Opinion
No. UWY X01 CV02 0174090S
January 11, 2010
MEMORANDUM OF DECISION
I BACKSTORY
Following a court trial held from June 8, 2009, to June 26, 2009, and post-trial briefing from the parties, the court finds the following facts. Wyatt Energy, Inc. (Wyatt), the plaintiff and counterclaim defendant, is a corporation organized and existing under the laws of the state of Delaware with its principal place of business in New Haven, Connecticut. Motiva Enterprises, LLC (Motiva), the defendant and counterclaim plaintiff, is a limited liability company organized and existing under the laws of the state of Delaware with a principal place of business in Houston, Texas.
This lawsuit arises out of Wyatt's June 23, 2000 termination of a terminalling agreement between Wyatt and Shell Oil Company (Shell) entered into on May 1, 1997. The agreement was to run for ten years from May 1, 1997 through April 30, 2007 (the Agreement). Shell later assigned its interest in the Agreement to Motiva.
Pursuant to the Agreement, gasoline was delivered to the Wyatt Terminal by ship or barge and transported by pipe into storage tanks at the terminal and then distributed out of the terminal into trucks through truck loading racks or through the Buckeye Pipeline (the Pipeline) to other gasoline terminals connected to the pipeline.
Under the Agreement, Wyatt agreed that "all current or future gasoline truck loading racks within the Facility or any other facility obtained by purchase or lease by Wyatt or its affiliates located in New Haven, CT shall be dedicated for use by Shell or its Customers." (Defendant's exhibit 501, Terminalling Agreement, p. 1.) The Agreement further provided that "Wyatt agrees to consult with Shell before any changes are made that may reduce the Facilities (sic) capability or level of service." (Defendant's exhibit 501, Terminalling Agreement, p. 2.)
Section B of the Agreement entitled "FACILITY SERVICES" also required Wyatt to provide a number of services to Shell and its customers, including 500,000 gallons of gasoline storage tank capacity and truck loading rack capacity of at least 20,000 barrels per day. (Defendant's exhibit 501, Terminalling Agreement, p. 1.)
Shell also agreed that it would "endeavor to establish throughput rates" at Shell's Bridgeport terminal equal to those at the Wyatt Terminal for similar services except for preexisting agreements (the Bridgeport provision). (Defendant's exhibit 501, Terminalling Agreement, p. 2.) Per the Agreement, "Throughput" was "defined as the total revenue generated from a Customer including any dock use fee, rack access fee, additive injection verification and record keeping fees (excluding additive product costs), transshipment fee or any other fee collected for throughput of Shell's or its Customers' products." (Defendant's exhibit 501, Terminalling Agreement, p. 2.)
Shell was to pay Wyatt a terminalling fee for use of its facility and for services specifically required to be provided by Wyatt. A schedule established the sharing of throughput fees for throughput across the truck rack or into the Pipeline for gasoline, jet fuel, and distillates. According to section C of the Agreement entitled "CONSIDERATION," Shell was to pay Wyatt 80 percent of throughput fees paid to Shell by its customers for throughput of up to 10,000 barrels per day and 60 percent of the terminalling fees paid to Shell by its customers for throughput of products over 10,000 barrels per day. (Defendant's exhibit 501, Terminalling Agreement, p. 2.)
Pursuant to the Agreement, Shell guaranteed Wyatt a minimum payment of $37,000 per month through December 31, 1997, and $65,000 per month from January 1, 1998, through the end of the Agreement.
In the event Wyatt had a bona fide written offer of purchase for its New Haven terminal and intended to accept the offer, it was obligated to provide Shell with written notice of the offer along with a copy of the offer, and Shell was guaranteed the exclusive right, within forty-five days of receipt of the offer, to enter into a binding agreement with Wyatt for Shell's purchase of the facility under the same conditions provided for in the written offer. If Shell elected not to purchase the Wyatt Terminal, Wyatt was free to sell the terminal to the third party provided that party would " be bound to accept assignment of this Agreement and honor all terms and obligations of this Agreement for terminal services to Shell and its Customers, should they desire the same services, except to the extent this Agreement allows specific rights of cancellation by Wyatt in the event of a sale of the terminal." (Emphasis added.) (Defendant's exhibit 501, Terminalling Agreement, p. 3.)
The Additional Terms and Conditions of the Agreement provided that the Agreement could not be modified except by writing. (Defendant's exhibit 501, Additional Terms and Conditions, p. 7.)
Section 20, entitled " MISCELLANEOUS", of the Additional Terms and Conditions of the Agreement stated: "The Agreement constitutes the entire agreement of the parties regarding the matters contemplated herein or related thereto, and no representations or warranties shall be implied or provisions added hereto in the absence of a written agreement to such effect between the parties hereafter." (Defendant's exhibit 501, Additional Terms and Conditions, p. 8.) The Additional Terms and Conditions of the Agreement also stated that Wyatt and Shell shall comply with all federal, state and local laws, regulations and rules in performing the Agreement. (Defendant's exhibit 501, Additional Terms and Conditions, p. 2.) This section of the Agreement further provided that Texas law shall apply to all claims arising under the Agreement. (Defendant's exhibit 501, Additional Terms and Conditions, p. 8.)
Section 13, entitled " DEFAULT," of the Additional Terms and Conditions of the Agreement set out what constituted a default and the procedures for termination of the Agreement. A default was "[a] material breach of any of the terms and conditions of the Agreement by either party . . ." (Defendant's exhibit 501, Additional Terms and Conditions, p. 6.) This section further stated: "Upon default, the non-defaulting party shall, within thirty (30) days of knowledge thereof, notify, in writing, the defaulting party of the particulars of such default and the defaulting party shall have thirty (30) days thereafter to cure such default. Upon the defaulting party's failure to cure the default within the thirty (30) day grace period, any and all obligations, including payments of fees due hereunder, shall, at the option of the non-defaulting party, become immediately due and payable. In the event of default and defaulting party's failure to cure during the cure period, the non-defaulting party shall also have the option to terminate the Agreement upon written notice to the defaulting party." (Emphasis added.) (Defendant's exhibit 501, Additional Terms and Conditions, p. 6.)
As of September 1998, Shell assigned the Agreement to Motiva.
On or about August 1999, Wyatt entered into discussions with Williams Energy Ventures (Williams), a distributor of petroleum products, regarding the possible sale of the Wyatt Terminal to Williams. On August 23, 1999, Wyatt and Williams entered into a confidentiality agreement so that Williams could evaluate the possible acquisition of the Wyatt Terminal. Between September and December of 1999, Williams made preliminary offers to Wyatt. One bid was between $35 million and $40 million; (defendant's exhibit 526, p. 2); and another was a nonbinding proposal dated November 3, 1999, that set a purchase price between $30.75 million and $32 million. (Defendant's exhibit 523, p. 1.) Motiva conducted its own analysis to determine the value of the Wyatt Terminal and estimated the value to be between $14 and $20 million. Because of the value Motiva placed on the Wyatt Terminal, Motiva was unwilling to match Williams' proposal of $30.75 million to $32 million.
Williams subsequently changed its name to Magellan Terminal Holdings, L.P. (Defendant's exhibit 514b.)
Sometime in November 1999, Motiva became aware of the possibility of purchasing the Cargill terminal facility in New Haven. Motiva initially estimated the Cargill Terminal to be worth $13.5 million. Motiva prepared a nonbinding letter of intent dated December 17, 1999, which was sent to Cargill. Motiva purchased the Cargill Terminal in May 2000.
On January 20, 2000, Wyatt sent a copy of the Motiva Terminalling Agreement to Williams. The existence of the Agreement, Motiva's rights regarding the exclusive use of the truck racks, and the revenue sharing agreement between Wyatt and Motiva reduced the value of the Wyatt Terminal to Williams.
In early 2000, both Wyatt and Williams became aware that Motiva was interested in buying the Cargill Terminal. During this time period, Wyatt unsuccessfully sought to persuade Motiva to relinquish its rights under the Agreement or to cancel it outright.
On June 8, 2000, Wyatt wrote Motiva, stating that Motiva's purchase of the Cargill Terminal undermined the purpose of the Agreement, which was according to Wyatt, that in exchange for Wyatt giving Motiva complete control over the Wyatt Terminal's gasoline distribution facilities, Motiva would use the Wyatt Terminal as its sole terminal in the New Haven area. The letter also stated that Motiva had already begun to move customers to the Cargill Terminal and that Motiva's conduct was in direct conflict with the Agreement. (Defendant's exhibit 553, p. 1.)
On June 15, 2000, Williams determined the value of the Wyatt Terminal without the Agreement in place to be $31.375 million and $15.7 million if the Agreement remained in place. (Defendant's exhibit 595.) On June 22, 2000, Williams made its first binding offer to Wyatt, offering to pay $31.375 million for the Wyatt Terminal. (Defendant's exhibit 555, p. 1.) The June 22, 2000 letter also stated that "Wyatt has advised Williams that Wyatt believes that it has the contractual right to terminate its Terminalling Agreement, Contract No. E-533, with Motiva, due to Motiva's material breach thereof, and that Wyatt has commenced action to so terminate that agreement." (Defendant's exhibit 555, p. 2.) The letter also stated that Wyatt had to execute the letter agreement and return it to Williams by June 26, 2000, or the offer would terminate. (Defendant's exhibit 555, p. 3.)
The June 22, 2000 letter also stated: "Williams understands and agrees that Wyatt intends to offer the Terminals to Motiva for Motiva's purchase under the terms and conditions set forth in this Letter Agreement This Letter Agreement is made subject to the foregoing; thus, if Motiva accepts that offer in writing before June 29, 2000, this Letter Agreement shall be deemed to have terminated upon such event and will be of no force or effect." (Defendant's exhibit 555, p. 3.)
On June 23, 2000, Wyatt sent a letter to Motiva by fax, terminating the Agreement it had with Motiva, effective immediately, due to what Wyatt stated were Motiva's material breaches of the Agreement. The material breaches stated were the purchase by Motiva of the Cargill Terminal and "in effect, stating it [Motiva] will not use the Wyatt Facility as contemplated by the Agreement." (Defendant's exhibit 556, p. 2.)
Assuming arguendo that the June 23, 2000 letter to Motiva set out the particulars of material breaches to the Agreement on the part of Motiva, Motiva still had "thirty (30) days thereafter to cure such default" as clearly set out in ¶ 13 of the Additional Terms and Conditions (Defendant's exhibit 501, Additional Terms and Conditions, p. 6.)
There was no credible evidence presented excusing Wyatt of its obligation to provide Motiva time to cure "such default."
Furthermore on September 1, 2000, Wyatt sold its terminal to Williams without requiring Williams to assume Wyatt's obligations to Motiva under the Agreement, including the requirement to dedicate exclusive use of the truck racks to Motiva. (Defendant's exhibit. 501, Terminalling Agreement, p. 3, ¶ F.)
II JOURNEY OF THE PLEADINGS
Following Motiva's receipt of Wyatt's letter of termination, Motiva, pursuant to the arbitration provision of the Agreement, on or about July 6, 2000, delivered to Wyatt a demand for arbitration, alleging a breach of the Agreement. In August 2000, Wyatt responded to the demand by delivering a statement of arbitration defenses and counterclaims, but approximately a year and a half later, Wyatt withdrew this statement.
On July 23, 2002, Wyatt brought an action in the Superior Court, alleging, inter alia, negligent misrepresentation, fraudulent misrepresentation, breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a et seq., and the Connecticut Antitrust Act, General Statutes § 35-24 et seq. Prior to the first trial of this matter, each of the various causes of action originally asserted by Wyatt were either withdrawn or were found to be arbitrable under the Agreement.
Motiva filed an answer, special defenses, and a counterclaim to Wyatt's complaint, including one count alleging a breach of contract. Motiva's counterclaim alleged that Wyatt breached the contract when, "[w]ithout proper cause, [it] unilaterally terminated the contract . . . [and] failed to comply with the notice and cause provision of the Terminalling Agreement." Motiva further alleged that when Wyatt sold the terminal to Willams, Wyatt did not assign its obligations to Motiva to Williams as it should have pursuant to the Agreement. In both the previous trial to the court and in the current trial to the court, Motiva proceeded only upon the first count of its counterclaim alleging breach of contract.
Wyatt filed an answer and special defenses in reply to Motiva's counterclaim, including a special defense of illegality arising out of Motiva's alleged antitrust violations. On August 29, 2003, Motiva moved for summary judgment on, inter alia, Wyatt's special defense of illegality. The trial court granted Motiva's motion for summary judgment on December 8, 2003, foreclosing Wyatt from offering a special defense of illegality at the first trial.
The case was then tried to the court, Sheedy, J., on Motiva's breach of contract counterclaim only, and the court rendered judgment in favor of Motiva in the amount of $3,200,801 in damages, counsel fees in the amount of $891,224.98, and costs in the amount of $11,338.44.
Wyatt appealed from that judgment and the Appellate Court, inter alia, held that the Superior Court improperly granted Motiva's motion for summary judgment. The Appellate Court reversed the judgment of the trial court and remanded the case for a new trial.
Therefore, in the 2009 trial to the court, Wyatt was permitted to present evidence regarding its special defense of illegality.
III DISCUSSION A Breach of Contract Elements
As the Agreement provided that it would be construed and enforced in accordance with Texas law, and "contractual clauses that `require the application of the laws of other states upon breach or dispute are recognized as proper in Connecticut'"; Wyatt Energy, Inc. v. Motiva Enterprises, LLC, 104 Conn.App. 685, 689, 936 A.2d 280 (2007), cert. denied, 286 Conn. 901, 943 A.2d 1103 (2008); this court will apply Texas law with regard to the breach of contract allegation.
"The elements of a breach of contract claim are: (1) a valid contract; (2) performance or tendered performance; (3) breach of the contract; and (4) damages resulting from the breach." Myan Management Group, L.L.C. v. Adam Sparks Family Revocable Trust, 292 S.W.3d 750, 754-55 (Tex.App.-Dallas 2009).
In the present case, there is no dispute that at the time Wyatt terminated the Agreement, there was a valid contract between Wyatt and Motiva. There is no allegation that Motiva failed to make the required monthly payments to Wyatt under the Agreement. Next, this court must determine whether Wyatt is liable to Motiva for breach of contract or whether Wyatt's special defenses excuse Wyatt's performance under the Agreement.
B Breach of Contract
In count one of Motiva's counterclaim, Motiva alleged that Wyatt breached the Agreement because it unilaterally terminated the Agreement without proper cause and "failed to comply with the notice and cause provision of the Terminalling Agreement." Motiva argued that according to the Agreement, "Wyatt had to: (1) notify Motiva of the particulars of the default; and (2) give Motiva 30 days to cure the default." (Motiva's post-trial memorandum dated August 6, 2009, p. 2.)
Motiva further asserted that the alleged defaults stated in Wyatt's termination notice were not really defaults and that Motiva was not in breach of the Agreement.
C Failure to Give Opportunity to Cure
Motiva further argued that under paragraph 13 of the Additional Terms and Conditions of the Agreement, that in the event that Motiva was in default of the agreement, Wyatt was required to give Motiva thirty days to cure the default. It is undisputed that Wyatt did not provide Motiva with the required thirty-day cure period.
In the June 23, 2000 termination letter to Motiva, Fred Boling, Wyatt's president, wrote: "Because 1) Motiva's breach cannot be cured within 30 days, 2) Motiva has stated its intention not to cure and 3) Motiva has waived its right to cure, Wyatt hereby exercises its right to terminate the Agreement pursuant to paragraph 13 of the Terms and Conditions, and hereby gives Motiva notice of that termination pursuant to paragraph 13." (Defendant's exhibit 556, p. 2.)
Motiva argued that `"[t]here is no provision allowing the non-defaulting party to accelerate or dispense with the grace period, even if the default were `incurable.'" (Motiva's proposed findings of fact and conclusions of law dated August 6, 2009, p. 14.) Motiva further asserted that nothing about its actions were incurable. According to Motiva, even if owning the Cargill Terminal was a breach of the Agreement, Wyatt, pursuant to that Agreement, was required to give Motiva the thirty-day grace period to sell the Cargill Terminal or take other corrective action.
Wyatt argued that "[a]ccording to Boling, Motiva's decision to (1) buy the Cargill terminal, (2) move its customers from the Wyatt Terminal to the Cargill terminal, and (3) not release its exclusivity over the Wyatt Terminal loading racks and give Wyatt the opportunity to compete, amounted to a repudiation of the Agreement . . . These activities would have breached both the Bridgeport Provision and violated the antitrust laws . . ." (Motiva's proposed findings of fact and conclusions of law dated August 6, 2009, p. 11-12.) Wyatt maintained that Motiva breached the Agreement and that it did not give Motiva an opportunity to cure because "Motiva had repeatedly stated that it would not change its plans." (Motiva's proposed findings of fact and conclusions of law dated August 6, 2009, p. 12.)
Nothing in the Agreement stated that Wyatt was excused from providing Motiva the thirty-day opportunity to cure in the event of a default for any reason including Wyatt's belief that Motiva would not cure the default. Therefore, the court finds that Wyatt breached the Agreement by not providing Motiva with the thirty-day opportunity to cure.
D Failure to Assign
Motiva also alleged that Wyatt breached the Agreement because it did not assign its obligations to Williams when it sold its terminal to Williams. The assignment clause of the Agreement, which was set out earlier in this memorandum of decision, required Wyatt, in the event it sold the Wyatt Terminal to a third party after Shell exercised its right of first refusal, to assign its obligations to the purchaser of the Wyatt Terminal. However, it is undisputed that Wyatt terminated the Agreement and did not assign its obligations under the Agreement to Williams. Therefore, the court finds that Wyatt also breached the Agreement by not assigning its obligations to Williams when it sold the Wyatt Terminal to Williams.
Therefore, the court finds that Wyatt breached the Agreement.
Special Defense
In defense of Motiva's allegations, Wyatt asserted an illegality defense arguing that it was justified in terminating the Agreement because continued performance of the Agreement could have subjected Wyatt to liability under antitrust laws. Wyatt maintained that Motiva's actions in purchasing the Cargill Terminal as well as moving its customers to that Terminal while maintaining exclusive control over the Wyatt Terminal's loading racks "created a combination in restraint of trade and achieved — or at very least created a probability of achieving — a monopoly." (Wyatt's Post-Trial Brief dated August 6, 2009, p. 9.) According to Wyatt, "Motiva's tactics were designed to prevent a strong competitor from entering the market and keep the price of terminalling services above the level that a competitive market would permit." (Wyatt's Post-Trial Brief dated August 6, 2009, p. 9.) Wyatt maintained that it was justified in terminating the Agreement because Motiva's actions "created `a potentially violative combination in restraint of trade. (Wyatt's Post-Trial Brief dated August 6, 2009, p. 10.) Wyatt's position was that had it not terminated the Agreement, Wyatt "`might [have faced] exposure' for being a party to such a combination." (Wyatt's Post-Trial Brief dated August 6, 2009, p. 10.) Wyatt further asserted that "Motiva's acquisition of the Cargill Terminal did more than create the potential for an antitrust violation, it resulted in an actual violation." (Emphasis in original.) (Wyatt's Post-Trial Brief dated August 6, 2009, p. 10.)
Wyatt argued that a violation of the antitrust laws is a defense to a breach of contract action and it need not show that it could prevail in a damages suit under the antitrust laws against Motiva in order to prevail with this defense.
Wyatt contended that once Motiva purchased the Cargill terminal, the Agreement restrained trade or commerce in violation of General Statutes § 35-26. According to Wyatt, it demonstrated "(1) an agreement — the Wyatt/Motiva Agreement; (2) a `product market' for terminalling services; (3) a geographic market for that service in Connecticut, and more narrowly, in coastal Connecticut; (4) that Defendant had `market power'; and (5) actual anticompetitive effects — Defendant's decision to reduce utilization of the Terminal to a fraction of its capacity, effectively reducing `output' of terminaling services in the geographic market." (Wyatt's Post-Trial Brief dated August 6, 2009, p. 10.)
General Statutes § 35-26 provides: "Every contract, combination, or conspiracy in restraint of any part of trade or commerce is unlawful."
Wyatt also argued that Motiva's acquisition of the Cargill Terminal violated General Statutes § 35-27. Wyatt asserted that Motiva monopolized terminalling services by controlling "over three quarters of the Connecticut, and over 80 percent of the Coastal Connecticut, gasoline terminaling market"; (Wyatt's Post-Trial Brief dated August 6, 2009, p. 25); through "willful anticompetitive conduct." (Wyatt's Post-Trial Brief dated August 6, 2009, p. 25.) Wyatt maintained that Motiva saw Williams to be its competitor in the terminaling business, but chose not to exercise its right of first refusal under the Agreement to purchase the Wyatt terminal because it did not want to purchase any terminal that would cost more than $15 million as Motiva then would have had to make an antitrust filing pursuant to the Hart-Scott Rodino Act of 1976, 15 U.S.C. § 15c. According to Wyatt, Motiva pursued an alternative anticompetitive strategy by purchasing the Cargill Terminal, declaring its intent to move its customers there, and preventing the operator of the Wyatt Terminal from bringing new customers to that terminal. Wyatt contended that Motiva's only reason for maintaining control over the loading racks at the Wyatt Terminal "was to suppress competition and increase prices above the competitive level." (Wyatt's Post-Trial Brief dated August 6, 2009, p. 27.)
General Statutes § 35-27 provides: "Every contract, combination, or conspiracy to monopolize, or attempt to monopolize, or monopolization of any part of trade or commerce is unlawful."
Wyatt also argued that, at a minimum, Motiva attempted to monopolize terminalling services. According to Wyatt, Motiva's conduct "at the very least created a `dangerous possibility' that Motiva would succeed in achieving monopoly power." (Wyatt's Post-Trial Brief dated August 6, 2009, p. 28.) Wyatt also maintained that because Motiva "engaged in anticompetitive conduct for the purpose of creating and maintaining monopoly power, and at the very least created a dangerous probability of achieving that power, their actions violated [§]35-27, and [Wyatt] was justified in terminating the contract." (Wyatt's Post-Trial Brief dated August 6, 2009, p. 27-28.)
In its post-trial brief, Motiva argued that Wyatt did not demonstrate that Motiva violated the Connecticut Antitrust Act as Wyatt failed to prove a properly defined product and geographic market. Motiva asserted that Wyatt erroneously defined the product market as terminalling or throughputting services but excluded those services when "bundled with gasoline and sold at an all-in price." (Motiva's Post-Trial Brief dated August 6, 2009, p. 12.) Further, according to Motiva, Wyatt ignored "the actual business significance of exchange agreements and terminalling agreements, and improperly restricted the geographic market to Connecticut." (Motiva's Post-Trial Brief, dated August 6, 2009, p. 12.)
Motiva also argued that Wyatt failed to demonstrate actual monopolization by Motiva. First, Motiva maintained that because "the Connecticut gasoline terminalling market was experiencing significant overcapacity"; (Motiva's Post-Trial Brief dated August 6, 2009, p. 12.); Motiva lacked the power to affect market prices even if it wanted to do so. Second, Motiva asserted that even if it had the power to affect market prices in Connecticut, "its network of exchange agreements throughout its marketing area and the terminalling agreement it had with customers in New Haven prevented it from being able to raise prices profitably. An increase in Motiva's New Haven prices would have quickly been met either by a retaliatory increase in the prices Motiva was paying for terminalling services in other markets or customers reducing their purchases of Motiva's products or both." (Motiva's Post-Trial Brief dated August 6, 2009, p. 12-13.) Third, Motiva maintained that as it purchased the Cargill Terminal through an arm's length transaction, it did not engage in exclusionary or anticompetitive conduct to illegally acquire its market share.
In addition, Motiva argued that Wyatt failed to demonstrate an attempted monopolization by Motiva. According to Motiva, Wyatt failed to demonstrate that Motiva had the requisite intent to monopolize. Motiva maintained that the testimony demonstrated that Motiva only learned about the possibility of purchasing the Cargill Terminal after it learned that Wyatt was in negotiations to sell the Wyatt Terminal to Williams at a price that Motiva was unwilling to pay. Motiva maintained that it had many legitimate business reasons for buying the Cargill Terminal.
Motiva also argued that Wyatt did not demonstrate that Motiva engaged in predatory or anticompetitive conduct as it purchased the Cargill terminal in an arm's length transaction, which is the type of the competitive market transaction that occurs regularly. Motiva maintained that it continued to comply with its obligations under the Agreement and it did not offer below cost prices at the Cargill Terminal in order to divert customers away from the Wyatt Terminal. Therefore, according to Motiva, "Wyatt has not identified any unfair, predatory or anticompetitive behavior by Motiva." (Motiva's Post-Trial Brief dated August 6, 2009, p. 14.)
Motiva further argued that there was no real probability that it could exercise market power as a result of the Cargill Terminal purchase as the overcapacity in Connecticut's terminaling market prevented Motiva from affecting prices. Further, Motiva contended that because it had a network of exchange agreements throughout its marketing area, it could not raise prices profitably as any price increase would likely lead to retaliatory price increases against it and would cause customers to stop doing business with it but rather utilize competitors' terminals instead.
It must be noted here that as per the conclusion of the Appellate Court, Connecticut law must be applied "when determining whether illegality in fact did exist in this particular case." Wyatt Energy, Inc. v. Motiva Enterprises, LLC, supra, 104 Conn.App. 695.
General Statutes § 35-44b provides: "It is the intent of the General Assembly that in construing sections 35-24 to 35-46, inclusive, the courts of this state shall be guided by interpretations given by the federal courts to federal antitrust statutes."
"Section 35-26 is substantially identical to § 1 of the Sherman Act [ 15 U.S.C. § 1 et seq.] and applies to contracts, combinations or conspiracies in restraint of trade. Shea v. First Federal Savings Loan Ass'n. of New Haven, [ 184 Conn. 285, 306, 439 A.2d 997 (1981). Section 1 of the Sherman Act can be violated either by a per se violation or by conduct that is in restraint of trade under a rule of reason analysis. See Retail Services Associates v. ConAgra Pet Products Co., 759 F.Sup. 976, 979 (D.Conn. 1991)." Bridgeport Harbor Place I, LLC v. Ganim, 111 Conn.App. 197, 201, 958 A.2d 210 (2008), cert. granted in part, 290 Conn. 906, 962 A.2d 793 (2009).
"In rule of reason cases, the plaintiff bears the initial burden of showing that the alleged combination or agreement produced adverse, anticompetitive effects within the relevant product and geographic markets . . . The plaintiff may satisfy this burden by proving the existence of actual anticompetitive effects, such as reduction of output, increase in price, or deterioration in quality of goods and services.' . . . Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1367 (3d Cir. 1996). `If a plaintiff meets his initial burden of adducing adequate evidence of market power or actual anticompetitive effects, the burden shifts to the defendant to show that the challenged conduct promotes a sufficiently pro-competitive objective.'" Id., 1367-68.
"`There are . . . certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.' Elida, Inc. v. Harmor Realty Corp., [ 177 Conn. 218, 227, 413 A.2d 1226 (1979)]. Such agreements constitute per se antitrust violations . . . `[T]he "rule of reason" was intended to be the prevailing standard to be applied for the purpose of determining whether a particular act had or had not brought about the wrong against which the statute provided in a given case . . . "Per se" rules of illegality should be applied only to conduct which is shown to be "manifestly anticompetitive . . .'" Id., 230-31." Journal Publishing Co. v. The Hartford Courant Co., 261 Conn. 673, 689-90, 804 A.2d 823 (2002). Wyatt has not alleged that Motiva's conduct should be analyzed under the per se rule, therefore the court will apply the rule of reason analysis to determine if there are any violation of the relevant antitrust statutes.
"The `rule of reason,' [is when] the factfinder `weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition'; Continental T.V., Inc. v. GTE Sylvania, Inc., [ 433 U.S. 36, 49, 97 S.Ct. 2549, 53 L.Ed.2d 568] (1977) . . ." Elida, Inc. v. Harmor Realty Corp., supra, 177 Conn. 231.
"`An antitrust injury is an injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation.' . . . North American Energy Systems, LLC v. New England Energy Management, Inc., 269 F.Sup.2d 12, 18 (D.Conn. 2002). `The antitrust injury requirement obligates a plaintiff to demonstrate, as a threshold matter, that the challenged action has had an actual adverse effect on competition as a whole in the relevant market; to prove it has been harmed as an individual competitor will not suffice.' . . . George Haug Co. v. Rolls Royce Motor Cars, Inc., 148 F.3d 136, 139 (2d Cir. 1998), `Under the rule of reason analysis, a plaintiff must demonstrate a precise harm which is a restraint on competition . . .' Tower Air, Inc. v. Federal Express Corp., 956 F. Sup. 270, 285 (E.D.N.Y. 1996)." (Emphasis added.) Bridgeport Harbour Place I v. Ganim, supra, 111 Conn.App. 207.
"[A] plaintiff must prove that anticompetitive effects were produced within the relevant product market; that the objects of the conduct pursuant to the concerted action were illegal; and that it was injured as a proximate result of the conspiracy." Orson, Inc. v. Miramax Film Corp., supra, 79 F.3d 1366.
The court finds that there was no evidence presented to prove the existence of any "actual anticompetitive effects," "such as reduction of output, increase in price, or deterioration in quality of goods and services" following Motiva's acquisition of the Cargill Terminal. Therefore, this court must decide whether Motiva's acquisition of the Cargill Terminal gave it market power, allowing it to raise prices beyond what would normally prevail in a competitive market.
Joseph P. Kalt, an economics professor at the John F. Kennedy School of Government at Harvard University, testified on behalf of Motiva as an expert in the fields of economics and antitrust economics in the petroleum industry. Kalt testified that it was his opinion "that based on the realities of this industry and this marketplace and the nature of the competition that, in fact, the acquisition of Cargill during the period in which Motiva had the Wyatt contract, did not portend market power or monopoly [and] did not create . . . any danger of that." (Direct examination of Joseph P. Kalt, June 15, 2009, a.m. session after recess, p. 4.)
Kalt disagreed with Michael Williams, Wyatt's expert witness as it pertained to the relevant product market. While Williams defined the product market as terminalling services only, Kalt's product market was terminalling services and gasoline.
Kalt explained that there were four kinds of market checks and balances that introduced a competitive discipline in the marketplace: exchange agreements. terminalling agreements, direct local alternatives, and regional alternatives.
Daniel Grinstead, the general manager of strategy and planning and business development from Motiva, testified regarding exchange and terminalling agreements. Grinstead said with regard to exchange agreements, "An exchange agreement is when two parties get together and, for example, if we have five terminals in markets where an exchange partner does not [own] the terminal and likewise they have five terminals and markets where Shell did not [own] a terminal, we would enter into an exchange agreement so we would load their trucks at our terminals and they in [turn] would load our truck at our terminals. And then there was a system of charges to compensate each other for the supply cost of getting to the terminal and throughputting phase to get — for the services of going through the terminal. And that was done on a balanced basis." (Direct examination of Daniel Grinstead, June 10, 2009, p.m. session after recess, p. 11.) Grinstead said with regard to terminal agreement and the difference between terminal agreement and exchange agreements: "[I]n [a] terminalling agreement the typical terminalling agreement is where we have excess capacity in one of our terminals and we write a contract with another party that allows them to bring their own supply to our terminal and we would offload their ships or receive their pipeline batches into our tankage, in return load their trucks or barges or go back out to pipelines for a fee. But the difference being that the customer supply themselves in a terminalling agreement. In an exchange agreement each party would supply the other party on that side." (Direct examination of Daniel Grinstead, June 10, 2009, p.m. session after recess, p. 37.)
With regard to exchange agreements, Kalt explained that while it did not make sense for a company to build its own terminals everywhere due to the costs involved, there were reasons for a company to market gasoline in a region where it did not own a terminal. Kalt testified: "These agreements typically by their very nature are cross geography. They may be regional in the Northeast to the Gulf Coast for example, but they're geographic and they're spread. And they play a very important competitive role in the context of this case.
"That arises because if you, for example, or a particular company were to say I think I will try because I now think I have market power, will try to raise fees at — in my exchange agreements, at locations where I have tanks, where I have a terminal, you're then subject to what an economist calls a reputational retaliation, where you get a reputation . . . you don't want to deal with that company because they will behave arbitrarily because of their particular situations in that one geographical spot . . . [then] you face difficulties elsewhere in the system." (Direct examination of Joseph P. Kalt, June 15, 2009, am. session after recess, p. 8-9.)
Kalt also explained how an exchange agreement at an individual terminal could act as a competitive discipline. According to Kalt, exchange agreements create competitors to terminal operators. Kalt described a scenario where Company A and Company B were using a terminal for terminalling services for the same price and Company B had an exchange agreement with the terminal owner. Kalt further outlined what could happen if the terminal owner raised the price for Company A. Kalt explained that the terminal owner would not be able to raise the price for Company B as it had a contracted for price with the terminal owner, According to Kalt, Company A would be less competitive and would sell less gasoline while Company B would be advantaged, thereby shifting business to the company paying the lower price.
Kalt also described an alternative outcome to this scenario: Company A could simply purchase terminalling services from Company B, pursuant to Company B's agreement with the terminal owner.
With regard to terminalling agreements, Kalt explained that the cross-geographic discipline acted as a check against a terminal owner raising terminalling fees. Kalt testified that if Motiva tried to take advantage of local conditions in one area and raised terminalling fees, it could hurt its reputation and ability to enter into other exchange and/or terminalling contracts within the industry.
Kalt also explained how a terminalling agreement at an individual terminal could act as a competitive discipline. Kalt described a scenario where Company A and Company B were doing business with a terminal owner and Company B had a terminalling agreement with the terminal owner. If the terminal owner raised Company A's fees, Company A would be disadvantaged while Company B would be advantaged. Kalt further testified that Company A could buy terminalling services from Company B, so the terminal owner would not benefit from increasing the fees it charged Company A.
According to Kalt, Company A and Company B did not have to be paying the same price for terminalling services in this scenario; they were simply at equilibrium.
In addition, Kalt testified that local alternatives acted as market checks and balances. Kalt said that within the relevant time period, customers facing a price increase at one terminal had the option of going to another terminal within the New Haven area, including the Getty, Gulf, and Hess terminals. Kalt explained that there was a substantial excess capacity in these other terminals.
Kalt also testified with regard to regional alternatives, stating that "[w]hen you look at this industry you find that the actual patterns of trade are such that parties selling services out of individual terminals face competition not only from someone directly across the street, if you will, but from a broader geographic area . . ." (Direct examination of Joseph P. Kalt, June 15, 2009, a.m. session after recess, p. 25.) According to Kalt, if a monopolist tried to raise the fees in New Haven, that would impact competition throughout the route which included terminals in Providence, Rhode Island.
Kalt also testified that with regard to terminalling services in Connecticut or Connecticut and Rhode Island between 2000 and 2001, there was excess capacity. Kalt performed calculations where he hypothetically withheld 50 percent of Motiva's terminalling capacity and then 100 percent of Motiva's excess capacity within Connecticut, and found that even with Motiva withholding capacity, the market would have been satisfied from non-Motiva sources so the withholding of supply did not affect the prices. Kalt conducted similar analyses for Connecticut and Rhode Island and found similar results. Kalt testified that between 2003 and 2008, terminals have closed in Connecticut. According to Kalt, excess capacity has the effect of driving down prices within an industry. Kalt testified that "with or without Motiva, the available Connecticut terminal capacity readily exceeds non-Motiva demand, and in that situation [he did] not believe there is any prospect that had this transaction sustained itself over its term that Motiva would have been — would be able to sustain a — profitably sustain an above-competitive price in the marketplace." (Direct examination of Joseph P. Kalt, June 15, 2009, p.m. session before recess, p. 35.)
The court finds the testimony of Kalt to be the more credible testimony of the parties' antitrust experts and finds that Wyatt did not prove that had it not terminated the Terminalling Agreement, Motiva's acquisition of the Cargill Terminal gave Motiva market power as defined in Orson, Inc. within the relevant product market. Therefore, the court finds that based on the more credible evidence presented, Motiva did not violate § 35-26. Thus, Wyatt's special defense alleging a violation of § 35-26 fails.
"General Statutes § 35-27 is patterned after § 2 of the Sherman Act. It enumerates three separate offenses: (1) `contract, combination or conspiracy to monopolize'; (2) `monopolization'; and (3) `attempt to monopolize.' The first offense requires a plurality of actors. Brodigan, ["The Connecticut Antitrust Act." 47 Conn. B.J. 12, 16 (1973)]; 16 Von Kalinowski, Business Organizations: Antitrust Laws and Trade Regulations 8.01 n. 5 (1980); Belt, "The Connecticut Anti-Trust Act: A Guide to Interpretation," 54 Conn. B.J. 348, 367 (1980).
"Monopolization requires possession and willful acquisition or maintenance of monopoly power. United States v. Grinnell Corporation, 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966); Mid-Texas Communications Systems, Inc. v. American Telephone Telegraph Co., 615 F.2d 1372, 1385-86 (5th Cir. 1980). Monopoly power is power to fix or control prices or to exclude or control competition in the relevant market. United States v. Grinnell Corporation, supra, 571.
"Successful proof of an attempt to monopolize encompasses: specific intent to control prices, and a dangerous probability of success. Lorain Journal Co. v. United States, 342 U.S. 143, 153, 72 S.Ct. 181, 96 L.Ed. 162 (1951); Ernest W. Hahn, Inc. v. Codding, 615 F.2d 830 (9th Cir. 1980); see Nifty Foods Corporation v. Great Atlantic Pacific Tea Co., 614 F.2d 832 (2d Cir. 1980); Belt, supra, 366, see also California Computer Products, Inc. v. International Business Machines Corporation, 613 F.2d 727, 736 (9th Cir. 1979) (in a private antitrust action for treble damages an attempt to monopolize also requires that conduct result in an injury to the plaintiff)." (Emphasis added.) Shea v. First Federal Savings Loan Ass'n. of New Haven, supra, 184 Conn. 304-05.
With regard to the actual monopolization claim, the court finds that given Kalt's definition of the relevant product market being gasoline and terminalling services and his broader definition of the relevant geographic market extending from the Northeast to the Gulf Coast because of the cross-geographical nature of the industry resulting from exchange agreements and terminalling agreements, the court finds Kalt's testimony to be the more credible of the antitrust experts and finds that Motiva's acquisition of the Cargill terminal did not give it monopoly power in the relevant market as defined by United States v. Grinnell Corporation, supra, 384 U.S. 570-71, for the reasons set out in this memorandum of decision with regard to § 35-26. Therefore, the court finds that Wyatt did not prove that Motiva's acquisition of the Cargill terminal led to an actual monopolization by Motiva in violation of § 35-27.
With respect to the attempted monopolization claim, the court adopts Kalt's testimony as set out earlier in this memorandum of decision with regard to § 35-26 and actual monopolization and finds that Motiva's acquisition of the Cargill terminal did not create a dangerous probability that Motiva would achieve market power in the relevant product and geographic market as defined by the court in Shea. Therefore, this court finds Wyatt did not prove that Motiva's acquisition of the Cargill terminal led to an attempted monopolization by Motiva in violation of § 35-27.
Therefore, the court finds that because Motiva did not violate § 35-27, Wyatt's special defense alleging such a violation fails.
As the court has found that Motiva's actions did not violate the antitrust laws at issue, the court finds that Wyatt was not justified in terminating the terminalling agreement and is therefore liable to Motiva for breaching the Agreement.
F Damages — General Discussion
Having concluded Wyatt breached the contract and that such breach caused injury, the issue next presented is to determine what, if any, damages should be awarded. As stated earlier in this memorandum of decision, the terminalling agreement between Wyatt and Motiva provided that Texas law "shall be applicable in the construction of the terms and provisions hereof and in the determination of the rights and obligations of the parties hereunder." (Defendant's exhibit 501, Additional Terms and Conditions, p. 8.) Therefore, the issue of damages is governed by Texas law.
"The universal rule for measuring damages for the breach of a contract is just compensation for the loss or damage actually sustained." Lafarge Corp. v. Wolff Inc., 977 S.W.2d 181, 187 (Tex.App.-Austin 1998). "By the operation of that rule a party generally should be awarded neither less nor more than his actual damages." Id.
"Generally, the measure of damages for breach of contract is that which restores the injured party to the economic position he would have enjoyed if the contract had been performed. Mood v. Kronos Prods., Inc., 245 S.W.3d 8, 12 (Tex.App.-Dallas 2007, pet. denied)." Wright v. Cae Simuflite, No. 05-07-00759-CV (Tex.App. [5th Dist.] 7-24-2008). "`The generally accepted rule is that, where it is shown that a loss of profits is the natural and probable consequences of the act or omission complained of, and their amount is shown with sufficient certainty, there may be a recovery therefor . . .'" Texas Instruments, Inc. v. Teletron Energy Management, Inc., 877 S.W.2d 276, 279 (Tex. 1994). "It is not necessary that profits should be susceptible of exact calculation, it is sufficient that there be data from which they may be ascertained with a reasonable degree of certainty and exactness."
"`Net profits' is defined as `what remains in the conduct of a business after deducting from its total receipts all of the expenses incurred in carrying on the business.'" Mustang Amusements, Inc. v. Sinclair, No. 10-07-00362-CV (Tex.App.-Waco 10-28-2009).
"This measure [of damages] may include reasonably certain lost profits. Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992); Mood, 245 S.W.3d at 12. The correct measure of damages for lost profits is lost net profit, net lost gross profit. Heine, 835 S.W.2d at 83 n. 1. Lost profits may be in the form of direct damages, that is, profits lost on the contract itself, or in the form of consequential damages, such as profits lost on other contracts resulting from the breach. Mood, 245 S.W.3d at 12. But whether the lost profits are characterized as direct or consequential damages, the amount of the lost must be shown by competent evidence with reasonable certainty; based on objective facts, figures or data; and predicated on one complete calculation. Heine, 835 S.W.2d at 84; Mood, 245 S.W.3d at 12. The injured party must do more than show that he suffered some lost profits. See Szczepanik v. First S. Trust Co., 883 S.W.2d 648, 649 (Tex. 1994)." (Emphasis added.) Wright v. Cae Simuflite, supra, No. 05-07-00759-CV.
Reasonable certainty "means that, at a minimum, opinions or estimates of lost profits must be based on objective facts, figures, or data from which the amount of lost profits can be ascertained . . .
"The Texas Supreme Court has emphasized that the requirement that lost profits be proved with reasonable certainty is intended to be flexible enough to accommodate the myriad circumstances in which claims for lost profits arise. Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., [ supra, 877 S.W.2d 279]. `Reasonable certainty' is not demonstrated when the profits claimed to be lost are largely speculative, as from an activity dependent on uncertain or changing market conditions, or on chancy business opportunities, or on promotion of untested products or entry into unknown or unproven enterprises. Id." (Citation omitted.) VingCard A.S. v. Merrimac Hospitality Systems, Inc., 59 S.W.3d 847, 863 (TexApp. Fort Worth [2nd] 2001).
"Where the business is shown to have been already established and making a profit at the time when the contract was breached or the tort committed, such pre-existing profit, together with other facts and circumstances, may indicate with reasonable certainty the amount of profits lost. It is permissible to show the amount of business done by the plaintiff in a corresponding period of time not too remote, and the business during the time for which recovery is sought. Furthermore, in calculating the plaintiff's loss, it is proper to consider the normal increase in business which might have been expected in the light of past development and existing conditions." (Internal quotation marks omitted.) Texas Instruments, Inc. v. Teletron Energy Management, Inc., supra, 877 S.W.2d 279. Finally, "to recover lost profits, a party must show either a history of profitability or the actual existence of future contracts from which lost profits can be calculated with reasonable certainty." Edmunds v. Sanders, 2 S.W.3d 697, 705 (Tex.App. — [8th] 1999).
" What constitutes reasonably certain evidence of lost profits is a fact intensive determination." (Emphasis added.) Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992)." "[T]he bare assertion that contracts were lost does not demonstrate a reasonably certain objective determination of lost profits." Holt Atherton Indus., Inc. v. Heine, supra, 85.
As regards Hess, Valero, and Exxon, Motiva cannot recover as damages revenues that it might have earned from customers it might have brought to the Wyatt terminal. In Stuart v. Bayless, 964 S.W.2d 920, 921 (Tex. 1998), the Texas Supreme Court held that it was improper to award damages based on losses from contracts other than the breached contract "unless the parties contemplated at the time they made the contract that such damages would be a probable result of the breach." Accordingly, the court rejected an attorney's claim for damages against a client related to fees that the firm claimed that it would have earned under contracts with other clients. Id.
"`The generally accepted rule is that, where it is shown that a loss of profits is the natural and probable consequences of the act or omission complained of, and their amount is shown with sufficient certainty, there may be a recovery therefore; but anticipated profits cannot be recovered where they are dependent upon uncertain and changing conditions, such as market fluctuations, or the chances of business, or where there is no evidence from which they may be intelligently estimated. So evidence to establish profits must not be uncertain or speculative. It is not necessary that profits be susceptible of exact calculation, it is sufficient that there be data from which they may be ascertained with a reasonable degree of certainty and exactness.'" Texas Instruments, Inc. v. Teletron Energy Management, Inc., supra, 877 S.W.2d 279. Summarized, the loss must be shown by competent evidence with reasonable certainty. Id.
"If the defendant's breach causes a reduction in the extent of business done by the injured party, but does not create any reasonable opportunity for the latter to reduce his general overhead expenditures, of course the defendant is entitled [to] no reduction in the damages awarded against him with respect to overhead costs." Houston Chronicle Publishing Co. v. McNair Trucklease, Inc., 519 S.W.2d 924, 932 (Tex.Civ. App. — Houston [1st Dist.] 1975, writ ref'd n.r.e), quoting 5 Corbin on Contracts § 1038 (1964).
1 Profit v. Revenue
There was evidence presented that Wyatt tracked the monthly throughput data, additive costs, etc. for Motiva customers at the terminal and forwarded the data to Tulsa, Oklahoma. There, Shell performed the accounting function of calculating the monthly revenue owed to both it and to Wyatt and forwarded to Wyatt the appropriate amount. Joseph Ahern, the venture business development manager at Shell, testified that Shell's expenses with regard to the Agreement were negligible because the accounting department performed the same task with regard to all fifty of their terminalling agreements and it performed other corporate accounting tasks as well. Cross-examination did not uncover any expenses unique to this Agreement, and whatever accounting expenses were incurred by Shell with respect to the Agreement were neither significant nor capable of measurement because this Agreement was typical of Shell's terminalling agreements. There was no evidence to establish that the termination of the Agreement resulted in a cost savings to Motiva because it was no longer required to send Wyatt monthly revenue statements particularly where, as here, the largest single function — that of tracking the daily volumes and throughputting activities — was performed not by Shell but by Wyatt. Shell's function was to determine the revenue split based upon the daily records kept by Wyatt and to remit to Wyatt the appropriate income based upon the Agreement's revenue sharing provision. Shell incurred no accounting or other overhead costs it did not already have as a result of this contract nor was it able to save costs or reduce overhead expenses following the termination. Ahern's testimony to that effect was not refuted.
In Houston Chronicle Publishing Co., which was quoted earlier in this memorandum of decision, the court held there was error in the trial court's deducting $32,000 in overhead expenses from the recovery even though it found that that the plaintiff's general overhead expenses were not reduced by the loss of the defendant's business. This exception to the general rule that net rather than gross profits is the proper measure of damages was recognized in another Texas case in which a fraud reduced the volume of a plaintiff's business but did "not create any reasonable opportunity for the injured party to reduce its expenses . . ." Springs Window Fashions Division, Inc. v. The Blind Maker, Inc., 184 S.W.3d 840, 888 (Tex.App. [3rd Dist.] 2006), motion granted by, petition for review granted without reference to the merits by, remanded by, No. 06-0174 (Tex. 2006). There, the court concluded the appropriate measure of damages was lost gross profits without any deduction in fixed overhead expenses. Id.
In conclusion, Wyatt's breach reduced Motiva's revenues but not any of Motiva's expenses; therefore, Motiva's lost profits are equal to its lost gross revenues.
2 Damage Calculations
Motiva's damage expert was Daniel Grinstead, the director of business development for Motiva. He has an undergraduate degree in finance and economics from Ball State University. His corporate experience includes profit and loss responsibilities for networks of terminals and the formulations of an annual plan, which involved the forecasting of revenues, expenses, and capital improvements. Following Wyatt's termination of the Agreement, Grinstead was given the responsibility of calculating the damages caused by the breach.
The constructed spreadsheet (defendant's exhibit 508(2)) is based on the following assumptions which the court finds to be reasonable, correct and established by the evidence:
the volumes used for the throughput either through the pipeline or across the truck rack were based on actual invoices from Wyatt, Williams, and later Magellan Midstream Partners, L.P. to Citgo Petroleum Corporation (Citgo), Amerada Hess Corporation (Hess), Valero Energy Corporation (Valero), and Exxon Mobile (Exxon);
the revenue split as set out in the terminalling Agreement between Shell/Motiva and Wyatt for the first ten thousand barrels per day either through the pipeline or over the rack was 80 percent to Wyatt and 20 percent to Shell/Motiva; (defendant's exhibit 501, Terminalling Agreement, p. 2);
the revenue split as set out in the Agreement between Shell/Motiva and Wyatt for any additional throughput (dyer 10,000 barrels per day) either through the pipeline or over the rack was 60 percent to Wyatt and 40 percent to Shell/Motiva; (defendant's exhibit 501, Terminalling Agreement, p. 2);
the rate used for the throughput for Citgo through the pipeline was .147 cents/barrel, (the rate established between Citgo and Williams post-termination of the Agreement was .15 cents/barrel [defendant's exhibit 501, Terminalling Agreement]);
the rate used for the throughput for Citgo, Hess, Valero, and Exxon over the truck rack was .21 cents/barrel, the amount set out in the Agreement between Shell/Motiva and Citgo (defendant's exhibit 502);
the rate used for the additive rate for Citgo, Hess, Valero, and Exxon over the truck rack was .0420 cents/barrel, the amount set out in the Agreement between Shell/Motiva and Citgo (defendant's exhibit 502);
the total number of barrels/day of throughput is based on the number of barrels of throughput for each month totaled to get an annual number of barrels which is then divided by 365 to get a daily average;
there were no rate increases assumed;
the revenue sharing was based on a weighted average taking the first 10,000 barrels/day at the 80/20 split and the balance at the 60/40 split; and
the total number of barrels/day was always greater than 10,000.
3 Citgo
Citgo was Shell's and then Motiva's primary customer at the Wyatt terminal. It was Citgo that created the largest volume for Shell and the most revenue for both Wyatt and Shell. Citgo had always been Shell's customer at the Wyatt terminal; it was never Wyatt's customer as was testified to by Ahern. Ahern's job, in part, was to develop third-party business for Shell, and Ahern was involved in the areas of new business acquisitions and new product development. Citgo commenced throughputting as Shell's customer at the Wyatt terminal virtually concurrent with the execution of the Agreement between Shell and Wyatt. (Defendant's exhibit 501, Terminalling Agreement.) The Citgo/Shell agreement identified the locus of the throughputting services as the Wyatt Energy Terminal, 280 Waterfront, New Haven, CT. It called for an initial term of five (5) years beginning on the effective date (August 1, 1997) and thereafter to "continue for one (1) year terms unless terminated by either party upon one hundred eighty (180) days written notice prior to the commencement of the next term." (Defendant's exhibit 502, Terminalling Agreement Contract Number: E-577, ¶ E.) This provision stating that agreement is automatically renewable unless proper notice is given is known in the industry as an "evergreen" provision.
When Wyatt terminated the Agreement three years into the contract and failed to assign its obligations under the Agreement to Williams, it, inter alia, deprived Shell of the exclusive use of the gasoline truck loading racks up to 500,000 barrels of gasoline storage tank capacity, and 100,000 barrels of storage tank capacity for jet fuel; (defendant's exhibit 501, Terminalling Agreement, p. 1); and thereby deprived Shell of the revenue it would otherwise have had from Citgo's throughputting for the two years remaining under the initial term of the Shell/Citgo agreement. By contract, that amount consisted of 20 percent of the throughput fee paid to Shell by Citgo for throughput of up to 10,000 barrels per day and 40 percent for throughput above 10,000 barrels per day. (Defendant's exhibit 501, Terminalling Agreement, p. 2.)
Also, Julie Barnett, manager of product exchange and terminal services for Citgo, indicated that Citgo never intended to use any New Haven facility other than the Wyatt terminal at any time; (defendant's exhibit 598, tab D, Julie Barnett's Deposition Transcript Excerpts); and that statement is supported by a later execution of a terminalling agreement between Citgo and Williams. (Defendant's exhibit 513.)
The evidence at trial established that contracts (such as the contract between Citgo and Motiva) with evergreen provisions may cancel for a variety of reasons, i.e., better rates at another terminal, better dock position at another place, the desire to accommodate or preserve other relationships, etc. In view, however, of the evergreen provision in the Shell/Citgo contract, the existence of the same provision in the Citgo/Williams contract, and the clear and unrefuted testimony of Barnett that Citgo always intended to stay at the Wyatt terminal in New Haven, an intent underscored by Citgo's refusal to move to the Cargill terminal following Motiva's purchase of the Cargill Terminal and Citgo's contracting with Williams in September of 2000 to remain at the Wyatt terminal; (defendant's exhibit 513); the court finds that Citgo would have remained a customer of Motiva at the Wyatt terminal at least until April 30, 2007 when the initial term of Shell's agreement with Wyatt would have expired had Wyatt not breached the Agreement. As shown in; (defendant's exhibit 581, column (2); the damage calculation regarding Motiva'" share of lost net profits from revenue generated by Citgo at the Wyatt terminal through April 30, 2007, is $2,627,750. For all of the reasons stated, the court finds it is reasonably certain that Citgo would have remained a customer of Williams at the Wyatt terminal. The court finds this calculation to be reasonable, conservative, and premised upon actual volume data and price estimations based on contractual language. The court awards that amount. It should be pointed out that under the Agreement, there are certain minimum payments guaranteed to Wyatt: $37,000/month for the period from May 1, 1997 through December 31, 1997 (totaling $296,000 for the eight months in 1997) and $65,000/month beginning January 1, 1998 (totaling $780,000 per year). (Defendant's exhibit 501, terminalling agreement, p. 2-3.) The gross revenues for the Citgo throughput, as set out in defendant's exhibit 581, column (2), are sufficient to cover these contractual minimum payments without impacting the amounts claimed as Motiva's damages. (Defendant's exhibit. 581, columns (2), (4), (9) and (11).)
4 Hess
For the period beginning January 1, 2001, and ending April 30, 2007, Motiva argued for damages in the amount of $1,104,248 based on its share of 40 percent of the gross revenues generated from the throughput activities of Hess at the Wyatt terminal. That calculation employs the same methodology as described above and is based upon data provided by Williams and also based upon a terminalling agreement between Hess and Williams. (Defendant's exhibit 511, 511A, 511B, 511C.) No throughputting activities into the Buckeye pipeline were included in Grinstead's damages calculation despite data provided by Williams evidencing Hess did in fact engage in pipeline throughputting because the Shell/Wyatt agreement provided that Shell had exclusive rights only to the truck racks and not to the pipeline. (Direct examination of Daniel Grinstead, June 11, 2009, a.m. session before recess, p. 23-24.) Motiva's claim regarding lost net profits from Hess is that, had Wyatt not breached the Agreement, Motiva would be entitled to its share of all such profits because it was foreseeable Motiva would have obtained Hess as a customer at the Wyatt terminal in the period September 2000 through April 2007.
Hess, at one time, had its own terminal in New Haven. For the period that the Agreement was in effect (May 1997 through June 2000, Hess never chose to do business at the Wyatt terminal. Once Hess closed its terminal (while the date of closure is unclear, it is believed to be after Wyatt's breach), Hess opted to throughput in New Haven at what was then the terminal owned by Williams (the former Wyatt terminal). It could then have chosen to do business with Motiva at the Cargill terminal, which Motiva had purchased, but did not. Hess became Williams' customer under an agreement which provided for Williams to provide additive only to gasoline supplied by Morgan Stanley to Hess. (Defendant's exhibit 511.) The original term of the agreement between Williams and Hess was from January 1, 2001, through December 31, 2003; it had an evergreen provision stating that the contract could be terminated anytime after expiration of the original term with 120 days written notice. Hess was a customer of Morgan Stanley with whom Motiva had not contracted.
To accept that Motiva's lost gross revenues included any portion of the fees generated by Hess is to accept Motiva's broadbrush argument that it was reasonably foreseeable that some other truck rack customers would come along before April 30, 2007, and, since Hess did, in fact, begin throughputting across the racks in January of 2001 (months after Wyatt breached), Motiva is entitled to damages related to Hess's activities. The court will not speculate whether the reason for Hess's throughputting of gasoline at the Williams terminal beginning in January of 2001, was because it did not want to do business with Motiva (in which case Hess would not have done any throughputting at the Wyatt terminal for so long as Motiva was there) or was as a result of Morgan Stanley's presence at that terminal. Hess's presence at the Wyatt/Williams terminal significantly differed from Citgo's presence: Citgo had a terminalling agreement with Motiva whereas Hess never did, and Citgo wanted always to be at the Wyatt terminal. The testimony of Fred Boling, president of Wyatt, established that Wyatt had previously tried to solicit Hess's business at the Wyatt terminal but was unsuccessful. Finally, there was no contract between Hess and Motiva nor was there as it pertains to Hess any evidence of one complete calculation of lost gross revenues as was demonstrated with Citgo by way of pre-breach profits.
The standard enunciated by Texas decisional law as applicable to recovery for lost gross revenues has not been met with regard to Hess.
5 Valero
For similar reasons, no damages are awarded for lost gross revenues for Valero's activities at the Wyatt terminal. Valero did not begin gasoline throughputting at the Wyatt terminal until September, 17, 2002 (Defendant's exhibit 598), more than two years after the breach. The evidence suggested Valero, like Hess, was being supplied with gasoline by Morgan Stanley. When the Agreement was terminated Valero, who previously had terminalled at the Cargill terminal in Bridgeport, moved over to the Cargill terminal in New Haven, which was then owned by Motiva, and in 2002, Valero moved to the Williams terminal. That is consistent with the testimony of Boling that Valero was an "off and on" customer; that there was no consistency regarding Valero's terminalling activities because it was "in and out of gasoline and heating oil"; and that it would move its business based upon the quality of the service it received, the rate, and access to the dock. Unlike its relationship with Citgo, Motiva had no contract with Valero and clearly could not demonstrate one full calculation of profits as required by Texas law.
Grinstead testified Motiva would not, in his opinion, be entitled to revenue generated by others through the pipeline at the Williams terminal as it testified pipeline customers could just as well be direct customers of Wyatt, Morgan Stanley, or someone else as they could be Shell direct customers. Grinstead did however testify that Motiva would be so entitled to revenue generated from business moved across the truck racks (presumably because the terminalling agreement between Wyatt and Motiva gave Motiva exclusive rights to the racks only). The court finds, however that Motiva's exclusive rights to the truck racks at the Wyatt terminal does not necessarily dictate a conclusion that Motiva is entitled to damages related to Valero activities. Further, Valero, after the terminalling agreement between Wyatt and Motiva was terminated, moved directly to the Cargill terminal in New Haven and did not terminal at the Williams terminal until 2002. Valero's decision to leave the Cargill terminal in New Haven that was then owned by Motiva and to terminal at the Williams terminal prompts both the conclusion Valero had no commitment to Motiva and the finding the counterclaim plaintiff failed to establish its burden of proof as it pertains to lost revenue from Valero. The court so finds.
6 Exxon
Exxon was a customer of Motiva at the Cargill Terminal in New Haven and the Motiva Terminal in Bridgeport, and then moved its business over to the Williams Terminal in November 2003, three years after Williams bought the terminal from Wyatt. (Testimony of Edward Fuchs, June 10, 2009, a.m., session, p. 3; direct examination of Daniel Grinstead, June 11, 2009, a.m. session after break, p. 22.) Valero similarly moved to the Cargill Terminal in New Haven when Motiva bought it, and then moved to the Williams Terminal in September 2002, when the Williams Terminal had been owned by Williams for two years. (Testimony of Edward Fuchs, June 10, 2009, a.m. session, p. 31; direct examination of Daniel Grinstead, June 11, 2009, a.m. session after break, p. 20-22.) The fact that Exxon and Valero subsequently did business with Williams does not, based on the evidence presented, establish with reasonable certainty that they would have done business with Motiva at the Wyatt Terminal.
Edward Fuchs was the vice president and general manager of the Wyatt Terminal from 1994 to 2000.
IV Conclusion
Motiva's damages claims with respect to Hess, Valero, and Exxon are for lost gross revenues, which Motiva claims it would have earned from collateral contracts with third parties, which contracts did not exist at the time of the breach. The only contracts in effect relative to this matter were the agreements between Motiva and Wyatt and Motiva and Citgo. Motiva, has not in the opinion of the court, who is the fact finder in this matter, provided evidence to establish with reasonable certainty entitlement to the lost gross revenues from either Hess, Valero or Exxon. Motiva has, in the opinion of the court, established entitlement to lost gross revenues with reasonable certainty with regard to Citgo in the amount of $2,627,750.