposite, that there were minimum monthly requirements for both April and May. In fact, on May 12, 2014, Plaintiff sent an invoice to Defendant for the April shortfall and Defendant did not pay that invoice.[24] Plaintiff also responded to Defendant's May 29, 2014 email stating:

...[s]o that the record is clear, we do not agree with Citgo's interpretation of the two Agreements for Motor Transportation Services or the subsequent agreement theory advanced. Mr. Benson made that clear as well in his email dated April 3, 2014. While we sort through those issues in due course, I do need Citgo to address the numerous invoices that Citgo is currently past due on. The agreement(s) payment terms are for 15 days from invoice receipt and Citgo is behind $396, 585, the shortfall invoice we have been discussing is not in the number past due. Please advise on when Sunline can expect payment on its past due obligations?[25]

Similarly, on June 25, 2014, Plaintiff sent an invoice to Defendant for the May shortfall and Defendant did not pay that invoice.[26] Despite receiving Plaintiffs invoices, Defendant continues to assert after March 31, 2014 the minimum barrel requirements terminated and Defendant was only required to pay its shortfall balance of 337, 969 barrels accrued as of March 31, 2014.[27] It is unclear whether Defendant made any effort to address, through payment or providing additional barrels, the remaining 80% shortfall in April and May of 2014.

         Pursuant to the Contract's notice and cure provision, Plaintiff provided Defendant notice of its breach, giving CITGO 30 days to cure.[28] Defendant failed to cure and has yet to pay Plaintiff the alleged shortfall payments.[29] On March 6, 2015, Plaintiff commenced the instant action alleging breach of contract by Defendant and seeking damages of $1, 904, 371.[30] On April 28, 2015, Defendant replied and filed counterclaims alleging breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing by Plaintiff, and seeking an accounting and the return of amounts by which Defendant overpaid.[31]

         Plaintiff replied to Defendant's counterclaims on May 18, 2015, and moved to dismiss two of Defendant's counterclaims. The Court dismissed Defendant's accounting claim but allowed the unjust enrichment claim to proceed. During the Motion to Dismiss hearing, "the Court noted that the disputes between the parties regarding the scope of discoverable information stemmed from the parties' differing positions on whether there is a liquidated damages provision in the parties' contract."[32] The Court then required the parties to submit additional briefing on the liquidated damages issue.[33] After reviewing the parties' briefings, the Court concluded that the damages calculation was straightforward and clear and no liquidated damages clause existed.[34] With the Court's decision on liquidated damages, the parties engaged in additional discovery. Defendant filed a Motion for Leave to File its Answer With Amended Affirmative Defenses and Amended Counterclaims, which was granted by the Court in November 2016. Plaintiff subsequently filed its Motion for Summary Judgment and Defendant filed its own Motion and responded to Plaintiffs Motion.

         At the Motion for Summary Judgment hearing, the Court denied Defendant's Motion for Summary Judgment in regards to Count I and Count II, finding Defendant's assignment and lack of capacity arguments to be unpersuasive.[35] The Court reserved decision on Plaintiffs Motion for Summary Judgment based on breach of contract, as well as Defendant's Motion for Summary Judgment for Count III, whether an expert is needed to testify on damages.[36] The Court reserved judgment on Count III, so Plaintiff could provide the Court more information regarding Mr. Flinn's 30(b)(6) deposition and ability to testify at trial. Plaintiff issued a letter to the Court on July 26, 2017 after reviewing Mr. Flinn's deposition and continued to assert his competency regarding the damages model and as a live witness at trial.[37] On November 30, 2017, the Defendant abandoned its counterclaims against Plaintiff, therefore making Plaintiffs Motion for Summary Judgment regarding Defendant's counterclaims moot. This is the Court's decision on the parties' remaining cross-motions for summary judgment.


         The Court will grant summary judgment pursuant to Delaware Superior Court Civil Rule 56 "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."[38] In reviewing a Rule 56 motion, the Court must consider the facts in a light most favorable to the non-moving party.[39] The Court will deny summary judgment where the record before it "reasonably indicates that a material fact is in dispute or 'if it seems desirable to inquire more thoroughly into the facts in order to clarify the application of law to the circumstances.'"[40] This well-established standard is not altered where, as here, the parties have filed cross-motions for summary judgment.[41] "When cross-motions for summary judgment are presented to the Court, neither party's motion will be granted unless no genuine issue of material fact exists and one of the parties is entitled to judgment as a matter of law."[42]


         The parties' motions for summary judgment center on when the Contract ultimately terminated, if a binding oral modification existed, and the obligations of the parties thereunder. Plaintiff argues that the Contract terminated on May 31, 2014, pursuant to Defendant's 60-day notice given on March 31, 2014.[43] Plaintiff argues such notice obligated Defendant to meet the minimum barrel requirements until the end of May. [44] In contrast, Defendant argues that the Contract terminated on March 31, 2014, because the one-year term of the Term Agreement expired.[45]However, pursuant to the parties' oral modification, April and May of 2014 operated as a two-month period for the Defendant to make up the remaining shortfall obligations.[46]

         Plaintiff also contends that the Contract is unambiguous and Defendant's repeated failures to meet the monthly minimum barrel requirements and pay any shortfall obligations constitute a breach of contract and entitle Plaintiff to summary judgment.[47] Defendant, on the other hand, seeks summary judgment because Plaintiff has failed to provide a proper witness to testify as to the damages it claims.[48]The Court will first address the written contract provisions and determine when the Contract terminated. It will then turn to the alleged oral modification and the issue regarding a damage expert.

         A. The Contract

         The elements of a breach of contract claim are: (1) the existence of a contract; (2) the breach of an obligation imposed by that contract; and (3) resulting damages.[49]When interpreting a contract, the Court will give effect to all provisions contained in the contract's four corners.[50] The Court must discern the parties' intent based on the parties' words and the plain and ordinary meaning of those words.[51] In doing so, the Court measures the intent based on what a reasonable person in the same or similar circumstances of the parties would have thought the contract language means.[52]

         "The proper construction of any purely a question of law."[53] If the contract terms are ambiguous, the Court may consider extrinsic evidence.[54] If the contract terms are unambiguous, the Court must interpret the disputed term(s) using only the contract itself. The Court will not find a contract term or phrase to be ambiguous "merely because the parties dispute its proper construction."[55]

         In fact, if the issue before the Court is simply conflicting interpretations of a contract, and "one interpretation better comports with the remaining contents of the document or gives effect to all the words in dispute[.] [T]he court may, as a matter of law and without resorting to extrinsic evidence, resolve the meaning of the disputed term in favor of the superior interpretation."[56]

         The parties do not dispute, for purposes of the present motions, that the elements of an existing contract are satisfied. Rather, they disagree as to how specific terms of the Contract should ...

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