Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

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

Supreme Court of Delaware

March 7, 2019

SUNLINE COMMERCIAL CARRIERS, INC., Plaintiff Below, Appellant,
v.
CITGO PETROLEUM CORPORATION, Defendants Below, Appellee.

          Submitted: January 9, 2019

          Court Below: Superior Court of the State of Delaware C.A. No. N15C-03-051

         Upon appeal from the Superior Court. REVERSED.

          Michael F. Bonkowski, Esquire, Nicholas J. Brannick, Esquire, Cole Schotz P.C., Wilmington, Delaware; Ross A. Mortillaro, Esquire (Argued), Stinson Leonard Street LLP, Dallas, Texas, for Appellant, Sunline Commercial Carriers, Inc.

          Mary F. Dugan, Esquire, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware; John Zavitsanos, Esquire, Debora Simon Pacholder, Esquire, and Edward Goolsby, Esquire (Argued), Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing, P.C., Houston, Texas, for Appellees, Citgo Petroleum Corporation.

          Before STRINE, Chief Justice; VALIHURA and VAUGHN, Justices.

          STRINE, CHIEF JUSTICE.

         This litigation has lasted far longer than the contractual relationship that gave rise to it. In early 2013, an oil company, CITGO Petroleum Corp., engaged a trucking company, Sunline Commercial Carriers, Inc., to ship its product under what the parties call a Master Agreement, which was to be implemented by another agreement the parties call the Term Agreement, despite the fact that both contracts have the same title: Agreement for Motor Transportation Services.[1] The Master Agreement was set to expire on December 31, 2014, but could be terminated by either party on 60 days' notice. The Term Agreement "remain[ed] in effect until the Master Agreement is expired or terminated" but also contained another sentence stating that it was a "1 Year agreement with a start date of April 1, 2013."[2]

         The Term Agreement required that CITGO ship a monthly minimum to Sunline, or compensate Sunline for failing to do so. But not long into their relationship, CITGO breached the agreement by failing to ship the monthly minimum, creating what the parties call a "shortfall." After breaching, CITGO used its leverage to obtain concessions that allowed it to make up the shortfall at the end of the parties' contractual relationship. According to Sunline, these concessions were procured based on CITGO's assurances that it would continue the contractual relationship for another year.[3]

         But on March 31, 2014, CITGO sent Sunline a termination notice, stating "CITGO gives Sunline 60 day [sic] notice to cancel Motor Transportation Services Agreement. The transportation services, therefore will continue thru the month of May, ending on May 31st 2014."[4] Over the next two months, all of the Term Agreement's specific provisions-including price-seemed to govern the parties' relationship. During this time, CITGO shipped enough product to Sunline to meet its previously accrued shortfalls. But if the Term Agreement's minimum monthly requirement remained in place, CITGO failed meet the minimum and generated additional shortfalls. At the end of May, CITGO stopped using Sunline to ship oil.

         Sunline sued and eventually moved for summary judgment, arguing that the Term Agreement remained in effect until May 31, 2014; CITGO was therefore still liable for the shortfalls generated before the termination notice; and CITGO generated shortfalls in April and May. In response, CITGO argued that the Term Agreement ended on March 31, 2014, the day CITGO sent its termination notice; that only the Master Agreement continued through May 31, 2014; and as a result, CITGO had no obligation to meet the Term Agreement's minimum barrel requirements.

         On Sunline's summary judgment motion, the Superior Court held, as a matter of law, that the Term Agreement ended on March 31, 2014.[5] But that holding did not end the parties' dispute. Under the Superior Court's logic, the Term Agreement ended on March 31, 2014, and therefore, the Term Agreement's monthly minimum provision had no effect during April and May 2014. Therefore, anything shipped after March 31, 2014 went towards satisfying CITGO's shortfall liability. And because CITGO shipped enough oil in April and May to satisfy its previously accumulated shortfalls, the Superior Court entered judgment in favor of CITGO.[6]

         On appeal, Sunline challenges these rulings, arguing that the Superior Court's contractual interpretation is inconsistent with the Term Agreement's text, and that, in the alternative, the Term Agreement is ambiguous and parol evidence must be considered.

         In this opinion, we reverse. The Superior Court's ruling-that the Term Agreement expired by its own terms on March 31, 2014-ignores the fact that the Term Agreement's text states that its "terms shall remain in effect until the Master Agreement is expired or terminated."[7] As we have previously recognized, we must "give each provision and term effect, so as not to render any part of the contract mere surplusage."[8] If that contractual provision was given its clear effect, then the Term Agreement remained in effect, under CITGO's own termination communication, until May 31, 2014.

         To us, it seems more linguistically likely that the Term Agreement was meant to continue in force as long as the Master Agreement did. In the context of the entire relationship, the expiration date is more easily read as obligating the parties to try to refresh the agreement, and if they failed to do so, then either party could terminate the entire relationship-by terminating the Master Agreement-with 60 days' notice. CITGO's argument that a single sentence-that the Term Agreement is a "1 Year agreement with a start date of April 1, 2013"[9]-read in isolation from the rest of the Term Agreement's terms terminated the entire agreement on March 31, 2014 is less textually reasonable. Nonetheless, the Term Agreement does contain conceivably conflicting terms, which cannot be indisputably reconciled on the face of the contract, and is therefore ambiguous.[10]

         Because we reverse the Superior Court's finding that the Term Agreement expired on March 31, 2014, we must also reverse its holding that the oil shipped in April and May satisfied CITGO's shortfall liability.[11] CITGO was to make up the shortfalls at the end of the contract.[12] But whether the Term Agreement expired on March 31, 2014 is not clear on the contract's face, and parol evidence must be considered to determine the parties' intent.

         The Superior Court, however, failed to consider parol evidence because of its earlier finding that the Term Agreement expired, as a matter of law, on March 31, 2014. The parol evidence makes summary judgment inappropriate as it supports the reasonableness of Sunline's interpretation. For instance, CITGO's termination notice suggests that the parties' entire contractual relationship-including the Term Agreement's terms-continued until May 31, 2014. In fact, the termination notice can be read to suggest that CITGO believed that the Term Agreement remained in effect until the Master Agreement expired, and that the termination notice served as the 60 days' notice under the terms of both the Term Agreement and the Master Agreement. For these reasons, a genuine dispute of material fact exists, summary judgment was therefore inappropriate, and Sunline is entitled to prove its claims at trial.

         I.

         CITGO sells petroleum.[13] Sunline transports petroleum. And in 2012, the parties began discussing whether they could reach an agreement for Sunline to transport CITGO's petroleum. Having reached an agreement on the initial terms of their relationship, on January 9, 2013, CITGO and Sunline entered into an "Agreement for Motor Transportation Services" (the "Master Agreement").[14] The Master Agreement expired on December 31, 2014, but either party could terminate the agreement on 60 days' notice.[15] Although Sunline would provide petroleum transportation services to CITGO under the Master Agreement, that agreement set forth only the broad terms of the parties' relationship, such as the amount of insurance Sunline was required to maintain.[16] It was silent on key commercial terms, including price and quantity.

         Two months later, on March 18, 2013, those terms were filled in when Sunline and CITGO agreed to the "Agreement for Motor Transportation Service" (the "Term Agreement").[17] The Term Agreement incorporated the Master Agreement by reference, [18] but the Term Agreement controlled any inconsistency between the two contracts.[19] As noted earlier, the formal name of both the Master Agreement and the Term Agreement is confusingly the same: "Agreement for Motor Transportation Services."[20]

         The Term Agreement required CITGO to provide Sunline with a minimum amount of petroleum to transport each month. If CITGO delivered fewer barrels than the monthly minimum, then a "shortfall" was created, and CITGO would be obligated to pay Sunline about $4.26 per shortfall barrel.[21] Otherwise, the price CITGO paid Sunline was based on the number of miles Sunline transported the petroleum.[22] Critical to this dispute, the Term Agreement also provided various mechanisms to end the parties' relationship. Those terms were:[23]

         Both parties, CITGO and Sunline, agree that the following terms shall remain in effect until the Master Agreement is expired or terminated.

Term of Agreement 1 Year agreement with a start date of April 1, 2013. Both parties agree to review terms 60 days prior to expiration date and review pricing and volumes. If both parties agree on terms and volumes, this Agreement will be renewed with the agreed upon start date and term of agreement.
. . .
Termination Termination of the Agreement by either party must be given at least 60 days prior to the expiration of the Agreement in writing.[24]

         Things went smoothly until, in June 2013, CITGO failed to deliver the minimum monthly volume of petroleum to Sunline. Although the Term Agreement required CITGO to deliver at least 240, 000 barrels to Sunline in June, CITGO delivered only 142, 405 barrels, generating a 97, 595-barrel shortfall.[25]

         When Sunline invoiced CITGO for the June shortfall, CITGO asked if Sunline would "add" the shortfalls to "the end of the contract."[26] During the negotiations about the June shortfalls, CITGO continued to accrue shortfalls in July, August, and September, and the parties continued to discuss how to handle them. In late September 2013, Sunline sent CITGO an invoice for the June, July, and August shortfalls, requesting 30% of the amount due immediately and moving 70% "to the end of the contract."[27] Although CITGO acknowledged receipt of the invoice, by November 15, 2013 CITGO had still not paid any of the shortfall amount due to Sunline.[28]

         In December 2013, Sunline sent another invoice to CITGO, requesting 20% of the shortfall for June, July, August, and September. According to Sunline's president, Sunline agreed to push out some of CITGO's payments because it wanted CITGO to renew the contract.[29] CITGO paid 20% of the then outstanding shortfalls on December 26, 2013; the remaining shortfalls were to be satisfied at "the end of the Contract."[30]

         CITGO nevertheless continued to generate shortfalls in December of 2013 and February of 2014. When Sunline began to discuss these shortfalls with CITGO, Sunline allegedly agreed that CITGO could pay 20% of the December shortfall now and 80% at the end of the contract, but Sunline required CITGO to pay the February shortfall in full.[31] CITGO also generated a shortfall in March 2014, and Sunline required CITGO to pay it in full too.[32] Ultimately, CITGO paid Sunline for 20% of the December shortfall and all of the February and March shortfalls.[33]

         Shortcutting the parties' ongoing negotiations over the shortfalls, on March 31, 2014, CITGO sent Sunline a 60-day cancellation notice, stating that "CITGO Petroleum Corporation gives Sunline Commercial Carriers Inc. 60 day [sic] notice to cancel Motor Transportation Services Agreement. The transportation services, therefore will continue thru the month of May, ending on May 31st 2014."[34]Although both contracts are titled "Agreement for Motor Transportation Services," the termination notice canceled the "Motor Transportation Services Agreement." Logically, this slight change appears to just be a way of referring to both the Term Agreement and the Master Agreement, and the next sentence's reference to the "transportation services" makes it reasonable to read the notice as applying to both of the contracts that were involved in the performance of these services. Therefore, at best for CITGO, its notice is unclear as to whether it was terminating both agreements or just one (and if just one which one). The termination notice also gave 60 days' notice, the time frame for terminating both the Term Agreement[35] and the Master Agreement.[36]

         At this point, CITGO had accumulated a 337, 969 barrel shortfall.[37] CITGO continued to ship oil through Sunline during both April and May, shipping 211, 163 and 147, 782 barrels, respectively, during those two months, over 20, 000 barrels more than the previously accumulated shortfall.[38] And CITGO paid Sunline for the April and May volumes based on the Term Agreement's pricing formula. At the end of May, CITGO stopped using Sunline to transport petroleum.

         On August 11, 2014, Sunline sent CITGO a breach of contract notice, stating that "[i]n June, July, August, September and December 2013, as well as February, March, April and May 2014, Citgo failed to purchase the agreed minimum number of barrels, and has failed to fully compensate Sunline for the cumulative outstanding shortfall, thereby breaching the Contract."[39] Sunline provided CITGO with the required 30 days to cure the breach by compensating Sunline for the shortfalls, [40] but CITGO failed to cure.

         Sunline then sued CITGO in the Superior Court on March 6, 2015 claiming breach of contract. CITGO answered and counter-claimed, requesting an accounting and alleging (i) breach of contract; (ii) breach of the implied covenant of good faith and fair dealing; and (iii) unjust enrichment.[41] The Superior Court dismissed CITGO's request for an accounting, but not its other claims.[42] After the completion of discovery, the parties filed cross-motions for summary judgment.[43] CITGO eventually abandoned its counterclaims against Sunline, [44] leaving only the cross-motions for summary judgment on the breach of contract claim.[45]

         In moving for summary judgment, Sunline argued that, during the last two months of the parties' relationship, the Term Agreement's terms remained in force. As such, CITGO was obligated to ship 240, 000 barrels per month, and therefore CITGO generated shortfalls in April and May.[46] Although CITGO paid for the volume it sent through Sunline in April and May, it did not pay Sunline's claimed April and May shortfalls and failed to pay the remaining 80% of the June, July, August, September, and December shortfalls, which would remain outstanding if CITGO was obligated to ship 240, 000 barrels to Sunline in April and May.

         In response, CITGO argued that the Term Agreement-by its own terms- expired on March 31, 2014, and only the Master Agreement continued in force through May 31, 2014. Thus, CITGO argued that it did not accumulate shortfalls in April and May, and satisfied the previously accumulated shortfalls during those months.

         In its opinion denying Sunline's motion for summary judgment (and effectively granting CITGO summary judgment), [47] the Superior Court reviewed the Term Agreement's text, determined that it was "not so ambiguous to require resorting to extrinsic evidence," and concluded that the Term Agreement expired on March 31, 2014.[48] In its analysis, the Superior Court focused on the one-year term clause, and did not discuss the clause that kept the Term Agreement's terms in effect until the Master Agreement expired:

[T]he Court finds Plaintiff and Defendant had a one-year agreement from April 1, 2013 to March 31, 2014 for Plaintiff to provide transportation services for a guaranteed minimum amount of petroleum products which Defendant was obligated to provide. However, if there was no agreement to modify the Term Agreement before March 31, 2014, the Term Agreement by its own terms expired. Therefore, the Court finds that as of March 31, 2014, CITGO had no obligation to supply petroleum products to Plaintiff nor did Plaintiff have any obligation to provide transportation for those products. The Court finds the Plaintiff's 60-day notice argument from the "Termination" provision of the Term Agreement is simply unprevailing. Once the one-year term ended, so did any obligation under the Term Agreement. In this case, neither party "terminated" the Term Agreement, it simply ended by its own terms.[49]

         Based on finding that the Term Agreement unambiguously ended on March 31, 2014, the Superior Court then concluded that "the 60 days' notice provided by CITGO . . . only related to its continued relationship under the Master Agreement," and because the Master Agreement did not provide pricing terms, CITGO "was under no obligation to meet monthly minimum barrel requirements in April or May of 2014 pursuant to that document."[50]

         But that did not end the Superior Court's inquiry. The Superior Court went on to find that "[b]ecause CITGO continually failed to meet minimum barrel requirements set forth in the Term Agreement[, ] [i]t appears this caused the parties to orally agree to a continuation of the relationship for an additional two months."[51] The terms of this apparent oral agreement also needed to be determined, but the Superior Court rejected Sunline's argument that the Term Agreement's shortfall requirements continued as part of the alleged oral agreement:

The only legal basis for Plaintiff arguing that Defendant had a continuing obligation in April and May of 2014 to continue to meet the minimum requirements was its interpretation of the Term Agreement and the 60-day notice language in the "Termination" provision. As mentioned previously, Plaintiff asserted that since the 60- day notice was not given until March 31, 2014, the minimum obligation set forth in the Term Agreement continued into April and May. Unfortunately for Plaintiff, that interpretation of the Term Agreement has been rejected by the Court. Since the Court has held the end of the Term Agreement to be March 31, 2014, all that remains is an undisputed agreement between the parties that during the months of April and May of 2014, CITGO would make up the shortage during these months either by providing petroleum products for Plaintiff to transport or monetarily making up the difference.[52]

         According to the Superior Court, this was a sufficient basis to enter summary judgment because "ample correspondence between the parties . . . demonstrate[s] a willingness and a mutual assent to move the 2013 shortages to the end of the Term Agreement."[53] Thus, after the Superior Court's summary judgment ruling, the only remaining determination was "limited to the extent of the shortages and what monetary payments have been made to compensate Plaintiff for them."[54]

         Both parties filed post-decision motions requesting clarification of the Superior Court's ruling.[55] After a hearing, the Superior Court issued an order, finding that (i) CITGO was not obligated to deliver minimum monthly volume to Sunline for April and May; (ii) CITGO supplied Sunline with barrels in excess of the existing shortfall in April and May; and thus (iii) CITGO "made up" its shortfalls in April and May, "resolv[ing] the outstanding issues left from the Court's [summary judgment] decision."[56] Based on that analysis, the Superior Court issued a final judgment in favor of CITGO on Sunline's claims, and Sunline timely appealed.

         II.

         "We review the Superior Court's grant of summary judgment de novo."[57] A grant of summary judgment is appropriate only when "there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law."[58] Questions of contract interpretation are also reviewed de novo.[59]

         III.

         The key issue the parties dispute is when the Term Agreement ended. If, as the Superior Court found, there is no material dispute of fact that the Term Agreement ended on March 31, 2014, then the April and May oil shipments satisfied CITGO's previous shortfall liability. But if there is a triable question of fact as to whether the Term Agreement expired on May 31, 2014, as Sunline argues, then summary judgment was inappropriately entered, and Sunline is entitled to a trial. If Sunline is correct, then CITGO continued to accumulate shortfalls in April and May and failed to satisfy its previous shortfall liability.

         On appeal, Sunline first challenges the Superior Court's interpretation of the Term Agreement, arguing that the Superior Court misinterpreted the Term Agreement by finding that it unambiguously terminated on March 31, 2014. We agree and reverse. The Term Agreement is ambiguous, and the parties are entitled to a trial where they can attempt to prove, using parol evidence, their interpretation of the contract.[60]

         Sunline's second issue on appeal-that the Superior Court erred by finding that Sunline and CITGO had an undisputed agreement that permitted CITGO to make up the shortfalls in April and May 2014-is bound up in Sunline's first issue on appeal. The parties agreed that CITGO would make up the shortfalls at the end of the contract. Therefore, if the Term Agreement ended on March 31, 2014, as the Superior Court found, then any oil shipped during April and May would satisfy CITGO's shortfall liability. But the Term Agreement is ambiguous and might not have expired on March 31, 2014. Thus, the Superior Court also erred by holding that any oil shipped during April and May satisfied CITGO's shortfall liability and parol evidence must be considered to determine when the Term Agreement ended.

         A.

         To determine what contractual parties intended, Delaware courts start with the text.[61] "When the contract is clear and unambiguous, we will give effect to the plain-meaning of the contract's terms and provisions," without resort to extrinsic evidence.[62] To aid in the interpretation of the text's meaning, "Delaware adheres to the 'objective' theory of contracts, i.e. a contract's construction should be that which would be understood by an objective, reasonable third party."[63] The contract must also be read as a whole, giving meaning to each term and avoiding an interpretation that would render any term "mere surplusage."[64] But general terms of the contract must yield to more specific terms.[65]

         If, after applying these canons of contract interpretation, the contract is nonetheless "reasonably susceptible [to] two or more interpretations or may have two or more different meanings, "[66] then the contract is ambiguous and courts must resort to extrinsic evidence to determine the parties' contractual intent.[67] Here, the contract's ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.